<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
MEMBERWORKS INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
MEMBERWORKS INCORPORATED
680 WASHINGTON BLVD., SUITE 1100
STAMFORD, CONNECTICUT 06901
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 20, 1997
------------------------
The 1997 Annual Meeting of Stockholders of MemberWorks Incorporated (the
"Company") will be held at the Sheraton Hotel, 1 First Stamford Place, Stamford,
Connecticut 06902 at 9:30 a.m., local time, to consider and act upon the
following matters:
1. To elect Marc S. Tesler and Alec L. Ellison as Class I Directors,
to serve for a three-year term;
2. To ratify the selection of Price Waterhouse LLP by the Board of
Directors as the Company's independent auditors for the fiscal year ending
June 30, 1998; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on October 17, 1997 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open.
By Order of the Board of Directors,
James B. Duffy
Secretary
Stamford, Connecticut
October 27, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE
NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 3
MEMBERWORKS INCORPORATED
680 WASHINGTON BLVD., SUITE 1100
STAMFORD, CONNECTICUT 06901
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 20, 1997
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of MemberWorks Incorporated (the "Company")
for use at the Annual Meeting of Stockholders to be held on November 20, 1997
and at any adjournments of that meeting (the "Annual Meeting"). All proxies will
be voted in accordance with the stockholders' instructions, and if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Annual Meeting. Any proxy may be revoked by a stockholder
at any time before its exercise by delivery of written revocation or a
subsequently dated proxy to the Secretary of the Company or by voting in person
at the Annual Meeting.
The Company's 1997 Annual Report to Stockholders is being mailed to
stockholders concurrently with this Proxy Statement.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997, as filed with the Securities and Exchange Commission,
except for exhibits, will be furnished without charge to any stockholder upon
written request to the Secretary of the Company, MemberWorks Incorporated, 680
Washington Blvd., Suite 1100, Stamford, Connecticut 06901.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on October 17, 1997, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 14,740,836 shares of common
stock, $0.01 par value per share, of the Company (the "Common Stock"),
constituting all of the voting stock of the Company. Holders of Common Stock are
entitled to one vote per share.
The presence or representation by proxy of the holders of a majority of the
number of shares of Common Stock issued, outstanding and entitled to vote at the
Annual Meeting constitutes a quorum for the transaction of business at the
Annual Meeting. Shares of Common Stock represented in person or by proxy
(including shares which abstain or do not vote with respect to one or more of
the matters presented for stockholder approval) will be counted for purposes of
determining whether a quorum is present.
The affirmative vote of the holders of a majority of the shares of Common
Stock present at the Annual Meeting is required for the election of directors
and the ratification of the selection of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending June 30, 1998.
Shares that abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on matters,
such as the ones presented for stockholder approval at this Annual Meeting, that
require the affirmative vote of a certain percentage of the shares voting on the
matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 15,
1997, with respect to the beneficial ownership of the Company's Common Stock by
(i) each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each director and each person nominated
to become a director of the Company, (iii) each executive officer of the Company
named in the Summary
1
<PAGE> 4
Compensation Table set forth under the caption "Executive Compensation" below
and (iv) all current directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES OF
BENEFICIALLY COMMON STOCK
BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
-------------------------------------------------------- ---------------- ------------
<S> <C> <C>
Chancellor Capital Management, Inc.(3).................. 875,925 5.9%
1166 Avenue of the Americas
New York, NY 10036
Geocapital II, L.P.(4).................................. 2,767,759 18.8%
One Bridge Plaza
Fort Lee, NJ 07024
Gary A. Johnson(5)...................................... 1,625,000 11.0%
Dennis P. Walker(6)..................................... 1,575,500 10.7%
J. & W. Seligman & Company, Inc......................... 982,540 6.7%
100 Park Avenue
New York, NY 10017
Technology Crossover Ventures, L.P.(7).................. 764,240 5.2%
101 Eisenhower Parkway
Roseland, NJ 07068
Stephen J. Clearman(8).................................. 2,835,259 19.2%
Alec L. Ellison(9)...................................... 2,788,451 18.9%
Marc S. Tesler(10)...................................... 773,240 5.2%
Michael R. O'Brien(11).................................. 24,600 *
James B. Duffy(12)...................................... 51,000 *
Steven H. Levenherz(13)................................. 148,902 1.0%
David Schachne(14)...................................... 123,000 *
All current directors and executive officers as a group
(9 persons)(5)(6)(8)(9)(10)(11)(12)(13)(14)........... 7,177,193 47.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise noted. The number of shares of Common Stock
beneficially owned is determined under the rules of the Securities and
Exchange Commission and is not necessarily indicative of beneficial
ownership for any other purpose. The inclusion herein of any shares of
Common Stock deemed beneficially owned does not constitute an admission of
beneficial ownership of such shares. Any reference in the footnotes below
to stock options held by the person in question relates to stock options
which are currently exercisable or exercisable within 60 days after
September 15, 1997.
