<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
<TABLE>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
MEMBERWORKS INCORPORATED
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE 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)(1) and
0-11.
(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:
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<PAGE> 2
MEMBERWORKS INCORPORATED
9 WEST BROAD STREET
STAMFORD, CONNECTICUT 06902
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, NOVEMBER 17, 1999
The 1999 Annual Meeting of Stockholders of MemberWorks Incorporated (the
"Company") will be held at the Sheraton Hotel, 2701 Summer Street, Stamford,
Connecticut 06905 at 9:00 a.m., local time, to consider and act upon the
following matters:
1. To elect Gary A. Johnson and Dennis P. Walker as Class III 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, 2000; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on October 7, 1999 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books of the Company will remain open.
By Order of the Board of Directors,
James B. Duffy
Secretary
Stamford, Connecticut
October 8, 1999
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 WEDNESDAY, NOVEMBER 17, 1999
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 October 8, 1999, is
furnished 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 November 17, 1999 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 1999 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, 1999, 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 October 7, 1999 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 15,770,481 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
and the ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending June 30, 2000.
Shares that abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on matters,
such as the ones presented for stockholder approval at this Annual Meeting, that
require the affirmative vote of a certain percentage of the shares voting on the
matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 15,
1999, 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
<PAGE> 4
Compensation Table set forth under the caption "Executive Compensation" below
and (iv) all current directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY COMMON STOCK
OWNED(1) OUTSTANDING(2)
---------------- ---------------
<S> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNERS
J. & W. Seligman & Company, Inc.
100 Park Avenue
New York, NY 10017........................................ 2,792,987 17.7%
Waddell & Reed Asset Management Co.
6300 Lamar
Shawnee Mission, KS 66202................................. 1,033,000 6.5%
Brown Investment Advisory & Trust Co.
19 South Street
Baltimore, MD 21202....................................... 1,004,417 6.4%
Geocapital II, L.P.(3)
One Bridge Plaza
Fort Lee, NJ 07024........................................ 901,032 5.7%
Technology Crossover Ventures, L.P. (4)
56 Main Street , Suite 210
Millburn, New Jersey 07041 799,740 5.1%
DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES
Gary A. Johnson(5).......................................... 1,734,843 10.9%
Dennis P. Walker(6)......................................... 1,582,275 10.0%
Stephen J. Clearman(7)...................................... 1,098,422 7.0%
Alec L. Ellison(8).......................................... 924,633 5.9%
Marc S. Tesler(9)........................................... 826,740 5.2%
James B. Duffy(10).......................................... 154,763 *
David Schachne(11).......................................... 152,372 *
Laura J. Pelco (12)......................................... 88,555 *
Wayne T. Gattinella (13).................................... 70,263 *
Michael R. O'Brien(14)...................................... 49,600 *
All current directors and executive officers as a group
(10 persons)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)........... 10,439,981 63.2%
</TABLE>
- ---------------
* Less than or equal to 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
that are currently exercisable or exercisable within 60 days after
September 15, 1999.
(2) Calculated by taking the named persons' beneficial ownership as disclosed
above as a percenatge of the total number of shares outstanding of
15,772,194 as of September 15, 1999 plus any shares subject to options held
by the person in question that are currently exercisable or exercisable
within 60 days after September 15, 1999.
2
<PAGE> 5
(3) Consists of 901,032 shares of Common Stock 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) Consists of an aggregate of 772,460 shares of Common Stock and 27,280
shares issuable upon the exercise of warrants held of record by Technology
Crossover Ventures, L.P., Technology Crossover Ventures, C.V., TCV II,
V.O.F., Technology Crossover Ventures II, L.P., TCV II (Q), L.P., TCV II
Strategic Partners, L.P. and Technology Crossover Ventures II, C.V.
(collectively the "TCV Entities").
(5) Includes 177,343 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999. Includes 54,000 shares held in trust for the benefit of Mr. Johnson's
children. Mr. Johnson disclaims beneficial ownership of such shares.
(6) Includes 76,275 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999. Includes 169,665 shares held in trust for the benefit of Mr. Walker's
children and 555,000 shares held by Mr. Walker's wife. Mr. Walker disclaims
beneficial ownership of such shares.
