SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
MEMBERWORKS INCORPORATED
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MEMBERWORKS INCORPORATED
680 WASHINGTON BOULEVARD
STAMFORD, CONNECTICUT 06901
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 18, 2004
The 2004 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 consider and vote upon a proposed amendment to the Company's
Amended and Restated Certificate of Incorporation to change the
Company's name to Vertrue Incorporated;
2. To consider and vote upon a proposed amendment to the Company's
Amended and Restated Certificate of Incorporation to declassify the
board of directors of the Company (the "Board of Directors") so that
all directors are elected annually;
3. To elect Scott N. Flanders, Michael T. McClorey and Edward M. Stern as
directors for a term of three years, unless Proposal 2 above is
approved by the stockholders, in which case all members of the Board
of Directors shall stand for election;
4. To consider and vote upon the adoption of the 2004 Long Term Incentive
Plan (the "LTIP");
5. 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, 2005; and
6. 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 September 20, 2004
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 13, 2004
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU MAY
VOTE YOUR SHARES BY MARKING YOUR VOTES ON THE ENCLOSED PROXY CARD, SIGNING AND
DATING IT, AND MAILING IT IN THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED
IF THE PROXY IS MAILED IN THE UNITED STATES.
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MEMBERWORKS INCORPORATED
680 WASHINGTON BOULEVARD
STAMFORD, CONNECTICUT 06901
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 18, 2004
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of the Company and is to be mailed on or about October
29, 2004 to holders of record of the Company's Common Stock, $0.01 par value per
share ("Common Stock"), for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on November 18, 2004 and at any adjournments of
that 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 2004 Annual Report to Stockholders and Annual Report on Form 10-K
are being mailed to stockholders concurrently with this Proxy Statement.
VOTING SECURITIES AND VOTES REQUIRED
At the close of business on September 20, 2004, 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 10,077,441 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 that 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 each of the matters set forth in
the accompanying Notice of Annual Meeting except Proposal 2, which requires the
affirmative vote of 75% of the shares of Common Stock.
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 that require
the affirmative vote of a certain percentage of the shares voting on the matter.
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PROPOSAL 1
APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO CHANGE THE NAME OF THE COMPANY
The Board of Directors of the Company has unanimously approved, and is
recommending that the stockholders vote in favor of, an amendment to the
Company's Amended and Restated Certificate of Incorporation to change the name
of the Company to Vertrue Incorporated. The Company was organized in 1996 and
did business as CardMember Publishing Corporation from 1989 to 1996. In August
1996, the Company changed its name from CardMember Publishing Corporation to
MemberWorks Incorporated. The change was intended to reflect the ever-broadening
base of membership services that the Company offers to its customers.
The Board of Directors believes that the proposed change in the Company's name
will assist the Company in developing new marketing and sales strategies and
will enhance the Company's brand equity and strengthen recognition of the
Company by our customers, partners and stockholders. The change in the Company's
name will not affect, in any way, the validity of currently outstanding stock
certificates, nor will it be necessary for the Company's stockholders to
surrender or exchange any stock certificates that they currently hold as a
result of the name change. If the name change is approved at the annual meeting,
the Company intends to promptly file a Certificate of Amendment with the
Secretary of State of the State of Delaware. In anticipation of the name change,
the Company will begin doing business as Vertrue Incorporated on October 13,
2004 and the Company anticipates its stock beginning to trade under the trading
symbol VTRU on or about October 15, 2004.
Attached to this Proxy Statement as Annex A is the proposed amendment to the
Company's Amended and Restated Certificate of Incorporation with respect to the
name change. Stockholders are urged to review Annex A in considering the
amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ABOVE
PROPOSAL.
Approval of the above proposal related to the change of the Company's name will
require the affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock outstanding and entitled to vote on the
record date. Stockholders may vote (1) "FOR," (2) "AGAINST," or (3) "ABSTAIN,"
from voting on Proposal 1.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved, and is
recommending that the stockholders vote in favor of, an amendment to the
Company's Amended and Restated Certificate of Incorporation to eliminate the
classification of the Company's Board of Directors so that each director would
stand for election annually (the "Declassification Amendment").
The Board of Directors believes that the classified board structure has provided
certain advantages to the Company, including the preservation of some degree of
continuity of Board membership, which facilitates long-term planning and
enhances the ability of the Board of Directors to implement business strategies.
The classified board was intended to increase the commitment of members of the
Board of Directors. The classified board protects stockholders against
potentially coercive takeover tactics where a party attempts to acquire control
on terms that do not offer the greatest value to all stockholders.
On the other hand, a classified board structure can reduce the accountability of
directors. The election of directors is the primary means for stockholders to
influence corporate governance policies and a classified Board of Directors
structure reduces the accountability of directors because stockholders are
unable to evaluate and elect all directors on an annual basis. Moreover,
classified boards may discourage takeover proposals and proxy contests that
could have the effect of increasing shareholder value. As a result, a number of
corporations have determined that principles of good corporate governance
dictate that all directors of a corporation should be elected annually.
All directors whose terms would not otherwise expire at the 2004 Annual Meeting
have conditionally resigned (the "Conditional Resignation"), subject to approval
and effectiveness of this Proposal 2. In the event the stockholders approve
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Proposal 2, the directors will no longer be designated as Class I, II or III
directors, and all of the seven current directors will stand for election at the
2004 Annual Meeting. For such purpose, and in such event, the Board of Directors
has nominated the seven current members of the Board of Directors for election
under the Amended and Restated Certificate of Incorporation, as amended by the
Declassification Amendment, for one-year terms, ending at the 2005 Annual
Meeting or until their successors are duly elected and qualified.
In the event the stockholders do not approve Proposal 2, the Conditional
Resignation shall not take effect and the Board of Directors has nominated the
three Class II directors for election under the existing Amended and Restated
Certificate of Incorporation, to serve for a three-year term expiring at the
Company's annual meeting in 2007 or until their successors are duly elected and
qualified.
Attached to this Proxy Statement as Annex B is the proposed amendment to the
Company's Amended and Restated Certificate of Incorporation with respect to the
declassification of the Board of Directors. Stockholders are urged to carefully
read the attached Annex B. If the Declassification Amendment is approved, the
Company will file an amendment to its Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware promptly
after the Declassification Amendment is approved by stockholders, upon which
filing the Declassification Amendment will become effective.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ABOVE
PROPOSAL.
Approval of the above proposal related to the approval of the declassification
of the Board of Directors will require the affirmative vote of the holders of
75% of the outstanding shares of the Company's Common Stock outstanding and
entitled to vote on the record date. Stockholders may vote (1) "FOR," (2)
"AGAINST," or (3) "ABSTAIN," from voting on Proposal 2.
PROPOSAL 3
ELECTION OF DIRECTORS
Under the current Amended and Restated Certificate of Incorporation, 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 three Class II directors, whose terms expire at the 2004 Annual
Meeting, two Class III directors whose terms expire at the 2005 Annual Meeting
and two Class I directors whose terms expire at the 2006 Annual Meeting (in all
cases subject to the election of their successors and to their earlier death,
resignation or removal).
If Proposal 2 is not approved, the terms of the three Class II directors, Scott
N. Flanders, Michael T. McClorey and Edward M. Stern, will expire at the 2004
Annual Meeting. The Board of Directors has nominated Mr. Flanders, Mr. McClorey
and Mr. Stern for re-election at the Annual Meeting, to serve for three-year
terms.
If Proposal 2 is approved, only the terms of all of the Company's directors will
expire at the 2004 Annual Meeting. The Board of Directors has nominated Mr.
Ellison, Mr. Tesler, Mr. Flanders, Mr. McClorey, Mr. Stern, Mr. Johnson and Mr.
Kamerschen to stand for re-election at the Annual Meeting, to serve for a
one-year term.
The persons named in the enclosed proxy will vote to elect each of the persons
nominated as directors, unless authority to vote for the election of the
nominees is withheld by marking the proxy to that effect. The Company has a
Corporate Governance and Nominating committee and all nominations are approved
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 of the directors.
CLASS I DIRECTORS
Alec L. Ellison, 41, has been a director of the Company since 1989. Mr. Ellison
has been affiliated with Broadview International LLC, an investment bank, since
1988 and has served as a Managing Director since 1993 and President since 2001.
As of December 2003, Broadview International became a Division of Jefferies &
Co., 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.
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Marc S. Tesler, 58, has been a director of the Company since 1996. From July
1995 to January 2001, he was a general partner of Technology Crossover Ventures,
L.P., a private partnership specializing in information technology investments.
Mr. Tesler received his B.S. from the University of Massachusetts and his M.B.A.
from New York University.
CLASS II DIRECTORS
Scott N. Flanders, 47, has been a director since 2002. Mr. Flanders has been the
Chairman and Chief Executive Officer of Columbia House since September 1999.