(2) The number of shares deemed outstanding with respect to a named person
includes 14,727,807 shares outstanding as of September 15, 1997 plus any
shares subject to options held by the person in question that are currently
exercisable or exercisable within 60 days after September 15, 1997.
(3) Chancellor is the investment manager for various fiduciary client accounts,
with full voting and investment, including dispositive, powers. Includes an
aggregate of 57,513 shares of Common Stock issuable upon the exercise of
outstanding warrants held by such accounts that are presently exercisable.
(4) Consists of 2,644,345 and 116,395 shares of Common Stock and 6,688 and 331
shares issuable upon the exercise of presently exercisable warrants held of
record by Geocapital II, L.P. and Bernard Goldstein, respectively, both of
which are part of an affiliated group of entities and individuals referred
to, collectively, as Geocapital.
2
<PAGE> 5
(5) Includes 67,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997. Includes 54,000 shares held in trust for the benefit of Mr. Johnson's
children; Mr. Johnson disclaims beneficial ownership of such shares.
(6) Includes 18,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997. Includes an aggregate of 180,000 shares held in trust for the benefit
of Mr. Walker's children; Mr. Walker disclaims beneficial ownership of such
shares.
(7) Consists of an aggregate of 736,960 shares of Common Stock and 27,280
shares issuable upon the exercise of warrants held of record by Technology
Crossover Ventures, L.P., Technology Crossover Ventures, C.V., TCV II,
V.O.F., Technology Crossover Ventures II, L.P., TCV II (Q), L.P., TCV II
Strategic Partners, L.P. and Technology Crossover Ventures II, C.V.
(together the "TCV Entities").
(8) Includes 9,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997. Mr. Clearman is a general partner of Geocapital II, L.P., and as such
may be deemed to be the beneficial owner of shares held by Geocapital. Mr.
Clearman disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest in Geocapital.
(9) Includes 9,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997. Mr. Ellison is a Managing Director of Broadview Associates LLC, an
affiliate of Geocapital II, L.P., and as such may be deemed to be the
beneficial owner of shares held by Geocapital. Mr. Ellison disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest in Geocapital.
(10) Includes 9,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997. Mr. Tesler is an affiliate of the TCV Entities, and as such may be
deemed to be the beneficial owner of shares held by the TCV Entities. Mr.
Tesler disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest in such entities.
(11) Includes 9,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997.
(12) Includes 36,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997.
(13) Includes 146,902 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997. Includes 500 shares held as custodian for the benefit of Mr.
Levenherz' children; Mr. Levenherz disclaims beneficial ownership of such
shares.
(14) Includes 108,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1997.
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with
members of each class holding office for staggered three-year terms. The Board
currently consists of two Class I Directors, whose terms expire at the 1997
Annual Meeting of Stockholders, two Class II Directors, whose terms expire at
the 1998 Annual Meeting of Stockholders and two Class III Directors whose terms
expire at the 1999 Annual Meeting of Stockholders (in all cases subject to the
election of their successors and to their earlier death, resignation or
removal).