(7) Includes 18,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999. 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.
(8) Includes 9,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999. 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.
(9) Includes 27,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999. Mr. Tesler is an affiliate of the TCV Entities and, as such, may be
deemed to be the beneficial owner of shares held by the TCV Entities. Mr.
Tesler disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest in such entities.
(10) Includes 136,763 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999.
(11) Includes 111,910 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999.
(12) Includes 77,160 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999.
(13) Includes 67,263 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999.
(14) Includes 27,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 15,
1999.
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 2001 Annual Meeting of Stockholders and two Class III directors whose terms
expire at the 1999 Annual Meeting of Stockholders (in all cases subject to the
election of their successors and to their earlier death, resignation or
removal).
The persons named in the enclosed proxy will vote to elect Gary A. Johnson
and Dennis P. Walker as Class III 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, 53, 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, 36, has been a director of the Company since 1989. Mr.
Ellison has served as Managing Director of Broadview Associates LLC, an
investment bank, since 1988. Prior to 1988, Mr. Ellison was affiliated with the
Technology and Emerging Growth Group of Morgan Stanley & Co. Incorporated, an
investment banking firm. Mr. Ellison holds a B.A. from Yale University and an
M.B.A. from Harvard Business School, where he was a Baker Scholar.
CLASS II DIRECTORS
Stephen J. Clearman, 48, 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, 56, 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.
NOMINEES FOR CLASS III DIRECTORS
Gary A. Johnson, 44, a co-founder of the Company, has served as President
and Chief Executive Officer and a director of the Company since its inception in
1989. From 1987 to 1989, Mr. Johnson founded and served as President of American
Target Group Marketing, a marketer of membership services for magazine
4
<PAGE> 7
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, 54, a co-founder of the Company, has served as Executive
Vice President and a director of the Company since its inception in 1989. Prior
to co-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 upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during fiscal 1999 and upon a review of Forms 5 and
amendments thereto furnished to the Company with respect to fiscal 1999, or upon
written representations received by the Company from certain reporting persons
that no Forms 5 were required for those persons, the Company believes that no
director, executive officer or greater-than-ten-percent shareholder failed to
file on a timely basis the reports required by Section 16(a) of the Exchange Act
during, or with respect to, fiscal 1999, except the following: (i) Mr. Wayne T.
Gattinella, an officer of the Company, who inadvertently failed to file on a
timely basis a Form 3 upon his appointment as an officer of the Company, and
(ii) Ms. Laura J. Pelco, an officer of the Company, who inadvertently failed to
file on a timely basis (a) a Form 3 upon her appointment as an officer of the
Company and (b) a Form 4 with respect to exercises of options to purchase shares
of Common Stock on August 5, 1998 and February 22, 1999.
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 twice during fiscal 1999.
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 pursuant to Section 16(a) of the Exchange Act. The Compensation
Committee also administers the Company's Amended 1990 Stock Option Plan and the
Company's 1996 Employee Stock Purchase Plan. The Compensation Committee met two
times during fiscal 1999. The current members of the Compensation Committee are
Messrs. Clearman, Ellison and Tesler.
The Board of Directors held six meetings during fiscal 1999. 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.
5
<PAGE> 8
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 five most highly compensated executive officers other than the Chief
Executive Officer whose cash compensation exceeded $100,000 during the fiscal
year ended June 30, 1999 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (SHARES)(2) ($)
--------------------------- ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gary A. Johnson.................... 1999 300,000 180,000 90,570 --
President and Chief 1998 265,000 132,500 21,000 --
Executive Officer 1997 240,000 96,000 75,000 --
Dennis P. Walker................... 1999 230,000 96,000 14,700 --
Executive Vice President 1998 230,000 -- 10,000(4) --
1997 209,362 -- 63,200(3)(4) --
James B. Duffy..................... 1999 275,000 137,500 59,050 --
Senior Vice President 1998 234,000 125,000 14,000 --
and Chief Financial Officer 1997 200,000 100,000 14,000 --
David Schachne..................... 1999 234,000 175,000 53,240 --
Senior Vice President 1998 200,000 75,000 14,000 --
New Business Development 1997 175,000 60,000 50,000 --
Wayne T. Gattinella................ 1999 275,000 137,500 269,050(5) --
Senior Vice President
Marketing
Laura J. Pelco..................... 1999 220,000 143,750 48,240(6) --
Senior Vice President
Sales
</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 fiscal years
ended June 30, 1999, 1998 and 1997.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights during the year ended June 30, 1999. 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 $2.78 per share. Mr. Walker was
granted options to purchase 14,400 shares pursuant to this agreement in each
of April, October, November and December of 1996.