Prior to joining Columbia House, Mr. Flanders co-founded and served as the
Chairman of Telstreet.com, an e-commerce company, from January 1999 to September
1999. Previously, Mr. Flanders served as President of Macmillan publishing, a
unit of Viacom, from January 1993 to December 1998. Mr. Flanders also serves on
the Board of Directors of Freedom Communications and the Gazelle Fund. Mr.
Flanders, a certified public accountant, holds a B.A. from the University of
Colorado and a J.D. from Indiana University.
Michael T. McClorey, 45, has been a director of the Company since 2001. Mr.
McClorey served as President of Health Services Marketing, an operating unit of
Catalina Marketing Corporation, a targeted marketing firm, and as a member of
the Office of the President from February 2000 to August 2002. He also served as
Chief Executive Officer of Health Resource Publishing Company, a subsidiary of
Catalina Marketing Corporation, from April 1995 to August 2002 and as President
from April 1995 to February 2002. Mr. McClorey holds a B.B.A. in finance from
the University of Cincinnati.
Edward M. Stern, 45, has been a director of the Company since 2002. Since April
2004, Mr. Stern has served as the President and Chief Executive Officer of
Neptune Regional Transmission System, LLC, a company which is developing an
approximately $600 million, 600 megawatt, 67 mile undersea electric transmission
system that will interconnect Sayreville, New Jersey with Long Island, New York.
From April 1991 through February 2004, Mr. Stern was employed by CHI Energy,
Inc., an energy company which owned or operated nearly one hundred power plants
in seven countries, specializing in renewable energy technologies including
hydroelectric projects and wind farms. While at CHI Energy, Inc., Mr. Stern
served as General Counsel and, commencing in 1999, as President, Director and
Chief Executive Officer. Mr. Stern currently serves on the Board of Directors of
Energy Photovoltaics, Inc., a Princeton, NJ based manufacturer of solar energy
products and systems. Mr. Stern received BA, JD and MBA degrees from Boston
University and is a member of the Massachusetts Bar and the Federal Energy Bar.
CLASS III DIRECTORS
Gary A. Johnson, 49, 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. Mr. Johnson received a B.S. from Tufts University and an M.B.A. from
Harvard Business School.
Robert Kamerschen, 68, has been a director of the Company since 2002 and is the
retired Chairman and Chief Executive Officer of Advo, Inc., a leading full
services targeted direct mail company and NYSE-listed company, where he served
as CEO from 1988 to 1999. He also served as Chairman and CEO of DIMAC
Corporation, a full service direct marketing company from September 1999 to
February 2002. DIMAC Corporation filed a voluntary petition for reorganization
under the U.S. bankruptcy laws in April 2000, successfully emerged from
bankruptcy in February 2001 and was subsequently sold approximately one year
after Mr. Kamerschen's departure. Mr. Kamerschen has also served in key
leadership roles in a number of prominent sales and marketing driven businesses
involving significant turnaround and/or transformation initiatives. Mr.
Kamerschen currently serves on the boards of IMS Health Incorporated,
Linens-N-Things, Inc., RadioShack Corporation, MDC Partners, Inc., and R.H.
Donnelley Corporation. Mr. Kamerschen received a B.S. and M.B.A from Miami
University (Ohio).
BOARD AND COMMITTEE MEETINGS
The Board of Directors held eleven meetings during fiscal 2004. All
directors attended more than 75% of the meetings during fiscal 2004, except for
Mr. Ellison who attended 64% of the meetings. All directors attended the 2003
Annual Meeting. The Board of Directors currently has an Audit Committee, an
Executive Officer Development and Compensation Committee and a Corporate
Governance and Nominating Committee. The Board of Directors has determined that
currently the following members are independent in accordance with the published
listing requirements of The NASDAQ Stock Market ("NASDAQ"): Mr. Tesler, Mr.
Flanders, Mr. McClorey, Mr. Stern and Mr. Kamerschen. The roles,
responsibilities and duties of the Board of Directors and each of its Committees
are formalized in written charters, all of which are available upon written
request. All written requests should be sent to the attention of the Company's
General Counsel.
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AUDIT COMMITTEE
The Company's Audit Committee is responsible for the appointment of the
Company's independent auditors, discussing and reviewing the scope and the fees
of the annual audit and reviewing the results thereof with the independent
auditors, reviewing and approving non-audit services of the independent
certified public accountants, reviewing compliance with existing major
accounting and financial policies of the Company, reviewing the adequacy of the
financial organization of the Company, and reviewing management's procedures and
policies relative to the adequacy of the Company's internal accounting controls
and compliance with federal and state laws relating to accounting practices. The
Company's consolidated financial statements are currently audited by
PricewaterhouseCoopers LLP. The Audit Committee met six times during fiscal 2004
with representatives from PricewaterhouseCoopers LLP. The members of the Audit
Committee are Mr. Flanders (Chairperson), Mr. McClorey and Mr. Tesler. The Board
of Directors has reviewed the composition of the Audit Committee and has
determined that all members of the Audit Committee are independent within the
meaning of the revised listing standards of NASDAQ and that the Audit Committee
contains at least one financial expert, Mr. Flanders.
EXECUTIVE OFFICER DEVELOPMENT AND COMPENSATION COMMITTEE
The Company's Executive Officer Development and Compensation Committee assists
the Board of Directors in developing and implementing the Company's executive
compensation practices and incentive-based and equity-based compensation plans
as well as oversees the development of the Company's executive officers. The
Committee 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 Committee also administers the Company's
Amended 1990 Stock Option Plan and the Company's 1996 Employee Stock Purchase
Plan. The Committee has a policy prohibiting the Company from loaning money to
executive officers and Directors for personal purposes. The Committee met eight
times during fiscal 2004. The members of the Executive Officer Development and
Compensation Committee are Mr. Ellison, Mr. Kamerschen (Chairperson) and Mr.
Stern.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Company's Corporate Governance and Nominating Committee is responsible for
assisting the Board of Directors in identifying individuals qualified to become
members of the Board and its committees, recommending to the Board nominees for
director in connection with the Company's proxy statement and annual meeting of
stockholders and assisting the Board in developing and implementing the
Company's Corporate Governance Principles. The Committee also oversees the
evaluation of the Board of Directors and reviews and resolves conflict of
interest situations. The Corporate Governance and Nominating Committee met 2
times during fiscal 2004. Mr. Kamerschen, Mr. McClorey and Mr. Stern
(Chairperson) are members of the Corporate Governance and Nominating Committee
and the Board of Directors has reviewed the composition of the Corporate
Governance and Nominating Committee and has determined that all members are
independent within the meaning of the revised listing standards of NASDAQ.
Stockholders wishing to recommend candidates for consideration by the Corporate
Governance and Nominating Committee may do so by writing to the Secretary of the
Company and providing the candidate's name, biographical data and
qualifications. The Committee evaluates candidates for director on the basis of
their understanding of marketing, finance and the Company's business, as well as
the candidate's educational and professional background. The Board of Directors
has a written Corporate Governance and Nominating Committee Charter, a copy of
which is filed as Annex D to this Proxy Statement.
CORPORATE GOVERNANCE PRINCIPLES
The Board of Directors has adopted a set of Corporate Governance Principles and
the Corporate Governance and Nominating Committee is responsible for overseeing
the Principles and reporting recommendations to the Board concerning corporate
governance matters. The Principles include the following items concerning the
Board:
o Board Composition - The Board believes that the Board should be
composed of no less than five and no more than eight members, a
majority of which must be independent in accordance with the published
listing requirements of NASDAQ. The Board periodically evaluates
whether a larger or smaller number of directors would be preferable.
o Board Meetings - Independent directors meet on a regular basis apart
from other Board members and management and the Chairman of the Board
is responsible for setting the agenda. Directors have access to Company
employees to ensure that they can ask questions and obtain information
necessary to fulfill their duties. The independent directors of the
Company meet periodically, but at least twice annually, in executive
session with no management directors or management present.
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o Board Self-Evaluation - The Corporate Governance and Nominating
Committee is responsible for conducting an annual evaluation of the
performance of the full Board and reporting its conclusions to the
Board.
DIRECTOR COMPENSATION AND STOCK OPTIONS
The Company's directors did not receive any compensation for their services on
the Board of Directors or any committee thereof in fiscal 2004. However, they
are reimbursed for expenses incurred in connection with their attendance at
Board or committee meetings. All directors, except for Mr. Johnson, are
non-employee directors and are eligible to receive options to purchase shares of
Common Stock pursuant to the 1995 Non-Employee Director Stock Option Plan and
the 1996 Stock Option Plan. Options granted under these plans have a term of 10
years and become exercisable in four equal annual installments. No options were
granted to any director during fiscal 2004.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information based on the latest available
public information, with respect to the beneficial ownership of the Company's
Common Stock as of September 10, 2004 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:
Name and Address of Number of Shares Percentage of Common
Beneficial Owners Beneficially Owned (1) Stock Outstanding (2)
----------------- ------------------------- -------------------------
Thomas W. Smith (3)
323 Railroad Avenue
Greenwich, CT 06830 2,253,593 22.3%
Prescott Investors, Inc.
