Edgar Filing: MEMBERWORKS INC

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

MEMBERWORKS INCORPORATED
--------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

--------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

(1) Title of each class of securities to which transaction applies:

--------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

--------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

--------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

--------------------------------------------------------------------------------

(5) Total fee paid:

--------------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.

(1) Amount previously paid:

--------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:

--------------------------------------------------------------------------------

(3) Filing party:

--------------------------------------------------------------------------------

(4) Date filed:

--------------------------------------------------------------------------------

MEMBERWORKS INCORPORATED
9 WEST BROAD STREET
STAMFORD, CONNECTICUT 06902

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 15, 2001

The 2001 Annual Meeting of Stockholders of MemberWorks Incorporated (the
"Company") will be held at the Westin Hotel, 1 First Stamford Place, Stamford,
Connecticut 06902 at 9:00 a.m., local time, to consider and act upon the
following matters:

1. To elect Stephen J. Clearman, Michael R. O'Brien and Michael T.
McClorey as Class II Directors, to serve for a three-year term;

2. To ratify the selection of PricewaterhouseCoopers LLP by the Board of
Directors as the Company's independent auditors for the fiscal year
ending June 30, 2002;

3. To transact such other business as may properly come before the meeting
or any adjournment thereof.

Stockholders of record at the close of business on October 4, 2001 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 12, 2001

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU CAN
VOTE YOUR SHARES BY USING THE INTERNET OR THE TELEPHONE. INSTRUCTIONS FOR USING
THESE CONVENIENT SERVICES ARE SET FORTH ON THE ENCLOSED PROXY CARD. OF COURSE,
YOU ALSO 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.

MEMBERWORKS INCORPORATED
9 WEST BROAD STREET
STAMFORD, CONNECTICUT 06902

PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 15, 2001

This Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of MemberWorks Incorporated (the "Company") and is to
be mailed on or about October 12, 2001 to holders of record of the Company's
Common Stock, $0.01 par value per share, for use at the Annual Meeting of
Stockholders to be held on November 15, 2001 and at any adjournments of that
meeting (the "Annual Meeting"). All proxies will be voted in accordance with the
stockholders' instructions, and if no choice is specified, the proxies will be
voted in favor of the matters set forth in the accompanying Notice of Annual
Meeting. Any proxy may be revoked by a stockholder at any time before its
exercise by delivery of written revocation or a subsequently dated proxy to the
Secretary of the Company or by voting in person at the Annual Meeting.

The Company's 2001 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 October 4, 2001, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote an aggregate of 15,222,143 shares of Common
Stock, constituting all of the voting stock of the Company. Holders of Common
Stock are entitled to one vote per share.

The presence or representation by proxy of the holders of a majority of the
number of shares of Common Stock issued, outstanding and entitled to vote at the
Annual Meeting constitutes a quorum for the transaction of business at the
Annual Meeting. Shares of Common Stock represented in person or by proxy
(including shares which abstain or do not vote with respect to one or more of
the matters presented for stockholder approval) will be counted for purposes of
determining whether a quorum is present.

The affirmative vote of the holders of a majority of the shares of Common
Stock present at the Annual Meeting is required for the election of directors
and the ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending June 30, 2002.

Shares that abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on matters,
such as the ones presented for stockholder approval at this Annual Meeting, that
require the affirmative vote of a certain percentage of the shares voting on the
matter.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information based on the latest
available public information, with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to beneficially
own more than 5% of the outstanding shares of Common Stock, (ii) each director
and each person nominated to become a director of the Company and (iii) each
executive officer of the

Company named in the Summary Compensation Table set forth under the caption
"Executive Compensation" below and (iv) all current directors and executive
officers of the Company as a group:

NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNED(1) OUTSTANDING(2)
------------------------------------- ---------------- --------------