6
<PAGE> 9
(4) Also includes options granted pursuant to an agreement between the Company
and Mr. Walker whereby the Company was required to grant options to purchase
Common Stock to Mr. Walker for achievement of certain performance goals
prior to December 31, 1997. These options become exercisable over a four-
year period, one quarter of such options vesting each 12 months commencing
on the last day of the first 12-month period after the date of grant, at an
exercise price equal to the fair market value of the Company's Common Stock
on the date of grant. Mr. Walker was granted options to purchase 15,000
shares pursuant to this agreement in May 1997 and 5,000 shares pursuant to
this agreement in August 1997.
(5) Mr. Gattinella joined the Company in February 1998. Mr. Gattinella was
elected as an executive officer during fiscal 1999.
(6) Ms. Pelco joined the Company in 1993. Ms. Pelco was elected as an executive
officer during fiscal 1999.
Option Grants
The following table sets forth certain information concerning option grants
during the fiscal year ended June 30, 1999 to the Named Executive Officers and
the number and value of the unexercised options held by such persons on June 30,
1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Johnson....... 43,334 3.2% 15.00 8/27/08 408,788 1,035,949
6,666 0.5% 16.50 8/27/08 52,884 149,359
40,570 3.0% 17.75 10/8/08 452,878 1,147,682
Dennis P. Walker...... 10,000 0.7% 15.00 8/27/08 94,334 239,061
4,700 0.3% 17.75 10/8/08 52,466 132,958
James B. Duffy........ 30,000 2.2% 15.00 8/27/08 283,003 717,184
29,050 2.2% 17.75 10/8/08 324,282 821,793
David Schachne........ 30,000 2.2% 15.00 8/27/08 283,003 717,184
23,240 1.7% 17.75 10/8/08 259,425 657,435
Wayne T. Gattinella... 240,000 17.9% 15.00 8/27/08 2,264,021 5,737,473
29,050 2.2% 17.75 10/8/08 324,282 821,793
Laura J. Pelco........ 25,000 1.9% 15.00 8/27/08 235,835 597,653
23,240 1.7% 17.75 10/8/08 259,425 657,435
</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, 1999 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, 1999:
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........... -- -- 126,000 / 168,570 2,992,313/2,724,322
Dennis P. Walker.......... -- -- 61,100 / 58,100 1,448,355/1,176,395
James B. Duffy............ -- -- 118,500 / 100,051 2,839,140/1,739,757
David Schachne............ -- -- 91,500 / 83,340 2,175,804/1,236,582
Wayne T. Gattinella....... -- -- --/ 269,050 --/3,686,813
Laura J. Pelco............ 6,300 175,556 58,500 / 76,740 1,284,151/1,126,749
</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, 1999 ($29.00).
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 up to 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.
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 1999 the Company paid Broadview Associates, LLC $271,000 for
services rendered during the year.
8
<PAGE> 11
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 that 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 1999 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 1999
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. The Compensation
Committee believes that providing a base salary and benefits to its executive
officers that are competitive with the marketplace enables the Company to
attract and retain key executives. In addition, the Compensation Committee
believes that bonuses based on both corporate and individual performance provide
incentives to its executive officers that align their interests with those of
the Company as a whole. The Compensation Committee generally provides executive
officers discretionary stock option awards to reward them for achieving
specified business objectives and to provide them with long-term ownership
opportunities. In evaluating the salary level, bonuses and equity incentives to
award to each current executive officer, the Compensation Committee examines the
progress which the Company has made in areas under the particular executive
officer's supervision, such as development or sales, and the overall performance
of the Company.
