UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No. 1)

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

VERTRUE 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):

 

o  No fee required.

 

 

 

 

 

 

 

 

 

Preliminary Copy. The information in this proxy statement is not complete and may be changed.

Subject to completion. Material dated May 30, 2007.

 

 

Vertrue Incorporated
20 Glover Avenue
Norwalk, Connecticut 06850

 

 

, 2007

 

Dear Fellow Stockholder:

 

On March 22, 2007, Vertrue Incorporated, a Delaware corporation (“Vertrue”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Velo Holdings Inc., a Delaware corporation (“Parent”), and Velo Acquisition Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). Parent is owned and/or backed by the equity commitment of an investor group consisting of One Equity Partners, Oak Investment Partners and Rho Ventures. Under the terms of the Merger Agreement, Merger Sub will be merged with and into Vertrue, with Vertrue continuing as the surviving corporation (the “Merger”). If the Merger is completed, you will be entitled to receive $48.50 in cash (less any applicable withholding taxes), without interest, for each share of Vertrue common stock, par value $0.01 per share, (the “Common Stock”) that you own (the “Merger Consideration”).

 

A special meeting of our stockholders (the “Special Meeting”) will be held on          , 2007, at          , local time, to vote on a proposal to adopt the Merger Agreement so that the Merger can occur. The Special Meeting will be held at          . Notice of the Special Meeting and the related proxy statement are enclosed.

 

The accompanying proxy statement gives you detailed information about the Special Meeting and the Merger and includes the Merger Agreement as Annex A. The receipt of cash in exchange for shares of the Common Stock in the Merger will constitute a taxable transaction to U.S. persons for U.S. federal income tax purposes. We encourage you to read the entire proxy statement and the Merger Agreement carefully.

 

Our board of directors (the “Board of Directors”), after careful consideration and following receipt of the unanimous recommendation of the Special Committee of the Board of Directors (the “Special Committee”) consisting of five independent and disinterested directors, has unanimously determined that the Merger is advisable and that the terms of the Merger are fair to and in the best interests of Vertrue and its stockholders (other than the Chief Executive Officer of Vertrue, Gary A. Johnson and any other members of senior management of Vertrue who elect to invest in equity securities of Parent in connection with the Merger), and approved the Merger Agreement and the transactions contemplated thereby, including the Merger. FTN Midwest Securities Corp., financial advisor to the Special Committee, has delivered a fairness opinion to the effect that, as of March 21, 2007, and based upon and subject to the factors, qualifications, limitations and assumptions set forth therein, the Merger Consideration to be received by the holders of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. Jefferies Broadview, a division of Jefferies & Company, Inc., financial advisor to Vertrue, has also delivered a fairness opinion to the effect that, as of March 20, 2007, and based upon and subject to the assumptions, limitations, qualifications and factors contained in its opinion, the Merger Consideration to be received by holders of shares of the Common Stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders (other than Parent, Merger Sub and their respective affiliates).

 

Your vote is very important. We cannot complete the Merger unless holders of a majority of all outstanding shares of the Common Stock entitled to vote on the matter vote to adopt the Merger Agreement. Our Board of

Directors unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement.  The failure of any stockholder to vote on the proposal to adopt the Merger Agreement will have the same effect as a vote against the adoption of the Merger Agreement.

 

Whether or not you plan to attend the Special Meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, or submit your proxy by telephone or the Internet as directed on the proxy card. Any proxy may be revoked by a stockholder at any time before its exercise by delivery of a written revocation or a subsequently dated proxy to the Secretary of Vertrue at 20 Glover Avenue, Norwalk, Connecticut 06850 or by voting in person at the Special Meeting.

 

Our Board of Directors and management appreciate your continuing support of Vertrue, and we urge you to support the Merger.

 

Sincerely,

 

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

The proxy statement and the form of proxy are dated          , 2007, and are first being mailed to stockholders on or about          , 2007.

 

Vertrue Incorporated
20 Glover Avenue
Norwalk, Connecticut 06850

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On          , 2007

 

Dear Stockholder:

 

PLEASE TAKE NOTICE that a special meeting of stockholders (the “Special Meeting”) of Vertrue Incorporated, a Delaware corporation (“Vertrue”), will be held on          , 2007, at           local time, at          , for the following purposes:

 

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of March 22, 2007 (the “Merger Agreement”), by and among Vertrue, Velo Holdings Inc., a Delaware corporation (“Parent”), and Velo Acquisition Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), as the Merger Agreement may be amended from time to time. Under the terms of the Merger Agreement, Merger Sub will be merged with and into Vertrue, with Vertrue continuing as the surviving corporation (the “Merger”).

