<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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
9 WEST BROAD STREET
STAMFORD, CONNECTICUT 06902
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, DECEMBER 8, 1998
The 1998 Annual Meeting of Stockholders of MemberWorks Incorporated (the
"Company") will be held at the Westin 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 Stephen J. Clearman and Michael R. O'Brien as Class II
Directors, to serve for a three year term;
2. To ratify the selection of PricewaterhouseCoopers LLP by the Board of
Directors as the Company's independent auditors for the fiscal year
ending June 30, 1999;
3. To approve the amendment to the 1996 Stock Option Plan; and
4. 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 November 17, 1998 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
November 19, 1998
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
9 WEST BROAD STREET
STAMFORD, CONNECTICUT 06902
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, DECEMBER 8, 1998
This Proxy Statement and the accompanying proxy are to be mailed to holders
of Common Stock, $0.01 par value per share (the "Common Stock" of MemberWorks
Incorporated ("the Company") commencing on or about November 19, 1998, in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Annual Meeting of Stockholders to be held on December 8,
1998 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 1998 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, 1998, 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, 9
West Broad Street, Stamford, Connecticut 06902.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on November 17, 1998 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 15,603,487 shares of 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,
the ratification of the selection of PricewaterhouseCoopers LLP as the Company's
independent auditors, and the approval of the amendment to the 1996 Stock Option
Plan for the fiscal year ending June 30, 1999.
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.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 20, 1998,
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 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>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY COMMON STOCK
NAME AND ADDRESS OF OWNED(1) OUTSTANDING(2)
1) BENEFICIAL OWNERS ---------------- ---------------
<S> <C> <C>
J. & W. Seligman & Company, Inc.
100 Park Avenue
New York, NY 10017........................................ 1,590,150 10.2%
Geocapital II, L.P.(3)
One Bridge Plaza
Fort Lee, NJ 07024........................................ 1,401,032 9.0%
Capital Research & Management
333 South Hope Street
Los Angeles, CA 90071..................................... 961,700 6.2%
2) DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES
Gary A. Johnson(4).......................................... 1,668,500 10.6%
Dennis P. Walker(5)......................................... 1,598,800 10.2%
Stephen J. Clearman(6)...................................... 1,566,311 10.0%
Alec L. Ellison(7).......................................... 1,415,066 9.1%
Marc S. Tesler(8)........................................... 773,740 5.0%
Michael R. O'Brien(9)....................................... 40,600 *
James B. Duffy(10).......................................... 96,000 *
David Schachne(11).......................................... 133,462 *
All current directors and executive officers as a group
(8 persons)(4)(5)(6)(7)(8)(9)(10)(11)..................... 5,891,447 36.9%
</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 October
20, 1998.
(2) The number of shares deemed outstanding with respect to a named person
includes 15,576,950 shares outstanding as of October 20, 1998 plus any
shares subject to options held by the person in question that are currently
exercisable or exercisable within 60 days after October 20, 1998.
2
<PAGE> 5
(3) Consists of 1,394,344 shares of Common Stock and 6,688 shares issuable upon
the exercise of presently exercisable warrants held of record by Geocapital
II, L.P., which is part of an affiliated group of entities and individuals
referred to, collectively, as Geocapital.
(4) Includes 111,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after October 20, 1998.
Includes 54,000 shares held in trust for the benefit of Mr. Johnson's
children; Mr. Johnson disclaims beneficial ownership of such shares.
(5) Includes 45,300 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after October 20, 1998.
Includes 184,300 shares held in trust for the benefit of Mr. Walker's
children and 500,000 shares held by Mr. Walker's wife; Mr. Walker disclaims
beneficial ownership of such shares.
(6) Includes 9,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after October 20, 1998.
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.
(7) 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.
(8) Includes 18,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after October 20, 1998.
Mr. Tesler is an affiliate of 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"), 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.
(9) Includes 18,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after October 20, 1998.
(10) Includes 79,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after October 20, 1998.
(11) Includes 79,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after October 20, 1998.
3
<PAGE> 6
PROPOSAL 1
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 2000
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 or to their earlier death, resignation or removal).
