AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 2004
REGISTRATION NO. 333-115500
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
MEMBERWORKS INCORPORATED
680 WASHINGTON BOULEVARD, SUITE 1100
STAMFORD, CT 06901
(203) 324-7635
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
GEORGE W. THOMAS ESQ.
MEMBERWORKS INCORPORATED
680 WASHINGTON BOULEVARD, SUITE 1100
STAMFORD, CT 06901
(203) 324-7635
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
STEVEN T. GIOVE, ESQ.
SHEARMAN & STERLING LLP
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 848-4000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE(1) REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------------------
9 1/4% Senior Notes due 2014............. $150,000,000 100% $150,000,000 (3)
-------------------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees of 9 1/4% Senior
Notes due 2014......................... None(2) None(2) None(2) None(2)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f).
(2) Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable
for the subsidiary guarantees.
(3) Registration fee of $19,005 was previously paid by registrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
TABLE OF ADDITIONAL REGISTRANTS
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD I.R.S. EMPLOYER
INCORPORATION INDUSTRIAL CLASSIFICATION IDENTIFICATION
NAME OR ORGANIZATION CODE NUMBER NUMBER
---- --------------- ------------------------- ---------------
Interactive Voice Media Baltimore LLC(1)..... DE 7389 98-0169980
Interactive Voice Media Colorado LLC(1)...... DE 7389 98-0195835
Interactive Voice Media Georgia LLC(1)....... DE 7389 98-0190771
Interactive Voice Media Michigan LLC(1)...... DE 7389 98-0170250
Interactive Voice Media New Jersey LLC(1).... DE 7389 98-0195847
Interactive Voice Media New York LLC(1)...... DE 7389 98-0195834
Interactive Voice Media Ohio LLC(1).......... DE 7389 98-0190772
Interactive Voice Media Pennsylvania
LLC(1)..................................... DE 7389 98-0190773
Lavalife Washington D.C., L.L.C.(1).......... DE 7389 98-0169983
Interactive Media Group (USA) Ltd.(1)........ DE 7389 98-0121016
Interactive Media Consolidated, Inc.(1)...... DE 7389 98-0190774
Interactive (TX) Voice Media Corp.(1)........ TX 7389 76-0471301
Interactive L.A. Voice Media Corp.(1)........ CA 7389 95-4482652
Interactive Media (IL) Corp.(1).............. IL 7389 36-4060721
Interactive Media MO Corp.(1)................ MO 7389 45-1593730
Barnes Holding Corp.(1)...................... NY 7389 98-0131452
Interactive S.J. Voice Media Corp.(1)........ CA 7389 94-3215560
Interactive Voice Media (CA) Corp.(1)........ CA 7389 94-3147771
Interactive Voice Media (MN) Corp.(1)........ MN 7389 41-1790935
Interactive Voice Media (Sacramento)
Corp.(1)................................... CA 7389 94-3230007
Coverdell & Company, Inc.(2)................. GA 7389 58-1604660
Discount Development Services, L.L.C.(3)..... IL 7389 36-4395849
MemberWorks Canada LLC(4).................... DE 7389 N/A
Impaq Marketing Corporation(4)............... DE 7389 47-0756248
Best Benefits, Inc.(3)....................... DE 7389 56-2461030
Uni-Care, Inc.(3)............................ IL 7389 36-3819290
Quota-Phone, Inc.(5)......................... NY 7389 13-3078443
Countrywide Dental, Inc.(4).................. DE 7389 06-1378251
Lavalife Inc.(4)............................. DE 7389 41-2138759
Lavalife Corp.(1)............................ Nova Scotia 7389 N/A
MyHealthySavings.com, Inc.(4)................ DE 7389 06-1596637
Billing Services International, Inc.(4)...... DE 7389 22-3792589
---------------
(1) Registrant's address is 905 King Street West, Suite 500, Toronto, Ontario,
Canada M6K369.
(2) Registrant's address is 1718 Peachtree Street NW, Atlanta, GA 30309.
(3) Registrant's address is 8420 West Bryn Mawr, Chicago, IL 80631.
(4) Registrant's address is 680 Washington Blvd., 11th Floor, Stamford, CT
06091.
(5) Registrant's address is 3 Gannett Drive, White Plains, NY 10604.
The information in this prospectus is not complete and may be changed. 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 before the registration statement becomes effective.
This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION DATED NOVEMBER 5, 2004
MEMBERWORKS INCORPORATED
OFFER TO EXCHANGE
ALL OUTSTANDING
9 1/4% SENIOR NOTES DUE 2014
ISSUED ON APRIL 13, 2004
WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
($150,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
FOR
9 1/4% SENIOR NOTES DUE 2014
REGISTERED UNDER THE SECURITIES ACT
---------------------
We hereby offer, upon the terms and subject to the conditions set forth in
this prospectus and the accompanying letter of transmittal, which together
constitute the exchange offer, to exchange $150,000,000 aggregate principal
amount of our new 9 1/4% Senior Notes due 2014, or the new notes, for
$150,000,000 aggregate principal amount of our issued and outstanding 9 1/4%
Senior Notes due 2014, or the old notes, and collectively with the new notes,
the notes.
THE EXCHANGE OFFER
- The exchange offer will expire at 5:00 p.m., New York City time, on
, 2004, unless extended.
- All old notes that are validly tendered and not validly withdrawn will be
exchanged.
- Tenders of old notes may be withdrawn any time prior to 5:00 p.m. on the
business day prior to expiration of the exchange offer.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
- We will not receive any proceeds from the exchange offer.
THE NEW NOTES
- The terms of the new notes to be issued are substantially identical to
the outstanding old notes, except for the transfer restrictions and
registration rights relating to the old notes.
- The new notes will be our unsecured senior obligations and will be
guaranteed on a senior unsecured basis by all of our existing and future
domestic subsidiaries and certain existing and future foreign
subsidiaries, including Lavalife. The new notes and the related
guarantees will rank equally in right of payment with any of our and such
guarantors' existing and future unsecured senior indebtedness and will
rank senior in right of payment to all of our and such guarantors'
existing and future unsecured subordinated indebtedness. The new notes
and the related guarantees will be effectively subordinated to all of our
and such guarantors' secured indebtedness to the extent of the value of
the assets securing such indebtedness.
- No public market exists for the old notes or the new notes. We do not
intend to apply for listing of the new notes on any securities exchange
or to arrange for them to be quoted on any quotation system.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF MATTERS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE DISTRIBUTED IN THE
EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2004.
TABLE OF CONTENTS
PAGE
----
Industry and Market Data.............. ii
Currency Translation.................. ii
Forward-Looking Statements............ ii
Summary............................... 1
Risk Factors.......................... 15
The Lavalife Acquisition.............. 26
Ratio of Earnings to Fixed Charges.... 26
Use of Proceeds....................... 27
Selected Condensed Consolidated
Financial Data...................... 28
PAGE
----
Description of Other Indebtedness..... 29
The Exchange Offer.................... 30
Description of the New Notes.......... 37
Certain U.S. Federal Income Tax
Considerations...................... 76
Plan of Distribution.................. 82
Legal Matters......................... 82
Experts............................... 82
Where You Can Find More Information... 82
Incorporation by Reference............ 83
---------------------
This exchange offer is not being made to, nor will we accept surrenders of
old notes from, holders of old notes in any jurisdiction in which this exchange
offer or the acceptance of old notes would not be in compliance with the
securities of blue sky laws of such jurisdiction.
Each holder of old notes wishing to accept this exchange offer must deliver
the old notes to be exchanged, together with the letter of transmittal that
accompanies this prospectus and any other required documentation, to the
exchange agent identified in this prospectus. Alternatively, you may effect a
tender of old notes by book-entry transfer into the exchange agent's account at
The Depository Trust Company, DTC. All deliveries are at the risk of the holder.
You can find detailed instructions concerning delivery in the section called
"The Exchange Offer" in this prospectus and in the accompanying letter of
transmittal.
---------------------
IF YOU ARE A BROKER-DEALER THAT RECEIVES NEW NOTES FOR YOUR OWN ACCOUNT
PURSUANT TO THIS EXCHANGE OFFER, YOU MUST ACKNOWLEDGE THAT YOU WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF THE NEW NOTES. THE LETTER OF
TRANSMITTAL ACCOMPANYING THIS PROSPECTUS STATES THAT BY SO ACKNOWLEDGING AND BY
DELIVERING A PROSPECTUS, YOU WILL NOT BE DEEMED TO ADMIT THAT YOU ARE AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933. YOU MAY USE THIS
PROSPECTUS, AS WE MAY AMEND OR SUPPLEMENT IT IN THE FUTURE, FOR YOUR RESALES OF
NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES WHERE THE OLD NOTES WERE ACQUIRED
BY YOU AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES. WE HAVE AGREED
TO MAKE THIS PROSPECTUS AVAILABLE TO ANY BROKER-DEALER IN CONNECTION WITH ANY
SUCH RESALE FOR A PERIOD OF ONE YEAR AFTER THE DATE OF EXPIRATION OF THIS
EXCHANGE OFFER. FOR MORE INFORMATION, SEE THE SECTION CALLED "PLAN OF
DISTRIBUTION" IN THIS PROSPECTUS.
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. YOU SHOULD ASSUME THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS OR THE DATE OF THE DOCUMENT INCORPORATED BY THEM. WE
ARE NOT MAKING AN OFFER OF EXCHANGE IN ANY JURISDICTION WHERE THE OFFER IS NOT
PERMITTED.
---------------------
We are incorporating by reference into this prospectus important business
and financial information about our company that is not included in or delivered
with the prospectus. This information is available without charge upon written
or oral request. Requests should be directed to:
MemberWorks Incorporated
680 Washington Boulevard
Stamford, Connecticut 06901
Attention: Investor Relations
Telephone: (203) 324-7635
i
ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY , 2004 TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER.
---------------------
INDUSTRY AND MARKET DATA
Industry and market data used throughout this prospectus were obtained
through company research, surveys and studies conducted by third parties and
industry and general publications. We have not independently verified market and
industry data from third-party sources. While we believe this information is
reliable and market definitions are appropriate, none of the research, surveys
and studies or these definitions has been verified by any independent sources.
---------------------
CURRENCY TRANSLATION
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO "$" IN THIS PROSPECTUS REFER
TO UNITED STATES DOLLARS AND ALL REFERENCES TO "CDN$" REFER TO CANADIAN DOLLARS.
The following table lists, for each period presented, the high and low
exchange rates, the average of the exchange rates on the last day of each month
during the period indicated and the exchange rates as of the end of the period
for one Canadian dollar, expressed in United States dollars, based on the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York. Unless
otherwise specified, all translations of Canadian dollars into U.S. dollars were
made based on the noon buying rate in New York City as of April 1, 2004. On
April 1, 2004, the inverse of the noon buying rate in New York City for cable
transfers of Canadian dollars was Cdn$1.00 = US$0.7633.
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
High for the period....................... 0.6925 0.6969 0.6697 0.6619 0.7738
Low for the period........................ 0.6535 0.6410 0.6241 0.6200 0.6349
Average for the period.................... 0.6732 0.6734 0.6459 0.6369 0.7159
End of period............................. 0.6925 0.6669 0.6279 0.6329 0.7738
---------------------
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on
current expectations, estimates, forecasts and projections about the industry in
which MemberWorks operates and our management's beliefs and assumptions. These
forward-looking statements include statements that do not relate solely to
historical or current facts and can be identified by the use of words such as
"believe," "expect," "estimate," "project," "continue" or "anticipate." These
forward-looking statements are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements are not guarantees of future performance and are
based on a number of assumptions and estimates that are inherently subject to
significant risks and uncertainties, many of which are beyond our control,
cannot be foreseen and reflect future business decisions that are subject to
change. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in such forward-looking statements. Among the many
factors that could cause actual results to differ materially from the
forward-looking statements are:
- higher than expected membership cancellations or lower than expected
membership renewal rates;
- changes in the marketing techniques of credit card issuers;
- increases in the level of commission rates and other compensation
required by marketing partners to actively market with us;
- potential reserve requirements by business partners such as our credit
card processors;
- unanticipated termination of marketing agreements;
ii
- our ability to integrate acquired businesses into our management and
operations and operate successfully;
- the extent to which we can continue to successfully develop and market
new products and services and introduce them on a timely basis;
- unanticipated changes in or termination of our ability to process
membership fees through third parties, including credit card processors
and bank card associations;
- our ability to develop and implement operational and financial systems to
manage growing operations;
- our ability to recover from a complete or partial system failure or
impairment, other hardware or software related malfunctions or
programming errors;
- the degree to which we are leveraged;
- our ability to obtain financing on acceptable terms to finance our growth
strategy and to operate within the limitations imposed by financing
arrangements;
- further changes in the already competitive environment for our products
or competitors' responses to our strategies;
- changes in the growth rate of the overall U.S. economy, or the
international economy where we do business, such that credit
availability, interest rates, consumer spending and related consumer debt
are impacted;
- additional government regulations and changes to existing government
regulations of our industry;
- whether competitors of Lavalife move to a transactional-based model;
- our ability to compete with other companies that have financial or other
advantages;
- adverse movement in foreign exchange rates;
- our ability to attract and retain active members and customers;
- adverse results of litigation or regulatory matters; and
- new accounting pronouncements.
Many of these factors are beyond our control, and, therefore, our business,
financial condition, results of operations and cash flows may be adversely
affected by these factors.
We caution that such factors are not exclusive. All of the forward-looking
statements made or incorporated by reference in this prospectus are qualified by
these cautionary statements and you are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
prospectus. Except as required by law, we do not have any intention or
obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise.
---------------------
iii
SUMMARY
This summary highlights selected information from this prospectus. It does
not contain all of the information that is important to you in order to
understand this exchange offer or the terms of the notes. You should read this
entire prospectus, including "Risk Factors" and the additional information,
including the financial statements and related notes, included or incorporated
by reference in this prospectus, before making a decision to participate in this
exchange offer. See "Incorporation by Reference."
On April 1, 2004, MemberWorks Incorporated completed the acquisition of all
of the assets and outstanding capital stock of Lavalife Inc. After the
acquisition, Lavalife Inc. changed its name to Lavalife Corp., which now
operates as a wholly owned subsidiary of MemberWorks Incorporated. As used in
this prospectus, unless otherwise stated or the context otherwise requires, the
term (1) "MemberWorks" refers to MemberWorks Incorporated and its subsidiaries
prior to the acquisition of Lavalife, (2) "Lavalife" refers to the business
conducted by Lavalife Inc. and its subsidiaries (3) "we," "us," "our" and
similar terms refer to MemberWorks Incorporated and its subsidiaries, including
Lavalife, and (4) the "Transactions" collectively refers to (i) the execution of
our amended and restated senior secured credit facility, borrowings thereunder
and the use of proceeds therefrom, (ii) our acquisition of Lavalife and the
concurrent purchases by Lavalife's senior management of MemberWorks' restricted
common stock and (iii) the offering of the old notes and the use of proceeds
therefrom.
THE EXCHANGE OFFER
On April 13, 2004, we completed the private offering of $150 million of
9 1/4% senior notes due 2014. We entered into a registration rights agreement
with the initial purchasers in the private offering in which we agreed, among
other things, to deliver to you this prospectus and to complete the exchange
offer within 30 business days of the effectiveness of the exchange offer
registration statement. In the exchange offer, you are entitled to exchange your
outstanding old notes for new registered notes with substantially identical
terms. If the exchange offer is not completed within 30 business days of the
effectiveness of the exchange offer registration statement, and in certain other
circumstances, we will pay liquidated damages to each holder of the old notes.
You should read the discussions under the headings "The Exchange
Offer -- Registration Rights" and "Description of the New Notes" for further
information regarding the liquidated damages and the registered notes,
respectively.
We believe that the new notes issued in the exchange offer may be resold by
you without compliance with the registration and prospectus delivery provisions
of the Securities Act, subject to certain conditions. You should read the
discussion under the heading "The Exchange Offer" for further information
regarding the exchange offer.
MEMBERWORKS INCORPORATED
We are a marketing services leader, bringing value to consumers by
designing innovative membership programs that offer members easy access to a
variety of discounted products and services provided by our participating
vendors and, with the acquisition of Lavalife, a leading global provider of
web-based and interactive voice response ("IVR") based personals services.
Through Lavalife, we offer customers both web-based, IVR-based and, most
recently, cellular phone-based personals services, which allow them to interact
with each other from anywhere in real time. For the year ended June 30, 2004,
after giving pro forma effect to the Transactions, our revenues would have been
$542.8 million.
MEMBERSHIP PROGRAMS
Our programs are designed to offer members a combination of everyday
savings, event-oriented discounts and peace of mind benefits, and are offered in
English, French and Spanish. We partner with leading, brand name merchants and
service companies to offer consumers valuable packages of members-only benefits.
Membership programs are packaged around popular spending categories and
typically offer potential savings well in excess of the program fee. We had
approximately 5.6 million members as of June 30, 2004. Our clients
1
(who offer the membership programs to their customers), including West
Corporation and Citibank, N.A., benefit by receiving royalty payments in
exchange for providing us with new members or access to potential members. Our
participating vendors (who offer products and/or services through our membership
programs) have an incentive to provide discounts to our members in order to
reach a large number of demographically attractive consumers while incurring
minimal incremental marketing costs.
Our membership programs are for either annual or monthly renewable terms.
Traditionally, we marketed membership programs which had an up-front annual
membership fee. However, beginning in fiscal 2003 and continuing into fiscal
2004, we expanded our marketing of membership programs in which the membership
fees is payable monthly. During the year ended June 30, 2004, approximately 64%
of our new member enrollments were in monthly payment program, and it is our
intention to further increase the mix of monthly payment programs in fiscal
2005. Membership fees vary depending upon the particular services offered by the
membership program.
Our programs fall into the three categories described below:
- Healthcare
Health, wellness, and self-improvement programs offer significant savings
on a comprehensive array of healthcare products, including prescription
drugs, vitamins and supplements, eye glasses and contact lenses, hearing
aides, durable medical equipment, and select consumer products. The
programs also offer discounts on professional services, including
medical, dental, chiropractic, alternative medicine, elder care and other
personal health services.
- Security
Security and insurance programs offer discounts on products and services
that enhance and improve the consumer's sense of security and well being.
These programs offer access to services that help manage privacy and
protection including identity theft insurance, card registration and
credit reporting, scoring, and monitoring. Insurance programs offer
competitively priced insurance products including life, supplemental
health, accidental death, short-term and long-term disability, warranty
and identity theft insurance coverage. Other program benefits include
24-hour protection services, roadside assistance and financial, tax, and
retirement planning.
- Discounts
Discount programs offer exclusive access to members-only savings with
leading brand name merchants covering a wide range of consumer spending
categories including travel, transportation, entertainment, dining,
shopping, home and small business. Savings are available through
discounted gift cards, coupons, promotion codes and rebates.
PERSONALS SERVICES
Through Lavalife, we offer both web-based, IVR-based and, most recently
cellular phone-based personals services to Lavalife's customers. These services
allow customers to interact with each other from anywhere in real time by phone,
email, text chat or video. To acquire new customers and retain existing
customers, Lavalife relies on its innovative products, marketing relationships
with major media groups, advertising campaigns in large markets, a widely
recognized brand name and an advanced technology infrastructure. Lavalife is
headquartered in Toronto, Canada, and serves customers in the United States,
Canada and other regions, principally Australia, which accounted for
approximately 65%, 28% and 7%, respectively, of its net sales for the twelve
months ended June 30, 2004. As of June 30, 2004, Lavalife had approximately
600,000 active web-based and IVR-based customers.
Lavalife employs a transactional business model, in which customers buy
non-refundable credits up front and spend those credits only when they want to
interact with other customers. Lavalife's competitors generally employ a
subscription model, in which customers pay a fixed periodic fee. We believe a
transactional model is more attractive to new customers, 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 customers.
2
Furthermore, once a customer has an account balance, the customer has a strong
financial incentive to return to use their remaining credits. To further
encourage return visits, Lavalife continues to refine its product offerings and
introduce innovative interactive products, including video and real time online
social networking.
COMPETITIVE STRENGTHS
We participate in the consumer membership services market of the direct
marketing industry and, with the acquisition of Lavalife, in the personals
services industry. A successful business model for membership and personals
services business depends on a large and stable customer base, strong
relationships with marketing partners and vendors, diversified distribution
channels and an understanding of the regulatory environment. We believe we have
successfully developed all of these aspects of our business model. We believe
our competitive strengths are as follows:
- Proven Business Model with Recurring Cash Flows -- Over the last 15
years, we have established a large and stable membership base. This
membership base has historically generated a recurring stream of cash
flows. After the initial new member acquisition costs are recovered, we
generate a substantial stream of cash flow because the cost of
maintaining a renewal member is minimal. In addition, with the
acquisition of Lavalife, we are diversifying our proven business model by
adding a complementary business with a history of consistent
profitability and a large base of active customers. As of June 30, 2004,
Lavalife had approximately 600,000 active web-based and IVR-based
customers.
- High Barriers to Entry -- The membership services business is
characterized by high barriers to entry, which include establishing
client and vendor relationships and acquiring a critical mass of members.
By offering quality programs and a high level of customer service over
the last 15 years, we have earned the trust of well-known vendors who, we
believe, prefer to license their brands to established industry
participants, such as ourselves. Building a membership services business
sufficient to support continued growth takes time. In addition, because
the benefits of a high margin cash flow are not realized until the member
acquisition costs are recovered, new entrants are not likely to
experience positive cash flow during the initial years of their
operations and would require large amounts of upfront capital. In
addition, the personals services business is characterized by barriers to
entry, including a critical mass of customers and advanced computer and
communication systems that support the business.
- Extensive Vendor Network -- In most cases, the products and services
accessed through our membership programs are offered and provided
directly to members by independent benefit providers, or vendors. To
ensure member satisfaction, we evaluate and engage only those vendors who
we believe can deliver high quality products and services at discounted
prices. We have thousands of vendors providing approximately 400 distinct
benefits in the areas of healthcare, personal finance, insurance, travel,
entertainment, fashion and more. Our strong vendor network continues to
help us develop innovative membership programs by giving us access to a
variety of products and services. We are able to establish and retain
strong relationships with our vendors by leveraging our client
relationships and large member base to drive low-cost incremental traffic
to our vendors.
- Strong Client Relationships -- We have established strong relationships
with our clients, which have helped us increase our market penetration
and gain access to a large number of potential new members. Our clients
include banks and other financial institutions, e-commerce companies,
direct response television companies, catalog companies, retailers, major
oil companies and other organizations with large numbers of individual
account holders and customers. We have built and maintained these client
relationships by providing our clients' customers with high quality,
innovative membership programs supported by our extensive vendor network.