323 Railroad Avenue
Greenwich, CT 06830 1,596,859 15.8%
Newberger Berman LLC
605 Third Avenue
New York, NY 10158 1,455,800 14.4%
Scott Vassalluzzo (4)
323 Railroad Ave
Greenwich, CT 06830 1,430,760 14.1%
Thomas N. Tryforos (5)
323 Railroad Avenue
Greenwich, CT 06830 1,427,974 14.1%
Waddell & Reed Asset Management Co.
6300 Lamar Avenue
Overland Park, KS 66202 794,762 7.9%
Integral Capital Partners
3000 Sand Hill Rd Suite 240
Menlo Park, CA 94025 781,764 7.7%
Barclays Global Investors
45 Freemont Street
San Francisco, CA 94105 713,967 7.1%
DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES
Gary A. Johnson (6) 1,110,261 10.5%
James B. Duffy (7) 332,516 3.2%
David Schachne (8) 192,307 1.9%
Vincent DiBenedetto (9) 155,594 1.5%
Alec L. Ellison (10) 66,134 *
Marc S. Tesler (11) 55,593 *
Michael T. McClorey (12) 27,630 *
Edward M. Stern (13 ) 27,000 *
Robert Kamerschen (14) 15,500 *
Scott N. Flanders 1,000 *
William T. Olson - *
All current directors and executive officers as a group
(9 persons)(6)(7)(9)(10)(11)(12)(13)(14) 1,791,228 16.0%
-------------
* 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 10, 2004.
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(2) Calculated by taking the named persons' beneficial ownership as
disclosed above as a percentage of the total number of shares
outstanding of 10,113,610 as of September 10, 2004, plus any shares
subject to options held by the person in question that are currently
exercisable or exercisable within 60 days after September 10, 2004.
(3) Includes 1,510,193 shares held by Prescott Investors, Inc. which Mr.
Smith, as investment manager for Prescott Investors, Inc., may be
deemed to beneficially own.
(4) Includes 1,415,700 shares held by Prescott Investors, Inc. which Mr.
Vassalluzzo, as investment manager for Prescott Investors, Inc., may be
deemed to beneficially own.
(5) Includes 1,367,366 shares held by Prescott Investors, Inc. which Mr.
Tryforos, as investment manager Prescott Investors, Inc., may be deemed
to beneficially own.
(6) Includes 510,261 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004. Includes 54,000 shares held in trust for the
benefit of Mr. Johnson's children. Mr. Johnson disclaims beneficial
ownership of such shares.
(7) Includes 307,651 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004.
(8) Includes 192,307 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004
(9) Includes 70,240 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004.
(10) Includes 50,000 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004.
(11) Includes 50,000 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004.
(12) Includes 25,000 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004.
(13) Includes 25,000 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004 of which Mr. Stern disclaims beneficial ownership of
such shares.
(14) Includes 12,500 shares issuable upon the exercise of outstanding
options presently exercisable or exercisable within 60 days after
September 10, 2004.
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 2004 and upon a review of Forms 5 and amendments
thereto furnished to the Company with respect to fiscal 2004, 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 2004, except for the following:
o Mr. Gary Johnson, Mr. James Duffy, Mr. Vincent DiBenedetto, Mr. David
Schachne and Mr. William Olson, all Named Executive Officers of the
Company, inadvertently failed to file on a timely basis a Form 4 with
respect to option grants that occurred on July 23, 2003.
9
o Mr. Gary Johnson and Mr. James Duffy inadvertently failed to file on a
timely basis a Form 4 with respect to option grants that occurred on
January 22, 2004.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth certain compensation information for the fiscal
years indicated, of (i) our Chief Executive Officer and (ii) the four other most
highly compensated executive officers who served as our executive officers
during the year ended June 30, 2004 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
Annual Long-term
Compensation (1) Compensation
--------------------- -----------
Securities
Underlying All Other
Fiscal Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (Shares) (2) ($) (3)
--------------------------- ----- --- --- ------------ -------
Gary A. Johnson 2004 600,000 1,227,600 42,000 384
President and Chief 2003 579,400 1,242,300 120,000 375
Executive Officer 2002 550,000 935,000 103,796 375
David Schachne 2004 385,000 515,038 10,000 1,509
Senior Vice President, 2003 385,000 154,000 20,000 1,500
New Business Development 2002 385,000 154,000 34,049 1,388
James B. Duffy 2004 405,000 414,315 22,000 1,509
Executive Vice President 2003 404,600 433,800 60,000 1,500
and Chief Financial Officer 2002 385,000 327,250 49,427 1,388
Vincent DiBenedetto 2004 400,400 119,640 10,000 1,509
Executive Vice President, 2003 400,400 142,500 30,000 1,125
Health and Insurance Services 2002 400,400 83,300 20,320 -
William T. Olson III(4) 2004 328,122 96,768 10,000 396,178 (5)
Executive Vice President 2003 335,000 127,300 20,000 1,500
Sales and Client Services 2002 335,000 120,600 8,512 1,388
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal
benefits have 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 Named Executive Officer
during the fiscal years ended June 30, 2004, 2003, and 2002.
(2) The Company did not grant any restricted stock awards or stock
appreciation rights during the year ended June 30, 2004, 2003 and 2002.
(3) The amounts reported in this column consist solely of the Company's
matching contributions under the 401(k) Profit Sharing Plan.
(4) Mr. Olson resigned from his employment with the Company in May 2004.
(5) Represents $394,669 of severance payable to Mr. Olson pursuant to his
separation agreement. Pursuant to Mr. Olson's voluntary separation
agreement, Mr. Olson will receive $394,669 in salary continuation and
other benefits, payable bi-weekly for 52 weeks. The Company will also
provide Mr. Olson with health, dental and life insurance through the
end of the severance period or until Mr. Olson becomes covered under
another group plan, whichever occurs first. In addition, Mr. Olson
remained eligible for his bonus in fiscal 2004 and may continue to
exercise any vested options until October 26, 2004. Mr. Olson agreed to
a one-year non-compete agreement and provided a release of all claims
against the Company and related entities and parties.
10
OPTION GRANTS
The following table sets forth certain information concerning option grants
during the fiscal year ended June 30, 2004 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------------------------------------------------------
Number of Potential Realizable Value At
Securities Percent of Total Assumed Annual Rates of Stock Price
Underlying Options Granted to Exercise Appreciation for Option Term (2)
Options Employees in Price Expiration ------------------------------------
Name Granted (#) Fiscal Year (1) ($/Sh) Date 5% ($) 10% ($)
---- ----------- --------------- ------ ---- ------ -------
Gary A. Johnson 30,000 12.5% 20.86 7/22/13 393,543 997,316
12,000 5.0% 31.25 1/21/14 235,828 597,634
David Schachne 10,000 4.2% 20.86 7/22/13 131,181 332,439
James B. Duffy 10,000 4.2% 20.86 7/22/13 131,181 332,439
12,000 5.0% 31.25 1/21/14 235,828 597,634
Vincent DiBenedetto 10,000 4.2% 20.86 7/22/13 131,181 332,439
William T. Olson III 10,000 4.2% 20.86 7/22/13 131,181 332,439
(1) In fiscal 2004, the Company granted 240,000 stock options to Company
employees and this number was used in calculating the percentage.
(2) 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.
These options generally vest and become exercisable in four equal
annual installments (i.e. 25% per year) and expire at the earlier of
termination of employment or ten years from date of grant. In the event
of a change in control of the Company, the Board has the discretion to
provide that all options become exercisable in full immediately prior
to such event.
11
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, 2004 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, 2004:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options At Fiscal In-the-money Options At
Shares Acquired Value Realized Year-end (#) Fiscal Year-end ($)(1)
Name On Exercise (#) ($) Exercisable/unexercisable Exercisable/ Unexercisable
----- --------------- --- ------------------------- --------------------------
Gary A. Johnson 6,666 130,928 428,545 / 202,165 5,666,353 / 3,253,543
David Schachne 50,000 1,139,338 164,398 / 53,921 1,172,298 / 761,810
James B. Duffy 60,000 1,795,554 275,897 / 103,610 3,594,442 / 1,567,164
Vincent DiBenedetto - - 55,160 / 55,160 567,583 / 1,238,576
William T. Olson III 84,256 1,056,041 0 / 54,256 0 / 1,591,166
(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, 2004 ($29.62) for those options which have an
exercise price below the Company's stock price on June 30, 2004.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information about the Company's equity
compensation plans as of June 30, 2004.