The persons named in the enclosed proxy will vote to elect Stephen J.
Clearman and Michael R. O'Brien as Class II 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
NOMINEES.
Set forth below are the name, age and certain other information with
respect to each director and nominee for director of the Company.
CLASS I DIRECTORS
Marc S. Tesler, 52, 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, 35, 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.
NOMINEES FOR CLASS II DIRECTORS
Stephen J. Clearman, 47, 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 World Access, Inc.,
formerly Restor Industries, Inc.
Michael R. O'Brien, 55, 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
4
<PAGE> 7
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, 43, 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, 53, 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes of ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission. Officers, directors and greater-than-ten-percent
shareowners are required by regulations promulgated by the Securities and
Exchange Commission to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for the Company's most recent fiscal year, the
Company believes that all its officers, directors and greater-than-ten-percent
beneficial owners complied with all filing requirements applicable to them with
respect to transactions during fiscal 1998.
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
Directors. The Company's consolidated financial statements are currently audited
by PricewaterhouseCoopers LLP. The Audit Committee met once during fiscal 1998.
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, 1995 Executive Officers Stock Option
Plan and the 1995 Non-Employee Directors 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
5
<PAGE> 8
Amended 1990 Stock Option Plan and the Company's 1996 Employee Stock Purchase
Plan. The Compensation Committee met five times during fiscal 1998. The current
members of the Compensation Committee are Messrs. Clearman, Ellison and Tesler.
The Board of Directors held five meetings during fiscal 1998. No director
attended fewer than 75% of the meetings of the Board of Directors or committee
meetings on which the director served during the period of his service as a
director.
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.
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 three other most highly compensated executive officers whose cash
compensation exceeded $100,000 during the fiscal year ended June 30, 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (SHARES)(2) ($)
--------------------------- ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary A. Johnson.................... 1998 265,000 132,500 21,000 --
President and Chief Executive 1997 240,000 96,000 75,000 --
Officer
Dennis P. Walker................... 1998 230,000 -- 10,000(4) --
Executive Vice President 1997 209,362 -- 63,200(3)(4) --
James B. Duffy..................... 1998 234,000 125,000 14,000 --
Senior Vice President and Chief 1997 200,000 100,000 14,000 --
Financial Officer
David Schachne..................... 1998 200,000 75,000 14,000 --
Senior Vice President 1997 175,000 60,000 50,000 --
New Business Development
</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, 1998 and 1997.
6
<PAGE> 9
(2) The Company did not grant any restricted stock awards or stock appreciation
rights during the year ended June 30, 1998. The Company does not have any
long-term incentive plans.
(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 $2.78 per share. Mr. Walker was
granted options to purchase 14,400 shares pursuant to this agreement in each
of April, October, November and December of 1996.
(4) Also includes options granted pursuant to an agreement between the Company
and Mr. Walker whereby the Company is required to grant options to purchase
Common Stock to Mr. Walker for achievement of certain performance goals
prior to December 31, 1997. These options become exercisable over a
four-year period, one quarter of such options vesting each 12 months
commencing on the last day of the first 12-month period after the date of
grant, at an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. Mr. Walker was granted options to
purchase 15,000 shares pursuant to this agreement in May 1997 and 5,000
shares pursuant to this agreement in August 1997.
Option Grants
The following table sets forth certain information concerning option grants
during the fiscal year ended June 30, 1998 to the Named Executive Officers and
the number and value of the unexercised options held by such persons on June 30,
1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Johnson.......... 18,163 7.1% 16.00 7/2/07 182,762 463,154
2,837 1.1% 17.60 7/2/07 24,008 67,804
Dennis P. Walker......... 5,000 1.9% 16.00 7/2/07 50,312 127,499
5,000 1.9% 18.00 8/7/07 56,601 143,437
James B. Duffy........... 14,000 5.4% 16.00 7/2/07 140,872 356,998
David Schachne........... 14,000 5.4% 16.00 7/2/07 140,872 356,998
</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, 1998 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, 1998:
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
SHARES YEAR-END (#) YEAR-END ($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Gary A. Johnson.............. -- -- 79,800/124,200 2,196,030/3,037,191
Dennis P. Walker............. -- -- 33,800/75,400 937,018/1,902,632
James B. Duffy............... -- -- 74,800/97,200 2,075,660/2,464,860
David Schachne............... 54,000 1,269,529 62,200/59,400 1,760,894/1,342,002
</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, 1998 ($32.25).