- Diversified Distribution Channels -- During the past several years, we
have been able to effectively diversify our distribution channels for
membership programs. We market our programs through a variety of direct
marketing channels, including inbound call marketing through
MemberLink(SM), online marketing, outbound telemarketing (which we
outsource to third party contractors) and direct mail.
3
Our diversified distribution channels for membership programs enable us
to shift toward more cost effective distribution channels to acquire new
members.
- Lavalife's Transactional Business Model -- Lavalife employs a
transactional business model, in which customers buy credits up front and
spend those credits only when they want to interact with other customers.
Our competitors generally employ a subscription model, in which customers
pay a fixed periodic fee. We believe that a transactional business model
is more attractive to new customers, who will join due to a lower initial
cost and the ability to easily control their spending. In addition, once
a customer has an account balance, the user has a strong financial
incentive to return and use any remaining credits. Furthermore, through
its transactional business model, Lavalife is positioned to immediately
benefit from product upgrades that promote credit-consuming features.
- Experienced Management Team -- We believe MemberWorks' senior
management's extensive knowledge of the consumer industry has been
important in building MemberWorks' successful membership programs
business. In particular, Gary Johnson, one of our co-founders, has served
as our President and Chief Executive Officer since our inception.
MemberWorks' senior management has an average of seven years of
experience at MemberWorks. In addition, the founders of Lavalife, each
with 16 years of experience at Lavalife, have joined MemberWorks and, in
connection with the acquisition, purchased approximately Cdn$11.9 million
($9.1 million) in MemberWorks' restricted common stock.
OUR STRATEGY
Our business strategy is to extend our position as a leading consumer
membership and personals services company. We intend to strengthen our market
leadership positions, maximize profitability and enhance cash flow through the
following strategies:
- Optimize Customer Retention -- We will seek to optimize our customer
retention rates and revenue generated per customer by continuing to
enhance our programs and services by adding more value and/or features.
Historically, this strategy has enabled us to increase our average
membership fees year over year while maintaining our membership base.
- Pursue Growth Opportunities and Cost Synergies -- We expect to generate
revenue growth and realize cost synergies from the Lavalife acquisition.
We expect to increase our revenues by cross-selling MemberWorks'
customized membership programs to Lavalife's customers and Lavalife's
services to MemberWorks' members. We also expect to realize cost savings
by combining certain of our operations and infrastructure and through
potential volume discounts with our existing vendors and media companies
that carry our advertisements.
- Continue to Develop Innovative Products and Services -- We believe our
membership programs are innovative with respect to the variety and
quality of particular services, discounts, and other features offered. We
will continue to increase the variety of programs offered and enhance the
customer value in our existing programs by combining various features and
benefits. We will also continue to customize our programs to the
particular needs of our members and clients.
- Capitalize on Global Online Market Opportunities -- Lavalife participates
in the global market for online personals, which was estimated to be
approximately $530.0 million in sales for 2003 according to Marketdata
Enterprises Inc. We believe that this market will continue to grow,
driven by growth in social acceptance, improved service offerings and the
integration of new technologies. We intend to pursue a wider target
audience for our membership programs by capitalizing on our broadened
online marketing presence.
- Pursue Strategic Acquisitions -- We believe that strategic acquisitions
represent an effective means to broaden our product offerings. We intend
to selectively pursue opportunities that enhance sales growth, increase
customer and geographic diversity, offer complementary products, have
proven technologies and/or provide potential revenue opportunities and
marketing synergies.
4
RECENT DEVELOPMENTS
THE LAVALIFE ACQUISITION
On April 1, 2004, MemberWorks completed the acquisition of all of the
assets and outstanding capital stock of Lavalife for approximately Cdn$152.5
million ($116.4 million) in cash. See "The Lavalife Acquisition." Lavalife's
senior management purchased approximately Cdn$11.9 million ($9.1 million) in
MemberWorks' restricted common stock at closing of the acquisition. We financed
the purchase price with cash on hand and borrowings of approximately $15.0
million under our $45.0 million senior secured credit facility. For the twelve
months ended June 30, 2004, Lavalife had revenues of $71.7 million.
We believe the Lavalife acquisition is an attractive opportunity for us
because Lavalife offers:
- entry into the growing personals services market with a leading brand;
- a proven business model with consistent profitability;
- a broad online marketing presence with a large potential target audience;
- a transactional business model, which we believe is more favorable than a
subscription business model for the personal services industry;
- opportunities to cross-sell our programs and services across our customer
base; and
- an experienced management team with significant expertise in the
personals services industry.
Lavalife now operates as a wholly owned restricted subsidiary of
MemberWorks, guarantees the old notes and will guarantee the new notes.
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. Borrowings under
the senior secured credit facility accrue interest at either LIBOR, or the base
commercial lending rate for the bank, plus an applicable margin. As of June 30,
2004, we had $25.7 million of borrowing capacity remaining under the senior
secured credit facility due to a $5.5 million letter of credit outstanding
thereunder and other restrictions under the senior secured credit facility. See
"Description of Other Indebtedness -- Senior Secured Credit Facility."
---------------------
MemberWorks Incorporated, a Delaware corporation, was organized in 1996 and
conducted business under the name Cardmember Publishing Corporation from 1989 to
1996. As of October 13, 2004, we began doing business as Vertrue Incorporated.
Our principal office is located at 680 Washington Boulevard, Stamford, CT 06901
and our phone number is (203) 324-7635. Our internet address is www.vertrue.com.
Information on our website is not a part of this prospectus.
BARGAIN NETWORK INC. PROPOSED ACQUISITION
On October 20, 2004, we announced that we had entered into an agreement to
acquire Bargain Network Inc., a privately held provider of premier pricing
services for homes, vehicles and consumer durables. We agreed to pay $27 million
in cash at closing in addition to assuming certain liabilities. In addition, we
will pay additional amounts in 2005 if certain milestones are achieved.
5
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On April 13, 2004, we issued $150,000,000 aggregate principal amount of
unregistered 9 1/4% senior notes due 2014. These old notes are unconditionally
guaranteed by all of our existing and future domestic subsidiaries that
guarantee our credit facilities. The exchange offer relates to the exchange of
up to $150 million aggregate principal amount of old notes for an equal
aggregate principal amount of new notes. The new notes will be obligations of
our company entitled to the benefits of the indenture governing the old notes.
The form and terms of the new notes are identical in all material respects to
the form and terms of the outstanding notes except that the new notes have been
registered under the Securities Act of 1933, as amended, and therefore are not
entitled to the benefits of the registration rights granted under the
registration rights agreement, executed as part of the offering of the
outstanding notes, dated April 13, 2004 among us and the initial purchasers in
the private offering. These benefits include the liquidated damages we would pay
in the event that the filing and declaration of effectiveness of the required
registration statement and subsequent consummation of an exchange offer pursuant
to the registration statement do not occur within the time periods specified in
the registration rights agreement.
Registration rights
agreement..................... You are entitled to exchange your notes for
registered notes with substantially identical
terms. The exchange offer is intended to
satisfy these rights. After the exchange offer
is complete, you will no longer be entitled to
any exchange or registration rights with
respect to your notes.
The exchange offer............ We are offering to exchange $1,000 principal
amount of 9 1/4% senior notes due 2014 which
have been registered under the Securities Act
for each $1,000 principal amount of our
outstanding 9 1/4% senior notes due 2014 which
were issued on April 13, 2004 in a private
offering. In order to be exchanged, an
outstanding note must be properly tendered and
accepted. All outstanding notes that are
validly tendered and not validly withdrawn will
be exchanged. As of this date there are $150
million principal amount of notes outstanding.
We will issue registered notes on or promptly
after the expiration of the exchange offer.
Resale of the new notes....... Based on an interpretation by the staff of the
Commission, we believe that you will be able to
resell the new notes without compliance with
the registration and prospectus delivery
provisions of the Securities Act if:
- you are acquiring the new notes in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the notes issued to
you in the exchange offer; and
- you are not an "affiliate" of ours.
If any of these conditions are not satisfied,
(1) you will not be eligible to participate in
the exchange offer, (2) you should not rely on
the interpretations of the staff of the SEC in
connection with the exchange offer and (3) you
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with the resale of
your notes.
If you are a broker-dealer and you will receive
new notes for your own account in exchange for
old notes that you acquired as a result
6
of market-making activities or other trading
activities, you will be required to acknowledge
that you will deliver a prospectus in
connection with any resale of the new notes.
See "Plan of Distribution" for a description of
the prospectus delivery obligations of
broker-dealers in the exchange offer.
In accordance with the conditions, if you are a
broker-dealer that acquired the old notes
directly from us in the initial offering and
not as a result of market-making activities,
you will not be eligible to participate in the
exchange offer.
The exchange offer is not being made to, nor
will we accept surrenders for exchange from,
holders of outstanding notes in any
jurisdiction in which this exchange offer or
the acceptance thereof would not be in
compliance with the securities or blue sky laws
of such jurisdiction.
Expiration date............... The exchange offer will expire at 5:00 p.m.,
New York City time, , 2004, unless we
decide to extend the expiration date.
Accrued interest on the new
notes and the outstanding
notes......................... The new notes will bear interest from April 13,
2004. Holders of outstanding notes whose notes
are accepted for exchange will be deemed to
have waived the right to receive any payment of
interest on such outstanding notes accrued from
April 13, 2004 to the date of the issuance of
the new notes. Consequently, holders who
exchange their outstanding notes for new notes
will receive the same interest payment on
October 1, 2004 (the first interest payment
date with respect to the outstanding notes and
the new notes to be issued in the exchange
offer) that they would have received had they
not accepted the exchange offer.
Termination of the exchange
offer......................... We may terminate the exchange offer if we
determine that our ability to proceed with the
exchange offer could be materially impaired due
to any legal or governmental action, new law,
statute, rule or regulation or any
interpretation of the staff of the Commission
of any existing law, statute, rule or
regulation. We do not expect any of the
foregoing conditions to occur, although there
can be no assurance that such conditions will
not occur. Should we fail to consummate the
exchange offer, holders of outstanding notes
will have the right under the registration
rights agreement executed as part of the
offering of the outstanding notes to require us
to file a shelf registration statement relating
to the resale of the outstanding notes.
Procedures for tendering
outstanding notes............. If you are a holder of a note and you wish to
tender your note for exchange pursuant to the
exchange offer, you must transmit to LaSalle
Bank National Association, as exchange agent,
on or prior to the expiration date of the
exchange offer:
either
- a properly completed and duly executed Letter
of Transmittal, which accompanies this
prospectus, or a facsimile of the Letter of
Transmittal, including all other documents
required by the
7
Letter of Transmittal, to the exchange agent
at the address set forth on the cover page of
the Letter of Transmittal; or
- a computer-generated message transmitted by
means of DTC's Automated Tender Offer Program
system and received by the exchange agent and
forming a part of a confirmation of book
entry transfer in which you acknowledge and
agree to be bound by the terms of the Letter
of Transmittal;
and, either
- a timely confirmation of book-entry transfer
of your outstanding notes into the exchange
agent's account at The Depository Trust
Company ("DTC") pursuant to the procedure for
book-entry transfers described in this
prospectus under the heading "The Exchange
Offer Procedure for Tendering," must be
received by the exchange agent on or prior to
the expiration date of the exchange offer; or
- the documents necessary for compliance with
the guaranteed delivery procedures described
below.
By executing the Letter of Transmittal, each
holder will represent to us that, among other
things, (1) the notes to be issued in the
exchange offer are being obtained in the
ordinary course of business of the person
receiving such new notes whether or not such
person is the holder, (2) neither the holder
nor any such other person has an arrangement or
understanding with any person to participate in
the distribution of such new notes and (3)
neither the holder nor any such other person is
an "affiliate" (as defined in Rule 405 under
the Securities Act) of ours.
Special procedures for
beneficial owners............. If you are the beneficial owner of notes and
your name does not appear on a security
position listing of DTC as the holder of such
notes or if you are a beneficial owner of
registered notes that are registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender such notes or registered notes in the
exchange offer, you should contact such person
in whose name your notes or registered notes
are registered promptly and instruct such
person to tender on your behalf. If such
beneficial holder wishes to tender on his own
behalf, such beneficial holder must, prior to
completing and executing the Letter of
Transmittal and delivering its outstanding
notes, either make appropriate arrangements to
register ownership of the outstanding notes in
such holder's name or obtain a properly
completed bond power from the registered
holder. The transfer of record ownership may
take considerable time.
Guaranteed delivery
procedures.................... If you wish to tender your notes and time will
not permit your required documents to reach the
exchange agent by the expiration date of the
exchange offer, or the procedure for book-entry
transfer cannot be completed on time or
certificates for registered notes cannot be
delivered on time, you may tender your notes
pursuant to the procedures described in this
prospectus under the heading "The Exchange
Offer -- Guaranteed Delivery Procedure."
8
Withdrawal rights............. You may withdraw the tender of your notes at
any time prior to 5:00 p.m., New York City
time, on , 2004, the business day prior to
the expiration date of the exchange offer.
Acceptance of outstanding
notes and delivery of new
notes......................... Subject to the conditions summarized above in
"Termination of the Exchange Offer" and
described more fully under "The Exchange
Offer -- Termination", we will accept for
exchange any and all outstanding notes which
are properly tendered in the exchange offer
prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer. The
notes issued pursuant to the exchange offer
will be delivered promptly following the
expiration date.
Material U.S. federal income
tax consequences.............. The exchange of the notes pursuant to the
exchange offer will not be a taxable exchange
for U.S. federal income tax purposes.
Consequences of failure to
exchange...................... If you are eligible to participate in this
exchange offer and you do not tender your old
notes as described in this prospectus, you will
not have any further registration rights. In
that case, your old notes will continue to be
subject to restrictions on transfer. As a
result of the restrictions on transfer and the
availability of new notes, the old notes are
likely to be much less liquid than before the
exchange offer. The old notes will, after the
exchange offer, bear interest at the same rate
as the new notes.
Use of proceeds............... We will not receive any proceeds from the
issuance of notes pursuant to the exchange
offer. We will pay all expenses incident to the
exchange offer.
Exchange agent................ LaSalle Bank National Association is serving as
exchange agent in connection with the exchange
offer. The exchange agent can be reached at
LaSalle Bank N.A., 135 LaSalle Street, Suite
1960, Chicago, IL 60603 Attention: Gregory S.
Clarke, Vice President. For more information
with respect to the exchange offer, the
telephone number for the exchange agent is
(312) 904-5532 and the facsimile number for the
exchange agent is (312) 904-2236.
9
SUMMARY DESCRIPTION OF THE NEW NOTES
Issuer........................ MemberWorks Incorporated.
Notes Offered................. $150,000,000 in aggregate principal amount of
9 1/4% Senior Notes due 2014.
Maturity Date................. April 1, 2014.
Interest Payment Dates........ April 1 and October 1, commencing October 1,
2004.
Subsidiary Guarantees......... Our obligations under the new notes will be
fully and unconditionally guaranteed by all of
our existing and future domestic subsidiaries
that guarantee our credit facilities. The new
notes will also be guaranteed by Lavalife,
which is a guarantor under the senior secured
credit facility, and any of our future
restricted foreign subsidiaries that guarantee
our credit facilities. For the year ended June
30, 2004, MemberWorks Incorporated and the
subsidiary guarantors, after giving pro forma
effect to the Transactions, would have
accounted for approximately 96% of our
revenues.
Ranking....................... The new notes will be our senior unsecured
obligations. Accordingly, they will rank:
- pari passu in right of payment to all of our
existing and future senior unsecured
indebtedness; and
- senior in right of payment to all of our
existing and future subordinated indebtedness
that expressly provides for its subordination
to the new notes.
The subsidiary guarantee of each guarantor will
be such guarantor's senior unsecured
obligations. Accordingly, they will rank:
- pari passu in right of payment to all of such
subsidiary guarantor's existing and future
senior unsecured indebtedness; and
- senior in right of payment to all of such
subsidiary guarantor's existing and future
unsecured indebtedness that expressly
provides for its subordination to the new
notes.
The new notes and the guarantees will
effectively be subordinated in right of payment
to any secured indebtedness of us or our
subsidiary guarantors to the extent of the
value of the assets serving as security for
such secured indebtedness. The new notes will
also be effectively subordinated to all
liabilities, including trade payables, of our
subsidiaries that are not subsidiary
guarantors.
As of June 30, 2004:
- we and our subsidiaries had approximately
$240.0 million aggregate principal amount of
outstanding indebtedness on a consolidated
basis, $5.5 million of issued and undrawn
letters of credit outstanding under our
senior secured credit facility, and an
additional $25.7 million available for
borrowings under the senior secured credit
facility;
- approximately $90.0 million principal amount
of our outstanding indebtedness was
contractually subordinated to the new notes;
10
and
- our subsidiaries that are non-guarantors had
approximately $4.4 million in liabilities,
excluding intercompany liabilities but
including trade payables.
Optional Redemption........... At any time before April 1, 2007, we may redeem
up to 35% of the new notes with net cash
proceeds of certain equity offerings, as long
as at least 65% of the aggregate principal
amount of the notes issued under the indenture
remains outstanding after the redemption.
We may redeem all or part of the new notes
prior to April 1, 2009 by paying a make-whole
premium. At any time on or after April 1, 2009,
we may redeem some or all of the new notes at
the redemption prices set forth under
"Description of the New Notes -- Optional
Redemption," plus accrued and unpaid interest
and liquidated damages, if any, to the date of
redemption. See "Description of the New
Notes -- Optional Redemption."
Mandatory Offer to
Repurchase.................... If we sell certain assets or experience
specific kinds of changes in control, we must
offer to purchase the new notes at the prices
set forth under "Description of the New
Notes -- Repurchase at the Option of Holders,"
plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase.
Certain Covenants............. We will issue the new notes under an indenture
among us, the guarantors and the trustee. The
indenture (among other things) will limit our
and our restricted subsidiaries' ability to:
- incur or guarantee additional indebtedness
and issue preferred stock;
- pay dividends or make other distributions;
- create liens;
- sell assets;
- engage in sale and leaseback transactions;
- place restrictions on the ability of our
restricted subsidiaries to pay dividends or
make other distributions;
- engage in mergers or consolidations with
other entities;
- engage in certain transactions with
affiliates: and
- make certain investments.
Each of these covenants is subject to a number
of important exceptions and qualifications. See
"Description of the New Notes -- Certain
Covenants."
No Prior Market............... The new notes will be new securities for which
there is currently no market. Although the
initial purchasers of the old notes have
informed us that they intend to make a market
in the new notes, they are not obligated to do
so, and they may discontinue market-making at
any time without notice. Accordingly, we cannot
assure you that a liquid market for the new
notes will develop or be maintained.
11
RISK FACTORS
The new notes, like the old notes, entail substantial risk. You should
carefully consider all the information in this prospectus prior to participating
in the exchange offer. In particular, we urge you to consider carefully the
factors set forth herein under "Risk Factors."
12
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth a summary of our unaudited pro forma
financial data, giving effect to the Transactions as if they had occurred on the
dates indicated and after giving effect to the pro forma adjustments. The
consolidated balance sheet data as of June 30, 2004 has been derived from
MemberWorks' audited historical consolidated balance sheet as of June 30, 2004.
The unaudited pro forma consolidated statement of operations data for the year
ended June 30, 2004 gives effect to the Transactions as if they occurred on July
1, 2003. The Lavalife acquisition was accounted for under the purchase method of
accounting.
The pro forma adjustments are based upon available information and certain
assumptions that we consider reasonable. The pro forma results of operations are
not necessarily indicative of the results of operations that would have been
achieved had the Transactions reflected therein been consummated prior to the
period presented. The unaudited pro forma financial data are only a summary and
should be read in conjunction with the "Capitalization," "Unaudited Pro Forma
Condensed Combined Financial Data," "Selected Historical Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and MemberWorks' and Lavalife's consolidated financial statements
and the notes thereto included elsewhere or incorporated by reference in this
prospectus. The unaudited pro forma financial data are presented for
informational purposes only and are not necessarily indicative of what the
actual combined results of operations of the combined company would have been
for the period presented, nor do these data purport to represent the results of
future periods.
YEAR ENDED
JUNE 30, 2004
----------------
($ IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $542,767
Total expenses............................................ 489,577
--------
Operating income.......................................... 53,190
Interest income (expense), net............................ (17,264)
Other income (expense), net............................... 2,022
--------
Income before provision for income taxes.................. 37,948
Provision for income taxes................................ 14,621
--------
Net income................................................ $ 23,327
========
OTHER FINANCIAL DATA AND SELECTED RATIOS:
Depreciation and amortization............................. $ 21,342
Capital expenditures...................................... 8,960
Ratio of earnings to fixed charges(1)..................... 2.78x
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................. $159,496
Restricted cash........................................... 3,120
Total assets.............................................. 453,162
Total debt................................................ 237,659
Shareholders' (deficit) equity............................ (46,083)
---------------
(1) The ratio of earnings to fixed charges is computed by dividing pre-tax
income from continuing operations by fixed charges. Fixed charges consist of
interest charges, whether expensed or capitalized, and that portion of
rental expense we believe to be representative of interest.
13
SUMMARY FINANCIAL INFORMATION OF MEMBERWORKS
We are providing the following financial information to assist you in your
analysis of the financial aspects of the Transactions. We derived the historical
information below from the audited consolidated financial statements of
MemberWorks as of and for the years ended June 30, 2002, 2003 and 2004. The
information is only a summary and should be read in conjunction with
"Capitalization," "Unaudited Pro Forma Condensed Combined Financial Data,"
"Selected Historical Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and MemberWorks'
consolidated financial statements and the notes thereto included elsewhere in
this prospectus. The historical results included below and elsewhere in this
document are not necessarily indicative of the future performance of MemberWorks
or the combined company.