 

2. To approve the adjournment or postponement of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

 

3. To act upon other business as may properly come before the Special Meeting and any and all adjourned or postponed sessions thereof.

 

The record date for the determination of stockholders entitled to notice of and to vote at the Special Meeting is          , 2007. Accordingly, only stockholders of record as of that date will be entitled to notice of and to vote at the Special Meeting or any adjournment or postponement thereof. A list of our stockholders will be available at our principal executive offices at 20 Glover Avenue, Norwalk, Connecticut 06850 during ordinary business hours for a period of at least ten business days prior to the Special Meeting. The list will also be available during the whole time of the Special Meeting, and may be inspected by any stockholder who is present.

 

We urge you to read the accompanying proxy statement entirely and carefully, as it sets forth details of the proposed Merger and other important information related to the Merger.

 

Your vote is important, regardless of the number of shares of Vertrue’s common stock (the “Common Stock”) you own. The adoption of the Merger Agreement requires the affirmative approval of the holders of a majority of the outstanding shares of the Common Stock entitled to vote thereon. Gary A. Johnson, Vertrue’s Chief Executive Officer, has agreed to vote “FOR” the adoption of the Merger Agreement. The adjournment proposal requires the affirmative vote of a majority of the shares of the Common Stock present at the Special Meeting and entitled to vote thereon. Even if you plan to attend the Special Meeting in person, we request that you complete, sign, date and return the enclosed proxy card or submit your proxy by telephone or the Internet as directed on the proxy card prior to the Special Meeting and thus ensure that your shares will be represented at the Special Meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by phone or the Internet as directed on the proxy card, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against the adoption of the Merger Agreement but will not affect the outcome of any vote regarding the adjournment proposal.

 

Please note that space limitations make it necessary to limit attendance at the Special Meeting to stockholders. Registration will begin at           local time. If you attend, please note that you may be asked to present valid picture identification. “Street name” holders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the Special Meeting.

 

Stockholders of Vertrue who do not vote in favor of the adoption of the Merger Agreement will have the right to seek appraisal of the fair value of their shares of the Common Stock if they deliver a demand for appraisal before the vote is taken on the Merger Agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU MAY VOTE YOUR SHARES BY MARKING YOUR VOTE ON THE ENCLOSED PROXY CARD, SIGNING AND DATING IT, AND MAILING IT IN THE ENCLOSED ENVELOPE OR BY SUBMITTING YOUR PROXY BY TELEPHONE OR THE INTERNET AS DIRECTED ON THE PROXY CARD. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES. ANY PROXY MAY BE REVOKED BY A STOCKHOLDER AT ANY TIME BEFORE ITS EXERCISE BY DELIVERY OF A WRITTEN REVOCATION OR A SUBSEQUENTLY DATED PROXY TO THE SECRETARY OF VERTRUE OR BY VOTING IN PERSON AT THE SPECIAL MEETING.

 

By Order of the Board of Directors,

 

James B. Duffy

Secretary

 

Norwalk, Connecticut

          , 2007

TABLE OF CONTENTS

 

We are providing these proxy materials in connection with the solicitation of proxies by the board of directors of Vertrue Incorporated (“Board of Directors”) for use at a special meeting of our stockholders (the “Special Meeting”). Throughout this proxy statement, we refer to Vertrue Incorporated and its subsidiaries as “Vertrue,” the “Company,” “we,” “our” or “us,” unless otherwise indicated by context.

 

This Summary Term Sheet, together with the “Questions and Answers About the Special Meeting and the Merger,” summarizes the material information in the proxy statement. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the Special Meeting. In addition, this proxy statement incorporates by reference important business and financial information about Vertrue. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in “Where You Can Find More Information” beginning on page 89.

 

 

 

 

 

Gary A. Johnson, 52, a co-founder of Vertrue, has served as President, CEO and director of Vertrue since its inception in 1989. The business address for Gary A. Johnson is 20 Glover Avenue, Norwalk, Connecticut 06850, and his business telephone number is (203) 324-7635. Gary A. Johnson is a citizen of the United States.

 

 

 

 

 

 

 

 

Notwithstanding the above restrictions, under certain circumstances, our Board of Directors (acting through the Special Committee of our Board of Directors consisting of five independent and disinterested directors (the “Special Committee”) if such committee still exists) may respond to a bona fide unsolicited written proposal for an alternative acquisition or terminate the Merger Agreement and enter into an acquisition agreement with respect to a superior proposal, so long as we comply with certain terms of the Merger Agreement described under “The Merger Agreement — Acquisition Proposals” beginning on page 68.