Thomas W. Smith(3)
323 Railroad Avenue
Greenwich, CT 06830....................................... 1,625,476 10.5%
Waddell & Reed Asset Management Co.
6300 Lamar Avenue
Overland Park, KS 66202................................... 1,466,900 9.5%
Thomas N. Tryforos(3)
323 Railroad Avenue
Greenwich, CT 06830....................................... 1,255,396 8.1%
Prescott Investors, Inc.
323 Railroad Avenue
Greenwich, CT 06830....................................... 1,235,288 8.0%
Brown Investment Advisory & Trust Co.
19 South Street
Baltimore, MD 21202....................................... 1,209,068 7.8%
Arbor Capital Management, L.L.C.
120 South Sixth Street
Minneapolis, MN 55402..................................... 1,084,500 7.0%
Capital Research and Management
333 South Hope Street
Los Angeles, CA 90071..................................... 1,070,000 6.9%
DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES
Gary A. Johnson(4).......................................... 1,465,141 9.4%
Dennis P. Walker(5)......................................... 1,329,837 8.6%
James B. Duffy(6)........................................... 268,232 1.7%
Stephen J. Clearman(7)...................................... 260,540 1.7%
David Schachne(8)........................................... 157,148 1.0%
Michael R. O'Brien(9)....................................... 96,000 *
Marc S. Tesler(10).......................................... 59,093 *
Alec L. Ellison(11)......................................... 28,634 *
Michael T. McClorey......................................... 1,100 *
Walter Kazmierczak.......................................... 0 *
William T. Olson III........................................ 0 *
All current directors and executive officers as a group (11
persons)(4)(5)(6)(7)(8)(9)(10)(11)........................ 3,665,725 22.5%

---------------
* 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 August 31, 2001.

(2) Calculated by taking the named persons' beneficial ownership as disclosed
above as a percentage of the total number of shares outstanding of
15,416,418 as of August 31, 2001, plus any shares subject to options held
by the person in question that are currently exercisable or exercisable
within 60 days after August 31, 2001.

(3) Includes 1,235,288 shares held by Prescott Investors, Inc. which Mr. Smith
and Mr. Tryforos, as investment managers for Prescott Investors, Inc., may
be deemed to beneficially own.

(4) Includes 249,266 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.
Includes 54,000 shares held in trust for the benefit of Mr. Johnson's
children. Mr. Johnson disclaims beneficial ownership of such shares.

(5) Includes 120,225 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.
Includes 180,800 shares held in trust for the benefit of Mr. Walker's
children and 50,610 shares held by Mr. Walker's wife. Mr. Walker disclaims
beneficial ownership of such shares.

(6) Includes 237,906 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.

(7) Includes 39,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.

(8) Includes 157,148 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.

(9) Includes 12,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.

(10) Includes 48,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.

(11) Includes 12,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after August 31, 2001.

PROPOSAL 1

ELECTION OF DIRECTORS

The Company's Board of Directors is divided into three classes, with
members of each class holding office for staggered three-year terms. The Board
currently consists of two Class I directors, whose terms expire at the 2003
Annual Meeting of Stockholders, three Class II directors, whose terms expire at
the 2001 Annual Meeting of Stockholders and two Class III directors whose terms
expire at the 2002 Annual Meeting of Stockholders (in all cases subject to the
election of their successors and to their earlier death, resignation or
removal).

The persons named in the enclosed proxy will vote to elect Stephen J.
Clearman, Michael R. O'Brien and Michael T. McClorey as Class II directors,
unless authority to vote for the election of the nominees is withheld by marking
the proxy to that effect. The Company has no nominating committee, and all
nominations are made by the Board of Directors. Each nominee has indicated his
willingness to serve, if elected, but if any nominee should be unable to stand
for election, proxies may be voted for a substitute nominee designated by the
Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
NOMINEES.

Set forth below are the name, age and certain other information with
respect to each director and nominee for director of the Company.

CLASS I DIRECTORS

Marc S. Tesler, 55, has been a director of the Company since January 1996.
From July 1995 through January 2001, he had been a general partner of Technology
Crossover Ventures, L.P., a private partnership specializing in information
technology investments. In January 2001, Mr. Tesler retired from Technology
Crossover Ventures, L.P. Mr. Tesler received his B.S. from the University of
Massachusetts and his M.B.A. from New York University.

Alec L. Ellison, 38, has been a director of the Company since 1989. Mr.
Ellison has been affiliated with Broadview International L.L.C., an investment
bank, since 1988 and has served as a Managing Director since 1993 and President
since June 2001. Mr. Ellison holds a B.A. from Yale University and an M.B.A.
from Harvard Business School, where he was a Baker Scholar.

NOMINEES FOR CLASS II DIRECTORS

Stephen J. Clearman, 50, has been a director of the Company since 1989.
Since 1984, Mr. Clearman has been a general partner of Geocapital Partners, a
venture fund he co-founded. Mr. Clearman received a B.A. from Haverford College,
an M.S. from Columbia University and a J.D. from Harvard Law School.