YEAR ENDED JUNE 30,
------------------------------
2002 2003 2004
-------- -------- --------
($ IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $427,602 $456,881 $488,739
Total expenses....................................... 415,713 434,595 435,869
-------- -------- --------
Operating income (loss).............................. 11,889 22,286 52,870
Non-operating gain (loss)............................ 31,980 17,983 --
Interest income (expense), net....................... 333 570 (6,621)
Other income (expense), net.......................... (734) (244) 349
-------- -------- --------
Income (loss) before equity in affiliate and minority
interest........................................... 43,468 40,595 46,598
Equity in income of affiliate........................ -- -- --
Minority interest.................................... 450 -- --
-------- -------- --------
Income (loss) before provision for income taxes...... 43,918 40,595 46,598
Provision for income taxes........................... -- 16,239 18,638
-------- -------- --------
Net income (loss) before cumulative effect of
accounting change.................................. 43,918 24,356 27,960
Cumulative effect of accounting change............... (5,907) -- --
-------- -------- --------
Net income (loss).................................... $ 38,011 $ 24,356 $ 27,960
======== ======== ========
OTHER OPERATING DATA:
Active members (in millions at period end)........... 6.6 6.3 5.6
Price points(1):
New annual......................................... $ 88 $ 104 $ 107
Monthly............................................ $ 8.97 $ 10.11 $ 11.37
OTHER FINANCIAL DATA AND SELECTED RATIOS:
Cash flow provided by operating activities........... $ 17,014 $ 48,533 $ 47,948
Depreciation and amortization........................ 13,252 12,120 13,252
Capital expenditures................................. 5,761 5,463 7,057
Ratio of earnings to fixed charges(2)................ 17.69x 15.52x 5.67x
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............................ $ 45,502 $ 72,260 $159,496
Restricted cash...................................... 5,683 2,732 3,120
Total assets......................................... 280,817 248,505 453,162
Total debt........................................... 3,627 8,273 246,943
Shareholders' (deficit) equity....................... (20,630) (20,283) (46,083)
---------------
(1) New annual price points reflect the weighted average price billed to new
annual members during the relevant period and monthly price points reflect
the weighted average price billed to new monthly members during the relevant
period.
(2) The ratio of earnings to fixed charges is computed by dividing pre-tax
income from continuing operations (before adjustment for minority interest
in consolidated subsidiaries and loss from equity investees) by fixed
charges. Fixed charges consist of interest charges, whether expensed or
capitalized, and that portion of rental expense we believe to be
representative of interest.
14
RISK FACTORS
You should carefully consider the risks described below before making a
decision to participate in the exchange offer. You should also consider the
other information included or incorporated by reference in this prospectus
before making a decision to participate in the exchange offer. Any of the
following risks, as well as other risks and uncertainties, could harm our
business and financial results and cause the value of the notes to decline,
which in turn could cause you to lose all or part of your investment.
RISKS RELATED TO MEMBERWORKS' BUSINESS
MEMBERWORKS' PROFITABILITY DEPENDS ON MEMBERS CONTINUING TO RETAIN THEIR
MEMBERSHIPS IN ITS PROGRAMS. INCREASED CANCELLATIONS COULD IMPAIR MEMBERWORKS'
PROFITABILITY.
MemberWorks generally incurs losses and negative cash flow during the
initial year of an individual membership program, as compared to renewal years.
This is due primarily to marketing costs associated with obtaining a new member.
In addition, MemberWorks experiences a higher percentage of cancellations during
the initial membership period as compared to renewal periods. Annual members may
cancel their membership at any time during the membership period generally for a
pro rata refund of the membership fee based on the remaining portion of the
membership period. Monthly members are billed each month after the trial period
until they cancel their membership. Accordingly, the profitability of each of
MemberWorks' programs depends on recurring and sustained membership renewals and
increased cancellations could have a material adverse effect on its business,
financial condition, results of operations and cash flows.
MEMBERWORKS' BUSINESS MAY SUFFER IF IT FAILS TO SUCCESSFULLY INTEGRATE
LAVALIFE OR OTHER BUSINESSES IT ACQUIRES IN THE FUTURE OR TO PROPERLY ASSESS
THE RISKS IN PARTICULAR TRANSACTIONS.
MemberWorks acquired all of the assets and outstanding capital stock of
Lavalife, and MemberWorks may acquire other businesses and assets in the future.
The successful integration of the acquired businesses and assets, such as
Lavalife, into its existing operations can be critical to MemberWorks' future
performance. Acquired businesses may not be successfully integrated with
MemberWorks' operations or produce the anticipated benefits in a timely manner,
or at all. Failure to successfully integrate acquired businesses or to achieve
anticipated operating synergies or cost savings could have a material adverse
effect on MemberWorks' business, financial condition, results of operations and
cash flows. Although MemberWorks attempts to evaluate the risks inherent in each
transaction and to value acquisition candidates appropriately, MemberWorks
cannot assure you that it will properly ascertain all such risks or that
acquired businesses and assets will perform as MemberWorks expects or enhance
the value of MemberWorks as a whole. In addition, acquired companies or
businesses may have larger than expected liabilities that are not covered by the
indemnification, if any, MemberWorks obtains from the seller.
THE LOSS OF MEMBERWORKS' KEY CLIENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON
ITS RESULTS OF OPERATIONS.
Membership programs sponsored by MemberWorks' two largest clients, West
Corporation and Citibank, N.A. (and its affiliates), accounted for 16% and 21%
of MemberWorks' revenue, respectively, for the fiscal year ended June 30, 2003
and 18% and 12% of MemberWorks' revenue, respectively, for the year ended June
30, 2004. A loss of MemberWorks' key clients or a decline in the businesses of
the clients from which MemberWorks acquires new members could have a material
adverse effect on MemberWorks' results of operations. There can be no assurance
that one or more of MemberWorks' key or other clients will not terminate their
relationship with MemberWorks or suffer a decline in their business from which
MemberWorks acquires new members.
MEMBERWORKS MARKETS MANY OF ITS MEMBERSHIP PROGRAMS THROUGH CREDIT CARD
ISSUERS. A DOWNTURN IN THE CREDIT CARD INDUSTRY OR CHANGES IN THE MARKETING
TECHNIQUES OF CREDIT CARD ISSUERS COULD ADVERSELY AFFECT MEMBERWORKS.
MemberWorks' future success is dependent in large part on continued demand
for its membership programs within its clients' industries. In particular,
membership programs marketed through MemberWorks'
15
credit card issuer clients accounted for a significant amount of its revenues in
fiscal 2003. A significant downturn in the credit card industry or a trend in
that industry to reduce or eliminate its use of membership programs could have a
material adverse effect on MemberWorks' business, financial condition, results
of operations and cash flows.
THE UNANTICIPATED TERMINATION OF AGREEMENTS WITH VENDORS COULD HAVE A MATERIAL
ADVERSE EFFECT ON MEMBERWORKS' BUSINESS.
MemberWorks depends on vendors to provide most of the products and services
included in the programs it markets. The vendors generally operate pursuant to
non-exclusive agreements with MemberWorks that may be terminated by the vendor
with limited prior notice. There can be no assurance that, in the event a vendor
ceases operations, or terminates, breaches or chooses not to renew its agreement
with MemberWorks, a replacement vendor could be retained on a timely basis, if
at all. In addition, vendors are independent contractors and the level and
quality of services they provide is outside MemberWorks' control. Any service
interruptions, delays or quality problems could result in customer
dissatisfaction and membership cancellations and/or termination of clients'
relationships with MemberWorks, which could have a material adverse effect on
MemberWorks' business, financial condition, results of operations and cash
flows.
MEMBERWORKS DEPENDS ON CREDIT CARD PROCESSORS TO OBTAIN PAYMENTS FOR IT.
MemberWorks depends on credit card processors to obtain payments for it.
The credit card processors operate pursuant to agreements that may be terminated
with limited prior notice. In the event a credit card processor ceases
operations or terminates its agreement, there can be no assurance a replacement
credit card processor could be retained on a timely basis, if at all. Any
service interruptions, delays or quality problems could result in delays in
collecting payments, which could have a material adverse effect on MemberWorks'
business, financial condition, results of operations and cash flows.
MEMBERWORKS' EFFORTS TO INCREASE THE SHARE OF MONTHLY PAYMENT PROGRAMS IN ITS
PROGRAM MIX MAY ADVERSELY AFFECT ITS CASH FLOW.
MemberWorks has traditionally marketed membership programs which have an
up-front annual membership fee. However, in fiscal 2003, MemberWorks expanded
its marketing of membership programs for which membership fees are payable in
monthly installments. During the fiscal 2004, approximately 64% of MemberWorks'
new member enrollments were in monthly payment programs, and it is MemberWorks'
intention to further increase the mix of monthly payment programs in 2005.
MemberWorks' increased emphasis on monthly payment programs adversely affects
its cash flow because the immediate cost of acquiring a new member is higher
than the first month's membership fee.
MEMBERWORKS MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN ITS
INDUSTRY THAT HAVE FINANCIAL OR OTHER ADVANTAGES.
MemberWorks believes that the principal competitive factors in its industry
include the ability to identify, develop and offer innovative membership
programs, the quality and breadth of membership programs offered, competitive
pricing and in-house marketing expertise. MemberWorks' competitors offer
membership programs which provide products or services similar to, or which
compete directly with, those provided by MemberWorks. These competitors include,
among others, Aegon N.V., Trilegiant (a subsidiary of Cendant Corporation).
Fords and General Electric Financial Assurance. In addition, MemberWorks could
face competition if its current clients or other companies were to introduce
their own in-house membership programs.
Some of these competitors have substantially larger customer bases and
greater financial and other resources than MemberWorks. To date, MemberWorks has
effectively competed with such competitors. There can be no assurance that:
- MemberWorks' competitors will not increase their emphasis on programs
similar to those MemberWorks offers;
16
- MemberWorks' competitors will not provide programs comparable or superior
to those MemberWorks provides at lower membership fees;
- MemberWorks' competitors will not adapt more quickly than MemberWorks to
evolving industry trends or changing market requirements;
- new competitors will not enter the market; or
- other businesses (including our current clients) will not themselves
introduce in-house membership programs.
Such increased competition may result in price reductions, reduced
operating margins or loss of market share, any of which could materially
adversely affect MemberWorks' business, financial condition and results of
operations. Additionally, because contracts between clients and program
providers are often exclusive with respect to a particular program, potential
clients may be prohibited from contracting with MemberWorks to promote a new
program if the products and services provided by MemberWorks' program are
similar to, or overlap with, the products and services provided by an existing
program of a competitor.
WE DEPEND ON KEY EXECUTIVE AND MARKETING PERSONNEL.
MemberWorks is dependent on certain key members of its management and
marketing staff, particularly its Chief Executive Officer, Gary Johnson. In
addition, MemberWorks believes that its future success will depend in part upon
its ability to attract and retain highly skilled managerial and marketing
personnel. MemberWorks faces significant competition for such personnel, and it
may be unsuccessful in hiring or retaining the personnel it requires. The
failure to hire and retain such personnel could have a material adverse effect
on MemberWorks' business, financial condition and results of operations.
MEMBERWORKS' INDUSTRY IS INCREASINGLY SUBJECT TO FEDERAL AND STATE GOVERNMENT
REGULATION.
MemberWorks markets its membership programs through various distribution
channels, including MemberLink(SM) (our inbound marketing channel), online
marketing, outbound telemarketing and direct mail. These channels are regulated
at both state and federal levels and MemberWorks believes that these channels
will be subject to increasing regulation, particularly in the area of consumer
privacy. Such regulation may limit MemberWorks' ability to solicit new members
or to offer products or services to existing members.
The telemarketing industry has become subject to an increasing amount of
federal and state regulation as well as general public scrutiny. 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. The Federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 and Federal
Trade Commission ("FTC") regulations prohibit deceptive, unfair or abusive
practices in telemarketing sales. The FTC's 2003 Amendment to its Telemarketing
Sales Rule created a national do-not-call list effective October 1, 2003. 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, including the
creation of do-not-call lists, and any such laws could adversely affect or limit
MemberWorks' operations.
Compliance with these regulations is generally MemberWorks' responsibility,
and MemberWorks could be subject to a variety of enforcement and/or private
actions for any failure to comply with such regulations. MemberWorks' provision
of membership programs requires it to comply with certain state regulations and
any changes to such regulations could materially increase MemberWorks'
compliance costs. The risk of MemberWorks' noncompliance with any rules and
regulations enforced by a federal or state consumer protection authority may
subject it or its management to fines or various forms of civil or criminal
prosecution, any of which could have a material adverse effect on MemberWorks'
business, financial condition and results of operations. See
"Business -- MemberWorks -- Government Regulation and Litigation." Also, the
media often publicizes perceived noncompliance with consumer protection
regulations and violations of notions of
17
fair dealing with consumers, and the membership services industry is susceptible
to peremptory charges by the media of regulatory noncompliance and unfair
dealing.
MemberWorks currently maintains rigorous security and quality controls that
are intended to ensure that all of its marketing practices meet or exceed
industry standards and all applicable state and federal laws and regulations.
MemberWorks only collects and maintains customer data that is necessary to
administer its business activities, such as a customer's name, address and
encrypted billing information. For marketing and modeling purposes, MemberWorks
only uses publicly available information, such as demographic, neighborhood and
lifestyle data. MemberWorks does not resell any confidential customer
information that is obtained or derived from its marketing efforts, nor does
MemberWorks purchase consumer information from financial institutions. However,
there can be no assurance that MemberWorks' efforts will continue to meet all
applicable state and federal laws and regulations in the future. See
"Business -- MemberWorks Government Regulation and Litigation."
RISKS 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 customers. 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 customers. Lavalife believes that a transactional model
is more attractive to new customers, 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 customers 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.
18
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.
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 customers 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
19
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.
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 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.
RISKS RELATED TO OUR COMBINED BUSINESS
WE DEPEND IN PART ON THE COMMUNICATION CHANNELS THROUGH WHICH WE MARKET AND
SERVICE OUR PRODUCTS, SUCH AS TELEPHONE, INTERNET AND THE UNITED STATES POSTAL
SERVICE. AN INTERRUPTION OF, OR AN INCREASE IN THE BILLING RATE FOR, SUCH
COMMUNICATION CHANNELS COULD ADVERSELY AFFECT OUR BUSINESS.
We market and service our product and programs by various communication
channels, including telephone, internet and mail, and accordingly, our business
is dependent on the quality of service of providers of these communication
channels. Any significant interruption in these communication channels could
adversely affect us. In addition, rate increases imposed by providers would
increase our and our clients'
20
operating expenses and could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
THE SUCCESS OF OUR BUSINESS DEPENDS ON INTRODUCTION OF POPULAR NEW PROGRAMS OR
SERVICES OR THE ENHANCEMENT OF EXISTING PROGRAMS OR SERVICES.
Our business is substantially dependent on our ability to develop and
successfully introduce popular new programs or provide enhancements to existing
programs which generate consumer loyalty. Failure to introduce new programs in a
timely manner could result in our competitors acquiring additional market share.
In addition, the introduction or announcement of new innovative programs by us
or by others, could render existing programs obsolete or result in a delay or
decrease in orders for existing programs as customers evaluate new programs.
Similarly, Lavalife's business is substantially dependent on its ability to
refine existing service offerings and to introduce new interactive services.
Therefore, the announcement or introduction of new innovative programs by us or
others, or our failure to introduce new programs which generate broad consumer
appeal, or Lavalife's inability to refine its service offerings or introduce new
services could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE TO FUND LIQUIDITY AND
CAPITAL REQUIREMENTS, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS.
Our future liquidity and capital requirements will depend upon numerous
factors, including the success of our membership programs, market developments,
potential acquisitions and additional repurchases of our common stock. We may
need to raise additional funds to support expansion, develop new membership
programs, respond to competitive pressures, acquire complementary businesses or
take advantage of unanticipated opportunities. The indenture governing the notes
and the credit agreement under our senior secured credit facility will contain
covenants that may restrict our ability to finance operations or capital needs.
We experienced negative cash flow in the period following the terrorist attacks
of September 11, 2001 and may experience negative cash flow in the future as a
result of various factors, some of which are outside of our control. We cannot
be certain that we will be able to obtain adequate financing on favorable terms
or at all.
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.
As a result, we are dependent on ongoing, significant investment in advanced
computer and telecommunications technology, including automated call
distributors and digital switches. Our inability to anticipate and adapt to
technological shifts and to develop new and enhanced technology on a timely
basis could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER.
Our quarterly revenues, expenses and operating results have varied
significantly in the past and may vary significantly from quarter to quarter in
the future. Factors which could cause our financial results to fluctuate
include:
- increased or decreased cancellation of member enrollments;
- the rate of renewal by existing members;
- our ability to introduce new programs or products or enhance existing
programs or products on a timely basis and the introduction of programs
or products by our competitors;
- the mix of our client base;
21
- seasonality of the businesses of our clients;
- market acceptance and demand for our and our clients' membership programs
generally;
- the mix of programs we offer and the price points of such programs;
- increased commission rates and other compensation required by our
clients;
- the mix of our marketing channels;
- unanticipated service interruptions;
- movement in foreign exchange rates;
- adverse outcomes of litigation or regulatory matters;
- the availability of vendors to support programs we offer;
- the level of enthusiasm for health and fitness, travel, entertainment and
leisure activities, and other lifestyle elements underlying our programs;
and
- competitive pressures on selling prices.
Many of these factors are beyond our control. Operating results would be
adversely affected if projected revenues for a given quarter are not achieved.
In addition, any future acquisitions by us could have a material adverse effect
on our results of operations, particularly in quarters immediately following
consummation of such transactions, while the operations of the acquired business
are being integrated into our operations.
RISKS RELATED TO THE NOTES
INCREASED LEVERAGE AS A RESULT OF THIS OFFERING MAY HARM OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, AND COULD PREVENT US FROM FULFILLING OUR
OBLIGATIONS UNDER THE NOTES.
We are highly leveraged and have significant fixed debt service obligations
in addition to our operating expenses. At June 30, 2004, we had $237.7 million
of outstanding indebtedness, $5.5 million of issued and undrawn letters of
credit, and $25.7 million in borrowing capacity under the senior secured credit
facility. The indenture governing the notes will permit us to incur additional
debt in certain circumstances. If we incur additional debt in the future, the
related risks could intensify. For example, our indebtedness could:
- reduce the availability of our cash flow, as a greater portion of our
cash flow from operations will be dedicated to the payment of any
interest required with respect to outstanding indebtedness;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt;
- increase our vulnerability to adverse changes in general economic and
industry conditions, as well as to competitive pressure; and
- limit our ability to obtain additional financing for working capital,
capital expenditures, general corporate and other purposes.
If our indebtedness affects our operations in these ways, our business,
financial condition and results of operations could suffer, making it more
difficult for us to satisfy our obligations under the notes. Our ability to make
payments of principal, premium and interest on our indebtedness depends upon our
future performance, which will be subject to the success of the marketing of our
programs, general economic conditions, and financial, business and other factors
affecting our operations, many of which are beyond our control. We cannot assure
you that our business will generate cash flow from operations, or that future
borrowings will be available to us, in an amount sufficient to enable us to pay
our debt or to fund other liquidity needs. If we are
22
not able to generate sufficient cash flow from operations in the future to
service our indebtedness, we may be required, among other things:
- to seek additional financing in the debt or equity markets;
- to refinance or restructure all or a portion of our indebtedness,
including the notes;
- to sell selected assets; and/or
- to reduce or delay planned expenditures on new marketing or capital
expenditures.
Such measures might not be sufficient to enable us to service our debt. In
addition, any such financing, refinancing or sale of assets might not be
available on economically favorable terms.
THE NOTES WILL EFFECTIVELY BE SUBORDINATED TO OUR SECURED INDEBTEDNESS AND THE
LIABILITIES OF OUR NON-GUARANTOR SUBSIDIARIES.
The notes will be unsecured and therefore are effectively subordinated to
any of our secured indebtedness to the extent of the value of the assets
securing such indebtedness. As of June 30, 2004, we did not have had any senior
secured indebtedness and had $5.5 million of issued and undrawn letters of
credit under our senior secured credit facility, in addition to $25.7 million of
availability under our senior secured credit facility. The indenture permits us
to incur additional secured indebtedness provided that certain conditions are
met. See "Description of the New Notes -- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock." Consequently, in the event we are
the subject of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding, the holders of any secured indebtedness will be entitled to proceed
against the collateral that secures the secured indebtedness and the collateral
will not be available for satisfaction of any amounts owed under our unsecured
indebtedness, including the notes.
Our right to receive any assets of any of our non-guarantor subsidiaries
upon their liquidation or reorganization, and therefore the right of the holders
of the notes to participate in those assets, will be effectively subordinated to
the claim of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any of our non-guarantor subsidiaries,
our rights as a creditor would be subordinate to any security interest in the
assets of our subsidiaries and any indebtedness of such subsidiaries senior to
that held by us. Our non-guarantor subsidiaries have no obligation to pay any
amounts due on the notes or to provide us with funds for our payment
obligations, whether by dividends, distributions, loans or other payments. As of
June 30, 2004, our non-guarantor subsidiaries had approximately $4.4 million of
indebtedness and other liabilities outstanding excluding intercompany notes, but
including trade payables.
COVENANT RESTRICTIONS UNDER OUR CREDIT FACILITY AND THE INDENTURE GOVERNING
THE NOTES MAY LIMIT OUR OPERATING FLEXIBILITY.
Our credit facility currently contains, and the indenture governing the
notes will contain, covenants that may restrict our ability to finance future
operations or capital needs or to engage in other business activities.
Agreements governing future indebtedness could also contain significant
financial and operating restrictions. In addition, our bank credit facility and
the indenture governing the notes will restrict, and other future agreements
governing our debt may restrict, among other things, our ability to:
- incur additional debt;
- prepay principal of or redeem or repurchase subordinated debt or
unsecured debt;
- dispose of property;
- merge, consolidate or sell our assets;
- make acquisitions and investments in other persons or entities;
- pay dividends or make distributions on, or redeem or repurchase, our
capital stock;
23
- grant liens and negative pledges with respect to our assets; and
- make capital expenditures.
We cannot assure you that we will meet the covenants in our debt agreements
or that the lenders that are party to such agreements will waive any failure to
meet those covenants. A breach of any of these covenants would result in a
default under the applicable agreement, which would in turn cause a default
under our other agreements, including our bank credit facility and the
indenture, as applicable. If an event of default occurs under one of our debt
agreements and continues beyond any applicable cure period, the lenders could
elect to declare all amounts outstanding thereunder, together with accrued
interest, to be immediately due and payable. If our indebtedness were to be
accelerated, there can be no assurance that we would be able to pay it. Such
acceleration would have a material adverse effect on our financial condition.
See "Description of Other Indebtedness" and "Description of the New Notes."
FEDERAL AND STATE STATUTES ALLOW COURTS UNDER SPECIFIC CIRCUMSTANCES TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM
SUBSIDIARY GUARANTORS.