The persons named in the enclosed proxy will vote to elect Marc S. Tesler
and Alec L. Ellison as Class I Directors, unless authority to vote for the
election of the nominees is withheld by marking the proxy to that effect. The
Company has no nominating committee, and all nominations are made by the Board
of Directors. Each nominee has indicated his willingness to serve, if elected,
but if any nominee should be unable to stand for election, proxies may be voted
for a substitute nominee designated by the Board of Directors.
3
<PAGE> 6
Set forth below are the name, age and certain other information with
respect to each director and nominee for director of the Company.
NOMINEES FOR CLASS I DIRECTORS
Marc S. Tesler, 51, has been a Director of the Company since January 1996.
Since July 1995, he has been a member of the general partner of Technology
Crossover Ventures, L.P., a private partnership specializing in information
technology investments. From 1982 to June 1995, Mr. Tesler served in various
positions at Chancellor Capital Management, an investment management firm, most
recently as head of its Alternative Asset Management Group. Mr. Tesler received
his B.S. from the University of Massachusetts and his M.B.A. from New York
University.
Alec L. Ellison, 34, has been a Director of the Company since 1989. Mr.
Ellison has served as Managing Director of Broadview Associates LLC, an
investment bank, since 1988. Prior to 1988, Mr. Ellison was affiliated with the
Technology and Emerging Growth Group of Morgan Stanley & Co. Incorporated, an
investment banking firm. Mr. Ellison holds a B.A. from Yale University and an
M.B.A. from Harvard Business School, where he was a Baker Scholar.
CLASS II DIRECTORS
Stephen J. Clearman, 46, has been a Director of the Company since 1989.
Since 1984, Mr. Clearman has been a general partner of Geocapital Partners, a
venture fund he co-founded. Mr. Clearman received a B.A. from Haverford College,
an M.S. from Columbia University and a J.D. from Harvard Law School. Mr.
Clearman is also a director of Expert Software, Inc. and Restor Industries, Inc.
Michael R. O'Brien, 54, has been a Director of the Company since June 1996.
Mr. O'Brien founded Catalina Marketing Corporation ("Catalina"), a direct
marketing company, in 1983, and served as Catalina's President until 1989 and as
its Chairman of the Board and Chief Executive Officer until 1992. Since 1992,
Mr. O'Brien has been Chairman Emeritus of, and a consultant to, Catalina. Prior
to founding Catalina, Mr. O'Brien was President of TRIM, Inc., a marketing
research and information company specializing in the utilization of scanner
data. Previously, he held various sales management positions with several
consumer product manufacturers, including the Liggett Group, Inc. Mr. O'Brien
received a B.A. from the University of Kansas.
CLASS III DIRECTORS
Gary A. Johnson, 42, a co-founder of the Company, has served as President
and Chief Executive Officer and a Director of the Company since its inception.
From 1987 to 1989, Mr. Johnson founded and served as President of American
Target Group Marketing, a marketer of membership services for magazine
publishers. From 1983 to 1987, Mr. Johnson was Vice President of New Product
Development and Marketing of CUC International, Inc., a membership program
services marketing firm. From 1981 to 1983, Mr. Johnson was a Marketing Director
of the Marketing Consulting Division of General Electric. Mr. Johnson received a
B.S. from Tufts University and an M.B.A. from Harvard Business School.
Dennis P. Walker, 52, a co-founder of the Company, has served as Executive
Vice President and a Director of the Company since its inception. Prior to
founding the Company, Mr. Walker founded and served as President of Walker
Enterprises, a direct marketing and credit card merchandising business from 1978
to 1988. Mr. Walker received a B.A. from the University of Nebraska.
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
reviews the Company's internal accounting control policies and procedures, the
performance of the Company's independent auditors in the annual audit and
auditors' fees; considers and recommends the selection of the Company's
independent auditors; reviews and approves any major accounting policy changes
affecting the Company's operating results and provides the opportunity for
direct contact between the Company's independent auditors and the Board of
4
<PAGE> 7
Directors. The Company's consolidated financial statements are currently audited
by Price Waterhouse LLP. The Audit Committee met once during fiscal 1997. The
current members of the Audit Committee are Messrs. Clearman, O'Brien and Tesler.