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. Pursuant to this
agreement, Mr. Walker was granted options to purchase 20,000 shares of Common
Stock.
8
<PAGE> 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
During fiscal 1998 the Company paid Broadview Associates, LLC $72,000 for
services rendered during the year.
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 1998 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.
Executive Compensation in Fiscal 1998
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
9
<PAGE> 12
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, 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.
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<PAGE> 13
Compensation of the Chief Executive Officer in Fiscal 1998
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.
During fiscal 1998, Mr. Johnson served as President and Chief Executive
Officer of the Company and was paid a base salary of $265,000. 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
18,163 shares of Common Stock at an exercise price of $16.00 per share and 2,837
shares of Common Stock at an exercise price of $17.60 per share under the 1996
Stock Option Plan in fiscal 1998.
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
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<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, 1998 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>
MEMBERWORKS NASDAQ COMPOSITE DOW JONES NON-
INCORPORATED INDEX CYCLICAL INDEX
<S> <C> <C> <C>
1996 100.00 100.00 100.00
1997 94.85 116.09 118.97
1998 189.71 152.95 155.66
</TABLE>
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<PAGE> 15
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, at the recommendation of the Audit Committee, has
selected the firm of PricewaterhouseCoopers LLP as the Company's independent
auditors for the current fiscal year. PricewaterhouseCoopers LLP has served as
the Company's independent auditors since 1990. Although stockholder ratification
of the Board of Directors' selection of PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers 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.
PROPOSAL 3
APPROVAL OF 1996 STOCK OPTION PLAN AMENDMENT
AMENDMENT TO 1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Plan") was adopted by the Board
of Directors and approved by the stockholders of the Company in August 1996, and
became effective as of August 13, 1996.
On November 16, 1998, the Board of Directors adopted a resolution proposing
that (a) the number of shares of Common Stock reserved for issuance under the
Plan increase from 1,800,000 to 3,600,000 shares of Common Stock (b) to set the
maximum number of shares that may be issued pursuant to the exercise of
Incentive Stock Options at 3,600,000 and (c) to clarify that the maximum number
of shares with respect to which options may be granted to any employee under the
Plan in any Calendar Year, set forth in the Plan as 175,000 shares, is subject
to adjustment in number and kind in the event of a recapitalization or other
related transaction in the same manner as the maximum number of shares reserved
for issuance under the Plan is subject to adjustment in number and kind in the
event of a recapitalization or other related transaction (the "Plan Amendment").
The Plan Amendment is being presented for the approval of the Company's
stockholders. In all other respects, the provisions of the Plan will remain as
approved and adopted by the stockholders of the Company in August 1996 with the
exception of certain nonmaterial ministerial changes made to reflect recent
amendments to Rule 16b-3 promulgated under the Securities Exchange Act of 1934
and nonmaterial ministerial changes to Section 9 "Nontransferability of Options"
as set forth in Annex B attached hereto. If approved by the Company's
stockholders, the Plan Amendment would effect the following changes:
(a) Section 3 of the Plan would be amended in its entirety to read as
follows:
3. Eligibility
Options may be granted to persons who are, at the time of grant,
employees, officers or directors of, or consultant's or advisors to, the
Company; provided, that the class of employees to whom Incentive Stock
Options may be granted shall be limited to all employees of the Company. A
person who has been granted an option may, if he or she is otherwise
eligible, be granted additional options if the Board of Directors shall so
determine. The maximum number of shares with respect to which options may
be
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<PAGE> 16
granted to any employee under the Plan shall not exceed 175,000 shares of
common stock during any calendar year during the term of the Plan, subject
to adjustment in the same manner as the maximum number and kind of shares
reserved for issuance under the Plan in accordance with Section 15 hereof.