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
to be Issued Upon Weighted-average Equity Compensation Plans
Exercise of Exercise Price of (Excluding
Plan Category Outstanding Options Outstanding Options Securities Reflected in (a)
-------------- ----------------------- --------------------- ----------------------------
(a) (b) (c)
Equity compensation plans approved by
security holders 1,772,000 $ 22.35 837,000
Equity compensation plans not approved by
security holders (1) 1,533,000 $ 17.50 63,000
----------------------- --------------------- ----------------------------
Total 3,305,000 $ 20.10 900,000
======================= ===================== ============================
(1) These shares represent an increase in the share reserve during 2002
under the 1996 Stock Option Plan. These options have an exercise price
per share that is equal to or greater than the fair market value at the
date of grant and they generally become exercisable over a four to five
year period and expire at the earlier of termination of employment or
ten years from the date of grant.
12
DEFINED BENEFIT PLAN TABLE
Effective January 1, 2004, the Company has an unfunded, nonqualified defined
benefit pension plan that provides retirement benefits to certain executives
selected by the Executive Officer Development and Compensation Committee of the
Board of Directors. The following table shows the estimated annual benefits
payable to the individuals indicated assuming the required 10 years of service
is attained and normal retirement age of 60 under the terms of the defined
benefit pension plan:
Years of Accrued Service Estimated Normal
Name Through 2004 Retirement Benefit (a)
---- ------------ ----------------------
Gary A. Johnson 14 $ 230,000
David Schachne 13 $ 120,000
James B. Duffy 8 $ 120,000
Vincent DiBenedetto 9 $ 120,000
(a) The annual benefits payable to the individuals indicated above would be
reduced by 50% assuming early retirement (age 55).
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. However, the policy does not allow for the grant of
any personal loans to or for any director or executive officer.
As of June 17, 2004, the Company has engaged Broadview International LLC for
investment banking services. Mr. Ellison, a member of the board of directors of
MemberWorks, is the President and a Managing Director of Broadview International
LLC. No fees were incurred in connection with these services during fiscal 2004.
For a description of option grants to certain executive officers of the Company,
see "Executive Compensation -- Option Grants."
REPORT OF THE EXECUTIVE OFFICER DEVELOPMENT AND COMPENSATION COMMITTEE
The Executive Officer Development and Compensation Committee of the Board of
Directors is composed of three independent non-employee directors, Mr. Ellison,
Mr. Kamerschen and Mr. Stern. The Executive Officer Development and 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 2004 as they applied to the Company's executive officers,
including the Named Executive Officers.
COMPENSATION PHILOSOPHY
The objectives of the executive compensation program are to (i) align
compensation with business objectives, individual performance and the interests
of shareholders, (ii) motivate and reward high levels of performance, (iii)
recognize and reward the achievement of Company goals and (iv) enable the
Company to attract and retain key executives.
In evaluating both individual and corporate performance for purposes of
determining salary and bonus levels and stock option grants, the 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.
13
EXECUTIVE COMPENSATION IN FISCAL 2004
The compensation programs for the Company's executives established by the
Committee consist of four elements based upon the foregoing objectives: (i) base
salary and benefits competitive with the marketplace; (ii) bonus grants based on
individual and Company performance; (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 and (iv)
perquisites that in total do not exceed $50,000 in value. The 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 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 and its
stockholders. The 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 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 addition, the Executive
Officer Development and Compensation Committee has retained an independent
outside compensation consulting firm, with whom the Committee meets at least
annually.
In determining the salary and bonuses of each executive officer, including the
Named Executive Officers, the 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 market
data on the compensation of executive officers of comparable companies and (iv)
the Company's financial performance measured against financial targets approved
by the Board of Directors and the Committee. To the extent determined to be
appropriate, the Committee also considers general economic conditions and the
historic compensation levels of the individual.
Stock option grants made pursuant to the 1995 Executive Officers' Stock Option
Plan and the 1996 Stock Option Plan in the fiscal years ended June 30, 2004,
2003 and 2002 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 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. In fiscal 2004, the Committee decided to reduce the number of stock
options granted to the Named Executive Officers as compared to the prior year to
better align the interests of the Named Executive Officers and stockholders,
reduce dilution risk of stockholders and better align executive compensation
with current marketplace trends.
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. Additionally, in
fiscal 2004, certain of the Company's executive officers became entitled to
participate in the Company's LTIP plan, which is subject to stockholder approval
as described herein, and a nonqualified defined benefit retirement plan. These
additional benefits were incorporated in order to offset the financial impact of
the reduction in the number of stock options granted to the Named Executive
Officers. 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.
14
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER IN FISCAL 2004
The compensation philosophy applied by the 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 2004, Mr. Johnson served as President and Chief Executive Officer
of the Company and was paid a base salary of $600,000 and a bonus of $1,227,600.
The Committee determined Mr. Johnson's base salary based on the same market
criteria used for other senior officers. The determination of Mr. Johnson's
bonus was based upon the successful attainment of specific financial goals
established by the Committee. For fiscal 2004, the financial goals were based on
revenue and operating income targets. Based on the Company's results, Mr.
Johnson's bonus plan provided for a pay out of 102% of the target amount. Mr.
Johnson was also granted options to purchase 42,000 shares of Common Stock at a
weighted average exercise price of $23.83 per share under the 1996 Stock Option
Plan.
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 certain of its other highly compensated employees.
Qualifying performance-based compensation will not be subject to this
disallowance if certain requirements are met. The Committee believes that it is
in the best interests of the Company's stockholders to comply with such tax law,
while still maintaining the goals of the Company's executive compensation
program. Accordingly, where it is deemed necessary and in the best interests of
the Company to continue to attract and retain the best possible executive
talent, and to motivate such executives to achieve the goals inherent in the
Company's business strategy, the Committee will recommend, and the Company is
expected to pay, compensation to executive officers which may exceed the limits
of deductibility.
EXECUTIVE OFFICER DEVELOPMENT AND
COMPENSATION COMMITTEE
Alec L. Ellison
Robert Kamerschen
Edward M. Stern
15
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company during the period from June 30, 1999 to June 30,
2004 with the cumulative total return over the same period of (i) the NASDAQ
Total Return Index (U.S.) and (ii) the Dow Jones Consumer Services Index. This
comparison assumes $100 was invested on June 30, 1999 in the Company's Common
Stock, the NASDAQ Total Return Index (U.S.) and the Dow Jones Consumer Services
Index and assumes dividends, if any, are reinvested.
[GRAPHIC OMITTED]
COMPARISON OF CUMULATIVE TOTAL RETURN
--------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30, June 30, June 30,
1999 2000 2001 2002 2003 2004
--------------------------------------------------------------------------------------------------------------
MemberWorks Incorporated $ 100.00 $ 115.95 $ 79.79 $ 63.90 $ 68.34 $ 102.14
--------------------------------------------------------------------------------------------------------------
Nasdaq Total Return Index (U.S.) $ 100.00 $ 147.83 $ 80.27 $ 54.68 $ 60.71 $ 76.52
--------------------------------------------------------------------------------------------------------------
Dow Jones Consumer Services Index $ 100.00 $ 89.42 $ 75.47 $ 73.13 $ 91.95 $ 118.87
--------------------------------------------------------------------------------------------------------------
16
PROPOSAL 4
APPROVAL OF ADOPTION OF THE 2004 LONG TERM INCENTIVE PLAN
The Board of Directors of the Company has recommended and asks that you approve
the LTIP. The Board adopted the LTIP on January 22, 2004, subject to stockholder
approval. The Company believes that the ability to make long-term incentive
compensation awards is an essential part of its compensation program and the
Company would be at a significant disadvantage with respect to its competitors
if it was unable to offer long-term incentive compensation opportunities awards
to its officers, employees and directors. In the event that shareholders do not
approve the LTIP, the Company will have no long-term incentive plans.
The following is a general description of the material features of the LTIP. A
copy of the LTIP is attached as Annex C to this Proxy Statement. Approval of the
above proposal related to the LTIP will require the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Common Stock
outstanding and entitled to vote on the record date. Stockholders may vote (1)
"FOR," (2) "AGAINST," or (3) "ABSTAIN," from voting on Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ABOVE
PROPOSAL.
PURPOSES AND ELIGIBILITY
The LTIP provides incentive to certain officers and employees of the Company and
its subsidiaries with competitive incentive compensation opportunities based on
the achievement of specified performance goals. The Executive Officer
Development and Compensation Committee of the Board of Directors has the sole
authority and discretion to designate the employees who are eligible for a LTIP
award, subject to the terms of the Plan. The Executive Officer Development and
Compensation Committee is referred to as the Committee. In determining the
amount and form of an award, consideration will be given to the functions and
responsibilities of the employee, his or her potential contributions to the
success of the Company and other factors deemed relevant by the Committee. As of
September 20, 2004, seven individuals are eligible to receive awards under the
LTIP.