The Company has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company and administers and has authority to grant stock options
under the Company's 1996 Stock Option Plan to all employees, directors and
officers of the Company, including those persons who are required to file
reports ("Reporting Persons") pursuant to Section 16(a) of the Exchange Act. The
Compensation Committee also administers the Company's Amended 1990 Stock Option
Plan, the Company's 1995 Executive Officers' Stock Option Plan, the Company's
1995 Non-Employee Directors' Stock Option Plan and the Company's 1996 Employee
Stock Purchase Plan. The Compensation Committee met three times during fiscal
1997. The current members of the Compensation Committee are Messrs. Clearman,
Ellison and Tesler.
The Board of Directors held nine meetings during fiscal 1997. Each director
attended at least 75% of the aggregate number of Board meetings and meetings
held by all committees on which he then served.
DIRECTOR COMPENSATION AND STOCK OPTIONS
The Company's Directors do not receive any compensation for their services
on the Board of Directors or any committee thereof; however, they are reimbursed
for expenses incurred in connection with their attendance at Board or committee
meetings. The non-employee directors (which consist of Messrs. Clearman,
Ellison, Tesler and O'Brien) have received options to purchase shares of Common
Stock pursuant to the 1995 Non-Employee Director Stock Option Plan.
5
<PAGE> 8
EXECUTIVE COMPENSATION
Summary of Compensation
The following table sets forth certain compensation information for the
fiscal years indicated, of the Company's Chief Executive Officer and the
Company's four other most highly compensated executive officers whose cash
compensation exceeded $100,000 during the fiscal year ended June 30, 1997
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------ UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (SHARES)(2) ($)
- ------------------------------------------- ------ ------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Gary A. Johnson............................ 1997 240,000 96,000 75,000 --
President and Chief Executive Officer 1996 203,881 51,550 108,000 --
Dennis Walker.............................. 1997 209,362 -- 63,200(3)(4) --
Executive Vice President 1996 197,802 40,378 36,000(3) --
James B. Duffy(5).......................... 1997 200,000 100,000 14,000 --
Senior Vice President and 1996 15,385 -- 144,000 --
Chief Financial Officer
David Schachne............................. 1997 175,000 60,000 50,000 --
Senior Vice President -- Marketing 1996 149,025 36,625 14,400 --
Steven H. Levenherz(6)..................... 1997 171,148 -- 5,100 --
Senior Vice President -- Administration/Law 1996 160,485 22,088 21,600 --
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constitute less than the lesser of $50,000 or ten percent of the total
salary and bonus reported for the executive officer during the years ended
June 30, 1996 and 1997.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights during the year ended June 30, 1997. The Company does not have any
long-term incentive plan.
(3) Includes options granted pursuant to an agreement between the Company and
Mr. Walker whereby the Company was required to grant options to purchase up
to 144,000 shares of Common Stock to Mr. Walker for achievement of certain
performance goals prior to December 31, 1996. These options become
exercisable over a four-year period, one quarter of such options vesting
each 12 months commencing on the last day of the first 12-month period after
the date of grant, at an exercise price of $2.78 per share. Mr. Walker was
granted options to purchase 14,400 shares pursuant to this agreement in each
of April, October, November and December of 1996.
(4) Also includes options granted pursuant to an agreement between the Company
and Mr. Walker whereby the Company is required to grant options to purchase
Common Stock to Mr. Walker for achievement of certain performance goals
prior to December 31, 1997. These options become exercisable over a
four-year period, one quarter of such options vesting each 12 months
commencing on the last day of the first 12-month period after the date of
grant, at an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. Mr. Walker was granted options to
purchase 15,000 shares pursuant to this agreement in May 1997. The number of
additional options to purchase Common Stock that the Company may be
obligated to grant to Mr. Walker prior to the termination of this
arrangement on December 31, 1997, if any, is not anticipated by the Company
to be material.
(5) Mr. Duffy joined the Company as Senior Vice President and Chief Financial
Officer effective June 3, 1996.
6
<PAGE> 9
(6) Mr. Levenherz served as Chief Financial Officer prior to June 3, 1996, at
which time he assumed his current position.