For the purpose of calculating such maximum number, (a) an option shall
continue to be treated as outstanding notwithstanding its repricing,
cancellation or expiration and (b) the repricing of an outstanding option
or the issuance of a new option in substitution for a cancelled option
shall be deemed to constitute the grant of a new additional option separate
from the original grant of the option that is repriced or cancelled. With
respect to grants of options to directors and officers, the Plan shall be
administered in compliance with the applicable provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act").
(b) Section 4 of the Plan would be amended in its entirety to read as
follows:
4. Stock Subject to Plan
The maximum number of shares of Common Stock which may be issued and
sold under the Plan is 3,600,000 shares. If an option granted under the
Plan shall expire or terminate for any reasons without having been
exercised in full, the unpurchased shares subject to such option shall
again be available for subsequent option grants under the Plan. If shares
issued upon exercise of an option under the Plan are tendered to the
Company in payment of the exercise price of an option granted under the
Plan, such tendered shares shall again be available for subsequent option
grants under the Plan; provided, that in no event shall the number of
shares issued pursuant to the exercise of Incentive Stock Options exceed
3,600,000. The maximum number of shares that may be issued under the Plan
and the maximum number of shares that may be issued pursuant to the
exercise of Incentive Stock Options are subject to adjustment in accordance
with Section 15 below.
The Plan is intended to secure for the Company and its stockholders the
benefits arising from capital stock ownership by employees, officers and
directors of, and consultants or advisors to, the Company and its parent and
subsidiary corporations who are expected to contribute to the Company's future
growth and success. As of October 8, 1998, options to purchase 1,224,538 shares
of Common Stock had been granted under the Plan, and 615,371 shares of Common
Stock remained available for future option grants under the Plan. The Board of
Directors believes that the Plan Amendment is in the best interests of the
Company's stockholders because approval of the Plan Amendment will enable the
Company to continue to implement effectively the Plan and attain the stated goal
of the Plan. If the Plan Amendment is not approved, the Company will soon
deplete the options available for grant under the Plan.
The following summary of the Plan (which assumes adoption of the Plan
Amendment) is qualified in its entirety by reference to the complete text of the
Plan and the Plan Amendment thereto attached as Annex A to this Proxy Statement.
Capitalized terms used in this section of the Proxy Statement will, unless
otherwise defined, have the meanings assigned to them in the text of the Plan.
SHARES SUBJECT TO THE PLAN
Upon approval of the Plan Amendment, a maximum of 3,600,000 shares of
Common Stock, in the aggregate, may be issued and sold under the Plan. The
authorized shares issuable in connection with the Plan are subject to adjustment
in the event that any merger, consolidation, sale of all or substantially all of
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar transaction
affects the Common Stock such that adjustment is appropriate to prevent dilution
or enlargement of the rights of participants under the Plan. Any adjustment will
be made by
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<PAGE> 17
the Board of Directors' Compensation Committee (the "Committee"), whose
determination will be final, binding and conclusive.
If an option granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares of Common
Stock subject to such option shall again be available for subsequent option
grants under the Plan. If shares issued upon exercise of an option under the
Plan are tendered to the Company in payment of the exercise price of an option
granted under the Plan, such tendered shares shall again be available for
subsequent option grants under the Plan; provided, that the maximum number of
shares that may be issued pursuant to exercise of Incentive Stock Options shall
not exceed 3,600,000.
ADMINISTRATION
The Plan provides that it shall be administered by the Board of Directors,
or a committee appointed by the Board. Pursuant to such authority, the Board of
Directors has appointed its Compensation Committee to administer the Plan. The
Committee is authorized, among other things, to grant options to purchase shares
of Common Stock, to construe the respective option agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective option agreements, which
need not be identical, and to make all other determinations which are, in the
judgment of the Committee, necessary or desirable for the administration of the
Plan.