EFFECTIVE DATE AND EXPIRATION
If approved by the stockholders, the LTIP would become effective for the
Company's fiscal year 2004 and shall expire on the fifth anniversary of the date
of such stockholder approval, unless terminated earlier by the Board. Upon
approval of the LTIP by the stockholders, all LTIP awards awarded under the LTIP
on or after July 1, 2003 shall be fully effective as if the stockholders had
approved the plan as of July 1, 2003.
MAXIMUM AMOUNT OF LONG-TERM INCENTIVE AWARDS
A maximum of $3 million for each three-year performance period may be awarded to
any one participant.
LONG-TERM INCENTIVE PERFORMANCE AWARDS
The Committee may grant long-term incentive performance awards payable in cash
or stock at the end of a 3-year performance period. A separate 3-year
performance period begins each fiscal year and, accordingly, the fiscal years
included in a 3-year performance period will overlap. Payment will be contingent
upon the achievement of pre-established performance goals (as discussed below)
by the end of the 3-year performance period. The Committee has the sole
authority to determine the range of the payment values of an award and the
performance goals required before payment will be made. In general, a
participant will not be entitled to payment of a long-term incentive performance
award unless the participant is continuously employed by the Company until the
end of the 3-year performance period, except in cases of the participant's death
or total disability. If the Committee determines that a participant's employment
has terminated during the 3-year performance period due to retirement or an
involuntary termination without cause, the participant will receive a pro-rata
portion of the award payable for that performance period.
PERFORMANCE GOALS
The LTIP contains provisions intended to enable compensation paid to those
executive officers whose compensation is subject to the deduction limitations of
Section 162(m) of the Internal Revenue Code to qualify as "performance-based
compensation" that will be fully deductible by the Company. At the beginning of
a 3-year performance period, the Committee will establish objective business
performance goals for the performance period. The goals will be comprised of
specified levels of one or more of the following criteria: net income growth;
cash flow growth; sales growth; pre-tax or post-tax profit levels; expense
reduction levels; implementation of critical projects or processes; cash flow
per share; earnings per share; total stockholder return; market price of the
Company's Common Stock. The performance goals may be measured solely on a
corporate, subsidiary or operating unit bases, or a combination thereof.
17
CHANGE IN CONTROL
For purposes of the LTIP, "Change in Control" shall mean any of the following
events:
1. The acquisition by any person or entity of more than fifty percent
(50%) of the combined voting power of the Company's then outstanding
securities.
2. More than 50% of the persons serving as directors of the Company as of
July 1, 2004 and those replacements or additions subsequently approved
a majority of the members of the Company's Board of Directors, are
replaced during any 12-month period by directors whose appointment or
election is not endorsed by more than 50% of the members of the
Company's Board of Directors.
3. Any person or entity acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by such person
or persons) assets from the Company that have a total gross fair market
value equal to or in excess of seventy-five percent (75%) of the total
gross fair market value of all of the assets of the Company immediately
prior to such acquisition or acquisitions. For this purpose, gross fair
market value means the value of the assets of the Company, or the value
of the assets being disposed of, determined without regard to any
liabilities associated with such assets.
4. The stockholders of the Company approve a plan of complete liquidation
of the Company.
Upon a Change in Control, the following provisions will apply:
1. The LTIP award for each performance period which has not been completed
as of the date of the Change in Control shall be determined by applying
the performance goals applicable to the LTIP award as if the
performance cycle had ended on the last day of the fiscal quarter
immediately preceding or coincident with the date of such event.
2. The amount payable to a participant for each such uncompleted
performance cycle will be equal to a pro rata portion, based on the
number of full calendar months from the beginning of the performance
cycle until the date of the Change in Control, of such participant's
LTIP award for the performance cycle. The amount payable to the
participant shall be paid in cash as soon as practicable, but in no
event later than thirty days after such event.
LIQUIDATION, DISSOLUTION
Upon a liquidation or dissolution of the Company, all outstanding LTIP awards
granted shall become immediately vested and payable to participants. The amount
payable for each LTIP award shall be determined by applying the performance
goals applicable to the LTIP award as if the performance cycle had ended on the
last day of the fiscal quarter immediately preceding or coincident with the date
of such liquidation or dissolution. The amount payable to each participant shall
be paid in cash as soon as practicable, but in no event later than thirty days
after such event.
AMENDMENT
The Board can amend, suspend or terminate the LTIP, but cannot, without the
stockholders' approval, do any of the following:
1. Increase the maximum amount of any LTIP award that may be paid under
the plan, or otherwise materially increase the benefits accruing to any
participant under the plan;
2. Materially modify the requirements as to eligibility for participation
in the plan; or
3. Change the material terms of a stated performance goal.
PLAN BENEFITS
Because awards under the LTIP are determined by the Committee in its sole
discretion, the Company cannot determine the benefits or amounts that will be
received or allocated in the future under the LTIP.
18
PROPOSAL 5
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.
FEES PAID TO PRICEWATERHOUSECOOPERS LLP
All of the services rendered by PricewaterhouseCoopers LLP are permissible under
applicable laws and regulations and are pre-approved by the Audit Committee
prior to engaging the auditor. These services are actively monitored by the
Audit Committee to maintain the appropriate objectivity and independence in
PricewaterhouseCoopers' core work, which is the audit of the Company's
consolidated financial statements. The following table sets forth aggregate fees
billed to us during fiscal years 2004 and 2003 by PricewaterhouseCoopers LLP:
2004 2003
---- ----
Audit fees $ 519,000 $ 333,000
Audit related fees 742,000 54,000
Tax fees 182,000 16,000
All other fees - 576,000
---------------- ------------------
Total fees $ 1,443,000 $ 979,000
================= ==================
Audit fees - These are fees for professional services performed by
PricewaterhouseCoopers LLP for the audit of the Company's financial statements
and review of financial statements included in the Company's 10-Q filings and
services that are normally provided in connection with statutory and regulatory
filings or engagements.
Audit related fees - These are fees for assurance and related services performed
by PricewaterhouseCoopers LLP that are related to the performance of the audit
or review of the Company's financial statements. This includes: employee benefit
plans, attestations that are not required by statute or regulation, due
diligence related to mergers and acquisitions and consulting on financial
accounting and reporting standards.
Tax fees - These fees are for tax compliance services, including the preparation
of the tax returns and tax advisory services.
All other fees - These fees were fees billed by PricewaterhouseCoopers LLP for
the implementation of Customer Relationship Management systems. As of January
2003, the Company no longer utilized these consulting services provided by
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP did not bill the Company
during the fiscal year ended June 30, 2004 for any financial information systems
design and implementation services.
The Audit Committee has determined the rendering of the information technology
consulting fees and all other non-audit services by PricewaterhouseCoopers LLP
is compatible with maintaining the auditor's independence.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors reviews the Company's financial
reporting process on behalf of the Board of Directors and operates under a
written charter adopted by the Board of Directors. The adequacy of the charter
is evaluated annually.
The Audit Committee consists of Mr. Flanders, Mr. McClorey and Mr. Tesler. None
of the members are officers or employees of the Company and all members of the
Audit Committee are independent within the meaning of the applicable rules
governing audit committees. The Board of Directors has determined that Mr.
Flanders is an audit committee financial expert, as defined by SEC guidelines.
19
Management is responsible for the financial reporting process, including the
system of internal controls, and for the preparation of the Company's
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. The independent auditors are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with accounting principles generally accepted
in the United States of America and to issue a report thereon. The Audit
Committee is responsible for appointing, monitoring and managing the independent
auditors.
In carrying out its duties, the Audit Committee has reviewed and discussed the
Company's audited consolidated financial statements for the fiscal year ended
June 30, 2004, with the Company's management and its independent auditors.
Management represented to the Audit Committee that the Company's consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in the United States. The Audit Committee also discussed with
the independent auditors matters required to be discussed by Statement on
Auditing Standards No. 61, "Communication with Audit Committees, as amended."
In addition, the Committee has discussed with the independent auditors, the
auditor's independence from the Company and its management, including the
matters in the written disclosures required by the Independence Standards Board
Standard No. 1, "Independence Discussion with Audit Committees."
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for its audit. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of its examination, the evaluation of the Company's internal controls
and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended June 30, 2004, for filing with the Securities
and Exchange Commission. The Audit Committee and the Board of Directors also
have recommended, subject to stockholder approval, the selection of
PricewaterhouseCoopers LLP as the Company's independent auditors for fiscal
2005.
AUDIT COMMITTEE
Scott N. Flanders
Michael T. McClorey
Marc S. Tesler
CODE OF CONDUCT
The Company has a Code of Conduct which requires all employees and directors,
including the Named Executive Officers and senior management, to read and to
adhere to the Code of Conduct in discharging their work-related
responsibilities. Employees and directors are required to report any conduct
that they believe in good faith to be an actual or apparent violation of the
Code of Conduct. The Code of Conduct was filed as Exhibit 14 to the Company's
Quarterly Report on Form 10-Q filed on May 14, 2004.