Option Grants
The following table sets forth certain information concerning option grants
during the fiscal year ended June 30, 1997 to the Named Executive Officers and
the number and value of the unexercised options held by such persons on June 30,
1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
----------------------------------------------------- ASSUMED RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- --------------------------------- ---------- ------------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Johnson.................. 54,000 10.2% 8.00 6/30/06 271,682 688,497
21,000 4.0% 13.00 1/14/07 171,688 435,092
Dennis Walker.................... 14,400 2.7% 2.78 10/8/06 358,721 594,916
14,400 2.7% 2.78 11/21/06 220,917 375,486
14,400 2.7% 2.78 12/29/06 259,033 436,179
5,000 0.9% 13.00 1/14/07 40,878 103,593
15,000 2.8% 15.125 4/30/07 142,680 361,580
James B. Duffy................... 14,000 2.6% 13.00 1/14/07 114,459 290,061
David Schachne................... 36,000 6.8% 8.00 6/30/06 181,122 458,998
14,000 2.6% 13.00 1/14/07 114,459 290,061
Steven H. Levenherz.............. 3,600 0.7% 8.00 6/30/06 18,112 45,900
1,500 0.3% 13.00 1/14/07 12,263 31,078
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The assumed rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future stock prices. This table does
not take into account any appreciation or depreciation in the price of the
Common Stock to date. Actual gain, if any, on stock option exercises will
depend on future performance of the Common Stock and the date on which the
options are exercised. Values shown are net of the option exercise price,
but do not include deductions for tax or other expenses associated with
the exercise.
7
<PAGE> 10
Option Exercises and Holdings
The following table sets forth certain information concerning each exercise
of a stock option during the fiscal year ended June 30, 1997 by each of the
Named Executive Officers, and the number and value of unexercised options held
by each of the Named Executive Officers on June 30, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END($)(1)
SHARES ------------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C>
Gary A. Johnson..................... -- -- 40,500/142,500 470,003/1,475,633
Dennis Walker....................... -- -- 9,000/90,200 120,105/967,444
James B. Duffy...................... -- -- 36,000/122,000 430,380/1,334,890
David Schachne...................... -- -- 93,600/68,000 1,299,960/636,076
Steven H. Levenherz................. 10,000 127,766 141,502/20,400 2,053,775/242,815
</TABLE>
- ---------------
(1) The per share value of unexercised in-the-money options is calculated by
subtracting the per share option exercise price from the last per share sale
price of the Company's Common Stock on the Nasdaq National Market on June
30, 1997 ($16.125).
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
The Company entered into an agreement with Mr. Walker whereby the Company
was required to grant options to purchase 144,000 shares of Common Stock to Mr.
Walker for achievement of certain performance goals. Specifically, the Company
was obligated to grant an option to purchase 14,400 shares of Common Stock for
each new client, from a selected list of ten prospective large clients, he
obtained for the Company prior to December 31, 1996. These options become
exercisable over a four-year period, one quarter of such options vesting each 12
months commencing on the last day of the first 12-month period after the date of
grant, at an exercise price of $2.78 per share. Pursuant to this agreement, Mr.
Walker was granted options to purchase 57,600 shares of Common Stock.
The Company subsequently entered into a second agreement with Mr. Walker
whereby the Company is required to grant options to purchase Common Stock to Mr.
Walker for achievement of certain performance goals prior to December 31, 1997.
These options become exercisable over a four-year period, one quarter of such
options vesting each 12 months commencing on the last day of the first 12-month
period after the date of grant, at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. Mr. Walker was granted
options to purchase 15,000 shares pursuant to this agreement in May 1997. The
number of additional options to purchase Common Stock that the Company may be
obligated to grant to Mr. Walker prior to the termination of this arrangement on
December 31, 1997, if any, is not anticipated by the Company to be material.