 

 

 

 

Notwithstanding the above rights of either Vertrue or Parent to terminate the Merger Agreement, such termination rights will not be available to any party that has materially breached the Merger Agreement in any manner that proximately contributed to occurrence of the failure of a condition to the consummation of the Merger.

 

 

 

 

 

 

 

See “Questions and Answers About the Special Meeting and the Merger” beginning on page 9 and “The Special Meeting” beginning on page 15.

 

 

 

For a discussion of the material factors considered by our Board of Directors and the Special Committee in reaching their conclusions and the reasons why our Board of Directors and the Special Committee determined that the Merger is fair, see “Special Factors — Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger” beginning on page 24.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers do not address all questions that may be important to you as our stockholder. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the event a quorum is present, the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of the holders of shares of the Common Stock representing a majority of the votes cast on the matter. Abstentions will have the same effect as a vote against the proposal to adjourn the Special Meeting in the event a quorum is present.

 

Q. Who is soliciting my vote?

 

 

Q. What do I need to do now?

 

 

 

DO NOT ENCLOSE OR RETURN YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY.

 

 

 

Q: May I revoke my vote after I have mailed my signed proxy or otherwise submitted my vote?

 

A. Yes. You have the right to revoke your vote at any time before the vote is taken at the Special Meeting as follows:

 

 

 

 

 

 

 

Q. What do I do if I receive more than one proxy or set of voting instructions?

 

 

Q. How are votes counted?

 

 

For the proposal to adjourn the Special Meeting, if necessary, to solicit additional proxies, you may vote FOR, AGAINST or ABSTAIN. Abstentions will count for the purpose of determining whether a quorum is present, but abstentions will not count as shares present and entitled to vote on the proposal to adjourn the Special Meeting. As a result, abstentions will have no effect on the vote to adjourn the Special Meeting, which requires the vote of the holders of a majority of the shares of the Common Stock present or represented by proxy at the Special Meeting and entitled to vote on the matter. In addition, if your shares are held in the name of a broker, bank or other nominee, your broker, bank or other nominee will not be entitled to vote on the proposal to adjourn the special meeting in the absence of specific instructions. These non-voted shares will not be counted for purposes of determining a quorum and will have no effect on the proposal to adjourn the meeting.

 

If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the Merger Agreement and “FOR” the adjournment of the Special Meeting, if necessary, to solicit additional proxies, and in accordance with the recommendation of our Board of Directors on any other matters properly brought before the Special Meeting for a vote.

 

Q: Who will count the votes?

 

 

Q. When is the Merger expected to be completed?

 

 

Q. Am I entitled to exercise appraisal rights instead of receiving the Merger Consideration for my shares?

 

 

Q. Should I send in my stock certificates now?

 

 

Q. How can I obtain additional information about Vertrue?

 

 

Q. Who can help answer my questions?

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of Vertrue, the expected completion, timing and effects of the Merger and other information relating to the Merger. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary Term Sheet,” “Special Factors,” “Important Information About Vertrue” and in statements containing the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimates,” “may,” “seeks” or other similar expressions. You should be aware that forward-looking statements are based on our current estimates and assumptions and involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of Vertrue or on the Merger and related transactions. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise. In addition to other factors and matters contained or incorporated by reference in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

and other risks detailed in our filings with the SEC, including our most recent filings of Quarterly Report on Form 10-Q and Annual Report on Form 10-K. See “Where You Can Find More Information” beginning on page 89. Many of the factors that will determine our future results or whether or when the Merger will be consummated are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect our management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

The safe harbor from liability for forward-looking statements contained in Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, do not apply to forward-looking statements made in connection with a going private transaction, including statements made in a proxy statement or documents incorporated by reference therein.

 

Vertrue is a premier Internet direct marketing services company. Vertrue operates a diverse group of marketing businesses that share a unified mission: to provide every consumer with access to savings and services that improve their daily lives. Vertrue’s members and customers have access to direct-to-consumer savings across its five vertical markets of healthcare, personal property, security/insurance, discounts and personals, which are all offered online through a set of diverse Internet marketing channels. We market our services through Internet marketing, inbound call marketing, television and newspaper advertising, direct mail and outbound telemarketing. In addition to marketing online, we have significantly increased the use of the Internet to deliver our programs and provide service to consumers online. Our principal executive offices are located at 20 Glover Avenue, Norwalk, Connecticut 06850, and our telephone number is (203) 324-7635. For more information about us, please visit our website at www.Vertrue.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. Vertrue is publicly traded on the NASDAQ under the symbol “VTRU.”