PARTICIPANTS AND TERMS OF AWARDS
The Plan provides for the granting of (a) Non-Statutory Options and (b)
Incentive Stock Options to certain individuals. Non-Statutory Options may be
granted to such persons who are, at the time of the grant, employees, officers
or directors of, or consultants or advisors to, the Company as the Committee may
select in its sole discretion. There are approximately 1,000 persons eligible to
receive Non-Statutory Options under the Plan.
Employees of the Company are eligible to receive Incentive Stock Options
under Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Committee may select in its sole discretion those employees to whom
Incentive Stock Options will be granted. There are approximately 1,000 persons
eligible to be granted Incentive Stock Options under the Plan.
Assuming that the Plan Amendment is approved by the Company's stockholders,
an aggregate of 3,600,000 shares of Common Stock is reserved for issuance under
the Plan, subject to adjustment. The total number of shares of Common Stock
subject to options granted to any employee under the Plan during any calendar
year will not exceed 175,000 shares.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Committee. Such option agreements may differ
among recipients.
The exercise price of each option is established by the Committee, but in
no event can the exercise price of an Incentive Stock Option be less than the
fair market value of the Common Stock on the date of the grant (or not less than
110% of the fair market value of the Common Stock on the date of the grant if
the individual to whom an Incentive Stock Option is granted owns, as of the date
of the grant, shares of the Company's capital stock possessing 10% or more of
the total voting power of all outstanding shares of the Company's capital
stock). The aggregate fair market value (determined as of the date of grant) of
shares of Common
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<PAGE> 18
Stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual to whom an Incentive Stock Option is granted during
any calendar year may not exceed $100,000.
The Committee has the authority to determine other terms of the options
granted, including (i) the number of shares subject to each option, (ii) option
exercise terms, (iii) the duration of the option, and (iv) the time, manner and
form of payment upon exercise of an option. Although the Committee will
determine the duration of the option, no Incentive Stock Option may be exercised
more than ten years after the date of grant. Furthermore, if an Incentive Stock
Option is granted to an individual who owns, as of the date of grant, shares of
the Company's capital stock possessing 10% or more of the total voting power of
all outstanding shares of the Company's capital stock, such Incentive Stock
Option may not be exercised more than five years after the date of grant.
The Committee may affect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding options under the Plan and the grant in substitution of new options
under the Plan covering the same or different numbers of shares of Common Stock
and having an option exercise price which may be lower or higher than the
exercise price of the cancelled options or (ii) the amendment of the terms of
any and all outstanding options under the Plan to provide an option exercise
price which is higher or lower than the then-current exercise price of such
outstanding options.
Options are not assignable or transferable by the optionee other than by
will or by the laws of descent and distribution and may be exercised, during the
lifetime of the optionee, only by the optionee; provided, however, that
Non-Statutory Options may be transferred as provided by the Board Of Directors.
OTHER FEATURES OF THE PLAN
The Plan provides that the Committee shall determine the period of
exercisability for outstanding options in the event of (i) the termination of an
optionee's employment or other relationship with the Company or (ii) the death
or disability of the optionee; however, fixed periods of exercisability are
provided in the Plan in the case of Incentive Stock Options.
The Committee may, in its sole discretion, (i) include additional
provisions in option agreements covering options granted under the Plan
(provided that such additional provisions are not inconsistent with any other
term or condition of the Plan or causes any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code), (ii) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (iii)
extend duration of the option.
In the event of a consolidation or merger or sale of all of substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the Company, the Committee,
or the board of directors of any corporation assuming the obligations of the
Company, may, in its discretion, take any one or more of the following actions
with respect to outstanding options: (i) provide for the assumption of the
options by the surviving or acquiring corporation, (ii) upon written notice to
the optionees, provide for the termination of all unexercised options
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period of time following the notice, (iii) in
the case of a merger in which stockholders of the Company will receive a cash
payment for each share surrendered in the merger, provide that all or any
outstanding options shall become exercisable in full immediately prior to such
event.
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<PAGE> 19
The Committee may at any time, and from time to time, modify or amend the
Plan in any respect; provided, however, that if at any time the approval of the
Company's stockholders is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, the Company shall
obtain such approval before modifying or amending the Plan.