8
<PAGE> 11
CERTAIN TRANSACTIONS
On October 23, 1996 the Company redeemed all of the outstanding shares of
its Series E and F preferred stock for a total of $2,549,128. The allocation of
payments was as follows:
<TABLE>
<CAPTION>
SERIES E SERIES F
---------- ----------
<S> <C> <C>
Affiliates of Abbott Capital Management, L.P......... $ 530,911 $ 432,139
Affiliates of Chancellor Capital Management, Inc..... 789,729 642,812
GeoCapital II, L.P. and Affiliates................... -- 153,537
---------- ----------
$1,320,640 $1,228,488
========= =========
</TABLE>
During fiscal 1997, the Company retained Broadview Associates LLC for its
corporate development services. Alec Ellison, a member of the Company's Board of
Directors is Managing Director of Broadview Associates LLC.
The Company believes that the terms of the foregoing transactions were no
less favorable to the Company than could have been obtained from unaffiliated
third parties. As of the closing of the Company's initial public offering in
October 1996, the Company adopted a policy that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors, and
(ii) be on terms that are no less favorable to the Company than could be
obtained from unaffiliated third parties. In addition, the policy requires that
any loans by the Company to its officers, directors or other affiliates be for
bona fide business purposes only.
For a description of option grants to certain executive officers of the
Company, see "Executive Compensation -- Option Grants."
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is currently composed of three non-employee directors, Stephen J.
Clearman, Alec L. Ellison and Marc S. Tesler. The Compensation Committee is
responsible for establishing and administering the policies which govern both
annual compensation and performance-based equity ownership of the Company's
executive officers.
This report is submitted by the Compensation Committee and addresses the
Company's policies for 1997 as they apply to the Named Executive Officers.
Policies and Philosophy
The Company's executive compensation program is structured and administered
to achieve three broad goals in a manner consistent with stockholder interests.
First, the Compensation Committee structures executive compensation programs and
decisions regarding individual compensation in a manner that the Compensation
Committee believes will enable the Company to attract and retain key executives.
Second, the Compensation Committee establishes compensation programs that are
designed to reward executives for the achievement of specified business
objectives of the Company. Finally, the Compensation Committee designs the
Company's executive compensation programs to provide executives with long-term
ownership opportunities in the Company in an attempt to align executive and
stockholder interests.
In evaluating both individual and corporate performance for purposes of
determining salary and bonus levels and stock option grants, the Compensation
Committee places significant emphasis on the extent to which strategic and
business plan goals are met, including the progress and success of the Company
with respect to matters such as achieving operating budgets, establishing
strategic marketing, distribution and development alliances, product development
and enhancement of the Company's strategic position, as well as on the Company's
overall financial performance.
9
<PAGE> 12
Executive Compensation in Fiscal 1997
The compensation programs for the Company's executives established by the
Compensation Committee consist of three elements based upon the foregoing
objectives: (i) base salary and benefits competitive with the marketplace; (ii)
bonus grants; and (iii) stock-based equity incentive in the form of
participation in the 1996 Stock Option Plan, the 1995 Executive Officers' Stock
Option Plan and the 1996 Employee Stock Purchase Plan (prior to the closing of
the Company's initial public offering in October 1996, option grants under the
Amended 1990 Stock Option Plan were also possible). The Compensation Committee
believes that providing a base salary and benefits to its executive officers
that are competitive with the marketplace enables the Company to attract and
retain key executives. In addition, the Compensation Committee believes that
bonuses based on both corporate and individual performance provide incentives to
its executive officers that align their interests with those of the Company as a
whole. The Compensation Committee generally provides executive officers
discretionary stock option awards to reward them for achieving specified
business objectives and to provide them with long-term ownership opportunities.
In evaluating the salary level, bonuses and equity incentives to award to each
current executive officer, the Compensation Committee examines the progress
which the Company has made in areas under the particular executive officer's
supervision, such as development or sales, and the overall performance of the
Company.