Our incurrence of debt, such as the notes, as well as the guarantees of our
subsidiary guarantors, may be subject to review under U.S. federal bankruptcy
laws or relevant state fraudulent conveyance laws if a bankruptcy case or
lawsuit is commenced by, or on behalf of, our or the guarantors' unpaid
creditors. Under these laws, if a court were to find that, at the time we or a
guarantor incurred debt (including debt represented by the notes or the
guarantee of such guarantor):
- we, or a guarantor, incurred this debt with the intent of hindering,
delaying or defrauding current or future creditors; or
- we, or a guarantor, received less than reasonably equivalent value or
fair consideration for incurring this debt and we, or a guarantor, as the
case may be:
- were insolvent or were rendered insolvent by reason of the related
financing transactions;
- were engaged, or were about to engage, in a business or transaction for
which our or its, as the case may be, remaining assets constituted
unreasonably small capital to carry on our business; or
- intended to incur, or believed that we or it would incur, debts beyond
our or its, as the case may be, ability to pay as these debts matured (as
all of the foregoing terms are defined in or interpreted under the
relevant fraudulent transfer or conveyance statutes);
then such court could set aside the notes or such guarantee, subordinate the
amounts owing under the notes or such guarantee to our or such guarantor's
presently existing or future debt or take other actions detrimental to you.
The standards for determining insolvency for purposes of the foregoing
considerations will vary depending upon the law of the jurisdiction that is
being applied in any such proceeding. Generally, a company would be considered
insolvent if, at the time it incurred the debt or issued the guarantee, either:
- the sum of its debts (including contingent liabilities) is greater than
its assets, at fair value, or
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute
and matured.
We believe that, at the time we and the guarantors initially incur the debt
represented by the notes and the guarantees, we and the guarantors will not be
insolvent or rendered insolvent by the incurrence of the debt, be lacking
sufficient capital to run our businesses effectively or be unable to pay
obligations on the notes and the guarantees as they mature or become due.
In reaching the foregoing conclusions, we have relied upon our analyses of
internal cash flow projections and estimated values of our assets and
liabilities and the assets and liabilities of the guarantors. We cannot assure
you, however, that a court passing on the same questions would reach the same
conclusions.
24
If a note or guarantee is voided as a fraudulent conveyance or found to be
unenforceable for any other reason, you will not have a claim against us or that
particular guarantor and you will only be our creditor or a creditor of any
guarantor whose obligation was not set aside or found to be unenforceable. In
addition, any payment by a guarantor pursuant to its guarantee could be voided
and required to be returned to the guarantor, or to a fund for the benefit of
the creditors of the guarantor.
IF AN ACTIVE TRADING MARKET FOR THE NOTES DOES NOT DEVELOP, THE MARKET PRICE
OF THE NOTES MAY DECLINE OR YOU MAY NOT BE ABLE TO SELL YOUR NOTES.
The notes are a new issue of securities for which there is currently no
trading market. We do not intend to list the notes on any national securities
exchange or automated quotation system. If the notes are traded, they may trade
at a discount from their initial offering price, depending on prevailing
interest rates, the market for similar securities, our financial condition,
performance or prospects and other factors. The initial purchasers of the old
notes have advised us that they currently intend to make a market in the new
notes. However, they are not obligated to make a market and may discontinue this
market activity at any time without notice. As a result, we do not know whether
an active trading market will develop for the notes. To the extent that an
active trading market does not develop, the price at which you may be able to
sell the notes, if at all, may be less than the price you pay for them.
WE MAY NOT HAVE SUFFICIENT FUNDS TO REPURCHASE NOTES UPON A CHANGE OF CONTROL.
Upon certain change of control events, as that term is defined in the
indenture, including a change of control caused by an unsolicited third party,
we will be required to make an offer in cash to repurchase all or any part of
each holder's notes at a repurchase price equal to 101% of the principal
thereof, plus accrued interest. The source of funds for any such repurchase
would be our available cash or cash generated from operations or other sources,
including borrowings, sales of equity or funds provided by a new controlling
person or entity. We cannot assure you that sufficient funds will be available
at the time of any change of control event to repurchase all tendered notes
pursuant to this requirement. Our failure to offer to repurchase notes, or to
repurchase notes tendered, following a change of control will result in a
default under the indenture, which could lead to a cross-default under our
senior secured credit facility and under the terms of our other indebtedness.
Upon a change of control event, we will also be required to purchase all of our
outstanding 5.50% convertible senior subordinated notes due 2010, and a failure
to repurchase tendered convertible notes will constitute an event of default
under the indenture governing the convertible notes. In addition, our future
credit facilities or other agreements relating to our debt may restrict our
ability to make any such required repurchases. Prior to repurchasing the notes
upon a change of control event, we must either repay outstanding indebtedness
under or obtain the consent of the lenders under such credit facilities or
agreements in order to repurchase the notes. If we do not obtain the required
consents or repay our outstanding indebtedness under such credit facilities or
agreements, we would remain effectively prohibited from offering to purchase the
notes. See "Description of the New Notes -- Repurchase at the Option of
Holders -- Change of Control," "Description of the New Notes -- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and
"Description of Other Indebtedness".
IF YOU DO NOT TENDER YOUR OLD NOTES TO BE EXCHANGED IN THIS EXCHANGE OFFER,
YOUR NOTES WILL REMAIN SUBJECT TO TRANSFER RESTRICTIONS
If you do not tender your old notes to be exchanged in this exchange offer,
your notes will remain restricted securities and will be subject to transfer
restrictions. As restricted securities, your old notes:
- may be resold only if registered pursuant to the Securities Act, if an
exemption from registration is available thereunder, or if neither such
registration nor such exemption is required by law; and
- shall bear a legend restricting transfer in the absence of registration
or an exemption therefrom.
In addition, a holder of old notes who desires to sell or otherwise dispose
of all or any part of its old notes under an exemption from registration under
the Securities Act, if requested by us, must deliver to us an opinion of
counsel, reasonably satisfactory in form and substance to us, that such
exemption is available.
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THE LAVALIFE ACQUISITION
THE ACQUISITION
On April 1, 2004, MemberWorks completed the acquisition of all of the
assets and outstanding capital stock of Lavalife for approximately Cdn$152.5
million ($116.4 million) in cash. We financed the purchase price with cash on
hand and borrowings of approximately $15.0 million under our $45.0 million
senior secured credit facility. Lavalife now operates as a wholly owned
restricted subsidiary of MemberWorks, guarantees the old notes and will
guarantee the new notes. For the twelve months ended June 30, 2004, Lavalife had
revenues of $71.7 million.
As a part of the Lavalife acquisition, members of Lavalife's senior
management entered 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 purchased
approximately Cdn$11.9 million ($9.1 million) in MemberWorks' restricted common
stock at the closing of the acquisition.
THE MASTER TRANSACTION AGREEMENT
The purchase price for the acquisition was approximately Cdn$152.5 million
($116.4 million) in cash, subject to certain adjustments and excluding fees and
expenses. 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.
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is information concerning our ratio of earnings to fixed
charges on a consolidated basis for the periods indicated. This ratio shows the
extent to which our business generates enough earnings after the payment of all
expenses other than interest to make required interest payments on our debt.
For the purpose of computing the ratios of earnings to fixed charges,
"earnings" consist of income before tax and fixed charges. "Fixed charges"
consist of interest expense, amortization of expenses related to indebtedness,
and the portion of rental expense which is considered to be representative of
the interest factors in our leases.
FISCAL YEAR ENDED JUNE 30,
--------------------------------------
2000 2001 2002 2003 2004
----- ---- ------ ------ -----
Ratio of earnings to fixed charges............. 6.75x (1) 17.69x 15.52x 5.67x
---------------
(1) For the year ended June 30, 2001, earnings were insufficient to cover fixed
charges of $3.8 million.
26
USE OF PROCEEDS
There will be no cash proceeds payable to us from the issuance of the new
notes pursuant to the exchange offer. Any old notes that are properly tendered
and exchanged pursuant to the exchange offer will be retired and cancelled. The
issuance of the new notes will not result in any change in our indebtedness.
The net proceeds less estimated debt issue costs received by us from the
sale of the outstanding old notes in the private offering completed on April 13,
2004, were approximately $141.6 million. We used approximately $15.0 million of
the net proceeds from the offering of the old notes to repay amounts borrowed
under our senior secured credit facility to fund a portion of the Lavalife
acquisition price. We intend to use the remainder of the net proceeds from the
private offering for general corporate purposes, including working capital,
future acquisitions and purchases of our common stock under our stock buyback
program to the extent permitted under the indenture governing the notes and the
senior secured credit facility.
27
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
MEMBERWORKS
The following table sets forth selected historical consolidated financial
data for MemberWorks. The selected consolidated financial data as of and for
each of the fiscal years ended June 30, 2000 through 2004 have been derived from
MemberWorks' audited consolidated financial statements.
The selected consolidated financial information is qualified by reference
to and should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and MemberWorks' consolidated
financial statements, including the related notes thereto, incorporated by
reference into this prospectus.
YEAR ENDED JUNE 30,
----------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
($ IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues................................ $330,107 $475,726 $427,602 $456,881 $488,739
Total expenses.......................... 331,547 509,050 415,713 434,595 435,869
-------- -------- -------- -------- --------
Operating income (loss)................. (1,440) (33,324) 11,889 22,286 52,870
Settlement of investment related
litigation............................ -- -- -- 19,148 --
(Loss) gain on sale of subsidiary....... -- -- 65,608 (959) --
Net (loss) gain on investment........... 8,854 (2,172) (33,628) (206) --
Other income (expense), net............. 873 (450) (401) 326 (6,272)
-------- -------- -------- -------- --------
Income (loss) before equity in affiliate
and minority interest................. 8,287 (35,946) 43,468 40,595 46,598
Equity in income (loss) of affiliate.... 19 83 -- -- --
Minority interest....................... 2,027 9,106 450 -- --
-------- -------- -------- -------- --------
Net income (loss) before provision for
income taxes.......................... 10,333 (26,757) 43,918 40,595 46,598
Provision for income taxes.............. -- -- -- 16,239 18,638
-------- -------- -------- -------- --------
Net income (loss) before cumulative
effect of accounting change........... 10,333 (26,757) 43,918 24,356 27,960
Cumulative effect of accounting
change................................ -- (25,730) (5,907) -- --
-------- -------- -------- -------- --------
Net income (loss)....................... $ 10,333 $(52,487) $ 38,011 $ 24,356 $ 27,960
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Cash flow provided by operating
activities............................ $ 44,910 $ 12,022 $ 17,014 $ 48,533 $ 47,948
Depreciation and amortization........... 13,002 20,498 13,252 12,120 13,252
Capital expenditures.................... 20,326 15,133 5,761 5,463 7,057
Ratio of earnings to fixed charges(1)... 6.75x NM 17.69x 15.52x 5.67x
CONSOLIDATED BALANCE SHEET (AT PERIOD
END):
Cash and cash equivalents............... $ 30,169 $ 21,745 $ 45,502 $ 72,260 $159,496
Restricted cash......................... -- 991 5,683 2,732 3,120
Total assets............................ 316,772 348,461 280,817 248,505 453,162
Total debt.............................. 1,083 3,057 3,627 8,273 246,943
Shareholders' (deficit) equity.......... 19,021 (25,965) (20,630) (20,283) (46,083)
---------------
(1) The ratio of earnings to fixed charges is computed by dividing pre-tax
income from continuing operations (before adjustment for minority interests
in consolidated subsidiaries and loss from equity investees) by fixed
charges. Fixed charges consist of interest charges, whether expensed or
capitalized, and that portion of rental expense we believe to be
representative of interest. For the year ended June 30, 2001, earnings were
insufficient to cover fixed charges of $3.8 million.
28
DESCRIPTION OF OTHER INDEBTEDNESS
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 June 30, 2004, we had $25.7 million of borrowing
capacity remaining under the senior secured credit facility due to a $5.5
million letter of credit outstanding thereunder and other restrictions reducing
availability by an amount equal to twelve months' interest on the outstanding
notes. 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 June 30, 2004, the effective interest rate was
4.0%.
The senior secured credit facility will be guaranteed by all of
MemberWorks' present and future domestic subsidiaries and 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 the offering
of the old notes, we became 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.
5.50% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE 2010
On September 30, 2003, we issued $90.0 million aggregate principal amount
of 5.50% convertible senior subordinated notes due September 2010. The notes
bear interest at the rate of 5.50% per year, which is payable semi-annually in
arrears on April 1 and October 1 of each year. The notes are convertible into
our common stock at a conversion price of approximately $40.37, subject to
adjustment. We may redeem the notes for cash any time on or after October 6,
2008, at 100% of their principal amount, plus accrued and unpaid interest to,
but excluding, the redemption date. Upon a change of control, holders of the
notes may require us to repurchase for cash all or a portion of their notes at a
repurchase price equal to 100% of the principal amount of the notes to be
repurchased, plus accrued and unpaid interest thereon to, but excluding, the
repurchase date.
29
THE EXCHANGE OFFER
REGISTRATION RIGHTS
In connection with the sale of the old notes, the purchasers of the old
notes became entitled to the benefits of certain registration rights. Pursuant
to the registration rights agreement executed as part of the offering of the old
notes, we agreed to:
- file within 120 days, and cause to become effective within 210 days, from
the date of the original issue of the outstanding old notes, the
registration statement of which this prospectus is a part with respect to
the exchange of the old notes for the new notes to be issued in the
exchange offer; and
- use our reasonable best efforts to issue on or prior to 30 business days,
or longer, after the date on which the exchange offer registration
statement was declared effective, new notes in exchange for the old
notes.
If:
(1) we are not required to file the exchange offer registration
statement or permitted to consummate the exchange offer because the
exchange offer is not permitted by applicable law or Commission policy; or
(2) any holder of old notes notifies us within 20 business days
following consummation of the exchange offer that:
(a) it is prohibited by law or Commission policy from participating
in the exchange offer; or
(b) that it may not resell the new notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the exchange offer registration statement is not
appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly
from the Company or an affiliate of the Company;
we will file with the Commission a shelf registration statement to cover resales
of the notes by the holders who satisfy certain conditions relating to the
provision of information in connection with the shelf registration statement.
In the event the exchange offer is consummated, we will not be required to
file a shelf registration statement relating to any outstanding old notes other
than those held by persons not eligible to participate in the exchange offer.
The exchange offer shall be deemed to have been consummated upon the earlier to
occur of:
- our having exchanged new notes for all outstanding old notes (other than
old notes held by persons not eligible to participate in the exchange
offer) pursuant to the exchange offer and
- our having exchanged, pursuant to the exchange offer, new notes for all
old notes that have been tendered and not withdrawn on the expiration
date.
Upon consummation, holders of old notes seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the Securities Act. See "Risk Factors -- If you do not tender your old notes to
be exchanged in this exchange offer, your notes will remain subject to transfer
restrictions."
LIQUIDATED DAMAGES
In the registration rights agreement, we also agreed that in the event
that:
(1) we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing;
30
(2) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness;
(3) we fail to consummate the exchange offer within 30 business days
after the exchange offer registration statement is declared effective by
the Commission; or
(4) the shelf registration statement or the exchange offer
registration statement is declared effective but thereafter ceases to be
effective or fails to be usable for its intended purposes during the
periods specified in the registration rights agreement,
then we will pay liquidated damages to each holder, with respect to the first
90-day period immediately following the occurrence of the first registration
default in an amount equal to 0.50% per annum per $1,000 principal amount of
notes held by such holder. The amount of the liquidated damages will increase by
an additional 0.50% per annum per $1,000 principal amount of notes with respect
to each subsequent 90-day period until all registration defaults have been
cured, up to a maximum amount of liquidated damages for all registration
defaults equal to 1.0% per annum.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying Letter of Transmittal, we will accept all old notes
validly tendered prior to 5:00 p.m., New York City time, on the expiration date
of the exchange offer. We will issue $1,000 principal amount of new notes in
exchange for each $1,000 principal amount of outstanding old notes accepted in
the exchange offer. Holders may tender some or all of their old notes pursuant
to the exchange offer in denominations of $1,000 and integral multiples thereof.
As of the date of this prospectus, $150 million aggregate principal amount
of old notes are outstanding. In connection with the issuance of the old notes,
we arranged for the old notes initially purchased by Qualified Institutional
Buyers to be issued and transferable in book-entry form through the facilities
of DTC, acting as depositary. The new notes will also be issuable and
transferable in book-entry form through DTC.
This prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of , 2004, which is the record
date for purposes of the exchange offer.
We shall be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice thereof to the exchange agent. See
"-- Exchange Agent." The exchange agent will act as agent for the tendering
holders of old notes for the purpose of receiving new notes from us and
delivering new notes to such holders.
If any tendered old notes are not accepted for any exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted old notes will be returned, without
expenses, to the tendering holder thereof promptly after the expiration date.
Holders of old notes who tender in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes in connection with the exchange offer. See "-- Fees and
Expenses."
EXPIRATION DATES, EXTENSIONS, AND AMENDMENTS
The term "expiration date" shall mean , 2004 unless we, in our
sole discretion, extend the exchange offer, in which case the term "expiration
date" shall mean the latest date to which the exchange offer is extended.
In order to extend the expiration date, we will notify the exchange agent
of any extension by oral or written notice and will mail to the record holders
of old notes an announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
Such announcement may state that we are extending the exchange offer for a
specified period of time.
31
We reserve the right:
- to delay acceptance of any old notes in the event that the exchange offer
is extended, to extend the exchange offer or to terminate the exchange
offer and to refuse to accept any old notes, if any of the conditions set
forth herein under "-- Termination" shall have occurred and shall not
have been waived by us (if permitted to be waived by us) prior to the
expiration date, by giving oral or written notice of such delay,
extension or termination to the exchange agent; and
- to amend the terms of the exchange offer in any manner deemed by us to be
advantageous to the holders of the old notes.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof. If the
exchange offer is amended in a manner determined by us to constitute a material
change, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the old notes of such amendment.
Without limiting the manner by which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The new notes will bear interest from April 13, 2004 payable semiannually
on April 1 and October 1 of each year commencing on October 1, 2004 at the rate
of 9 1/4% per annum. Holders of old notes whose old notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the old notes accrued from April 13, 2004 until the date
of the issuance of the new notes. Consequently, holders who exchange their old
notes for new notes will receive the same interest payment on October 1, 2004
(the first interest payment date with respect to the old notes and the new
notes) that they would have received had they not accepted the exchange offer.
RESALE OF THE NEW NOTES
Based on no-action letters issued by the staff of the Commission to third
parties, we believe that the new notes issued pursuant to the exchange offer in
exchange for old notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a broker-dealer who purchased the
notes directly from us to resell pursuant to an exemption under the Securities
Act or a person that is an "affiliate" of ours within the meaning of Rule 405
under the Securities Act) without a compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that:
- the new notes were acquired in the ordinary course of business; and
- the holder is not participating, and has no arrangements or understanding
with any person to participate, in the distribution of the new notes.
Holders of old notes wishing to accept the exchange offer must represent to
us that these conditions have been met.
Each broker-dealer that receives new notes in exchange for old notes held
for its own account, as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such new notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, such broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
prospectus, as it may be amended or supplemented from time to time, may be used
by such broker-dealer in connection with resales of new notes received in
exchange for old notes. We have agreed that, for a period of one year after the
expiration date, we will make this prospectus and any amendment or supplement to
this prospectus available to any such broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
32
PROCEDURE FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signature thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the old
notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the expiration date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the old notes by
causing DTC to transfer such old notes into the exchange agent's account in
accordance with DTC's procedure for such transfer. Although delivery of old
notes may be effected through book-entry transfer into the exchange agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the exchange agent at its
addresses set forth herein under "-- Exchange Agent" prior to 5:00 p.m., New
York City time, on the expiration date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a holder of old notes will constitute an agreement between
such holder and us in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the exchange agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies, or nominees effect such tender for
such holders.
The method of delivery of old notes and the Letters of Transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or old notes should
be sent to us.
Only a holder of old notes may tender such old notes in the exchange offer.
The term "holder" with respect to the exchange offer means any person in whose
name old notes are registered on the books of the company or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose old notes are held of record by DTC who desires to deliver such
old notes by book-entry transfer at DTC.
Any beneficial holder whose old notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his old notes, either make
appropriate arrangements to register ownership of the old notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the old notes
tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal; or
- for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any old notes listed therein, such old notes must be
endorsed or accompanied by appropriate bond powers which authorize such
33
person to tender the old notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders that appears on the
old notes.
If the Letter of Transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
Letter of Transmittal.
All the questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered old notes will be determined
by us in our sole discretion, which determinations will be final and binding. We
reserve the absolute right to reject any and all old notes not validly tendered
or any old notes our acceptance of which would, in the opinion of counsel for
us, be unlawful. We also reserve the absolute right to waive any irregularities
as to particular old notes and any conditions of tender as to all of the old
notes. Our interpretation of the terms and conditions of the exchange offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within such time as we shall
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of defects or irregularities with respect to
tenders of old notes nor shall any of them incur any liability for failure to
give such notification. Tenders of old notes will not be deemed to have been
made until such irregularities have been cured or waived. Any old notes received
by the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost by
the exchange agent to the tendering holder of such old notes unless otherwise
provided in the Letter of Transmittal promptly following the expiration date.
In addition, we reserve the right in our sole discretion to:
- purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date, or, as set forth under
"-- Termination," to terminate the exchange offer; and
- to the extent permitted by applicable law, purchase old notes in the open
market, in privately negotiated transactions or otherwise.
The terms of any such purchase or offers may differ from the terms of the
exchange offer.
By tendering, each holder of old notes will represent to us that among
other things, the new notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person receiving such new
notes, whether or not such person is the holder, that neither the holder nor any
other person has an arrangement or understanding with any person to participate
in the distribution of the new notes and that neither the holder nor any such
other person in an "affiliate" of our company within the meaning of Rule 405
under the Securities Act.
GUARANTEED DELIVERY PROCEDURE
Holders who wish to tender their old notes and whose old notes are not
immediately available, or who cannot deliver their old notes, the Letter of
Transmittal, or any other required documents to the exchange agent prior to the
expiration date, or if such holder cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
- The tender is made through an Eligible Institution;
- Prior to the expiration date, the exchange agent receives from such
eligible institution properly competed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery):
- setting forth the name and address of the holder of the old notes, the
certificate number or numbers of such old notes and the principal amount
of old notes tendered;
- stating that the tender is being made by guaranteed delivery; and
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- guaranteeing that, within five business days after the expiration date,
the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the old notes to be tendered in proper form
for transfer and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
exchange agent; and
- the exchange agent receives the properly completed and executed Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing all tendered old notes in proper form for transfer (or
confirmation of a book-entry transfer into the exchange agents' account
at DTC of old notes delivered electronically) and all other documents
required by the Letter of Transmittal within five business days after the
expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the expiration date.