Michael R. O'Brien, 58, has been a director of the Company since June 1996.
Mr. O'Brien founded Catalina Marketing Corporation ("Catalina"), a direct
marketing company, in 1983, and served as Catalina's President until 1989 and as
its Chairman of the Board and Chief Executive Officer until 1992. Since 1992,
Mr. O'Brien has been Chairman Emeritus of, and a consultant to, Catalina. Mr.
O'Brien received a B.A. from the University of Kansas.

Michael T. McClorey, 42, has been a director of the Company since April
2001. Mr. McClorey has been the president and founder of Health Services
Marketing, a business unit of targeted marketing firm Catalina Marketing
Corporation, that includes the Health Resource Company, since 1994. Mr. McClorey
holds a B.B.A. in finance from the University of Cincinnati.

CLASS III DIRECTORS

Gary A. Johnson, 46, 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.

Dennis P. Walker, 56, a co-founder of the Company, has served as Executive
Vice President and a director of the Company since its inception in 1989. Mr.
Walker received a B.A. from the University of Nebraska.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes of ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission. Officers, directors and greater-than-ten-percent
shareowners are required by regulations promulgated by the Securities and
Exchange Commission to furnish the Company with copies of all Forms 3, 4 and 5
they file.

Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during fiscal 2001 and upon a review of Forms 5 and
amendments thereto furnished to the Company with respect to fiscal 2001, 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 2001, except Mr. Dennis P. Walker, an officer
and director of the Company, who inadvertently failed to file on a timely basis
a Form 5 with respect to gifts made to his children's trust in December 2000 and
January 2001.

BOARD AND COMMITTEE MEETINGS

The Board of Directors held five meetings during fiscal 2001. No director
attended fewer than four of the meetings of the Board of Directors or committee
meetings on which the director served during the period of his service as a
director. The Board of Directors currently has an Audit Committee and a
Compensation Committee.

The Company's Audit Committee recommends annually to the Board of Directors
the appointment of the independent auditors for the Company, discusses and
reviews the scope and the fees of the prospective annual audit and reviews the
results thereof with the independent auditors, reviews and approves non-audit
services of the independent certified public accountants, reviews compliance
with existing major accounting and financial policies of the Company, reviews
the adequacy of the financial organization of the Company, and reviews
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 Audit Committee met five times during fiscal 2001.
The current members of the Audit Committee are Messrs. Clearman, O'Brien and
Tesler. A copy of the Audit Committee Charter is included as exhibit A to this
proxy statement. The Company's consolidated financial statements are currently
audited by PricewaterhouseCoopers LLP.

The Company's Compensation Committee provides recommendations to the Board
regarding compensation programs of the Company and administers and has authority
to grant stock options under the Company's 1996 Stock Option Plan, 1995
Executive Officers Stock Option Plan and the 1995 Non-Employee Directors Stock
Option Plan to all employees, directors and officers of the Company, including
those persons who are required to file reports pursuant to Section 16(a) of the
Exchange Act. The Compensation Committee also administers the Company's Amended
1990 Stock Option Plan and the Company's 1996 Employee Stock Purchase Plan. The
Compensation Committee met one time during fiscal 2001. The current members of
the Compensation Committee are Messrs. Clearman, Ellison and Tesler.

DIRECTOR COMPENSATION AND STOCK OPTIONS

The Company's directors do not receive any compensation for their services
on the Board of Directors or any committee thereof however, they are reimbursed
for expenses incurred in connection with their attendance at Board or committee
meetings. The non-employee directors (which consist of Messrs. Clearman,
Ellison, Tesler, O'Brien and McClorey) are eligible to receive options to
purchase shares of Common Stock pursuant to the 1995 Non-Employee Director Stock
Option Plan. Options granted under this plan have a term

of 10 years and vest over 4 years. In the event of a change in control of the
Company, all outstanding options will become exercisable in full immediately
prior to such event.