In determining the salary and bonuses of each executive officer, including
the Named Executive Officers, the Compensation Committee and the Board of
Directors consider numerous factors such as (i) the individual's performance,
including the expected contribution of the executive officer to the Company's
goals, (ii) the Company's long-term needs and goals, including attracting and
retaining key management personnel, and (iii) the Company's competitive
position, including data on the payment of executive officers at comparable
companies that are familiar to members of the Compensation Committee. The
companies used by the Compensation Committee to compare executive compensation
are companies of which the members of the Compensation Committee have specific
knowledge and are considered as of the time those companies were at similar
stages of development as the Company. To the extent determined to be
appropriate, the Compensation Committee also considers general economic
conditions and the historic compensation levels of the individual. The
Compensation Committee believes that the salary levels of its executive officers
are in the middle third when compared to the compensation levels of companies at
similar stages of development as the Company.
Stock option grants made pursuant to the Amended 1990 Stock Option Plan,
the 1995 Executive Officers' Stock Option Plan and the 1996 Stock Option Plan in
the fiscal year ended June 30, 1997 were designed to make a portion of the
overall compensation of the executive officers receiving such awards vary
depending upon the performance of the Company's Common Stock. Such grants, as a
result of vesting arrangements applicable to such stock options, also serve as a
means of retaining these individuals. In making stock option grants to
executives, the Compensation Committee considers a number of factors, including
the performance of the executive, the responsibilities of the executive, and the
executive's current stock or option holdings.
Benefits
The Company's executive officers are entitled to receive medical benefits
and life insurance benefits and to participate in the Company's 401(k) Savings
Plan on the same basis as other full-time employees of the Company. The
Company's 1996 Employee Stock Purchase Plan, which is available to virtually all
employees, including certain executive officers and directors who are employees,
allows participants to purchase shares at a discount of approximately 15% from
the fair market value at the beginning or end of the applicable purchase period.
Compensation of the Chief Executive Officer in Fiscal 1997
The compensation philosophy applied by the Compensation Committee in
establishing the compensation for the Company's President and Chief Executive
Officer is the same as for the other senior management of the Company -- to
provide a competitive compensation opportunity that rewards performance.
10
<PAGE> 13
During fiscal 1997, Mr. Johnson served as President and Chief Executive
Officer of the Company and was paid a base salary of $240,000. The Compensation
Committee established Mr. Johnson's base salary at a level considered by the
Compensation Committee to be in the middle third of the compensation of Chief
Executive Officers at other publicly-traded companies at the same stage of
development as the Company. Mr. Johnson was also granted options to purchase
54,000 shares of Common Stock at an exercise price of $8.00 per share and 21,000
shares of Common Stock at an exercise price of $13.00 per share under the 1996
Stock Option Plan and paid a bonus of $96,000 in fiscal 1997.
Compliance with Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows tax deductions to publicly-traded
corporations for compensation over $1,000,000 paid to the corporation's Chief
Executive Officer or any of its other four most highly compensated executive
officers. Qualifying performance-based compensation will not be subject to this
disallowance if certain requirements are met. The Company currently intends to
structure the compensation arrangements of its executive officers in a manner
that will avoid disallowances under Section 162(m).
COMPENSATION COMMITTEE
Stephen J. Clearman
Alec L. Ellison
Marc S. Tesler
11
<PAGE> 14
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company during the period from October 18, 1996 (the date on
which the Company's Common Stock began trading on the Nasdaq National Market) to
June 30, 1997 with the cumulative total return over the same period of (i) the
Nasdaq National Market (U.S. Companies) (the "Nasdaq Composite Index") and (ii)
the Dow Jones Consumer Non-Cyclical Index for the Consumer Services sector (the
"Dow Jones Non-Cyclical Index"). This comparison assumes the investment of $100
on October 18, 1996 in the Company's Common Stock, the Nasdaq Composite Index
and the Dow Jones Non-Cyclical Index and assumes dividends, if any, are
reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
OCTOBER 18, 1996 JUNE 30, 1997
---------------- -------------
<S> <C> <C>
MemberWorks Incorporated........................................ $ 100.00 $ 94.85
Nasdaq Composite Index.......................................... $ 100.00 $116.09
Dow Jones Non-Cyclical Index.................................... $ 100.00 $118.97
</TABLE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, at the recommendation of the Audit Committee, has
selected the firm of Price Waterhouse LLP as the Company's independent auditors
for the current fiscal year. Price Waterhouse LLP has served as the Company's
independent auditors since 1990. Although stockholder ratification of the Board
of Directors' selection of Price Waterhouse LLP is not required by law, the
Board of Directors believes that it is advisable to give stockholders the
opportunity to ratify this selection. If this proposal is not approved at the
Annual Meeting, the Board of Directors may reconsider its selection of Price
Waterhouse LLP.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
12
<PAGE> 15
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews, and the Company reserves the right to retain
outside agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of shares held in their names, and the Company will reimburse them for out-
of-pocket expenses incurred on behalf of the Company.