To withdraw a tender of old notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the business day prior to the expiration date. Any such notice of withdrawal
must:
- specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor");
- identify the old notes to be withdrawn (including the certificate number
or numbers and principal amount of the old notes);
- be signed by the Depositor in the same manner as the original signature
on the Letter of Transmittal by which the old notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfers sufficient to permit the Trustee with respect to
the old notes to register the transfer of the old notes into the name of
the Depositor withdrawing the tender; and
- specify the name in which the old notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) for such withdrawal notices will be determined by us, and our
determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no new notes will be issued with respect thereto unless the
old notes so withdrawn are validly tendered. Any old notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder promptly after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn old notes may be
tendered by following one of the procedures described above under "-- Procedures
for Tendering" at any time prior to the expiration date.
TERMINATION
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange new notes for, any old notes not
therefore accepted for exchange, and may terminate or amend the exchange offer
as provided herein before the acceptance of such old notes if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer,
which, in our judgment, might materially impair our ability to proceed
with the exchange offer; or
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute rule or regulation is interpreted by the staff
of the Commission or court of competent jurisdiction in a manner, which,
in our judgment, might materially impair our ability to proceed with the
exchange offer.
If we determine that we may terminate the exchange offer, as set forth
above, we may:
- refuse to accept any old notes and return any old notes that have been
tendered to the holders thereof;
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- extend the exchange offer and retain all old notes that have been
tendered prior to the expiration of the exchange offer, subject to the
rights of such holders of tendered old notes to withdraw their tendered
old notes; or
- waive such termination event with respect to the exchange offer and
accept all properly tendered old notes that have not been withdrawn.
If such waiver constitutes a material change in the exchange offer, we will
disclose the change by means of a supplement to this prospectus that will be
distributed to each registered holder of old notes and we will extend the
exchange offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the old notes, if the exchange offer would otherwise expire during
such period.
EXCHANGE AGENT
LaSalle Bank National Association has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the Letter of Transmittal should be
directed to the exchange agent addressed as follows:
By Mail or Hand Delivery: LaSalle Bank N.A.
135 LaSalle Street, Suite 1960
Chicago, IL 60603
Attention: Gregory S. Clarke, Vice President
Facsimile Transmission: (312) 904-2236
Confirm by Telephone: (312) 904-5532
FEES AND EXPENSES
The expense of soliciting tenders pursuant to the exchange offer will be
borne by us. The principal solicitation for tenders pursuant to the exchange
offer is being made by mail. Additional solicitations may be made by officers
and regular employees of ours and our affiliates in person, by facsimile or
telephone.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent's reasonable out-of-pocket expenses in connection therewith. We
may also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
prospectus, Letters of Transmittal and related documents to the beneficial
owners of the old notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting and
legal fees, will be paid by us.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, certificates representing new
notes or old notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
other person other than the registered holder of the old notes tendered, or if
tendered old notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of old notes pursuant to the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other person) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
36
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not tender your old notes to be exchanged in this exchange offer,
they will remain "restricted securities" within the meaning of Rule 144(a)(3) of
the Securities Act. Accordingly, they may only be resold if:
- registered pursuant to the Securities Act;
- an exemption from registration is available; or
- neither registration nor an exemption is required by law; and
they shall continue to bear a legend restricting transfer in the absence of
registration or an exemption from registration.
As a result of the restrictions on transfer and the availability of the new
notes, the old notes are likely to be much less liquid than before the exchange
offer. Following the consummation of the exchange offer, in general, holders of
old notes will have no further registration rights under the registration rights
agreement.
DESCRIPTION OF THE NEW NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the terms
"Company," "we," "us" and "our" refer only to MemberWorks Incorporated and not
to any of its Subsidiaries.
The Company issued the outstanding old notes under an indenture dated as of
April 13, 2004 among itself, the Guarantors and LaSalle Bank National
Association, as trustee, a copy of the form of which will be made available upon
request. Upon the issuance of the new notes, the indenture will be subject to
and governed by the Trust Indenture Act of 1939, as amended. We refer to the new
notes throughout this description as the "new notes," the older outstanding
notes as the "old notes" and the new notes and old notes together as the
"notes."
The following description is a summary of the material provisions of the
indenture. It does not restate those agreements in their entirety. We urge you
to read the indenture because it, and not this description, define your rights
as holders of the notes. Certain defined terms used in this description but not
defined below under "-- Certain Definitions" have the meanings assigned to them
in the indenture.
The registered Holder will be treated as the owner of it for all purposes.
Only registered Holders will have rights under the indenture.
GENERAL
The new notes will be unsecured, senior obligations of the Company. The old
notes were issued in an initial principal amount of $150 million. The new notes
will be issued solely in exchange for an equal principal amount of old notes
pursuant to the exchange offer. The form and terms of the new notes will be
identical in all material respects to the form and terms of the old notes except
that: (1) the new notes will have been registered under the Securities Act and
(2) the registration rights and liquidated damages provisions, which are
triggered if the filing and declaration of effectiveness of the required
registration statement and subsequent consummation of an exchange offer pursuant
to the registration statement do not occur within the time periods specified in
the registration rights agreement, applicable to the old notes are not
applicable to the new notes. See "The Exchange Offer -- Registration Rights."
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BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes:
- are general unsecured obligations of the Company;
- are pari passu in right of payment with any existing and future senior
unsecured Indebtedness of the Company;
- are senior in right of payment to any future Indebtedness of the Company
that expressly provides for its subordination to the notes;
- will be effectively subordinated to all existing and future secured
Indebtedness of the Company; and
- are unconditionally guaranteed by the Guarantors on a senior unsecured
basis.
THE GUARANTEES
The notes are jointly and severally guaranteed by each of our Domestic
Subsidiaries that guarantee our Credit Facilities. As of the Issue Date, none of
our Foreign Subsidiaries, other than Lavalife Corp. (formerly Lavalife Inc.),
will guarantee the notes. Our Subsidiaries that will not guarantee the notes as
of the Issue Date accounted for, after giving pro forma effect to the
Transactions as if they occurred on July 1, 2003, 4% of our revenues for the
year ended June 30, 2004 and represented 4% of our assets as of December 31,
2003.
Each Guarantee of the notes:
- is a general unsecured obligation of the Guarantor;
- is pari passu in right of payment with any existing and future senior
unsecured Indebtedness of the Guarantor;
- is senior in right of payment to any future Indebtedness of the Guarantor
that expressly provides for its subordination to the Guarantee of the
Guarantor; and
- will be effectively subordinated to all existing and future secured
Indebtedness of the Guarantor.
As of June 30, 2004, the Company and the Guarantors had an issued and
undrawn letter of credit of $5.5 million under the Credit Agreement and $25.7
million available for borrowing under the Credit Agreement and the non-Guarantor
Subsidiaries had $4.4 million of outstanding Indebtedness. The indenture will
permit the Company, the Guarantors and the non-Guarantor Subsidiaries to incur
additional secured and unsecured Indebtedness.
On the Issue Date, all of our Domestic Subsidiaries and none of our Foreign
Subsidiaries, other than Lavalife Corp., will guarantee the notes. In the
future, it is possible that we will have additional Subsidiaries that will not
guarantee the notes. In the event of a bankruptcy, liquidation or reorganization
of any of these non-Guarantor Subsidiaries, the non-Guarantor Subsidiaries will
pay the holders of their debt and their trade creditors before they will be able
to distribute any of their assets to us.
On the Issue Date, all of our Subsidiaries will be "Restricted
Subsidiaries." However, under the circumstances described below under the
caption "-- Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our Subsidiaries as
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject
to many of the restrictive covenants in the indenture. Our Unrestricted
Subsidiaries will not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
The Company issued $150,000,000 aggregate principal amount of notes in the
private offering on April 13, 2004. The Company may issue additional notes under
the indenture from time to time. Any issuance of additional notes ("Additional
Notes") is subject to the covenant described below under the caption
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"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock." The notes and any Additional Notes subsequently issued under the
indenture will be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. The Company issued notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on April 1, 2014.
Interest on the notes will accrue at the rate of 9 1/4% per annum and will
be payable semi-annually in arrears on April 1 and October 1, commencing on
October 1, 2004. The Company will make each interest payment to the Holders of
record on the immediately preceding March 15 and September 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder owning more than $1.0 million principal amount of the notes has
given wire transfer instructions to the Company, the Company will pay all
principal, interest and premium and Liquidated Damages, if any, on that Holder's
notes in accordance with those instructions. All other payments on notes will be
made at the office or agency of the paying agent and registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to the Holders at their respective addresses set forth in the
register of Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. The Company
may change the paying agent or registrar without prior notice to the Holders,
and the Company or any of its Restricted Subsidiaries may act as paying agent or
registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a Holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes due on transfer. The Company is not
required to transfer or exchange any note selected for redemption. Also, the
Company is not required to transfer or exchange any note for a period of 15 days
before a selection of notes to be redeemed.
SUBSIDIARY GUARANTEES
The notes will be guaranteed by each of our current and future Domestic
Subsidiaries, Lavalife Corp. and any other Foreign Subsidiary that is a
Restricted Subsidiary that Guarantees any Credit Facility. The Guarantees will
be joint and several Obligations of the Guarantors. The Obligations of each
Guarantor under its Guarantee will be limited as necessary to prevent that
Guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors -- Federal and state statutes allow courts under specific
circumstances to void guarantees and require note holders to return payments
received from subsidiary guarantors."
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than the Company or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the Obligations of that Guarantor under the
39
indenture, the notes, its Guarantee and the registration rights
agreement pursuant to a supplemental indenture satisfactory to the
trustee; or
(b) the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the indenture.
The Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) a Subsidiary of the Company, if the sale
or other disposition complies with the "Asset Sale" and other provisions of
the indenture;
(2) in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving effect to
such transaction) a Subsidiary of the Company, if the sale complies with
the "Asset Sale" and other provisions of the indenture;
(3) if the Company designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the applicable
provisions of the indenture;
(4) in connection with any Legal Defeasance or Covenant Defeasance of
the notes in accordance with the terms of the indenture; or
(5) if the applicable Guarantor no longer Guarantees Obligations under
any Credit Facilities.
OPTIONAL REDEMPTION
At any time prior to April 1, 2007, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture at a redemption price of 109.250% of the principal amount,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings by
the Company or from the cash contribution of equity capital (other than
Disqualified Stock) to the Company, provided that:
(1) at least 65% of the aggregate principal amount of notes (including
Additional Notes, if any) issued under the indenture remains outstanding
immediately after the occurrence of such redemption (excluding notes held
by the Company and its Subsidiaries); and
(2) the redemption occurs within 90 days of the date of the closing of
such Equity Offering.
Notice of any redemption upon an Equity Offering may be given prior to
completion of the related Equity Offering. At the Company's discretion, any such
redemption or notice may be subject to one or more conditions precedent,
including, but not limited to completion of the related Equity Offering.
At any time prior to April 1, 2009, the Company may also redeem all or a
part of the notes, upon not less than 30 nor more than 60 days prior notice
mailed by first class mail to each Holder's registered address, at a redemption
price equal to 100% of the principal amount of notes redeemed plus the
Applicable Premium as of, and accrued and unpaid interest and Liquidated
Damages, if any, to, the date of redemption (the "Redemption Date").
Except pursuant to the preceding paragraphs, the notes will not be
redeemable at the Company's option prior to April 1, 2009.
After April 1, 2009, the Company may redeem all or a part of the notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, on the notes redeemed to the
applicable redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due
40
on the relevant interest payment date), if redeemed during the twelve-month
period beginning on April 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2009........................................................ 104.625%
2010........................................................ 103.083%
2011........................................................ 101.542%
2012 and thereafter......................................... 100.000%
REDEMPTION, SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange,
on a pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder to be redeemed at its registered address,
except that redemption notices may be mailed more than 60 days prior to a
redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. Notice of any redemption
may, at the Company's discretion, be subject to one or more conditions
precedent.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the Holder upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make any mandatory redemption or sinking
fund payments with respect to the notes. However, under certain circumstances,
the Company may be required to offer to purchase notes as described under the
captions "-- Repurchase at the Option of Holders -- Asset Sales" and "Change of
Control." The Company may at any time and from time to time purchase notes in
the open market or otherwise.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder will have the right to require
the Company to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that Holder's notes pursuant to a Change of Control Offer
on the terms set forth in the indenture. In the Change of Control Offer, the
Company will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of notes repurchased plus accrued and unpaid interest
and Liquidated Damages, if any, on the notes repurchased to the date of
purchase. Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the Change
of Control Payment Date specified in the notice, which date will be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and
41
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
the indenture, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Change of Control provisions of the indenture by virtue of such conflict.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by the
Company.
The paying agent will promptly mail to each Holder of notes properly
tendered, the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that permit the Holders to require that the Company repurchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
A Change of Control Offer may be made in advance of a Change of Control,
and conditional upon the occurrence of such Change of Control, if a definitive
agreement is in place for the Change of Control at the time of making the Change
of Control Offer.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all notes properly tendered and not withdrawn under the Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder to require the Company to repurchase its notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Company and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
ASSET SALES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) The Company (or its Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of,
42
(2) the fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of such Board of Directors set
forth in an officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset Sale by
the Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following will be
deemed to be cash:
(a) any liabilities, as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet, of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are
by their terms subordinated to the notes or any Guarantee) that are
assumed by the transferee of any such assets as a result of which
assumption the Company or such Restricted Subsidiary is released from
further liability;
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
within 90 days of such Asset Sale converted into cash by the Company or
such Restricted Subsidiary, to the extent of the cash received in that
conversion; and
(c) any stock or assets of the kind referred to in clause (II) or
(IV) of the next paragraph of this covenant.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company (or the applicable Restricted Subsidiary, as the case may be) may
apply those Net Proceeds at its option:
(I) to repay secured Indebtedness of the Company or any Guarantor
under a Credit Facility;
(II) to acquire (or enter into a binding agreement to acquire;
provided that such commitment will be subject only to customary conditions
(other than financing) and such acquisition will be consummated within 90
days after the end of such 360-day period) all or substantially all of the
assets of, or a majority of the Voting Stock of, another Permitted
Business;
(III) to make a capital expenditure; or
(IV) to acquire (or enter into a binding agreement to acquire;
provided that such commitment will be subject only to customary conditions
(other than financing) and such acquisition will be consummated within 90
days after the end of such 360-day period) other long-term assets that are
used or useful in a Permitted Business or the minority interest in any
Restricted Subsidiary that is not a Wholly-Owned Restricted Subsidiary.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all Holders and all holders of other Indebtedness that is
pari passu with the notes containing provisions similar to those set forth in
the indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of notes and such other
pari passu Indebtedness that may be purchased out of the Excess Proceeds. The
offer price in any Asset Sale Offer will be equal to 100% of principal amount
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use those Excess Proceeds
for any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of notes and other pari passu Indebtedness tendered into such
Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select
the notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds
will be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any
43
securities laws or regulations conflict with the Asset Sale provisions of the
indenture, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Asset Sale provisions of the indenture by virtue of such conflict.
The Credit Agreement provides that certain change of control or asset sale
events with respect to the Company would constitute a default under the Credit
Agreement. Any future credit agreements or other agreements relating to
Indebtedness to which the Company becomes a party may prohibit the Company from
purchasing notes or provide that certain change of control or asset sale events
with respect to the Company would constitute a default thereunder. In the event
a Change of Control or Asset Sale occurs at a time when the Company is
prohibited from purchasing notes, the Company could seek the consent of its
lenders to the purchase of notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited from purchasing notes.
In such case, the Company's failure to purchase tendered notes would constitute
an Event of Default under the indenture which would, in turn, constitute a
default under such Indebtedness.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution (A) on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any
of its Restricted Subsidiaries) or (B) to the direct or indirect holders of
the Company's or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such (other than dividends or distributions (i) payable
in Equity Interests (other than Disqualified Stock) of the Company or (ii)
to the Company or a Restricted Subsidiary of the Company;
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness that is
subordinated to the notes or the Guarantees (excluding any intercompany
Indebtedness between the Company and any of its Restricted Subsidiaries),
except a payment of interest or principal at the Stated Maturity thereof;
or
(4) make any Restricted Investment (all such payments and other
actions set forth in these clauses (l) through (4) above being collectively
referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence of such Restricted Payment; and
(2) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (2), (3), (4), (6), (7), (8), (9) and (10) of the next
succeeding paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the fiscal
quarter in which the Issue Date occurs to the end
44
of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(b) 100% of the fair market value of the aggregate net proceeds
received by the Company since the Issue Date as a contribution to its
common equity capital or from the issue or sale of Equity Interests of
the Company (other than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity Interests
(or Disqualified Stock or debt securities) sold to a Subsidiary of the
Company); provided that such aggregate net proceeds are limited to cash
and Cash Equivalents and other assets used or useful in a Permitted
Business or the Capital Stock of a Person engaged in a Permitted
Business, plus
(c) the sum of (1) the aggregate amount returned in cash on or with
respect to any Restricted Investment in or to a Person that was made
after the Issue Date whether through interest payments, principal
payments, dividends or other distributions or payments, plus (2) the net
cash proceeds received by the Company or any of its Restricted
Subsidiaries from the disposition of all or any portion of such
Restricted Investment, provided, however, that the sum of clauses (1)
and (2) above shall not exceed the sum of (i) the aggregate amount of
all such Restricted Investments made in or to such Person subsequent to
the Issue Date and (ii) without duplication of clause (i), one half of
the gain from any disposition of all or any portion of such Restricted
Investments made subsequent to the Issue Date, plus
(d) to the extent that after the Issue Date, any Unrestricted
Subsidiary of the Company is redesignated as a Restricted Subsidiary or
is merged, consolidated or amalgamated with or into or transfers or
conveys assets to, or is liquidated into the Company or any of its
Restricted Subsidiaries, the lesser of (i) the fair market value of the
Company's Investment in such Subsidiary as of the date of such
redesignation, merger, consolidation or amalgamation (or of the assets
transferred or conveyed, as applicable) and (ii) such fair market value
as of the date on which such Subsidiary was originally designated as an
Unrestricted Subsidiary; plus
(e) $7.5 million.
The preceding provisions will not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption of debt that is subordinate to the notes within 60 days after
the date of declaration of the dividend or giving of any such redemption
notice, as the case may be, if at the date of declaration or notice the
dividend or redemption payment would have complied with the provisions of
the indenture;
(2) the redemption, repurchase, retirement or other acquisition of
subordinated Indebtedness of the Company or any Guarantor or of any Equity
Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the
Company) of, Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition will be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Company or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) so long as no Default or Event of Default has occurred and is
continuing, the payment of any dividend by a Restricted Subsidiary of the
Company to the holders of its Equity Interests on a pro rata basis;
(5) so long as no Default or Event of Default has occurred and is
continuing, the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company (A) held by any current or former director,
officer or employee of
45
the Company or any of its Restricted Subsidiaries (or permitted transferees
of such directors, officers or employees) and (B) in the open market to the
extent such shares are acquired to satisfy a current obligation to deliver
shares in connection with the exercise of stock options or similar rights
or the matching contributions under any 401(k) plan subject to the
provisions of Section 401 of the Internal Revenue Code of 1986, as amended,
in each case pursuant to the terms of the agreements (including any equity
subscription agreement, stock option agreement, shareholders' agreement,
employment agreement or similar agreement) or plans (or amendments
thereto); provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests may not in any fiscal year
exceed $3.0 million unless the aggregate amount of such repurchases,
redemptions, acquisitions and retirement in any fiscal year was less than
$3.0 million in which case the Company may carry-forward the unused amounts
to the immediately succeeding fiscal year; provided, however, the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests may not exceed $6.0 million in any one fiscal year;
(6) the repurchase of Equity Interests deemed to occur upon the
exercise of stock options to the extent such Equity Interests represent a
portion of the exercise price of those stock options;
(7) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of the Company or preferred stock of any
Restricted Subsidiary of the Company issued on or after the Issue Date in
accordance with the Fixed Charge Coverage Ratio test described below under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"
to the extent such dividends are included in the definition of "Fixed
Charges"; provided that no Default or Event of Default shall have occurred
and be continuing immediately after making such Restricted Payment;
(8) so long as no Default or Event of Default has occurred and is
continuing, the purchase by the Company of fractional shares arising out of
stock dividends, splits or combinations or business combinations;
(9) so long as no Default or Event of Default has occurred and is
continuing, the repurchase, redemption or other acquisition of the
Company's issued and outstanding common stock pursuant to the Company's
stock repurchase program as in effect from time to time in an amount not to
exceed $10.0 million; and
(10) so long as no Default or Event of Default has occurred and is
continuing, other Restricted Payments since the Issue Date in an aggregate
amount not to exceed $12.5 million.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors of the Company whose good
faith determination will be conclusive and will be delivered to the trustee.
Such Board of Directors' determination must be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if the fair market value exceeds $10.0 million. Not later than
the last day of each fiscal quarter in which any Restricted Payment was made,
the Company will deliver to the trustee an officers' certificate stating that
each Restricted Payment made in such fiscal quarter is permitted and setting
forth the basis upon which the calculations required by this "Restricted
Payments" covenant were computed, together with a copy of any fairness opinion
or appraisal required by the indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company and any Guarantor may incur Indebtedness
(including Acquired Debt), the Company may issue Disqualified Stock or any
Guarantor may
46
issue preferred stock, if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is to be incurred or such Disqualified Stock or preferred stock is
to be issued would have been at least 2.25 to 1.0 if such incurrence is on or
prior to October 1, 2005 and 2.50 to 1.0 if such incurrence is after October 1,
2005, determined, in each case, on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or Disqualified Stock or preferred stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and/or any Guarantor of additional
Indebtedness and letters of credit under one or more Credit Facilities in
an aggregate principal amount at any one time outstanding under this clause
(1) (with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and the Guarantors
thereunder) not to exceed $75.0 million;
(2) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the old notes and the related Guarantees and the new notes
and the related Guarantees to be issued pursuant to the registration rights
agreement;
(4) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or cost
of design, construction, installation or improvement of property, plant or
equipment used in the business of the Company or such Restricted
Subsidiary, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed $5.0
million at any time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the indenture
to be incurred under the first paragraph of this covenant or clause (2),
(3) or (5) of this paragraph;
(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that:
(a) if the Company or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations then due with respect
to the notes, in the case of the Company, or the Guarantee, in the case
of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
the Company or a Restricted Subsidiary of the Company and (ii) any sale
or other transfer of any such Indebtedness to a Person that is not
either the Company or a Restricted Subsidiary of the Company will be
deemed, in each case, to constitute an incurrence of such Indebtedness
by the Company or such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations;
(8) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or any Guarantor that was permitted to be
incurred by another provision of this covenant;
(9) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (9);
47
(10) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in respect of workers' compensation claims,
self-insurance obligations, bankers' acceptances, and performance and
surety bonds and completion guarantees in the ordinary course of business;
(11) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds, so long as such Indebtedness is covered
within five business days;
(12) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness consisting of guarantees, indemnities,
holdbacks or obligations in respect of purchase price adjustments in
connection with the acquisition or disposition of assets; provided,
however, that such Indebtedness is not reflected on the balance sheet of
the Company or any Restricted Subsidiary; and
(13) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (13), not to exceed $20.0
million.
The accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, the accumulation of dividends on Disqualified
Stock or preferred stock (to the extent not paid) and the payment of dividends
on Disqualified Stock or preferred stock in the form of additional shares of the
same class of Disqualified Stock or preferred stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock or preferred
stock for purposes of this covenant; provided, in each such case, that the
amount thereof is included in Fixed Charges of the Company as accrued.
Notwithstanding anything to the contrary in this "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in no event will the
Company or any of its Restricted Subsidiaries be permitted to refinance the
Convertible Senior Subordinated Notes, in whole or in part, with the proceeds of
Senior Debt.
For purposes of determining compliance with this "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of Indebtedness (including Acquired Debt) meets the criteria of more than
one of the categories of Permitted Debt described in clauses (1) through (13)
above, or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company will be permitted to divide and classify (later classify
or reclassify in whole or in part in its sole discretion) such item of
Indebtedness in any manner that complies with this covenant.
Notwithstanding anything to the contrary contained in this "-- Incurrence
of Indebtedness and Issuance of Preferred Stock" covenant, any increase in the
amount of Indebtedness solely by reason of currency fluctuation shall not be
considered an incurrence of Indebtedness for purposes of this covenant. For
purposes of determining compliance with this covenant, the U.S.
dollar-equivalent principal amount of Indebtedness denominated in any currency
other than U.S. dollars shall be calculated based on the relevant currency
exchange rate in effect as of the date such Indebtedness is incurred.
LIENS
The Company will not and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind (other than Permitted Liens) securing
Indebtedness or trade payables upon any of their property or assets, now owned
or hereafter acquired, unless all payments due under the indenture and the notes
are secured on an equal and ratable basis (or on a senior basis to, in the case
of obligations subordinated in right or payment to the notes) with the
obligations so secured until such time as such obligations are no longer secured
by a Lien.
48
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities
as in effect on the Issue Date and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, restructurings,
replacements or refinancings of those agreements, provided that the
amendments, modifications, restatements, renewals, increases, supplements,
refundings, restructurings, replacement or refinancings are not materially
more restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in those agreements on the Issue
Date;
(2) the indenture, the old notes, the new notes and the related
Guarantees;
(3) applicable law, rule, regulation or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition or assumed by the Company or any of its
Restricted Subsidiaries in connection with an acquisition of all or
substantially all the assets of a Person (except to the extent such
Indebtedness or Capital Stock was incurred or assumed in connection with or
in contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the indenture to be incurred;
(5) customary non-assignment provisions in leases, licenses or other
contracts entered into in the ordinary course of business and consistent
with past practices:
(6) purchase money obligations for property acquired in the ordinary
course of business and Capital Lease Obligations permitted under the
indenture that impose restrictions of the nature described in clause (3) of
the preceding paragraph on the property purchased or leased;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary of the Company that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
under the provisions of the covenant described above under the caption
"-- Liens" that limit the right of the debtor to dispose of the assets
subject to such Liens;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale agreements,
sale-leaseback agreements, stock sale agreements and other similar
agreements entered into in the ordinary course of business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
49
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither the Company nor any of its Restricted Subsidiaries may, directly or
indirectly: (1) consolidate or merge with or into another Person (whether or not
the Company or a Restricted Subsidiary of the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:
(1) either: (a) the Company or any Restricted Subsidiary of the
Company is the surviving corporation; or (b) the Person formed by or
surviving any such consolidation or merger (if other than the Company or
any Restricted Subsidiary of the Company) or to which such sale,
assignment, transfer, conveyance or other disposition has been made is a
corporation organized or existing under the laws of the United States, any
state of the United States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company or any Restricted Subsidiary of the Company) or
the Person to which such sale, assignment, transfer, conveyance or other
disposition has been made assumes all the obligations of the Company or its
Restricted Subsidiaries, as applicable, under the notes, the indenture, the
registration rights agreement and the Guarantee, if any, pursuant to
agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) in the case of the consolidation or merger of the Company or the
Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, conveyance
or other disposition has been made or, in the case of a consolidation or
merger of a Restricted Subsidiary of the Company or the sale, assignment,
transfer, conveyance or other disposition of the property or assets of the
Restricted Subsidiary, the Company will, in each case, on the date of such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" or have a
Fixed Charge Coverage Ratio that is no less than the Fixed Charge Coverage
Ratio of the Company immediately prior to such transaction.
In addition, neither the Company nor any of its Restricted Subsidiaries
may, directly or indirectly, lease all or substantially all of its properties or
assets, in one or more related transactions, to any other Person.
Notwithstanding the foregoing:
(A) the Company or any of its Restricted Subsidiaries may merge with
an Affiliate that has no significant assets or liabilities and was
incorporated solely for the purpose of reincorporating the Company or such
Restricted Subsidiaries in another jurisdiction within the United States;
and
(B) any Restricted Subsidiary of the Company may consolidate with,
merge into or transfer all or part of its properties and assets to the
Company or to a Subsidiary that is a Guarantor.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with a Person who was not an Affiliate; and
50
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors of the Company set
forth in an officers' certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested members
of the Board of Directors of the Company; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, a written opinion from an independent investment banking,
accounting or appraisal firm of nationally recognized standing to the
effect that such Affiliate Transaction is fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries or not
materially less favorable to the Company and its Restricted Subsidiaries
than could reasonably be expected to be obtained at the time in an
arm's-length transaction with a Person who was not an Affiliate.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreements or arrangements, employee benefit plans
or arrangements, officer and director indemnification agreements or
arrangements or other similar agreements or arrangements entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of the Company
solely because the Company or any of its Restricted Subsidiaries owns an
Equity Interest in, or controls, such Person;
(4) payment of reasonable directors' fees and indemnity provided on
behalf of officers, directors or employees of the Company or any of its
Restricted Subsidiaries;
(5) any issuance or sale of Equity Interests (other than Disqualified
Stock) to Affiliates of the Company;
(6) Permitted Investments and Restricted Payments that are permitted
by the provisions of the indenture described above under the caption
"-- Restricted Payments":
(7) the issuance of securities or other payments, awards or grants in
cash, securities or otherwise pursuant to, or funding of, employment
arrangements, stock options and stock ownership plans or similar employee
benefit plans approved by the Board of Directors of the Company in good
faith and loans to employees of the Company and its Subsidiaries that are
approved by the Board of Directors of the Company in good faith; and
(8) transactions with customers, clients, suppliers or purchasers or
sellers of goods or services, in each case on ordinary business terms
consistent with past practices and otherwise in compliance with the terms
of the indenture, which are fair to the Company or its Restricted
Subsidiaries, in the reasonable determination of the Board of Directors or
senior management of the Company, or are on terms at least as favorable as
could reasonably have been obtained at such time from a Person that is not
an Affiliate of the Company or any of its Restricted Subsidiaries.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if that designation would not cause
a Default or Event of Default. If a Restricted Subsidiary is designated as an
Unrestricted Subsidiary, the aggregate fair market value of all outstanding
Investments owned by the Company and its Restricted Subsidiaries in the
Subsidiary properly designated will be deemed to be an Investment made as of the
time of the designation and will reduce the amount available for Restricted
Payments under the covenant described above under the caption "-- Restricted
Payments" or under one or more clauses of the definition of Permitted
Investments, as determined by the Company. That designation will
51
only be permitted if the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
ADDITIONAL GUARANTEES
If (i) the Company or any of its Restricted Subsidiaries acquires or
creates another Domestic Subsidiary after the Issue Date that Guarantees any
Credit Facilities or (ii) any Foreign Subsidiary Guarantees any Credit
Facilities, then in each case, such Subsidiary will become a Guarantor and
execute a supplemental indenture and deliver an opinion of counsel satisfactory
to the trustee within 10 Business Days of the date on which such Subsidiary
executed the Guarantee with respect to any such Credit Facilities; provided,
however, that the foregoing shall not apply to Subsidiaries that have properly
been designated as Unrestricted Subsidiaries in accordance with the indenture
for so long as they continue to constitute Unrestricted Subsidiaries.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to he paid and is paid to all Holders that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
TERMINATION OF CERTAIN COVENANTS
During any period of time that the notes have a rating equal to or greater
than BBB- by S&P and Baa3 by Moody's (each such rating, an "Investment Grade
Rating") and no Default or Event of Default has occurred and is continuing, the
Company and the Subsidiaries will no longer be subject to the provisions of the
indenture described under the following captions:
(a) "-- Incurrence of Indebtedness and Issuance of Preferred Stock";
(b) "-- Restricted Payments";
(c) "-- Transactions with Affiliates";
(d) "-- Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries";
(e) "-- Designation of Restricted and Unrestricted Subsidiaries":
(f) "-- Business Activities";
(g) "-- Payments for Consents"; and
(h) "-- Repurchase at the Option of the Holders".
(collectively, the "Suspended Covenants"), provided, however, that the
provisions of the indenture described under the following captions will not be
so terminated:
(a) "-- Liens";
(b) "-- Reports";
52
(c) "-- Merger, Consolidation or Sale of Assets"; provided, however,
the Company will no longer be subject to clause (4) of such provision; and
(d) "-- Additional Guarantees".
In the event that the Company and any of its Subsidiaries are not subject
to the Suspended Covenants for any period of time as a result of the preceding
sentence and that subsequently the notes cease to have an Investment Grade
Rating from either S&P or Moody's, as a result of a downgrade, withdrawal of
rating or otherwise, then the Company and its Subsidiaries will from such time
and thereafter again be subject to the Suspended Covenants.
REPORTS
Whether or not required by the Commission, so long as any notes are
outstanding, the Company will furnish to the trustee for mailing to the Holders,
within the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by the Company's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement (the "Exchange Offer"), whether or not
required by the Commission, the Company will file a copy of all of the
information and reports referred to in clauses (1) and (2) above with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such
a filing) and make such information available to prospective investors upon
request. In addition, the Company and the Guarantors have agreed that they will
furnish to the Holders and to prospective investors, upon the request of such
Holders, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act so long as the notes are not freely transferable under
the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if
any, on the notes;
(3) failure by the Company or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets," "-- Repurchase at
the Option of Holders -- Asset Sales" or "-- Repurchase at the Option of
Holders -- Change of Control";
(4) failure by the Company or any of its Restricted Subsidiaries for
60 days after notice to comply with any of the other agreements in the
indenture;
53
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default
(a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
Stated Maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(6) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5.0 million (exclusive of
amounts covered by insurance), which judgments are not paid, discharged or
stayed for a period of 60 days;
(7) except as permitted by the indenture, any Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
Obligations under its Guarantee; and
(8) certain events of bankruptcy or insolvency described in the
indenture with respect to the Company or any of its Significant
Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Significant
Subsidiary, all outstanding notes will become due and payable immediately
without further action or notice. If any other Event of Default occurs and is
continuing, the trustee or the Holders of at least 25% in principal amount of
the then outstanding notes may declare all the notes to be due and payable
immediately.
However, a default under clause (4) or (5) above will not constitute an
Event of Default until the trustee or the Holders of 25% in aggregate principal
amount of the outstanding notes notify the Company of the default and the
Company does not cure such default within the time specified after receipt of
such notice.
Holders may not enforce the indenture or the notes except as provided in
the indenture. Subject to certain limitations, Holders of a majority in
aggregate principal amount of the then outstanding notes may direct the trustee
in its exercise of any trust or power. The trustee may withhold from Holders
notice of any continuing Default or Event of Default if it determines that
withholding notice is in their interest, except with respect to a Default or
Event of Default relating to the payment of principal, premium, interest or
Liquidated Damages, if any, on the notes.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may, on behalf of the Holders of all of the
notes, waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
principal, premium, interest or Liquidated Damages, if any, on the notes;
provided that the Holders of a majority in aggregate principal amount of the
then outstanding notes may rescind an acceleration and its consequences, if the
rescission would not conflict with any judgment or decree or if all existing
Events of Default have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium will also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior
54
to April 1, 2009, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the notes prior to that date, then the premium
specified in the indenture with respect to the first year that the notes may be
redeemed at the Company's option will also become immediately due and payable to
the extent permitted by law upon the acceleration of the notes.
The Company is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, will have any liability for any obligations of the
Company or the Guarantors under the notes, the indenture, the Guarantees, or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
Obligations discharged with respect to the outstanding notes and all Obligations
of the Guarantors discharged with respect to their Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Liquidated Damages,
if any, on such notes when such payments are due from the trust referred to
below;
(2) the Company's obligations with respect to the notes concerning
registration of notes, replacing mutilated, destroyed, lost or stolen notes
and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and the Company's and the Guarantors' Obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants (including its obligations to make Change of Control Offers
and Asset Sale Offers) that are described in the indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants will not
constitute a Default or Event of Default with respect to the notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"-- Events of Default and Remedies" will no longer constitute an Event of
Default with respect to the notes.
If the Company exercises its Legal Defeasance option or its Covenant
Defeasance option, each Guarantor will be released from all of its Obligations
with respect to the Subsidiary Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the trustee, in trust,
for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in amounts as will be sufficient, in
the opinion of a nationally recognized investment bank or firm of
independent public accountants, to pay the principal of, premium, interest
and Liquidated Damages, if any, on the outstanding notes on the Stated
Maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the notes are being defeased to maturity or to
a particular redemption date;
55
(2) in the case of Legal Defeasance, the Company has delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that:
(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling; or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law;
in either case to the effect that, and based thereon such opinion of
counsel will confirm that, the Holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company has delivered to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of or constitute a default under any material agreement
or instrument (other than the indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(6) the Company must deliver to the trustee an opinion of counsel to
the effect that, assuming, among other things, no intervening bankruptcy of
the Company between the date of deposit and the 91st day following the
deposit, and assuming that no Holder is an "insider" of the Company under
applicable bankruptcy law, after the 91st day following the deposit, the
cash or securities deposited in trust will not be subject to avoidance and
repayment under Sections 547 and 550 of the United States Bankruptcy Code;
(7) the Company must deliver to the trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(8) the Company must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
relating to Legal Defeasance or Covenant Defeasance have been complied
with.
However, the opinion of counsel required by clause (2) above will not
be required if all notes not theretofore delivered to the trustee for
cancellation have become due and payable, will become due and payable on
their maturity date within one year or are to be called for redemption
within one year under arrangements satisfactory to the trustee for the
giving of notice of redemption by the trustee in the Company's name, and at
the Company's expense.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding
56
notes (including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of, or interest or premium, or Liquidated Damages, if any, on the notes
(except a rescission of acceleration of the notes by the Holders of at
least a majority in aggregate principal amount of the notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any note payable in currency other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal of, premium, interest or Liquidated Damages, if any, on the
notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders"),
(8) release any Guarantor from any of its Obligations under its
Guarantee or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder, the
Company, the Guarantors and the trustee may amend or supplement the indenture or
the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's obligations to
Holders in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the legal rights
under the indenture of any such Holder;
(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust Indenture
Act;
(6) to comply with the rules of any applicable securities depository;
(7) to comply with the covenant relating to mergers, consolidations
and sales of assets;
(8) to add Guarantees with respect to the notes or to secure the
notes;
(9) to add to the covenants of the Company or any Guarantor for the
benefit of the Holders or surrender any right or power conferred upon the
Company or any Guarantor; or
(10) to evidence and provide for the acceptance and appointment under
the indenture of a successor trustee pursuant to the requirements thereof.
The consent of the Holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
57
After an amendment under the indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to the
Company, have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable or will become due and payable
within one year by reason of the mailing of a notice of redemption or
otherwise and the Company or any Guarantor has irrevocably deposited or
caused to be deposited with the trustee as funds in trust solely for the
benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium and Liquidated Damages, if any, and
accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on
the date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Company or any Guarantor
is a party or by which the Company or any Guarantor is bound other than a
Default or Event of Default resulting from the borrowing of funds to be
applied to such deposit and the guaranteeing of any Lien securing such
borrowing;
(3) the Company or any Guarantor has paid or caused to be paid all
sums payable by it under the indenture; and
(4) the Company has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of the Company or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder, unless such Holder has offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
58
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to MemberWorks
Incorporated, 680 Washington Boulevard, Stamford, Connecticut 06901, Attention:
Investor Relations.
BOOK-ENTRY, DELIVERY AND FORM
The old notes were offered and sold to qualified institutional buyers in
reliance on Rule 144A. Old notes may also be offered and sold in offshore
transactions in reliance on Regulation S. Notes will be issued in fully
registered form without interest coupons. Except as set forth below, the notes
will be issued in registered, global form in minimum denominations of $1,000 and
integral multiples of $1,000 in excess of $1,000. The notes will be issued at
the closing of this offering only against payment in immediately available
funds.
The old notes issued in accordance with Rule 144A initially were
represented by one or more notes in registered, global form without interest
coupons (collectively, the "Rule 144A Global Notes") and old notes issued in
accordance with Regulation S initially were represented by one or more Notes in
registered, global form without interest coupons (collectively, the "Regulation
S Global Notes"). The new notes will also be issued in the form of one or more
global notes (collectively, and, together with the Rule 144A Global Notes and
the Regulation S Global Notes, the "Global Notes").
The Global Notes will be deposited upon issuance with the trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below. In
addition, beneficial interests in the Rule 144A Global Note may be exchanged for
beneficial interests in the Regulation S Global Note and vice versa only in
accordance with the Indenture and the applicable rules and system procedures of
DTC and its direct or indirect participants (including, if applicable, those of
Euroclear System ("Euroclear") and Clearstream Banking, ("Clearstream")), which
may change from time to time.
Except as set forth below, the Global Notes may be transferred, in whole
but not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Notes in certificated
form.
Transfers of beneficial interests in the Global Notes will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Clearstream),
which may change from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. We take no responsibility
for these operations and procedures and urge investors to contact the system or
their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in the accounts of its Participants. The Participants include securities brokers
and dealers (including the initial purchasers of the old notes), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of
59
ownership interests in, each security held by or on behalf of DTC are recorded
on the records of the Participants and Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the Global Notes).
Investors in the Rule 144A Global Notes who are Participants in DTC's
system may hold their interests therein directly through DTC. Investors in the
Rule 144A Global Notes who are not Participants may hold their interests therein
indirectly through organizations (including Euroclear and Clearstream) which are
Participants in such system. Investors in the Regulation S Global Notes must
initially hold their interests therein through Euroclear or Clearstream, if they
are participants in such systems, or indirectly through organizations that are
participants in such systems. Euroclear and Clearstream will hold interests in
the Regulation S Global Notes on behalf of their participants through customers'
securities accounts in their respective names on the books of their respective
depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and
Citibank, N.A., as operator of Clearstream. All interests in a Global Note,
including those held through Euroclear or Clearstream, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Clearstream may also be subject to the procedures and requirements of such
systems.
The laws of some states require that certain Persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such Persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a Global Note to pledge such interests to Persons that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate evidencing
such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF AN INTEREST IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the indenture. Under the terms of the indenture, the Company and the
trustee will treat the Persons in whose names the notes, including the Global
Notes, are registered as the owners of the notes for the purpose of receiving
payments and for all other purposes. Consequently, neither the Company, the
trustee nor any agent of the Company or the trustee has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal amount
of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing
60
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the trustee or the Company. Neither the Company nor the trustee will be
liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the notes, and the Company and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
for all purposes.
Subject to the transfer restrictions with respect to the Rule 144A Global
Notes and the Regulation S Global Notes, transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds. Transfers between participants in Euroclear and Clearstream will
be effected in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described herein, cross-market transfers between the Participants in DTC,
on the one hand, and Euroclear or Clearstream participants, on the other hand,
will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Clearstream, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions to
Euroclear or Clearstream, as the case may be, by the counterparty in such system
in accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
DTC has advised us that it will take any action permitted to be taken by a
Holder only at the direction of one or more Participants to whose account DTC
has credited the interests in the Global Notes and only in respect of such
portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC reserves the right to exchange the
Global Notes for legended notes in certificated form, and to distribute such
notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. None of the Company, the trustee or any of their
respective agents will have any responsibility for the performance by DTC.
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the Global Notes and the Company fails to appoint a
successor depositary or (b) has ceased to be a clearing agency registered
under the Exchange Act;
(2) the Company, at its option, notifies the trustee in writing that
it elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary
61
(in accordance with its customary procedures) and will bear the applicable
restrictive legend referred to in "Notice to Investors," unless that legend is
not required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes. See "Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The Company will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. The Company will make all payments of
principal, interest and premium and Liquidated Damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Notes represented by the Global Notes are expected to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by DTC to be settled
in immediately available funds. The Company expects that secondary trading in
any Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
us that cash received in Euroclear or Clearstream as a result of sales of
interests in a Global Note by or through a Euroclear or Clearstream participant
to a Participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream following DTC's
settlement date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" have correlative
meanings.
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"Applicable Premium" means, with respect to any note on any Redemption
Date, the greater of:
(1) 1.0% of the principal amount of the note; and
(2) the excess of:
(a) the present value at such Redemption Date of (i) the redemption
price of the note at April 1, 2009 (such redemption price being set
forth in the table appearing above under the caption "-- Optional
Redemption") plus (ii) all required interest payments due on the note
through April 1, 2009 (excluding accrued but unpaid interest) computed
using a discount rate equal to the Treasury Rate as of such Redemption
Date plus 50 basis points; over
(b) the principal amount of the note.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights; provided that the sale, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "-- Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under
the caption "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets" and not by the provisions of the caption "-- Repurchase at the
Option of Holders -- Asset Sales"; and
(2) the issuance of Equity Interests in any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Restricted Subsidiaries.
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $3.0 million;
(2) a sale, lease, transfer conveyance or other disposition of assets
between or among the Company and its Restricted Subsidiaries,
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(4) the sale, lease, transfer conveyance or other disposition of
products, services, equipment, inventory, accounts receivable or other
assets in the ordinary course of business or other disposition of damaged,
worn-out or obsolete assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) the license of patents, trademarks, copyrights and know-how to
third Persons in the ordinary course of business;
(7) the creation of Liens; and
(8) a Restricted Payment that does not violate, or Permitted
Investment that is permitted by, the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments."