In determining the salary and bonuses of each executive officer, including
the Named Executive Officers, the Compensation Committee and the Board of
Directors consider numerous factors such as (i) the individual's performance,
including the expected contribution of the executive officer to the Company's
goals, (ii) the Company's long-term needs and goals, including attracting and
retaining key management personnel, (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 and (iv) the Company's
financial performance measured versus financial targets approved by the Board of
Directors and Compensation
9
<PAGE> 12
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 1999
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 1999, Mr. Johnson served as President and Chief Executive
Officer of the Company and was paid a base salary of $300,000 and a bonus of
$180,000. 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 6,666 shares of Common Stock at an exercise price of $16.50
per share, 43,334 shares of Common Stock at an exercise price of $15.00 per
share and 40,570 shares of Common Stock at an exercise price of $17.75 per share
under the 1996 Stock Option Plan.
10
<PAGE> 13
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 five most highly compensated executive
officers. Qualifying performance-based compensation will not be subject to this
disallowance if certain requirements are met. The Company currently intends to
structure the compensation arrangements of its executive officers in a manner
that will avoid disallowances under Section 162(m).
COMPENSATION COMMITTEE
Stephen J. Clearman
Alec L. Ellison
Marc S. Tesler
11
<PAGE> 14
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company during the period from October 18, 1996 (the date on
which the Company's Common Stock began trading on the Nasdaq National Market) to
June 30, 1999 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>
DOW JONES NON-CYCLICAL
MEMBERWORKS INCORPORATED NASDAQ COMPOSITE INDEX INDEX
------------------------ ---------------------- ----------------------
<S> <C> <C> <C>
'October 18, 1996' 100.00 100.00 100.00
'June 30, 1997' 94.85 116.09 118.97
'June 30, 1998' 189.71 152.95 155.66
'June 30, 1999' 170.59 218.34 299.80
</TABLE>
12
<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. 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.
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 2000 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Stamford, Connecticut not later than June 20, 2000 for inclusion in the proxy
statement for that meeting.
By Order of the Board of Directors,
James B. Duffy
Secretary
October 8, 1999
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT STOCKHOLDERS PLAN TO ATTEND, STOCKHOLDERS ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH
THEY HAVE SENT IN THEIR PROXIES.
13
<PAGE> 16
MEMBERWORKS INCORPORATED
PROXY FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, NOVEMBER 17, 1999
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 1999 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 1999 Annual Meeting of Stockholders of MEMBERWORKS INCORPORATED
(the "Company") to be held on Wednesday, November 17, 1999 at 9:00 a.m., local
time, at the Sheraton Hotel, 2701 Summer Street, Stamford, Connecticut 06905,
and any adjournments thereof, and there to vote and act upon the following
matters in respect of all shares of stock of the Company which the undersigned
may be entitled to vote or act upon, with all the powers the undersigned would
possess if personally present.
In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the meeting or any adjournments
thereof. The shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any election to office or
proposal, this proxy will be voted as recommended by the Board of Directors.
Attendance of the undersigned at the meeting or at any adjournment thereof will
not be deemed to revoke this proxy unless the undersigned shall revoke this
proxy in writing.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE> 17
Please 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: Gary A. Johnson
Dennis P. Walker
(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 auditors
for the current year. [ ] [ ] [ ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE PROXIES
SHALL VOTE "FOR" BOTH DIRECTOR NOMINEES AND "FOR" PROPOSALS NUMBER 2.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO SIGN,
DATE AND MAIL THIS PROXY IN THE ACCOMPANYING ENVELOPE.
A VOTE "FOR" BOTH DIRECTOR NOMINEES AND A VOTE "FOR" PROPOSAL NUMBER 2 IS
RECOMMENDED BY THE BOARD OF DIRECTORS.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT
THEREOF.
MARK HERE FOR ADDRESS MARK HERE IF YOU PLAN TO
CHANGE AND NOTE AT LEFT [ ] ATTEND THE MEETING [ ]
Signature Signature if held jointly
--------------------- ----------------
Dated , 1999
----------------
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.