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 for 2001 who were serving as
our executive officers on June 30, 2001 (collectively, the "Named Executive
Officers"):

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) ------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (SHARES)(2) ($)
--------------------------- ------ -------- -------- ------------ ------------ ------------

Gary A. Johnson................. 2001 $446,200 $ 67,500 -- 73,070 --
President and Chief 2000 349,000 142,500 -- 57,940 --
Executive Officer 1999 300,000 180,000 -- 90,570 --
James B. Duffy.................. 2001 $372,300 $ 37,500 -- 47,590 --
Executive Vice President 2000 304,700 113,000 -- 39,440 --
and Chief Financial Officer 1999 275,000 137,500 -- 59,050 --
David Schachne.................. 2001 $372,300 $ 37,500 -- 47,590 --
Executive Vice President, 2000 304,400 137,500 -- 39,440 --
Business Development 1999 234,000 175,000 -- 53,240 --
William T. Olson III............ 2001 $ 78,800 $ 50,000 -- 100,000(3) --
Executive Vice President,
Client Services
Walter Kazmierczak.............. 2001 $ 48,800 $ 50,000 -- 100,000(4) --
Executive Vice President,
Marketing Services

---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constitute less than the lesser of $50,000 or ten percent of the total
salary and bonus reported for the executive officer during the fiscal years
ended June 30, 2001, 2000, and 1999.

(2) The Company did not grant any restricted stock awards or stock appreciation
rights during the year ended June 30, 2001, 2000 and 1999. The Company does
not have any long-term incentive plans.

(3) Mr. Olson joined the Company in March of 2001 and was elected as an
executive officer during fiscal 2001.

(4) Mr. Kazmierczak joined the Company in May of 2001 and was elected as an
executive officer during fiscal 2001.

Option Grants

The following table sets forth certain information concerning option grants
during the fiscal year ended June 30, 2001 to the Named Executive Officers and
the number and value of the unexercised options held by such persons on June 30,
2001:

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ------------- -------- ---------- ---------- ----------

Gary A. Johnson....... 73,070 4.1% 29.56 7/5/10 1,358,495 3,442,694
James B. Duffy........ 47,590 2.7% 29.56 7/5/10 884,779 2,242,203
David Schachne........ 47,590 2.7% 29.56 7/5/10 884,779 2,242,203
William T. Olson
III................. 100,000 5.7% 18.69 1/9/11 1,175,247 2,978,306
Walter Kazmierczak.... 100,000 5.7% 20.31 5/17/11 1,277,285 3,236,891

---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent the Company's
estimate or projection of future stock prices. This table does not take into
account any appreciation or depreciation in the price of the Common Stock to
date. Actual gain, if any, on stock option exercises will depend on future
performance of the Common Stock and the date on which the options are
exercised. Values shown are net of the option exercise price, but do not
include deductions for tax or other expenses associated with the exercise.
All options were granted under the 1996 Stock Option Plan except for 50,000
options granted to William T. Olson III and 50,000 options granted to Walter
Kazmierczak which were granted under the 1995 Executive Officers' Stock
Option Plan. These options generally become exercisable over a four-year
period (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.

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, 2001 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, 2001:

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END (#) YEAR-END ($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------------- -----------------

Gary A. Johnson.................. 54,000 774,360 192,171/179,409 2,726,114/436,097
James B. Duffy................... 10,000 170,830 197,886/110,194 2,959,707/225,374
David Schachne................... 36,000 775,643 118,580/107,290 1,401,533/209,722
William T. Olson III............. -- -- --/100,000 --/445,250
Walter Kazmierczak............... -- -- --/100,000 --/283,000

---------------
(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
29, 2001 ($23.14).

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of the closing of the Company's initial public offering in October 1996,
the Company adopted a policy that all material transactions between the Company
and its officers, directors and other affiliates must (i) be approved by a
majority of the members of the Company's Board of Directors and by a majority of
the disinterested members of the Company's Board of Directors, and (ii) be on
terms that are no less favorable to the Company than could be obtained from
unaffiliated third parties. In addition, the policy requires that any loans by
the Company to its officers, directors or other affiliates be for bona fide
business purposes only.

For a description of option grants to certain executive officers of the
Company, see "Executive Compensation -- Option Grants."

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 approved by the Board of Directors (attached as Exhibit
A). The Committee consists of Messrs. Clearman, O'Brien and 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 New York Stock Exchange's
new rules governing audit committees. Management has the primary responsibility
for the financial statements and the reporting process, including the system of
internal controls.

The Committee has met and held discussions with management and the
independent auditors. Management represented to the Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent auditors.
The Committee discussed with the independent auditors matters required to be
discussed by Statement on Auditing Standards No. 61, "Communication with Audit
Committees".