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Stamford, Connecticut not later than June 19, 1998 for inclusion in the proxy
statement for that meeting.
By Order of the Board of Directors,
James B. Duffy
Secretary
October 27, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT STOCKHOLDERS PLAN TO ATTEND, STOCKHOLDERS ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH
THEY HAVE SENT IN THEIR PROXIES.
13
<PAGE> 16
MEMBERWORKS INCORPORATED
PROXY FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, NOVEMBER 20, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
AND SHOULD BE RETURNED AS SOON AS POSSIBLE
The undersigned, having received notice of the 1997 Annual Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) Gary A. Johnson and James B. Duffy, and
each of them, attorneys or attorney of the undersigned (with full power of
substitution in them and each of them) for and in the name(s) of the
undersigned to attend the 1997 Annual Meeting of Stockholders of MEMBERWORKS
INCORPORATED (the "Company") to be held on Thursday, November 20, 1997 at 9:30
a.m. at the Sheraton Hotel, 1 First Stamford Place, Stamford, Connecticut
06902, and any adjournments thereof, and there to vote and act upon the
following matters in respect of all shares of stock of the Company which the
undersigned may be entitled to vote or act upon, with all the powers the
undersigned would possess if personally present.
In their discretion, the proxy holders are authorized to vote upon
such other matters as may properly come before the meeting or any adjournments
thereof. The shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any election to office
or proposal, this proxy will be voted as recommended by the Board of Directors.
Attendance of the undersigned at the meeting or at any adjournment thereof will
not be deemed to revoke this proxy unless the undersigned shall revoke this
proxy in writing.
(Continued and to be signed on the reverse side)
<PAGE> 17
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
MEMBERWORKS INCORPORATED
NOVEMBER 20, 1997
| |
V Please Detach and Mail in the Envelope Provided V
- -------------------------------------------------------------------------------
---- Please mark your --- |
A | X | votes as in this | |
---- example |
-------
FOR both
nominees
(except as
marked
below) WITHHOLD
--- --- Nominees: Marc S. Tesler
1. To elect the | | | | Alec L. Ellison
following | | | |
nominees --- ---
for director (except as marked below):
(Instruction: To withhold a vote for an
individual nominee, write the name of such
nominee in the space provided below. Your
shares will be voted for the remaining
nominee.)
- -------------------------------------------
FOR AGAINST ABSTAIN
2. To ratify the appointment of Price --- --- ---
Waterhouse LLP as the Company's | | | | | |
independent public accountants for | | | | | |
the current year. --- --- ---
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS
MADE, THE PROXIES SHALL VOTE "FOR" BOTH DIRECTOR NOMINEES AND "FOR"
PROPOSAL NUMBER 2.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED
TO SIGN, DATE AND MAIL THIS PROXY IN THE ACCOMPANYING ENVELOPE.
A VOTE "FOR" BOTH DIRECTOR NOMINEES AND A VOTE "FOR" PROPOSAL
NUMBER 2 IS RECOMMENDED BY THE BOARD OF DIRECTORS.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING AND ANY ADJOURNMENT THEREOF.
MARK HERE --- MARK HERE ---
FOR ADDRESS | | IF YOU PLAN | |
CHANGE AND | | TO ATTEND | |
NOTE AT LEFT --- THE MEETING ---
Signature_____________Signature if held jointly____________Dated: _____, 1997
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY
JOINT OWNERS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY AUTHORIZED OFFICER, GIVING
FULL TITLE. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED
PERSON, GIVING FULL TITLE.