The Plan shall continue in effect until August 12, 2006 unless terminated
earlier pursuant to a consolidation, merger or sale of all or substantially all
of the assets of the Company or a liquidation of the Company.
Any option outstanding on August 12, 2006 will remain in effect until it is
exercised, terminates or expires in accordance with its terms.
NEW PLAN BENEFITS
With respect to all future grants, the Committee has full discretion to
determine the number and amount of options to be granted to employees, officers
or directors of, or consultants or advisors to, the Company under the Plan,
subject to an annual limitation on the total number of options that may be
granted to any employee under the Plan. Therefore, other than as described in
this paragraph, the benefits and amounts that will be received by each of the
officers named in the Security Ownership of Certain Beneficial Owners and
Management table set forth in this Proxy Statement, the directors of the
Company, the executive officers as a group and all other employees under the
Plan are not presently determinable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to options under the Plan. This summary is not intended to be exhaustive and,
among other things, does not describe state, local or foreign income and other
tax consequences.
Non-Statutory Stock options. The grant of a Non-Statutory Stock Option
will have no immediate tax consequence to the Company or the employee. The
exercise of a Non-Statutory Stock Option will require an employee to include in
his gross income the amount by which the aggregate fair market value of the
acquired shares on the exercise date (or the date on which any substantial risk
of forfeiture lapses) exceeds the aggregate purchase price paid for such shares.
Upon a subsequent sale or taxable exchange of shares acquired upon exercise of a
Non-Statutory Stock Option, an employee will recognize long or short-term
capital gain or loss equal to the difference between the amount realized on the
sale and the tax basis of such shares.
The Company will be entitled (provided applicable income tax reporting
requirements are met) to a deduction at the same time and in the same amount as
the employee is in receipt of income in connection with his exercise of a
Non-Statutory Stock Option.
Incentive Stock Options. The grant of an Incentive Stock Option will have
no immediate tax consequences to the Company or the employee. Upon exercise of
an Incentive Stock Option, the employee generally recognizes no income. If an
employee disposes of the shares acquired on the exercise of an Incentive Stock
Option within two years after the grant of the option or within one year after
the date of the transfer of such shares to him (a "disqualifying disposition"),
he will be required to include in income, as compensation, the lesser of (i) the
difference between the aggregate purchase price paid and the fair market value
of the acquired shares on the exercise date (or the date on which any
substantial risk of forfeiture lapses) or (ii) the
17
<PAGE> 20
amount of gain realized on such disposition. Any additional gain or loss
recognized will be a capital gain or loss.
If any employee does not make a disqualifying disposition, he will realize
no compensation income and any gain or loss that he realizes on a subsequent
disposition of such shares will be treated as a capital gain or loss. For
purposes of computing the employee's alternative minimum taxable income,
however, the option generally will be treated as if it were a Non-Statutory
Stock Option.
The Company will be entitled to a deduction at the same time and in the
same amount as the employee is in receipt of compensation income as a result of
a disqualifying disposition. If there is no disqualifying disposition, no
deduction will be available to the Company.
THE BOARD OF DIRECTORS RECOMMENDS STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
PLAN AMENDMENT.
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.
SOLICITATION EXPENSES
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.
STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Stamford, Connecticut not later than July 22, 1999 for inclusion in the proxy
statement for that meeting.
By Order of the Board of Directors,
James B. Duffy
Secretary
November 19, 1998
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.
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<PAGE> 21
ANNEX A
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan ( the "1996 Stock Option Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in August 1996, and became effective upon the approval of the Board of
Directors. 1,224,538 options have been granted under the 1996 Stock option Plan.
The Stock Option Plan authorizes the issuance of up to a total of 3,600,000
shares pursuant to the grant to employees of "incentive stock options" within
the meaning of the Code, and the grant of non-qualified stock options to
employees, consultants, officers or directors of the Company.