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 Committee discussed with the Company's independent auditors the overall
scope and plans for its audit. The 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 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, 2001, for filing with the Securities and
Exchange Commission. The Committee and the Board of Directors also have
recommended, subject to shareholder approval, the selection of the Company's
independent auditors.

The Board has adopted a written charter for the Audit Committee. The
Charter is included as Exhibit A to the proxy statement for the 2001 Annual
Meeting of Stockholders.

AUDIT COMMITTEE

Stephen J. Clearman
Michael R. O'Brien
Marc S. Tesler

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee of the Board of Directors (the "Compensation
Committee") is currently composed of three non-employee directors, Stephen J.
Clearman, Alec L. Ellison and Marc S. Tesler. The Compensation Committee is
responsible for establishing and administering the policies that govern both
annual compensation and performance-based equity ownership of the Company's
executive officers.

This report is submitted by the Compensation Committee and addresses the
Company's policies for 2001 as they apply to the Named Executive Officers.

Policies and Philosophy

The Company's executive compensation program is structured and administered
to achieve three broad goals in a manner consistent with stockholder interests.
First, the Compensation Committee structures executive compensation programs and
decisions regarding individual compensation in a manner that the Compensation
Committee believes will enable the Company to attract and retain key executives.
Second, the Compensation Committee establishes compensation programs that are
designed to reward executives for the achievement of specified business
objectives of the Company. Finally, the Compensation Committee designs the
Company's executive compensation programs to provide executives with long-term
ownership opportunities in the Company in an attempt to align executive and
stockholder interests.

In evaluating both individual and corporate performance for purposes of
determining salary and bonus levels and stock option grants, the Compensation
Committee places significant emphasis on the extent to which strategic and
business plan goals are met, including the progress and success of the Company
with respect to matters such as achieving operating budgets, establishing
strategic marketing, distribution and development alliances, product development
and enhancement of the Company's strategic position, as well as on the Company's
overall financial performance.

Executive Compensation in Fiscal 2001

The compensation programs for the Company's executives established by the
Compensation Committee consist of three elements based upon the foregoing
objectives: (i) base salary and benefits competitive with the

marketplace; (ii) bonus grants; and (iii) stock-based equity incentive in the
form of participation in the 1996 Stock Option Plan, the 1995 Executive
Officers' Stock Option Plan and the 1996 Employee Stock Purchase Plan. The
Compensation Committee believes that providing a base salary and benefits to its
executive officers that are competitive with the marketplace enables the Company
to attract and retain key executives. In addition, the Compensation Committee
believes that bonuses based on both corporate and individual performance provide
incentives to its executive officers that align their interests with those of
the Company as a whole. The Compensation Committee generally provides executive
officers discretionary stock option awards to reward them for achieving
specified business objectives and to provide them with long-term ownership
opportunities. In evaluating the salary level, bonuses and equity incentives to
award to each current executive officer, the Compensation Committee examines the
progress which the Company has made in areas under the particular executive
officer's supervision, such as development or sales, and the overall performance
of the Company.

In determining the salary and bonuses of each executive officer, including
the Named Executive Officers, the Compensation Committee and the Board of
Directors consider numerous factors such as (i) the individual's performance,
including the expected contribution of the executive officer to the Company's
goals, (ii) the Company's long-term needs and goals, including attracting and
retaining key management personnel, (iii) the Company's competitive position,
including data on the payment of executive officers at comparable companies and
(iv) the Company's financial performance measured versus financial targets
approved by the Board of Directors and Compensation Committee. To the extent
determined to be appropriate, the Compensation 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,
2001, 2000 and 1999 were designed to make a portion of the overall compensation
of the executive officers receiving such awards vary depending upon the
performance of the Company's Common Stock. Such grants, as a result of vesting
arrangements applicable to such stock options, also serve as a means of
retaining these individuals. In making stock option grants to executives, the
Compensation Committee considers a number of factors, including the performance
of the executive, the responsibilities of the executive, and the executive's
current stock or option holdings.

Benefits

The Company's executive officers are entitled to receive medical benefits
and life insurance benefits and to participate in the Company's 401(k) Savings
Plan on the same basis as other full-time employees of the Company. The
Company's 1996 Employee Stock Purchase Plan, which is available to virtually all
employees, including certain executive officers and directors who are employees,
allows participants to purchase shares at a discount of approximately 15% from
the fair market value at the beginning or end of the applicable purchase period.