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 at 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.
20
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 2005 Annual Meeting
must be received by the Company at its principal office in Stamford, Connecticut
not later than June 3, 2005 for inclusion in the proxy statement for that
meeting.
COMMUNICATIONS WITH THE BOARD
The Company's Annual Meeting of Stockholders provides an opportunity each year
for stockholders to ask questions of or otherwise communicate directly with
members of the Board on appropriate matters. In addition, stockholders may
communicate in writing with any particular director, or the directors as a group
by sending such written communication to the Company's General Counsel at the
Company's principal executive office, 680 Washington Boulevard, Stamford, Ct
06901. Copies of written communications received at such address will be
provided to the Board or the relevant director unless such communications are
considered, in the reasonable judgment of the General Counsel, to be
inappropriate for submission to the intended recipient(s).
By Order of the Board of Directors,
/s/ JAMES B. DUFFY
------------------------------------
James B. Duffy
Secretary
October 13, 2004
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. WHETHER
OR NOT STOCKHOLDERS PLAN TO ATTEND, YOU MAY VOTE YOUR SHARES BY MARKING YOUR
VOTES ON THE ENCLOSED PROXY CARD, SIGNING AND DATING IT, AND MAILING IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE
UNITED STATES. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
21
ANNEX A
MEMBERWORKS INCORPORATED
PROPOSED AMENDMENT TO ARTICLE FIRST OF THE AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
FIRST: The name of the Corporation is:
Vertrue Incorporated.
A-1
ANNEX B
MEMBERWORKS INCORPORATED
PROPOSED AMENDMENT TO ARTICLE ELEVENTH OF THE AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
ELEVENTH:
1. Number of Directors. The number of directors of the
Corporation shall not be less than three. The exact number of
directors within the limitations specified in the preceding
sentence shall be fixed from time to time by, or in the manner
provided in, the Corporation's By-Laws.
2. Election of Directors. Elections of directors need not be by
written ballot except as and to the extent provided in the
By-Laws of the Corporation.
3. Terms of Office. The term of office of each director elected
at an annual meeting, or elected or appointed at any time in the
period between annual meetings, shall expire at the next annual
meeting of shareholders following such election or appointment.
Each director elected or appointed shall serve until his
successor shall be elected and qualify, or until his earlier
death, resignation, removal or disqualification. Any vacancies in
the Board of Directors, by reason of an increase in the number of
directors or otherwise, shall be filled solely by the Board of
Directors, by majority vote of the directors then in office,
though less than a quorum, but any such director so elected shall
hold office only until the next succeeding annual meeting of
stockholders. At such annual meeting, such director or a
successor to such director shall be elected and qualified. No
decrease in the number of directors shall shorten the term of any
incumbent director.
4. Quorum; Action at Meeting. A majority of the directors at any
time in office shall constitute a quorum for the transaction of
business. In the event one or more of the directors shall be
disqualified to vote at any meeting, then the required quorum
shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section 1 above constitute a
quorum. If at any meeting of the Board of Directors there shall
be less than such a quorum, a majority of those present may
adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of
the Board of Directors unless a greater number is required by
law, by the By-Laws of the Corporation or by this Amended and
Restated Certificate of Incorporation.
5. Removal. Directors of the Corporation may be removed only for
cause by the affirmative vote of the holders of at least
two-thirds of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote.
6. Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of
the board, shall be filled only by a vote of a majority of the
directors then in office, although less than a quorum, or by a
sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of
directors, subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
B-1
ANNEX C
MEMBERWORKS INCORPORATED
LONG TERM INCENTIVE PLAN
Effective July 1, 2003
1. PURPOSE
The purpose of the MemberWorks Long Term Incentive Plan (the "Plan") is to
attract, motivate and retain key executives who contribute to the success of
MemberWorks Incorporated and its subsidiaries and affiliates by providing such
employees with competitive incentive compensation opportunities based on the
achievement of specified performance goals.
2. DEFINITIONS
Whenever used in the Plan, the following words and phrases shall have the
meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any subsequent federal internal revenue
law.
(c) "COMMITTEE" means the committee established to administer the Plan
pursuant to Section 3.
(d) "COMPANY" means MemberWorks Incorporated.
(e) "COMPENSATION COMMITTEE" means the Executive Officer Development and
Compensation Committee of the Board of Directors of the Company.
(f) "COVERED EMPLOYEE" means an employee who is covered by the deduction
limitation of Section 162(m) of the Code.
(g) "FISCAL YEAR" means the Company's fiscal year beginning each July 1.
(h) "LTIP AWARD" means a long term incentive compensation opportunity
amount determined by the Committee pursuant to Section 5 below.
(i) "PARTICIPANT" means an employee who is eligible for an LTIP Award with
respect to a Performance Cycle pursuant to Section 4.
(j) "PERFORMANCE CYCLE" means the three (3) Fiscal Year period used to
determine the amount of an LTIP Award.
(k) "PERFORMANCE GOAL(S)" means the business performance measure(s)
established by the Committee pursuant to Section 5 with respect to a
Performance Cycle to determine the amount payable for an LTIP Award.
3. ADMINISTRATION
(a) COMPENSATION COMMITTEE. Except as otherwise provided in paragraph (b)
below, the Plan shall be administered by the Compensation Committee or
such other committee appointed by the Board to administer the Plan.
(b) CODE SECTION 162(M) SUBCOMMITTEE. Notwithstanding paragraph (a), the
Plan shall be administered by a subcommittee of the Compensation
Committee (the "Subcommittee") with respect to any Participant who is a
Covered Employee. The Subcommittee shall be comprised of two or more
members of the Compensation Committee, each of whom shall qualify as an
"outside director" as that term is used in Code Section 162(m) and
Treasury Regulation Section 1.162-27(e)(3) (or any successor regulation
thereto).
C-1
With respect to Participants who are Covered Employees, the
Subcommittee shall have all of the powers, rights, and duties granted
to the Committee under this Plan and each reference to the "Committee"
herein shall be deemed to be a reference to the "Subcommittee."
(c) Subject to the provisions of the Plan, the Committee has the sole
authority and discretion:
(i) To select the employees eligible to participate in the Plan;
(ii) To construe and interpret the Plan;
(iii) To make all designations and determinations specified in the
Plan;
(iv) To determine the amount of awards and payments, if any, to be
made under the Plan and the status and rights of any
participant or beneficiary to payments under the Plan; and
(v) To decide all questions concerning the Plan and to make all
other determinations and to take all other steps necessary or
advisable for the administration of the Plan.
(d) All decisions made by the Committee pursuant to the provisions of the
Plan will be made in its sole discretion and will be final, conclusive,
and binding upon all parties.
4. ELIGIBILITY
The Committee, in its sole and absolute discretion, will determine the employees
who will be eligible for LTIP Awards with respect to a Performance Cycle. An
employee's eligibility for an LTIP Award for any one Performance Cycle will be
determined independently of his or her eligibility for an LTIP Award in any
other Performance Cycle.
5. LTIP AWARDS
(a) The Committee, in its sole discretion, shall designate the employees
who will be eligible for a LTIP Award for a Performance Cycle in
accordance with the terms of this Plan and such other terms as may be
established by the Committee.
(b) The amount of each LTIP Award shall be based on the attainment of one
or more of the following specified objective business performance
measures over the Performance Cycle as may be established by the
Committee in its sole discretion: net income growth; cash flow growth;
sales growth; pre-tax or post-tax profit levels; expense reduction
levels; implementation of critical projects or processes; cash flow per
share; earnings per share; total stockholder return and market price of
the Company's Common Stock. For LTIP Awards not intended to comply with
Code Section 162(m), the Committee may establish other performance
measures as it deems appropriate. The Committee may establish an award
range for each Participant for the Performance Cycle, and the amount
within a Participant's award range that will be payable to a
Participant based upon the achievement of one or more of the
performance goals for the Performance Cycle. The Committee shall retain
the discretion to reduce the amount of any LTIP Award that would
otherwise be payable to a Participant (including a reduction in such
amount to zero).
(c) The LTIP Award payable to a Participant with respect to any Performance
Cycle shall not exceed $3,000,000.00.
(d) The designations required by this Section 5 shall be made in writing by
the Committee not later than the 90th day following the beginning of
each Performance Cycle commencing on or after July 1, 2004.
(e) As soon as reasonably practicable after the end of each Performance
Cycle, the Committee shall determine whether the Performance Goals
applicable to the LTIP Award have been achieved and the amount of the
LTIP Award to be paid to each Participant for such Performance Cycle
and shall certify such determinations in writing.
6. ENTITLEMENT AND AMOUNT OF PAYMENT
(a) CONTINUED EMPLOYMENT. Except as otherwise provided in this Section 6, a
Participant will not be entitled to payment for a Performance Cycle
unless he or she has remained continuously employed by the Company
until the end of the Performance Cycle. The amount payable to a
Participant who remains actively employed during the Performance Cycle
will be equal to 100% of the Participant's LTIP Award for the
Performance Cycle.
