<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
FOR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
AMENDMENT NO. 1
Commission File No. 0-21527
MEMBERWORKS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1276882
(State of Incorporation) (I.R.S. Employer
Identification No.)
680 Washington Blvd.; Suite 1100;
Stamford, Connecticut 06901
(Address of principal executive offices) (Zip Code)
(203) 324-7635
(Registrant's telephone number,
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.01 Par Value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by non- affiliates of the
Registrant at October 20, 1998 was $164,167,665. The aggregate market value was
computed by reference to the closing price of the Registrant's Common Stock as
of that date. (For purposes of calculating this amount only, all directors,
executive officers and shareholders reporting beneficial ownership of more than
10% of the Registrant's Common Stock are considered to be affiliates.) The
number of shares of Common Stock outstanding as of October 20, 1998 was
15,576,950.
DOCUMENTS INCORPORATED BY REFERNCE
None
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FORM 10-K/A
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
PART III
10. Directors and Executive Officers of the Registrant................. 3
11. Executive Compensation............................................. 5
12. Security Ownership of Certain Beneficial Owners and Management..... 11
13. Certain Relationships and Related Transactions..................... 12
Signature.......................................................... 13
2
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Item 10. Directors and Executive Officers of the Registrant
The executive officers of registrant of the Company, and their
respective ages as of June 30, 1998, are as follows:
Name Age Position
- ---- --- --------
Gary A. Johnson 43 President and Chief Executive Officer, Director
Dennis P. Walker 53 Executive Vice President, Director
James B. Duffy 44 Senior Vice President and Chief Financial Officer
David Schnachne 37 Senior Vice President-Marketing
GARY A. JOHNSON, 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 for CUC, a membership program services marketing
firm. From 1981 to 1983, Mr. Johnson received a B.S. from Tufts University and
an M.B.A. from Harvard Business school.
DENNIS P. WALKER, a co-founder of the Company, has served as Executive
Vice President and a Director of the company since its inception. Prior to
founding Memberworks, 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.
JAMES B. DUFFY joined the Company as Senior Vice President and Chief
Financial Officer in june 1996. Prior to joining the Company, Mr. duffy served
in various senior financial management positions, most recently as Senior Vice
President, Business Planning, at Merck Medco Managed Care, Inc., a prescription
benefit management company, from 1986 to 1996.
DAVID SCHACHNE joined the Company as Senior Vice President-Marketing
in 1990. Prior to joining the Company, Mr. Schachne was Vice President of Sleep
Technologies, Inc., a manufacturer and wholesaler of home furnishing products.
Mr. Schachne received a B.A. from the State University of New York, Albany and
his M.B.A. from Harvard Business School.
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 Shareholders, two Class II directors, whose terms expire at
the 1998 Annual Meeting of Shareholders and two Class III directors whose terms
expire at the 1999 Annual Meeting of Shareholders (in all cases subject to the
election of their successors and to their earlier death, resignation or
removal).
Stephen J. Clearman and Michael R. O'Brien have been nominated to
serve as Class II directors after the expiration of their terms at the 1998
Annual Meeting of Shareholders. 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, by the stockholders at the 1998 Meeting
of Shareholders.
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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 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 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.
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Item 11. 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 Officer 1997 240,000 96,000 75,000 -
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 1997 200,000 100,000 14,000 -
and Chief 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.
(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
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grant, at an exercise price of $2.78 per share. Mr. Walker was granted
options to purchase 14,400 shares pursuant to this agreement in each of
April, October, November and December of 1996.
(4) Also includes options granted pursuant to an agreement between the
Company and Mr. Walker whereby the Company is required to grant options
to purchase Common Stock to Mr. Walker for achievement of certain
performance goals prior to December 31, 1997. These options become
exercisable over a four-year period, one quarter of such options
vesting each 12 months commencing on the last day of the first 12-month
period after the date of grant, at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. Mr.
Walker was granted options to purchase 15,000 shares pursuant to this
agreement in May 1997 and 5,000 shares pursuant to this agreement in
August 1997.
Option Grants
The following table sets forth certain information concerning option
grants during the fiscal year ended June 30, 1998 to the Named Executive
Officers and the number and value of the unexercised options held by such
persons on June 30, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED RATES
OF STOCK PRICE
APPRECIATION FOR
OPTION TERM (1)
----------------------------------------------------- ------------------------
PERCENT OF
TOTAL
NAME NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE
OPTIONS FISCAL PRICE EXPIRATION
GRANTED (#) YEAR ($/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.
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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.
7
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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 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
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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 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.
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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 three 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
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>
OCTOBER 18, 1996 JUNE 30, 1997 JUNE 30, 1998
---------------- ------------- -------------
<S> <C> <C> <C>
MemberWorks Incorporated............... $100.00 $ 94.85 $189.71
Nasdaq Composite Index ................ $100.00 $116.09 $152.95
Dow Jones Non-Cyclical Index........... $100.00 $118.97 $155.66
</TABLE>
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Item 12. 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 and (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
OWNED(1) OUTSTANDING (2)
----------------- ----------------
<S> <C> <C>
NAME AND ADDRESS OF:
1) BENEFICIAL OWNERS
--------------------
J. & W. Seligman & Company, Inc........................ 1,590,150 10.2%
100 Park Avenue
New York, NY 10017
Geocapital II, L.P.(3) ................................ 1,401,032 9.0%
One Bridge Plaza
Fort Lee, NJ 07024
Capital Research & Management.......................... 961,700 6.2%
333 South Hope Street
Los Angeles, CA 90071
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)..................................... 94,600 *
David Schachne(11)..................................... 128,462 *
All current directors and executive officers as a group
(8 persons)(4)(5)(6)(7)(8)(9)(10)(11).................. 5,885,047 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.
(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.
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(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 an aggregate of 184,300 shares held in trust
for the benefit of Mr. Walker's children; 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 77,600 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
October 20, 1998.
(11) Includes 74,000 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
October 20, 1998.
Item 13. 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.
For a description of option grants to certain executive officers of the
Company, see "Executive Compensation -- Option Grants."
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<PAGE> 13
MEMBERWORKS INCORPORATED SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to the
report to be signed on its behalf by the undersigned thereunto duly authorized.
MEMBERWORKS INCORPORATED
(Registrant)
By: /s/ James B. Duffy
Secretary and
Chief Financial Officer
Date: October 28, 1998
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