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have correlative meanings.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership;
63
and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Business Day" means each day that is not a Saturday, Sunday or other day
on which banking institutions in New York, New York are authorized or required
by law to close.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars and any other currency that is convertible
into United States dollars without legal restrictions and which is utilized
by the Company or any of its Restricted Subsidiaries in the ordinary course
of its business;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United
States is pledged in support of those securities) having maturities of not
more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of 270 days or less from the date of acquisition, bankers'
acceptances with maturities not exceeding 270 days and overnight bank
deposits, in each case, with any lender party to the Credit Agreement or
with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thomson BankWatch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable
from Moody's or S&P and in each case maturing within 270 days after the
date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of the Company and its Restricted Subsidiaries, taken
as a whole to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act);
(2) the approval by the holders of Voting Stock of the Company of a
plan relating to the liquidation or dissolution of the Company or the
adoption of a plan relating to the liquidation or dissolution of the
Company by its Board of Directors;
64
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as that term is used in Section 13(d)(3) of the Exchange Act),
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of the Company, measured by voting power rather than
number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of the Company or such other Person is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company outstanding immediately
prior to such transaction is converted into or exchanged for Voting Stock
(other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to
such issuance).
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur as a result of any merger primarily for the purpose of changing the
Company's jurisdiction of incorporation and resulting in a reclassification,
conversion or exchange of outstanding shares of common stock solely into shares
of common stock of the surviving entity.
"Commission" means the U.S. Securities Exchange Commission.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Restricted Subsidiaries in connection
with (a) an Asset Sale or (b) the disposition of any securities by, or the
extinguishment of any Indebtedness of, such Person or any of its Restricted
Subsidiaries, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated Net
Income; plus
(4) depreciation, amortization (including amortization of intangibles
but excluding amortization of prepaid cash expenses that were paid in a
prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Subsidiaries for
such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income;
plus
(5) unrealized non-cash losses resulting from foreign currency balance
sheet adjustments required by GAAP to the extent such losses were deducted
in computing such Consolidated Net Income; minus
(6) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
65
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting will be included only to the extent of the amount of dividends
or distributions paid in cash to the specified Person or a Restricted
Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the cumulative effect of a change in accounting principles will be
excluded;
(4) any impairment loss of such Person or its Restricted Subsidiaries
relating to goodwill or other non-amortizing intangible asset will be
excluded; and
(5) the Net Income or loss of any Unrestricted Subsidiary will be
excluded, whether or not distributed to the specified Person or one of its
Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or
election.
"Convertible Senior Subordinated Notes" means the 5.50% Convertible Senior
Subordinated Notes of the Company due October 1, 2010.
"Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of March 25, 2004, by and among the Company, certain
Subsidiaries of the Company, La Salle Bank National Association, as Agent,
certain financial institutions as lenders and other agents and arrangers party
thereto, providing for up to $45.0 million of revolving credit borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
restated, modified, renewed, refunded, replaced (whether upon or after
termination or otherwise) or refinanced (including by means of Debt Issuances),
in whole or in part, from time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks, investment banks, insurance companies, mutual funds and/or other
institutional lenders providing for revolving credit loans, term loans,
receivables or inventory financing (including through the sale of receivables or
inventory to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables or inventory) or letters of credit, in
each case, as amended, restated, modified, renewed, refunded, replaced (whether
upon or after termination or otherwise) or refinanced (including by means of
Debt Issuances) in whole or in part from time to time.
"Debt Issuances" means, with respect to the Company or any Guarantor, one
or more issuances after the Issue Date of Indebtedness evidenced by notes,
debentures, bonds or other similar securities or instruments.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund
66
obligation or otherwise, or redeemable at the option of the holder of the
Capital Stock, in whole or in part, on or prior to the date that is 91 days
after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders of the Capital Stock have the right to require the Company
to repurchase such Capital Stock upon the occurrence of a change of control or
an asset sale will not constitute Disqualified Stock if the terms of such
Capital Stock provide that the Company may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary of the Company that
was formed under the laws of the United States or any state of the United States
or the District of Columbia.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of Equity Interests
(other than Disqualified Stock) made for cash on a primary basis by the Company
after the Issue Date.
"Exchange Notes" or "new notes" mean the notes issued in the Exchange
Offer.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Credit Agreement) in
existence on the Issue Date, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any four-quarter reference period, the ratio of the Consolidated Cash Flow
of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person and its Restricted Subsidiaries for such period. In the
event that the specified Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than
ordinary working capital borrowings) or issues, repurchases or redeems preferred
stock subsequent to the commencement of the applicable period for which the
Fixed Charge Coverage Ratio is being calculated and on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or such issuance,
repurchase or redemption of preferred stock, and the use of the proceeds
therefrom, as if the same had occurred at the beginning of such period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, subsequent to the
commencement of the applicable four-quarter reference period and on or
prior to the Calculation Date will be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period, including
any Consolidated Cash Flow and any pro forma expense and cost reductions
that have occurred or are reasonably expected to occur, in the reasonable
judgment of the chief financial officer of the specified Person (regardless
of whether those cost savings or operating improvements could then be
reflected in pro forma financial statements in accordance with Regulation
S-X promulgated under the Securities Act or any other regulation or policy
of the Commission related thereto);
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date
will be deemed to have been a Restricted Subsidiary at all times during the
applicable four-quarter reference period;
67
(5) any Person that is not a Restricted Subsidiary on such Calculation
Date will be deemed not to have been a Restricted Subsidiary at any time
during the applicable four-quarter reference period; and
(6) if any Indebtedness bears a floating rate of interest, the
interest expense on such Indebtedness will be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
applicable four-quarter reference period (taking into account any Hedging
Obligation applicable to such Indebtedness if such Hedging Obligation has a
remaining term as at the Calculation Date in excess of 12 months).
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) if such dividends are not deductible for income tax
purposes based on the law in effect at the time of payment, a fraction, the
numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Foreign Subsidiary" means Subsidiaries of the Company that are not
Domestic Subsidiaries.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Issue Date.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each Subsidiary that executes a Guarantee in accordance
with the provisions of the indenture and their respective successors and
assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person incurred in the ordinary course of business and not
for speculative purposes under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements entered into with one or more financial
institutions and designed to protect the Person or entity entering into the
agreement against fluctuations in interest rates with respect to
Indebtedness incurred;
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(2) foreign exchange contracts and currency protection agreements
entered into with one of more financial institutions that are designed to
protect the Person or entity entering into the agreement against
fluctuations in currency exchanges rates with respect to Indebtedness
incurred;
(3) any commodity futures contract, commodity option or other similar
agreement or arrangement designed to protect against fluctuations in the
price of commodities used by such Person at the time; and
(4) other agreements or arrangements designed to protect such person
against fluctuations in interest rates or currency exchange rates.
"Holder" means a holder of notes.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property due more than six months after such property is acquired; or
(6) representing Hedging Obligations;
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, together with any
interest on the Indebtedness that is more than 30 days past due, in the
case of any other Indebtedness; and
(3) with respect to Hedging Obligations, the amount required to be
recorded as a liability in accordance with GAAP.
In addition, for the purpose of avoiding duplication in calculating the
outstanding principal amount of Indebtedness for purposes of the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock", Indebtedness arising solely by reason of the
existence of a Lien to secure other Indebtedness permitted to be incurred under
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" will not be considered incremental
Indebtedness.
Indebtedness will not include the obligations of any Person (A) resulting
from the endorsement of negotiable instruments for collection in the ordinary
course of business, (B) under stand-by letters of credit to the extent
collateralized by cash or Cash Equivalents and (C) resulting from
representations, warranties, covenants and indemnities given by such Person that
are reasonably customary for sellers or transferors in an accounts receivable
securitization transaction.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
69
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company will be deemed to
have made an Investment on the date of any such sale or disposition in an amount
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "Certain
Covenants -- Restricted Payments." The acquisition by the Company or any
Restricted Subsidiary of the Company of a Person that holds an Investment in a
third Person will be deemed to be an Investment made by the Company or such
Restricted Subsidiary in such third Person in an amount equal to the fair market
value of the Investment held by the acquired Person in such third Person on the
date of any such acquisition in an amount determined as provided in the final
paragraph of the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"Issue Date" means the first date on which the notes are initially issued.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidated Damages" means amounts payable under the Registration Rights
Agreement.
"Moody's" means Moody's Investor Services, Inc. or any successor rating
agency.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with: (a) any Asset
Sale; or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (or loss), together with any related
provision for taxes on such extraordinary gain (or loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, recording fees, title
transfer fees, appraiser fees, costs of preparation of assets for sale and any
relocation expenses incurred as a result of the Asset Sale, and taxes paid or
payable as a result of the Asset Sale, in each case, after taking into account
any available tax credits or deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that were the subject of such Asset Sale, all
distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries or joint ventures as a result of the Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c) is
the lender;
70
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness (other than the notes) of the Company
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment of the Indebtedness to be accelerated or
payable prior to its Stated Maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock (other than the stock of an
Unrestricted Subsidiary pledged by the Company or any of its Restricted
Subsidiaries) or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, premium and Liquidated Damages, if any,
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization, whether or not a claim for post-filing
interest is allowed in such proceeding), penalties, fees, charges, expenses,
indemnifications, reimbursement obligations, damages, guarantees and other
liabilities or amounts payable under the documentation governing any
Indebtedness or in respect thereto.
"Permitted Business" means (i) the lines of business conducted by the
Company and its Restricted Subsidiaries on the Issue Date, (ii) any business in
the field of consumer services and (iii) any business incidental or reasonably
related to the foregoing clauses (i) and (ii) or which is a reasonable extension
thereof as determined in good faith by the Company's Board of Directors and set
forth in an officers' certificate delivered to the trustee.
"Permitted Investments" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company or made
with the proceeds of a substantially concurrent sale of such Equity
Interests (other than Disqualified Stock);
(6) any Investments received in compromise or resolution of
obligations of (A) trade creditors or customers that were incurred in the
ordinary course of business, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
any trade creditor or customer or (B) litigation, arbitration or other
similar disputes;
(7) Hedging Obligations permitted to be incurred under the covenant
described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock";
(8) repurchases of the notes;
(9) loans and advances made in the ordinary course of business, to
officers, directors and employees in an aggregate amount not to exceed $1.0
million outstanding at any one time;
(10) Investments of any Person (other than Indebtedness of such
Person) in existence at the time such Person becomes a Subsidiary of the
Company; provided such Investment was not made in connection with or
anticipation of such Person becoming a Subsidiary of the Company;
71
(11) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business and advances,
loans or extensions of credit to suppliers in the ordinary course of
business; and
(12) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (12) since the Issue Date
that remain outstanding at the time, not to exceed $5.0 million; provided,
however, that if any Investment pursuant to this clause (12) is made in any
Person that subsequent to the date of such Investment becomes a Restricted
Subsidiary of the Company, then such Investment shall thereafter be deemed
to have been made pursuant to clause (1) above, and the amount of such
Investment shall be reset to zero for purposes of this clause (12).
"Permitted Liens" means:
(1) Liens of the Company and the Guarantors securing Indebtedness
under Credit Facilities that was permitted by the terms of the indenture,
whether incurred under clause (1) of the second paragraph of the covenant
described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" or under the first paragraph
of the covenant described under "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock";
(2) Liens in favor of the Company or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with
the Company or any Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition of the
property by the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of
such acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with or
financed by such Indebtedness;
(7) Liens existing on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as is required in
conformity with GAAP has been made therefor;
(9) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(10) Liens imposed by law, such as carriers', warehousemen's,
landlord's and mechanics' Liens, in each case, incurred in the ordinary
course of business;
(11) survey exceptions, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real property that were not incurred in connection with
Indebtedness and that
72
do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business
of such Person;
(12) Liens created for the benefit of (or to secure) the notes (or
Guarantees of the notes);
(13) Liens to secure any Permitted Refinancing Indebtedness permitted
to be incurred under the indenture; provided, however, that:
(A) the new Lien shall be limited to all or part of the same
property and assets that secured or, under the written agreements
pursuant to which the original Lien arose, could secure the original
Lien (plus improvements and accessions to, such property or proceeds or
distributions thereof); and
(B) the Indebtedness secured by the new Lien is not increased to
any amount greater than the sum of (x) the outstanding principal amount
or, if greater, committed amount, of the Permitted Referencing
Indebtedness and (y) an amount necessary to pay any fees and expenses,
including premiums, related to such refinancings, refunding, extension,
renewal or replacement;
(14) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security; and
(15) Liens incurred in the ordinary course of business of the Company
or any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to
the notes on terms at least as favorable to the Holders as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary of the Company that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., or any successor rating agency.
73
"Senior Debt" means, Indebtedness of the Company and its Restricted
Subsidiaries, at the time any determination is to be made, in an amount equal to
the sum of:
(1) all Indebtedness of the Company and its Restricted Subsidiaries
outstanding under Credit Facilities and Hedging Obligations related thereto
at such time, and
(2) all other outstanding Indebtedness of the Company or any of its
Restricted Subsidiaries, unless the instrument under which such
Indebtedness is incurred expressly provides that such Indebtedness is
subordinated to the notes and the Guarantees.
Notwithstanding anything to the contrary in the preceding sentence, Senior
Debt will not include:
(1) any liability for federal, state, local or other taxes owed or
owing by the Company or any of its Restricted Subsidiaries;
(2) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates that is by its term subordinate to the notes;
(3) any trade payables; or
(4) any obligations with respect to any Capital Stock of the Company
or any of its Restricted Subsidiaries.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article l, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issue
Date.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of the corporation, association
or other business entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as
of such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the Redemption Date to October 1, 2009;
provided, however, that if the period from the Redemption Date to October 1,
2009 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year will be
used.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors of the Company, but only to the extent that
such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
74
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of the resolution of the Board of Directors of the Company giving
effect to such designation and an officers' certificate certifying that such
designation complied with the preceding conditions and was permitted by the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it will thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company will be in default of such covenant. The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation will be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation will only be permitted if (1) such Indebtedness is permitted under
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of
such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" means a direct or indirect Restricted
Subsidiary of the Company all of the Capital Stock of which, other than
directors' qualifying shares, is owned by the Company or another Wholly-Owned
Restricted Subsidiary.
75
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
OVERVIEW
The following is a general discussion of material U.S. federal income tax
consequences to a holder with respect to the purchase, ownership and disposition
of the Notes. This summary is generally limited to holders who will hold the
Notes as "capital assets" within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). This summary does not purport to
deal with all aspects of the U.S. federal income tax consequences that might be
relevant to holders in light of their particular investment circumstances or
status nor does it deal with the U.S. federal income tax consequences to
investors subject to special treatment under the U.S. federal income tax laws,
such as dealers in securities or foreign currency, tax-exempt entities, banks,
thrifts, insurance companies, persons that hold the Notes as part of a
"straddle," a "hedge" against currency risk, a "conversion transaction" or other
integrated transaction, certain financial institutions, insurance companies and
U.S. Holders (as defined herein) that have a "functional currency" other than
the U.S. dollar, all within the meaning of the Code. In addition, this
discussion does not describe any tax consequences arising out of the tax laws of
any state, local or foreign jurisdiction.
The U.S. federal income tax considerations set forth below are based upon
the Code, existing and proposed Treasury regulations thereunder, and current
administrative rulings and court decisions, all of which are subject to change
or different interpretations. Prospective investors should particularly note
that any such change could have retroactive application so as to result in U.S.
federal income tax consequences different from those discussed below.
Based on currently applicable authorities, we will treat the Notes as
indebtedness for U.S. federal income tax purposes, and the remainder of this
discussion assumes that the Notes will constitute indebtedness for U.S. tax
purposes. We have not sought and will not seek any rulings from the Internal
Revenue Service (the "IRS") with respect to the matters discussed below. There
can be no assurance that the IRS will not take a different position concerning
the tax consequences of the purchase, ownership or disposition of the Notes or
that any such position would not be sustained.
INVESTORS CONSIDERING THE PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS
TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER
THE U.S. FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL
OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
TAXATION OF U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to U.S. Holders. As used herein, "U.S. Holders" are
beneficial owners of the Notes, that are, for U.S. federal income tax purposes:
- individuals who are citizens or residents of the United States:
- corporations or other entities taxable as corporations created or
organized in, or under the laws of, the United States, any state thereof
or the District of Columbia;
- estates, the income of which is subject to U.S. federal income taxation
regardless of its source; or
- trusts if (i)(A) a court within the U.S. is able to exercise primary
supervision over the administration of the trust and (B) one or more U.S.
persons have the authority to control all substantial decisions of the
trust or (ii) a valid election to be treated as a U.S. person is in
effect with respect to such trust.
If a partnership (or other entity taxable as a partnership for U.S. federal
income tax purposes) holds Notes, the tax treatment of a partner in the
partnership (or other entity) will generally depend upon the status of the
partner and the activities of the partnership or other entity. If you are a
partner of a partnership (or other entity taxable as a partnership) holding the
Notes, you should consult your tax advisor regarding the tax consequences of the
purchase, ownership and disposition of the Notes.
76
Certain U.S. federal income tax consequences relevant to a non-U.S. Holder
are discussed separately below.
TAXATION OF INTEREST
U.S. Holders generally will be required to recognize as ordinary income any
interest paid or accrued on the Notes, in accordance with their regular method
of accounting for U.S. federal income tax purposes. In certain circumstances
(see "Description of the New Notes -- Repurchase at the Option of Holders" and
"Description of Notes -- Registration Rights; Liquidated Damages"), we may be
obligated to pay amounts in excess of stated interest or principal on the Notes.
According to Treasury Regulations, the possibility that any such payments in
excess of stated interest or principal will be made will not affect the amount
of interest income that a U.S. Holder currently recognizes if there is only a
remote chance as of the date the Notes were issued that such payments will be
made. We intend to take the position that the likelihood of payment of these
amounts is remote; therefore, we do not intend to treat these potential payments
as part of the yield to maturity of the Notes. Under this approach, if we
ultimately make any additional payments, U.S. Holders should recognize such
amounts as ordinary income in accordance with their regular method of accounting
for U.S. federal income tax purposes. Our determination that these contingencies
are remote is binding on a U.S. Holder unless such holder discloses its contrary
position in the manner required by applicable Treasury Regulations. Our
determination is not, however, binding on the IRS, and if the IRS were to
challenge this determination, a U.S. Holder might be required to accrue income
on its Notes in excess of stated interest, and to treat as ordinary income
rather than capital gain any income realized on the taxable disposition of a
Note before the resolution of the contingencies. U.S. Holders should consult
their own tax advisors about the treatment of additional payments that might be
made in respect of the Notes.
MARKET DISCOUNT
If a U.S. Holder purchases a Note for an amount that is less than its
stated redemption price at maturity the amount of the difference will be treated
as "market discount" unless such difference is a specified de minimis amount.
Market discount is considered to be de minimis if it is less than 1/4 of 1% of
the Note's stated redemption price at maturity multiplied by the number of
complete years to maturity after the Note was acquired. Under the market
discount rules of the Code, a U.S. Holder will be required to treat any partial
principal payment on, or any gain realized upon the sale, redemption or other
taxable disposition of, a Note as ordinary income to the extent of the market
discount which has not previously been included in income and is treated as
having accrued on such Note at the time of such payment or disposition. If a
U.S. Holder disposes of a Note in a nontaxable transaction (other than as
provided in Section 1276(c) of the Code), the U.S. Holder must recognize
ordinary income equal to the amount of accrued market discount on the Notes as
if the U.S. Holder had disposed of the Note in a taxable transaction at the
Note's fair market value. In addition, if a U.S. Holder acquired a Note with
market discount such U.S. Holder may be required to defer the deduction of all
or a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry such Note until the maturity of the note or its
earlier disposition (including a nontaxable transaction other than as provided
in Section 1276(c) of the Code). Market discount is considered to accrue ratably
during the period from the date of acquisition to the maturity date of a Note,
unless a U.S. Holder elects to include market discount in income on a current
basis. A U.S. Holder may elect to include market discount in income (generally
as ordinary income) currently as it accrues, in which case the rules described
above regarding the treatment of partial principal payments and gain realized as
ordinary income and regarding the deferral of interest deductions will not
apply. Such election will also apply to all debt obligations held or
subsequently acquired by the U.S. Holder on or after the first day of the
taxable year to which the election applies. The election may not be revoked
without the consent of the IRS. U.S. Holders should consult their own tax
advisors before making this election.
BOND PREMIUM
In general, if a U.S. Holder purchases a Note for an amount in excess of
the stated principal amount such U.S. Holder will be treated as having purchased
such Note with bond premium in the amount of such excess.
77
A U.S. Holder generally may elect to amortize the bond premium (with a
corresponding decrease in adjusted tax basis) over the remaining term of the
Note on a constant yield method as an offset to interest income when includible
in income under such U.S. Holder's regular method of accounting for U.S. federal
income tax purposes. If such U.S. Holder does not elect to amortize bond
premium, that premium will decrease the gain or increase the loss it would
otherwise recognize upon a sale or other disposition of the Note. An election to
amortize bond premium on a constant yield method will also apply to all debt
obligations held or subsequently acquired by the U.S. Holder on or after the
first day of the taxable year to which the election applies. The election may
not be revoked without the consent of the IRS. U.S. Holders should consult their
own tax advisors before making this election.
THE RULES GOVERNING MARKET DISCOUNT AND AMORTIZABLE BOND PREMIUM ARE
COMPLEX, AND U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF THESE RULES.
EXCHANGE OFFER
The exchange of the Notes for the new notes in the exchange offer will not
constitute a taxable exchange. See "Description of the New Notes." As a result,
(1) a U.S. Holder will not recognize taxable gain or loss as a result of
exchanging such holder's Notes for new notes; (2) the holding period of the new
notes will include the holding period of the Notes exchanged therefor; and (3)
the adjusted tax basis of the new notes received will be the same as the
adjusted tax basis of the Notes exchanged therefor immediately before such
exchange.
DISPOSITION OF THE NOTES
Upon the disposition of a Note by sale, exchange, redemption or other
taxable disposition (other than an exchange for new notes pursuant to the
exchange offer or other tax-free transaction), a U.S. Holder will generally
recognize gain or loss equal to the difference between (1) the amount realized
on the disposition of the Note (other than amounts attributable to accrued
interest on the Note, which will be treated as ordinary interest income for U.S.
federal income tax purposes if not previously included in gross income) and (2)
the U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal the cost of the Note to such U.S. Holder
less any prior principal payments. Gain or loss from the taxable disposition of
a Note generally will be capital gain or loss and will be long-term capital gain
or loss if the Note was held by the U.S. Holder for more than one year at the
time of the disposition. For non-corporate U.S. holders, certain preferential
tax rates may apply to gain recognized as long-term capital gain. The
deductibility of capital losses is subject to certain limitations under the
Code.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Where required, information will be reported to both U.S. Holders of Notes
and the IRS regarding the amount of interest and principal paid on the Notes in
each calendar year as well as the corresponding amount of tax withheld, if any
exists. This obligation, however, does not apply with respect to payments to
certain U.S. Holders, including corporations and tax-exempt organizations,
provided that such U.S. Holders establish entitlement to an exemption.