Compensation of the Chief Executive Officer in Fiscal 2001

The compensation philosophy applied by the Compensation Committee in
establishing the compensation for the Company's President and Chief Executive
Officer is the same as for the other senior management of the Company -- to
provide a competitive compensation opportunity that rewards performance.

During fiscal 2001, Mr. Johnson served as President and Chief Executive
Officer of the Company and was paid a base salary of $446,200 and a bonus of
$67,500. The Compensation Committee determined Mr. Johnson's base salary based
on the same market criteria used for other senior officers. Mr. Johnson was also
granted options to purchase 73,070 shares of Common Stock at an exercise price
of $29.56 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
10

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 Company
currently intends to structure the compensation arrangements of its executive
officers in a manner that will avoid disallowances under Section 162(m).

COMPENSATION COMMITTEE

Stephen J. Clearman
Alec L. Ellison
Marc S. Tesler

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total stockholder return on the
Common Stock of the Company during the period from June 30, 1997 to June 30,
2001 with the cumulative total return over the same period of (i) the Nasdaq
National Market (U.S. Companies) (the "Nasdaq Composite Index") and (ii) the Dow
Jones Consumer Non-Cyclical Index for the Consumer Services sector (the "Dow
Jones Non-Cyclical Index"). This comparison assumes the investment of $100 on
June 30, 1997 in the Company's Common Stock, the Nasdaq Composite Index and the
Dow Jones Non-Cyclical Index and assumes dividends, if any, are reinvested.

COMPARISON OF CUMULATIVE TOTAL RETURN
[STOCK PERFORMANCE GRAPH]

DOW JONES CONSUMER NON-
MEMBERWORKS INCORPORATED NASDAQ COMPOSITE INDEX CYCLICAL INDEX
------------------------ ---------------------- -----------------------

6/30/97 100.00 100.00 100.00
6/30/98 200.00 131.75 156.98
6/30/99 179.84 188.08 333.75
6/30/00 208.53 279.85 298.44
6/30/01 143.50 151.70 255.42

PROPOSAL 2

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Board of Directors, at the recommendation of the Audit Committee, has
selected the firm of PricewaterhouseCoopers LLP as the Company's independent
auditors for the current fiscal year. PricewaterhouseCoopers LLP has served as
the Company's independent auditors since 1990. If this proposal is not approved
at the Annual Meeting, the Board of Directors may reconsider its selection of
PricewaterhouseCoopers LLP.

Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.

AUDIT FEES

During the fiscal year ended June 30, 2001, the aggregate fees billed by
PricewaterhouseCoopers LLP for the audit of the Company's financial statements
for such fiscal year and for the reviews of the Company's interim financial
statements were $168,327.

FINANCIAL INFORMATION SYSTEMS AND IMPLEMENTATION FEES

During the fiscal year ended June 30, 2001, the aggregate fees billed by
PricewaterhouseCoopers LLP for financial information systems and implementation
fees for such fiscal year were $3,313,091.

ALL OTHER FEES

During the fiscal year ended June 30, 2001, the aggregate fees billed by
PricewaterhouseCoopers LLP for all other professional fees for such fiscal year
were $81,557. Other professional services include items such as preparation and
filing of registration statements related to merger transactions, audits of
employee benefit plans, comfort letters and consents and consultation on
accounting standards or transactions.

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.

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.

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 2002 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Stamford, Connecticut not later than June 20, 2002 for inclusion in the proxy
statement for that meeting.

By Order of the Board of Directors,

James B. Duffy
Secretary
October 12, 2001

THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT STOCKHOLDERS PLAN TO ATTEND, STOCKHOLDERS CAN VOTE THEIR SHARES
BY USING THE INTERNET OR THE TELEPHONE. INSTRUCTIONS FOR USING THESE CONVENIENT
SERVICES ARE SET FORTH ON THE ENCLOSED PROXY CARD. OF COURSE, YOU ALSO 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.
14

EXHIBIT A

AUDIT COMMITTEE CHARTER

PURPOSE

The purpose of the Audit Committee is to assist the Board of Directors of
the Company in fulfilling its responsibilities to oversee the Company's
financial reporting process, including monitoring the integrity of the Company's
financial statements and the independence and performance of the Company's
internal and external auditors.