C-2
(b) INVOLUNTARY TERMINATION WITHOUT CAUSE OR RETIREMENT. In the event that
a Participant's employment is terminated involuntarily by the Company
without Cause or by reason of the Participant's Retirement, the
Participant will be entitled to
(i) for any completed Performance Cycle that has not yet been
paid, payment equal to100% of his or her LTIP Award; and
(ii) for any Performance Cycle which has commenced but has not been
completed as of the date of the Participant's termination,
payment equal to a pro rata portion (based on the number of
full calendar months of active employment completed during
such uncompleted Performance Cycle) of the LTIP Award that
would have payable based on the actual performance results
during the Performance Cycle and if the Participant had
continued in active employment until the end of such
Performance Cycle.
(c) DEATH OR TOTAL DISABILITY. In the event that a Participant's employment
is terminated by reason of his or her death or Total Disability, the
Participant or his or her designated beneficiary or legal
representative will be entitled to
(i) for any completed Performance Cycle that has not yet been
paid, payment equal to 100% of his or her LTIP Award; and
(ii) for any Performance Cycle which has commenced but has not been
completed as of the date of the Participant's death or Total
Disability, payment equal to 100% his or her LTIP Award for
such Performance Cycle that would have payable for the
Performance Cycle if the target for each Performance Goal
applicable to the LTIP Award had been achieved.
(d) OTHER TERMINATION OF EMPLOYMENT. Participants not satisfying the
requirements in this section will, upon termination of employment,
forfeit the right to payment of all LTIP Awards under this Plan.
(e) For purposes of this Section :
(i) A Participant will be considered to have been terminated for
"CAUSE" if his or her employment has been terminated by the
Company for any of the following reasons: (i) the
Participant's material dishonesty (including, without
limitation, embezzlement, financial misrepresentation, fraud,
theft, or other similar action) in his or her dealings with
the Company or any other entity with which the Company is
engaged in or attempting to be engaged in commerce; (ii) the
Participant's conviction of, or entry of a plea of NOLO
CONTENDERE to, the commission of a felony; (iii) any act or
omission by the Participant that actually has, and which
either the Participant intends to have or the Participant or a
reasonable person would expect to have, a material adverse
effect on the Company; or (iv) if the Participant is a party
to an employment agreement governing the terms of his or her
employment with the Company, and the employment agreement
includes a definition of termination for cause, then for
purposes of this Plan, the term Cause also includes the
grounds included in such definition, provided that if the
definition in the employment agreement is inconsistent with
this Plan, the terms of this Plan shall control.
(ii) "RETIREMENT" means a Participant's retirement from employment
with the Company after attaining age 55 and completing at
least 10 years of service (as determined under the Company's
tax-qualified retirement plan).
(iii) A Participant will be considered to be "TOTALLY DISABLED" if
he or she has suffered a total or permanent disability as
determined under the Company's long term disability benefits
plan.
7. TIME AND FORM OF PAYMENT
(a) TIME OF PAYMENT. The amount payable to a Participant with respect to a
LTIP Award shall be paid as soon as practicable, but no later than 30
days, following certification by the Committee as to the achievement of
the Performance Goals applicable to the LTIP Award.
(b) FORM OF PAYMENT. The amount payable to a Participant shall be made in a
single lump sum payment, at the discretion of the Committee (i) in
cash, (ii) in shares of the Company's Common Stock, or (iii) in a
combination of both.
C-3
(c) DEATH OR TOTAL DISABILITY. In the event of a Participant's death or
Total Disability, payment of the Participant's LTIP Award(s) will be
made to the Participant, his or her designated beneficiary (or
beneficiaries), or his or her legal representative, as applicable, as
soon as practicable following the Participant's death or Total
Disability.
The Participant's beneficiary (or beneficiaries) shall be designated by
the Participant in the form and manner prescribed by the Committee, or
to the participant's legal representative. If a Participant does not
have a properly designated beneficiary, payment will be made to the
Participant's estate.
8. DISSOLUTION, MERGER OR CHANGE IN CONTROL
(a) LIQUIDATION, DISSOLUTION. In the event that the Company is liquidated
or dissolved, all outstanding LTIP Awards granted under the Plan shall
become immediately vested and payable to Participants. The amount
payable for each LTIP Award shall be determined by applying the
Performance Goals applicable to the LTIP Award as if the Performance
Cycle had ended on the last day of the fiscal quarter immediately
preceding or coincident with the date of such liquidation or
dissolution. The amount payable to each Participant shall be made in
cash as soon as practicable, but no later than 30 days, after such
event.
(b) CHANGE IN CONTROL. In the event of a "Change in Control" of the
Company, outstanding LTIP Awards granted under the Plan shall be
payable as follows:
(i) The LTIP Award for each Performance Cycle which has not been
completed as of the date of the Change in Control shall be
determined by applying the Performance Goals applicable to the
LTIP Award as if the Performance Cycle had ended on the last
day of the fiscal quarter immediately preceding or coincident
with the date of such event.
(ii) The amount payable to a Participant for each such uncompleted
Performance Cycle will be equal to a pro rata portion (based
on the number of full calendar months from the beginning of
the Performance Cycle until the date of the Change in Control)
of Participant's LTIP Award for the Performance Cycle. Such
amount shall be paid in cash to each Participant as soon as
practicable, but no later than 30 days, after such event.
(c) CHANGE IN CONTROL. For purposes of this Section 8, a "CHANGE IN
CONTROL" of the Company shall occur upon any of the following events:
(i) Any transfer to, assignment to, or any acquisition by any
person, corporation or other entity, or group thereof, of the
beneficial ownership, within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, of any securities of the
Company, which transfer, assignment or acquisition results in
such person, corporation, entity, or group thereof, becoming
the beneficial owner, directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding
securities.
(ii) A majority of members of the Company's board of directors is
replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the
members of the Company's board of directors prior to the date
of the appointment or election.
(iii) Any person, corporation or other entity, or group thereof
acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair
market value equal to or more than seventy-five percent (75%)
of the total gross fair market value of all of the assets of
the Company immediately prior to such acquisition or
acquisitions. For this purpose, gross fair market value means
the value of the assets of the corporation, or the value of
the assets being disposed of, determined without regard to any
liabilities associated with such assets.
(iv) The stockholders of the Company approve a plan of complete
liquidation of the Company.
C-4
9. WITHHOLDING
The Company shall have the right to withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy any applicable federal, state,
or local withholding tax requirements imposed with respect to the payment of any
LTIP Award.
10. NO EFFECT UPON BENEFITS
By acceptance of any award under the Plan, each Participant agrees that neither
the award nor any amount paid will affect the benefits under any benefit plan
under which the availability or amount of benefits is related to compensation.
11. NON-TRANSFERABILITY OF RIGHTS
Except as expressly provided by the Committee, an Participant's rights and
interests under the Plan may not be assigned or transferred in whole or in part
either directly or by operation of law or otherwise (except in an event of the
participant's death), including, but not limited to, by way of execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
rights or interests of any participant under the Plan shall be subject to any
obligation or liability of such participant other than any obligations or
liabilities owed by the participant to the Company.
12. NO RIGHT TO LTIP AWARD OR CONTINUED EMPLOYMENT
Neither the establishment of the Plan, the provision for or payment of any
amounts hereunder nor any action of the Company, the Board or the Committee with
respect to the Plan shall be held or construed to confer upon any person (a) any
legal right to receive, or any interest in, an Incentive Bonus or any other
benefit under the Plan or (b) any legal right to continue to serve as an officer
or employee of the Company or any subsidiary or affiliate of the Company.
The Company expressly reserves any and all rights to discharge any Participant
without incurring liability to any person under the Plan or otherwise.
Notwithstanding any other provision hereof and notwithstanding the fact that a
stated Performance Goal has been achieved or the individual LTIP Award amounts
have been determined, the Company shall have no obligation to pay any LTIP Award
hereunder unless the Committee otherwise expressly provides by written contract
or other written commitment.
13. UNFUNDED PLAN
The Company shall have no obligation to reserve or otherwise fund in advance any
amounts that are or may in the future become payable under the Plan. Any funds
that the Company, acting in its sole and absolute discretion, determines to
reserve for future payments under the Plan may be commingled with other funds of
the Company and need not in any way be segregated from other assets or funds
held by the Company. A Participant's rights to payment under the Plan shall be
limited to those of a general creditor of the Company.
14. NO OTHER AGREEMENTS OR UNDERSTANDINGS
Except as expressly provided in this Plan, or in a written agreement between the
Company and a Participant that specifically refers to LTIP Awards, this Plan
represents the sole agreement between the Company and participants concerning
its subject matter and it supersedes all prior agreements, arrangements,
understandings, warranties, representations, and statements between the parties
concerning its subject matter.