The 1996 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors, which has the authority to select the optionees and
determine the terms of the options granted, including (i) the number of shares
subject to each option, (ii) option exercise terms, (iii) the exercise price of
the option, (which in the case of an incentive stock option cannot be less than
the fair market value of the Common Stock on the date of grant), (iv) the
duration of the option, and (v) the time, manner, and form of payment upon
exercise of an option. An option is not transferable by the optionholder except
by will or by laws of descent and distribution. Generally, no incentive stock
option may be exercised by an optionee more than three months following
termination of employment, unless termination is due to death or disability, in
which case the option is exercisable for a maximum of one year after such
termination.
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<PAGE> 22
ANNEX B
9. Nontransferability of Options.
Options shall not be assignable or transferable by the person to whom they
are granted, either voluntarily or by operation of law, except by will or the
laws of descent and distribution, and, during the life of the optionee, shall be
exercisable only by the optionee; provided, however, that Non-Statutory Options
may be transferred as follows:
(a) pursuant to a "domestic relations order" as defined in Section 414
of the Code or Section 206 of ERISA; or
(b) without consideration by an optionee, subject to such rules as the
Board of Directors may adopt to preserve the purposes of the Plan
(including limiting such transfers to transfers by optionees who are
directors or senior executives), to:
(A) a member of an optionee's immediate family,
(B) a trust solely for the benefit of the optionee and the
optionee's immediate family, or
(C) a partnership, limited liability company or corporation whose
only partners, members or shareholders are the optionee and the
optionee's immediate family members, (each transferee described in
subsections (a)(b) above is hereafter referred to as a "permitted
transferee"), provided that the Board of Directors is notified in
advance, in writing, of the terms and conditions of any proposed
transfer under subsection (a) or (b) and it determines that the proposed
transfer complies with the requirements of the Plan and the applicable
option agreement. Any purported assignment, alienation, pledge, sale,
transfer or encumbrance that does not qualify under subsection (a) or
(b) shall be void and unenforceable against the Company. For this
purpose, "immediate family" shall mean, with respect to a particular
optionee, the optionee's spouse, children or grandchildren (including
adopted children, stepchildren, adopted grandchildren and
stepgrandchildren).
(b) The terms of any Option shall apply to the executors and
administrators of the optionee and of the permitted transferees of the
optionee (including the executors and administrators of the permitted
transferees), including the right to agree to any amendment to the
applicable option agreement, except that permitted transferees shall not
transfer any option other than by will or by the laws of descent and
distribution.
(c) An option shall be exercised only by the optionee (or his or her
attorney in fact, guardian, or, in the case of a transferred option, by a
permitted transferee), or, in the case of the optionee's death, by the
optionee's executors or administrators (including, in the case of a
transferred option, by the executors or administrators of the permitted
transferee), and no shares shall be issued by the Company unless the
exercise of an option is accompanied by sufficient payment, as determined
by the Company, to meet its withholding tax obligations on such exercise or
by other arrangements satisfactory to the Board of Directors to provide for
such payment."
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<PAGE> 23
MEMBERWORKS INCORPORATED
PROXY FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, DECEMBER 8, 1998
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 1998 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 1998 Annual Meeting of Stockholders of MEMBERWORKS INCORPORATED
(the "Company") to be held on Tuesday, December 8, 1998 at 9:30 a.m. at the
Westin 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> 24
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR BOTH NOMINEES
(EXCEPT AS MARKED BELOW) WITHHOLD
1. To elect the
following nominees for
director (except as marked below): [ ] [ ]
Nominees: Stephen J. Clearman
Michael R. O'Brien
(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 nominees.)
FOR AGAINST ABSTAIN
2. To ratify the appointment of
PricewaterhouseCoopers LLP as the
Company's independent public accountants
for the current year. [ ] [ ] [ ]
3. To approve the amendment to the 1996
Stock Option Plan. [ ] [ ] [ ]
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" PROPOSALS NUMBER 2 AND 3.
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 AND
PROPOSAL NUMBER 3 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 FOR ADDRESS MARK HERE IF YOU PLAN TO
CHANGE AND NOTE AT LEFT [ ] ATTEND THE MEETING [ ]
Signature __________________ Signature if held jointly ________________________
Dated ________________, 1998
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.