It is the responsibility of executive management of the Company to prepare
financial statements in accordance with generally accepted accounting principles
and of the Company's independent auditors to audit those financial statements.
The Audit Committee's responsibility is one of oversight and in carrying out its
responsibility, the Audit Committee is not providing any expert or other special
assurance as to the Company's financial statements.

MEMBERSHIP REQUIREMENTS

The Audit Committee shall be comprised of that number of directors as the
Board of Directors shall determine from time to time, such numbers not to be
less than three (3) in accordance with the Company's By-Laws, each of which
Directors shall meet all applicable requirements of the Audit Committee Policy
of the New York Stock Exchange with respect to independence, financial literacy,
accounting or related financial expertise, and any other matters required by the
Exchange. The members of the Audit Committee, including the Chair thereof, shall
be appointed annually by the Board of Directors.

AUTHORITY

In discharging its oversight responsibilities, the Audit Committee shall
have unrestricted access to the Company's management, books and records and the
authority to retain outside counsel, accountants or other consultants at the
Audit Committee's sole discretion.

RESPONSIBILITIES

The following are the general responsibilities of the Audit Committee and
are set forth only for its guidance. The Audit Committee may diverge from these
responsibilities and may assume such other responsibilities as it deems
necessary or appropriate in carrying out its oversight functions. The Audit
Committee shall:

- propose to the Board of Directors annually the appointment of the
independent auditors who shall be accountable to the Board of Directors
and the Audit Committee;

- determine whether to recommend to the Board of Directors that the
Company's financial statements be included in its Annual Report on Form
10-K for filing with the Securities and Exchange Commission. To carry out
this responsibility, the Audit Committee shall:

- review and discuss the audited financial statements with management and
the independent auditors;

- discuss with the independent auditors the matters required by Statement
on Auditing Standards No. 61;

- review and discuss with the independent auditors the written disclosures
required by Independence Standards Board Standard No. 1 regarding their
independence and, where appropriate, recommend that the Board of
Directors take appropriate action in response to the disclosures to
satisfy itself of the independence of the Company's independent
auditors; and

- based upon the reviews and discussions, issue its report for inclusion
in the Company's proxy statement;

- review and discuss with management and the independent auditors the
Company's interim financial statements to be included in the Company's
quarterly reports to be filed with the Securities and Exchange
Commission;

- oversee the functioning of the Internal Audit Review, including its
organization, its charter, staffing, budget and work plans and review
periodic reports prepared by such organization;

- meet privately with the independent auditors and with the head of the
Internal Audit Department to review the Company's accounting practices,
internal accounting controls and such other matters as the Audit
Committee deems appropriate;

- regularly report to the Board of Directors its conclusions with respect
to the matters that the Audit Committee has considered; and

- review and reassess the adequacy of this Charter annually and submit it
to the Board of Directors for approval.

MEETINGS

Subject to the Company's by-laws and resolutions of the Board, the Audit
Committee shall meet at least four times annually at such times as the Chairman
of the Committee shall designate.

- FOLD AND DETACH HERE -
--------------------------------------------------------------------------------

MEMBERWORKS INCORPORATED
PROXY FOR THE 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, NOVEMBER 15, 2001

The undersigned having received notice of the 2001 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 2001 Annual Meeting of Stockholders of MEMBERWORKS INCORPORATED
(the "Company") to be held on Thursday, November 15, 2001 at 9:00 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)

- FOLD AND DETACH HERE -
--------------------------------------------------------------------------------

PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE

FOR ALL NOMINEES
(EXCEPT AS
MARKED BELOW) WITHHOLD

1. To elect the
following nominees [ ] [ ]
for director (except
as marked below):

NOMINEES: Stephen J. Clearman
Michael R. O'Brien
Michael T. McClorey

(Instruction: To withhold a vote for an individual nominee, write the name of
such nominee in the space provided below. Your shares will be voted for the
remaining nominees.)

__________________________________________________

FOR AGAINST ABSTAIN

2. To ratify the appointment of
PricewaterhouseCoopers LLP as [ ] [ ] [ ]
the Company's independent public
auditors for the current year.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE PROXIES SHALL
VOTE "FOR" ALL DIRECTOR NOMINEES AND "FOR" PROPOSAL NUMBER 2.

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 [ ]
CHANGE AND NOTE AT LEFT

MARK HERE IF YOU PLAN [ ]
TO ATTEND THE MEETING

SIGNATURE(S)______________________________________ DATED_________________, 2001.

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.