15. ADOPTION, AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN
(a) Subject to the approval of the Plan by the holders of a majority of the
Company Common Stock represented and voting on the proposal at an
annual meeting of Company stockholders, the Plan shall be effective for
the Fiscal Year of the Company commencing July 1, 2003 and shall
continue in effect until the fifth anniversary of the date of such
stockholder approval, unless earlier terminated as provided below. Upon
such approval of the Plan by the Company's stockholders, all LTIP
Awards awarded under the Plan on or after July 1, 2003 shall be fully
effective as if the stockholders had approved the Plan as of July 1,
2003.
(b) Subject to the limitations set forth in this subsection, the Board may
at any time suspend or terminate the Plan and may amend it from time to
time in such respects as the Board may deem advisable; PROVIDED,
however, that the Board shall not amend the Plan in any of the
following respects without the approval of stockholders then sufficient
to approve the Plan in the first instance:
C-5
(i) To increase the maximum amount of any LTIP Award that may be
paid under the Plan or otherwise materially increase the
benefits accruing to any Participant under the Plan;
(ii) To materially modify the requirements as to eligibility for
participation in the Plan; or
(iii) To change the material terms of a stated Performance Goal.
(c) No LTIP Award may be awarded during any suspension or after termination
of the Plan, and no amendment, suspension or termination of the Plan
shall, without the consent of the person affected thereby, alter or
impair any rights or obligations under any LTIP Award previously
awarded under the Plan.
16. GOVERNING LAW
The Plan and all actions taken pursuant to the Plan will be governed by, and
construed in accordance with, the laws of the State of Connecticut applied
without regard to conflict of law principles.
C-6
ANNEX D
MEMBERWORKS INCORPORATED
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE CHARTER
I. Purpose
The purpose of the Corporate Governance and Nominating Committee (the
"Committee") shall be to assist the board of directors in identifying
individuals qualified to become members of the board; to recommend to
the board nominees for director in connection with the Company's proxy
statement and annual meeting of stockholders; and to assist the board
in developing and implementing the Company's Corporate Governance
Principles.
II. Responsibilities and Duties
In furtherance of its purpose, the Committee shall have the following
authority and responsibilities:
(i) To lead the search for candidates qualified to become
directors and to recommend such candidates to the board for
election thereto considering input from the Chief Executive
Officer and all directors;
(ii) To establish criteria for persons to be nominated for election
to the board and its committees, taking into account the
composition of the board as a whole. At a minimum, the
criteria should include a non-employee director candidate's
qualification as "independent," under the various standards
applicable to the Company, the board and each of its
committees (as identified in the Company's Corporate
Governance Principles), as well as a director candidate's
depth of experience and availability, the balance of his or
her business interest and experience and the need for any
required expertise on the board or one of its committees. With
respect to incumbent directors, the Committee will also
consider the performance of such director. In addition, the
Committee will determine whether qualifications for membership
on each committee of the board are met;
(iii) To consider suggestions by the President/Chairman of the board
for directors to serve on board committees, including the
chair of each committee, and to recommend to the board the
members and chair of all standing committees;
(iv) To review the Board's Committee structure and to recommend to
the board for its approval the duties that will be in the
charter of any new standing committee of the board;
(v) To annually develop and oversee an evaluation of the board and
individual directors by collecting comments and evaluations
from each director and any other constituents the Committee
deems relevant to such assessment;
(vi) To review senior management and director compliance with any
board-approved stock ownership requirements;
(vii) To assist the board in the development of director's
responsibilities, including basic duties and responsibilities
with respect to attendance at board meetings and advance
review of meeting materials;
(viii) To establish and maintain a director orientation program for
new directors;
(ix) To develop, or make available, a continuing education program
conducted either internally or externally for all directors;
(x) To review any apparent or actual conflicts of interest
involving any of the Company's Executive Officers or
directors, including but not limited to requests by directors
or Executive Officers to serve on outside board of directors;
(xi) To assist the board with oversight of the Company's policies;
D-1
(xii) To review the Company's plans and programs with respect to
risk management and related insurance coverage;
(xiii) To review the independence of each non-employee director; and
(xiv) To review the continued appropriateness of board membership
when a director changes the employment and/or outside
directorship position he or she held when elected to the
board.
III. Advisors
The Committee shall have the exclusive authority, at the Company's
expense, to retain (including authority to approve fees and other
retention terms) any search firms to be used to identify director
candidates, and such independent consulting, legal and other advisors
as it shall deem appropriate to fulfill its responsibilities without
management or board approval.
IV. Meetings
The Committee shall meet at least three times annually, or more
frequently if circumstances dictate. Any member of the Committee may
call a meeting of the Committee upon due notice to each other member at
least seventy-two hours prior to the meeting. Two members shall
constitute a quorum. If a quorum is present, a majority of the members
present shall decide any question brought before the Committee.
V. Minutes
The Committee will keep minutes of each meeting. The minutes will be
kept by the General Counsel or by a member of the Committee.
VI. Committee Chair
The Committee chair will be a director appointed by the board. If the
Committee chair is absent from a meeting, another member of the
Committee will act as chair.
VII. Term
Members will be appointed by the board for a one-year term or until a
successor is appointed and qualified. The Board will fill vacancies on
the Committee and may remove a Committee member from the Committee at
any time without cause.
VIII. Number of Members
The Committee shall consist of at least three members of the Board as
the board shall from time to time determine.
IX. Membership
All of the members of the Committee shall be independent as determined
by the board applying the definition of (i) "independent director" as
established by the Nasdaq Stock Market, Inc. ("NASDAQ"); (ii)
"non-employee directors" within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934 and the rules promulgated thereunder as
well as the Sarbanes-Oxley Act of 2002; and (iii) "outside director"
under Section 162(m) of the Internal Revenue Code of 1986 and the rules
promulgated thereunder, all as amended from time-to-time.
X. Subcommittees
The Committee may delegate authority and responsibilities to
subcommittees as it deems proper.
D-2
XI. Non-member Attendance
The Chief Executive Officer, the Chief Financial Officer and the General
Counsel of the Company will be invited to each meeting; however, the
Committee will meet at least twice each year without management
participation. Attendance may be by telephone as provided in the
Company's bylaws.
XII. Amendment and Revision
Not less than annually, the Committee will review this charter and
recommend to the board any changes it deems advisable. The board may, at
any time (acting on its initiative, or on recommendation of the
Committee), amend this charter.
XIII. Agenda
The agenda for each meeting will be set by the Committee chair after
conferring with the other Committee members and with the appropriate
members of management.
XIV. Board Reports
The Committee will inform the board from time-to-time of the actions it
has taken in fulfillment of the Committee's responsibilities under this
charter.
XV. Performance Review
The Committee will annually review its performance, which will include
eliciting input from management and the board on the performance of the
Committee. The Committee will report the results of such self-assessment
to the board.
D-3
MEMBERWORKS INCORPORATED
PROXY FOR THE 2004 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, NOVEMBER 18, 2004
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 2004 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 2004 Annual Meeting of Stockholders of the Company to be held on
Thursday, November 18, 2004 at 9:30 a.m. local time at the Westin Hotel, 1 First
Stamford Place, Stamford, Connecticut 06902, and any adjournments thereof, and
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)
Please Detach and Mail in the Envelope Provided
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
1. To consider and vote upon a proposed amendment to the Company's Amended and
Restated Certificate of Incorporation to change the Company's name to Vertrue
Incorporated.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To consider and vote upon a proposed amendment to the Company's Amended and
Restated Certificate of Incorporation to declassify the board of directors of
the Company so that all directors are elected annually. Three directors will be
elected for a term of three years, unless Proposal 2 is adopted, in which case
the three directors will serve until the 2005 annual meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To elect the following nominees for director:
FOR WITHHOLD FOR WITHHOsLD
If Proposal 2 is not approved: If Proposal 2 is approved:
Scott N. Flanders [ ] [ ] Alec L. Ellison [ ] [ ]
Michael T. McClorey [ ] [ ] Marc S. Tesler [ ] [ ]
Edward M. Stern [ ] [ ] Scott N. Flanders [ ] [ ]
Michael T. McClorey [ ] [ ]
Edward M. Stern [ ] [ ]
Gary A. Johnson [ ] [ ]
Robert Kamerschen [ ] [ ]
4. To consider and to vote upon the adoption for the 2004 Long Term
Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for the current year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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" ALL DIRECTOR NOMINEES AND "FOR" PROPOSAL NUMBER 2.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU MAY
VOTE YOUR SHARES BY MARKING YOUR VOTES ON THE ENCLOSED PROXY CARD, SIGNING AND
DATING IT, AND MAILING IT IN THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED
IF THE PROXY IS MAILED IN THE UNITED STATES.
A VOTE "FOR" ALL 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 ________________, 2004.
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.