Under the backup withholding provisions of the Code and the applicable
Treasury regulations, a holder of Notes may be subject to backup withholding
(currently at a 28% rate) with respect to interest and principal paid on the
Notes and/or the proceeds from dispositions of the Notes. Certain U.S. holders
(including, among others, corporations and tax-exempt organizations) are
generally not subject to backup withholding. U.S. Holders will be subject to
this backup withholding tax if such holder is not otherwise exempt and such
holder: (1) fails to furnish its taxpayer identification number, or TIN (which,
for an individual, is ordinarily his or her social security number); (2)
furnishes an incorrect TIN; (3) is notified by the IRS that it has failed to
properly report payments of interest or dividends; or (4) fails to certify,
under penalties of perjury, that it has furnished a correct TIN and that the IRS
has not notified the U.S. holder that it is subject to backup withholding. Any
amounts withheld under the backup withholding rules from a payment to a U.S.
holder will be allowed as a credit against such holder's U.S. federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
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TAXATION OF NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income and estate
tax consequences of the acquisition, ownership and disposition of the Notes by
an initial investor of the Notes that is neither a U.S. Holder as defined above
nor a partnership. The rules governing the U.S. federal income taxation of a
non-U.S. Holder of Notes are complex and no attempt will be made herein to
provide more than a summary of such rules. Special rules may apply to certain
non-U.S. Holders such as "controlled foreign corporations," "passive foreign
investment companies" and "foreign personal holding companies." Non-U.S. Holders
should consult with their own tax advisors to determine the effect of federal,
state, local and foreign income tax laws, as well as treaties, with regard to an
investment in the Notes, including any reporting requirements.
TAXATION OF INTEREST
Generally, interest income earned on a Note by a non-U.S. Holder will
qualify for the "portfolio interest" exception, and therefore will not be
subject to U.S. federal income tax or withholding tax, if
- the interest income is not effectively connected with the conduct of a
U.S. trade or business of the non-U.S. Holder (i.e., not "U.S. trade or
business income"):
- the non-U.S. Holder does not, directly or indirectly, actually or
constructively, own 10% or more of the total combined voting power of our
stock entitled to vote;
- the non-U.S. Holder is not, for U.S. federal income tax purposes, a
controlled foreign corporation that is related to us through stock
ownership;
- the non-U.S. Holder is not a bank which acquired the Note in
consideration for an extension of credit made pursuant to a loan
agreement entered into in the ordinary course of its trade or business;
and
- either (A) the non-U.S. Holder certifies, under penalty of perjury, to us
or our agent that it is not a U.S. person and such non-U.S. Holder
provides its name, address and certain other information on a properly
executed Form W-8 BEN (or an applicable substitute form), or (B) a
securities clearing organization bank or other financial institution that
holds customers' securities in the ordinary course of its trade or
business holds the Note on behalf of the beneficial owner and provides a
statement to us or our agent signed under penalty of perjury in which the
organization, bank or financial institution certifies that the form or an
applicable substitute has been received by it from the non-U.S. Holder or
from another financial institution entity on behalf of the non-U.S.
Holder and furnishes us or our agent with a copy thereof.
If a non-U.S. Holder cannot satisfy the requirements for the portfolio
interest exception as described above, the gross amount of payments of interest
to such non-U.S. Holder that are not effectively connected with the conduct of a
U.S. trade or business of the non-U.S. Holder will be subject to U.S. federal
withholding tax at the rate of 30%, unless a U.S. income tax treaty applies to
reduce or eliminate withholding. U.S. trade or business income will not be
subject to U.S. federal withholding tax but will be taxed on a net income basis
at regular U.S. federal income tax rates, and if the non-U.S. Holder is a
foreign corporation, such U.S. trade or business income may be subject to the
branch profits tax equal to 30%, or a lower rate provided by an applicable
income tax treaty. In order to claim the benefit provided by an applicable
income tax treaty or to claim exemption from withholding because the income is
U.S. trade or business income, a non-U.S. Holder must provide either:
- a properly executed Form W-8 BEN (or an applicable substitute form)
claiming an exemption from or reduction in withholding under the benefit
of an applicable income tax treaty; or
- a properly executed Form W-8 ECI (or an applicable substitute form)
stating that interest paid on the Note is not subject to withholding tax
because it is effectively connected with the conduct of a U.S. trade or
business of the non-U.S. Holder.
79
DISPOSITION OF THE NOTES
Generally, a non-U.S. Holder will not be subject to U.S. federal income tax
or withholding tax on any gain realized on the sale, exchange, redemption or
other taxable disposition (other than an exchange for new notes pursuant to the
exchange offer or other tax free transaction) of a Note unless:
- the gain is effectively connected with the conduct of a U.S. trade or
business of the non-U.S. Holder (and, if an income tax treaty applies,
the gain is attributable to a U.S. permanent establishment (for a fixed
base) in the United States); or
- the non-U.S. Holder is an individual who is present in the United States
for 183 days or more during the taxable year in which the disposition of
the Note is made and certain other requirements are met, or is subject to
tax pursuant to the provisions of U.S. federal income tax law applicable
to certain former citizens and residents of the United States.
A non-U.S. holder described in the first bullet point above will be
required to pay U.S. federal income tax on the net gain derived from the sale,
except as otherwise required by an applicable income tax treaty, and if such
holder is a foreign corporation, it may also be required to pay a branch profits
tax at a 30% rate or a lower rate if so specified by an applicable income tax
treaty. A non-U.S. holder described in the second bullet point above will be
subject to a 30% U.S. federal income tax on the gain derived from the sale,
which may be offset by U.S. source capital losses, even though the non-U.S.
holder is not considered a resident of the United States. The exchange of the
Notes for the new notes in the exchange offer will not constitute a taxable
exchange.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Where required, information will be reported annually to each non-U.S.
Holder as well as the IRS regarding any interest that is either subject to
withholding or exempt from U.S. federal withholding tax pursuant to an
applicable income tax treaty or to the portfolio interest exception. Copies of
these information returns may also be made available to the tax authorities of
the country in which the non-U.S. Holder resides under the provisions of a
specific treaty or agreement.
Under the backup withholding provisions of the Code and the applicable
Treasury Regulations, a holder of Notes may be subject to backup withholding
(currently at a 28% rate) with respect to interest and principal paid on the
Notes and/or the proceeds from dispositions of the Notes. However, the Treasury
regulations provide that payments of principal and interest to a non-U.S. Holder
will not be subject to backup withholding and information reporting if the
non-U.S. Holder certifies its non-U.S. status under penalty of perjury or
satisfies the requirements of an otherwise established exemption, provided that
neither us or our paying agent has actual knowledge that such holder is a U.S.
person or that the conditions of any other exemption are not, in fact,
satisfied.
The payment of the proceeds from the disposition of Notes to or through the
U.S. office of any broker, U.S. or foreign, will be subject to information
reporting and possible backup withholding unless the non-U.S. Holder certifies
its non-U.S. status under penalty of perjury or satisfies the requirements of an
otherwise established exemption, provided that the broker does not have actual
knowledge that such holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the proceeds from the
disposition of a Note to or through a non-U.S. office of a non-U.S. broker that
does not have certain enumerated relationships with the United States will not
be subject to information reporting or backup withholding.
When a non-U.S. Holder receives a payment of proceeds from the disposition
of Notes either to or through a non-U.S. office of a broker that is either a
U.S. person or a person who has certain enumerated relationships with the United
States, the Treasury regulations require information reporting (but generally
not backup withholding) on the payment, unless the broker has documentary
evidence in its files that the non-U.S. Holder is not a U.S. person and the
broker has no knowledge to the contrary.
80
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS. Non-U.S. Holders should consult
their own tax advisors regarding the filing of a U.S. federal income tax return
for claiming a refund of such backup withholding.
U.S. FEDERAL ESTATE TAX
The U.S. federal estate tax will not apply to Notes owned by an individual
who is not a citizen or resident of the United States at the time of his death
provided that (1) the individual does not, directly or indirectly, actually or
constructively, own 10% or more of the total combined voting power of our stock
entitled to vote and (2) interest on the Note would not have been, if received
at the time death, effectively connected with the conduct of a U.S. trade or
business of such holder.
INVESTORS CONSIDERING THE PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS
TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER
THE U.S. FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL
OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
81
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of one year after the
expiration of the exchange offer, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resales. In addition, we have agreed that we would not for a period of 90 days
from April 13, 2004, the date of the offering memorandum distributed in
connection with the sale of the old notes, directly or indirectly offer, sell,
grant any options to purchase or otherwise dispose of any debt securities other
than in connection with this exchange offer.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have been advised by the initial purchasers of the old notes, that
following completion of the exchange offer they intend to make a market in the
new notes to be issued in the exchange offer. However, they are under no
obligation to do so and any market activities with respect to the new notes may
be discontinued at any time.
LEGAL MATTERS
Certain matters with respect to the validity of the new notes will be
passed upon for us by Shearman & Sterling LLP, New York, New York.
EXPERTS
The financial statements of MemberWorks Incorporated incorporated in this
prospectus by reference to the Annual Report on Form 10-K for the year ended
June 30, 2004 has been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent registered public accountants, given on
authority of said firm as experts in auditing and accounting.
The financial statements of Lavalife Inc. of September 30, 2003 and 2002,
and for each of the two years in the period ended September 30, 2003,
incorporated by reference in this prospectus, have been audited by Ernst & Young
LLP, independent accountants.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
internet at the SEC's website at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549, and obtain copies of our filings at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities.
82
INCORPORATION BY REFERENCE
We are incorporating by reference into this prospectus the information we
have filed 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 but is automatically
updated and superseded by information in this prospectus, including our
financial statements for the year ended June 30, 2004. In addition, information
in documents that we file later with the SEC will automatically update and
supersede information in this prospectus. We incorporate by reference the
documents listed below into this prospectus, any filings made by us after the
date of the registration statement and prior to effectiveness of the
registration statement and any filings made by us after the date of this
prospectus with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (excluding any information furnished
pursuant to Item 2.02 or Item 7.01 on any current report on Form 8-K), until our
offering is complete. The documents we incorporate by reference are:
- Our Annual Report on Form 10-K for the year ended June 30, 2004 filed on
September 13, 2004.
- Our Current Reports on Form 8-K filed on September 10, 2004, October 12,
2004 and October 20, 2004.
- The audited consolidated financial statements of Lavalife Inc. for the
years ended September 30, 2003 and 2002, attached as Exhibit 99.2 to our
Current Report on Form 8-K filed on March 26, 2004.
- Our Proxy Statement on Schedule 14A filed on October 28, 2004.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
MemberWorks Incorporated
680 Washington Boulevard
Stamford, Connecticut 06901
Attention: Investor Relations
Telephone: (203) 324-7635
83
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with such
action, suit or proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, if he or she
had no reasonable cause to believe their conduct was unlawful. Section 145
further provides that a corporation similarly may indemnify any such person
serving in any such capacity who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor, against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of the action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made
against expense in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
Our certificate of incorporation and by-laws provide that we shall, to the
maximum extent permitted under Delaware law, indemnify any director or officer
of the corporation who is or was made a party to any action or proceeding by
reason of the fact that he or she is or was an agent of the corporation, against
liability incurred in connection with such action or proceeding. We have entered
into agreements with our directors, executive officers and some of our other
officers implementing such indemnification. In addition, our certificate of
incorporation limits, to the fullest extent permitted by Delaware law, the
liability of directors for monetary damages for breach of fiduciary duty. We may
also purchase and maintain insurance policies insuring our directors and
officers against certain liabilities they may incur in their capacity as
directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits to this registration statement are listed in the Exhibit Index
to this registration statement, which Exhibit Index is hereby incorporated by
reference.
(b) Financial Statement Schedule.
Not applicable.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
II-1
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(4) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
(5) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
MEMBERWORKS INCORPORATED
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Senior Vice President, General
Counsel
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Chief Executive Officer and Director
------------------------------------------------
Gary A. Johnson
* Executive Vice President and Chief Financial
------------------------------------------------ Officer
James B. Duffy
* Director
------------------------------------------------
Alec L. Ellison
* Director
------------------------------------------------
Scott N. Flanders
* Director
------------------------------------------------
Robert Kamerschen
* Director
------------------------------------------------
Michael T. McClorey
* Director
------------------------------------------------
Edward M. Stern
* Director
------------------------------------------------
Marc S. Tesler
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA BALTIMORE LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA COLORADO LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
do or cause to be done by virtue hereof.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA GEORGIA LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
do or cause to be done by virtue hereof.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA MICHIGAN LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA NEW JERSEY LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA NEW YORK LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA OHIO LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA PENNSYLVANIA
LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
LAVALIFE WASHINGTON D.C., L.L.C.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE MEDIA GROUP (USA) LTD.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE MEDIA CONSOLIDATED, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE (TX) VOICE MEDIA CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE L.A. VOICE MEDIA CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE MEDIA (IL) CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE MEDIA MO CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
BARNES HOLDING CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE S.J. VOICE MEDIA CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA (CA) CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA (MN) CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
INTERACTIVE VOICE MEDIA (SACRAMENTO)
CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Director
------------------------------------------------
Gary A. Johnson
* Vice President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Bruce Croxon
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
COVERDELL & COMPANY, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Assistant Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President and Chief Executive Officer
------------------------------------------------
Michael Owens
* Director
------------------------------------------------
James B. Duffy
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
DISCOUNT DEVELOPMENT SERVICES, L.L.C
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Assistant Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President
------------------------------------------------
Vincent DiBenedetto
* Vice President and
------------------------------------------------ Director
James B. Duffy
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
MEMBERWORKS CANADA LLC
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Vice President and Treasurer
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Secretary and Manager
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Vice President and Treasurer
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
IMPAQ MARKETING CORPORATION
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Vice President and Treasurer
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Secretary and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Vice President and Treasurer
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
BEST BENEFITS, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Vice President and Treasurer
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Secretary and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Vice President and Treasurer
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
UNI-CARE, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Assistant Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President
------------------------------------------------
Vincent DiBenedetto
* Vice President, Secretary and Director
------------------------------------------------
James B. Duffy
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
QUOTA-PHONE, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Vice President and Treasurer
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Secretary and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Vice President and Treasurer
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
COUNTRYWIDE DENTAL, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Vice President and Treasurer
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Secretary and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Vice President and Treasurer
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-31
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
LAVALIFE INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Treasurer and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
* Director
------------------------------------------------
Gary A. Johnson
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
LAVALIFE CORP.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Assistant Secretary
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* Chief Executive Officer and Director
------------------------------------------------
Bruce Croxon
* Assistant Treasurer and Director
------------------------------------------------
James B. Duffy
* Director
------------------------------------------------
Gary A. Johnson
/s/ GEORGE W. THOMAS Director
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
MYHEALTHYSAVINGS.COM, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Vice President and Treasurer
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Secretary and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Vice President and Treasurer
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on November 5, 2004.
BILLING SERVICES INTERNATIONAL, INC.
By: /s/ GEORGE W. THOMAS
------------------------------------
George W. Thomas
Vice President and Treasurer
POWER OF ATTORNEY
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 November 5, 2004.
SIGNATURE TITLE
--------- -----
* President, Secretary and Director
------------------------------------------------
James B. Duffy
/s/ GEORGE W. THOMAS Vice President and Treasurer
------------------------------------------------
George W. Thomas
*By: /s/ GEORGE W. THOMAS
------------------------------------------
George W. Thomas
Attorney-in-Fact
II-35
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
3.1** Restated Certificate of Incorporation of MemberWorks
Incorporated (filed as Exhibit 3.3 to the Company's
Registration Statement on Form S-1, Registration No.
333-10541, filed on October 18, 1996, and incorporated
herein by reference).
3.2** Restated By-laws of MemberWorks Incorporated, as amended
(filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration No. 333-10541, filed on
October 18, 1996, and incorporated herein by reference).
3.3* Certificate of Formation of Interactive Voice Media
Baltimore L.L.C.
3.4* Limited Liability Company Agreement with Amendments of
Interactive Voice Media Baltimore L.L.C.
3.5* Certificate of Formation and Certificate of Merger of
Interactive Voice Media Colorado LLC
3.6* Limited Liability Company Agreement with Amendment of
Interactive Voice Media Colorado LLC
3.7* Certificate of Formation and Certificate of Merger of
Interactive Voice Media Georgia LLC
3.8* Limited Liability Company Agreement with Amendment of
Interactive Voice Media Georgia LLC
3.9* Certificate of Formation of Interactive Voice Media Michigan
L.L.C
3.10* Limited Liability Company Agreement with Amendments of
Interactive Voice Media Michigan L.L.C
3.11* Certificate of Formation and Certificate of Merger of
Interactive Voice Media New Jersey LLC
3.12* Limited Liability Company Agreement with Amendment of
Interactive Voice Media New Jersey LLC
3.13* Certificate of Formation and Certificate of Merger of
Interactive Voice Media New York LLC
3.14* Limited Liability Company Agreement with Amendment of
Interactive Voice Media New York LLC
3.15* Certificate of Formation and Certificate of Merger of
Interactive Voice Media Ohio LLC
3.16* Limited Liability Company Agreement with Amendment of
Interactive Voice Media Ohio LLC
3.17* Certificate of Formation and Certificate of Merger of
Interactive Voice Media Pennsylvania LLC
3.18* Limited Liability Company Agreement with Amendment of
Interactive Voice Media Pennsylvania LLC
3.19* Certificate of Formation and Certificate of Amendment of
Lavalife Washington D.C., L.L.C
3.20* Limited Liability Company Agreement with Amendments of
Lavalife Washington D.C., L.L.C.
3.21* Certificate of Incorporation and Certificate of Amendment of
Interactive Media Group (USA) Ltd.
3.22* Bylaws of Interactive Media Group (USA) Ltd.
3.23* Certificate of Incorporation of Interactive Media
Consolidated, Inc.
3.24* Bylaws of Interactive Media Consolidated, Inc.
3.25* Articles of Incorporation of Interactive (TX) Voice Media
Corp.
3.26* Bylaws of Interactive (TX) Voice Media Corp.
3.27* Articles of Incorporation of Interactive L.A. Voice Media
Corp.
3.28* Bylaws of Interactive L.A. Voice Media Corp.
3.29* Articles of Incorporation of Interactive Media (IL) Corp.
3.30* Bylaws of Interactive Media (IL) Corp.
3.31* Articles of Incorporation of Interactive Media MO Corp.
3.32* Bylaws of Interactive Media MO Corp.
3.33* Articles of Incorporation and Certificate of Amendment of
Interactive Voice Media (CA) Corp.
3.34* Bylaws of Interactive Voice Media (CA) Corp.
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
3.35* Certificate of Incorporation of Interactive Voice Media (MN)
Corp.
3.36* Bylaws of Interactive Voice Media (MN) Corp.
3.37* Certificate of Incorporation and Certificate of Amendment of
Barnes Holding Corporation
3.38* Bylaws of Barnes Holding Corporation
3.39* Articles of Incorporation of Interactive Voice Media
(Sacramento) Corp.
3.40* Bylaws of Interactive Voice Media (Sacramento) Corp.
3.41* Articles of Incorporation of Interactive S.J. Media Corp.
3.42* Bylaws of Interactive S.J. Media Corp.
3.43* Articles of Incorporation, Amendments and Certificate of
Merger of Coverdell & Company, Inc.
3.44* Bylaws of Coverdell & Company, Inc.
3.45* Articles of Organization of Discount Development Services,
L.L.C.
3.46* Limited Liability Company Operating Agreement of Discount
Development Services, L.L.C.
3.47* Certificate of Formation of MemberWorks Canada LLC
3.48* Limited Liability Company Operating Agreement of MemberWorks
Canada LLC
3.49* Certificate of Incorporation of Impaq Marketing Corporation
3.50* Bylaws of Impaq Marketing Corporation
3.51* Certificate of Incorporation of Best Benefits, Inc.
3.52* Bylaws of Best Benefits, Inc.
3.53* Articles of Incorporation of Uni-Care, Inc.
3.54* Bylaws of Uni-Care, Inc.
3.55* Certificate of Incorporation, Amendment and Certificate of
Merger of Quota-Phone, Inc.
3.56* Bylaws of Quota-Phone, Inc.
3.57* Certificate of Incorporation and Amendment of Countrywide
Dental, Inc.
3.58* Bylaws of Countrywide Dental, Inc.
3.59 Certificate of Incorporation* and Certificate of Amendment
of Lavalife Inc. (formerly MemberWorks Canada Holdco, Inc.)
3.60* Bylaws of Lavalife Inc. (formerly MemberWorks Canada Holdco,
Inc.)
3.61* Memorandum of Association and Articles of Association of
Lavalife Corp.
3.62* Certificate of Incorporation of MyHealthySavings.com, Inc.
3.63* Bylaws of MyHealthySavings.com, Inc.
3.64* Certificate of Incorporation of Billing Services
International, Inc.
3.65* Bylaws of Billing Services International, Inc.
4.1* Indenture dated as of April 13, 2004 between MemberWorks
Incorporated and each of the Guarantors party thereto and
LaSalle Bank National Association, as Trustee relating to
the 9 1/4% Senior Notes due 2014, including the Form of
notes.
4.2* Registration Rights Agreement dated as of April 13, 2004
between MemberWorks Incorporated and each of the Guarantors
party thereto and Lehman Brothers Inc., UBS Securities LLC
and ABN AMRO Incorporated.
5.1 Opinion of Shearman & Sterling LLP.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1* List of subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, as independent
registered public accounting firm.
23.2 Consent of Ernst & Young LLP, as independent accountants.
24.1* Power of Attorney (contained on signature page).
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
25.1* Form T-1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 of LaSalle Bank National Association.
99.1* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companied and Other Nominees.
99.2* Form of Letter of Transmittal.
99.3* Form of Letter to Clients.
99.4* Form of Notice of Guaranteed Delivery.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
---------------
** Previously filed.
* Previously filed as an Exhibit to Registration Statement on Form S-4,
Registration No. 333-115500, filed on May 14, 2004, and incorporated herein by
reference.