 

Velo Holdings Inc., which we refer to as Parent in this proxy statement, is a Delaware corporation that was formed solely for the purpose of acquiring Vertrue. Parent is owned and/or backed by the equity commitment of an investor group consisting of OEP, Oak Investment Partners and Rho Ventures and Rho Ventures V Affiliates, which we refer to in this proxy statement as the Sponsors. For more detailed information on the Sponsors see “Special Factors — Financing of the Merger — Equity Financing” beginning on page 52. Parent has not engaged in any business except as contemplated by the Merger Agreement. The principal office address of Parent is c/o One Equity Partners II, L.P., 320 Park Avenue, 18th Floor, New York, NY; and the telephone number at such address is (212) 277-1500.

 

Velo Acquisition Inc., which we refer to as Merger Sub, is a Delaware corporation and a wholly-owned subsidiary of Parent that was formed solely for the purpose of completing the proposed Merger. Upon the consummation of the proposed Merger, Merger Sub will cease to exist and Vertrue will continue as the Surviving Corporation. Merger Sub has not engaged in any business except as contemplated by the Merger Agreement. The principal office address of Merger Sub is c/o One Equity Partners II, L.P., 320 Park Avenue, 18th Floor, New York, NY; and the telephone number at such address is (212) 277-1500.

 

This proxy statement is furnished in connection with the solicitation of proxies by our Board of Directors in connection with the Special Meeting of our stockholders relating to the Merger.

 

The Special Meeting is scheduled to be held as follows:

 

Date:           , 2007

 

Time:

 

Place:

 

At the Special Meeting, you will be asked to vote on a proposal to adopt the Merger Agreement, and to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this proxy statement.

 

We have fixed the close of business on          , 2007 as the record date for the Special Meeting, and only record holders of shares of the Common Stock on the record date are entitled to vote at the Special Meeting. On the record date, there were           shares of the Common Stock outstanding and entitled to vote.

 

Each share of the Common Stock entitles its holder to one vote on all matters properly coming before the Special Meeting. The presence in person or representation by proxy of the holders of a majority of all issued and outstanding shares of the Common Stock entitled to vote constitutes a quorum for the purpose of considering the proposals at the Special Meeting. Shares of the Common Stock represented in person or by proxy at the Special Meeting (including shares that abstain or do not vote with respect to one or more of the matters represented for stockholder approval) will be counted for purposes of determining whether a quorum is present. In the event that a quorum is not present at the Special Meeting, it is expected that the Special Meeting will be adjourned or postponed to solicit additional proxies.

 

Adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of the Common Stock entitled to vote on the matter. For the proposal to adopt the Merger Agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not be counted as votes cast or shares voting on the proposal to adopt the Merger Agreement, but will count for the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as if you vote against the adoption of the Merger Agreement. In addition, if your shares are held in “street name,” your broker, bank or other nominee will not be entitled to vote your shares in the absence of specific instructions. These non-voted shares will not be counted for purposes of determining a quorum and will have the same effect as a vote against the adoption of the Merger Agreement. Your broker, bank or nominee will vote your shares only if you provide instructions on how to vote by following the instructions provided to you by your broker, bank or nominee.

 

In the event that a quorum is not present, the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of the holders of a majority of the outstanding shares of the Common Stock present or represented by proxy at the Special Meeting and entitled to vote on the matter. In the event a quorum is present, the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of the holders of shares of the Common Stock representing a majority of the votes cast on the matter. For the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies, you may vote FOR, AGAINST or ABSTAIN. Abstentions will count for the purpose of determining whether a quorum is present, but in the event a quorum is not present abstentions will not count as

shares present and entitled to vote on the proposal to adjourn the meeting. As a result, in the event a quorum is not present, abstentions will have no effect on the vote to adjourn the Special Meeting, which requires the vote of the holders of a majority of the shares of the Common Stock present or represented by proxy at the meeting and entitled to vote on the matter. In the event a quorum is present, abstentions will have the same effect as a vote against the proposal to adjourn the Special Meeting. In addition, if your shares are held in “street name,” your broker, bank or other nominee will not be entitled to vote on the proposal to adjourn the Special Meeting in the absence of specific instructions. These non-voted shares will not be counted for purposes of determining a quorum and will have no effect on the proposal to adjourn the meeting.

 

As of          , 2007, the record date, our directors and executive officers (other than our CEO, Gary A. Johnson) held and are entitled to vote, in the aggregate,           shares of the Common Stock, representing approximately     % of the outstanding shares of the Common Stock. Our directors and executive officers are expected to vote all of their shares of the Common Stock “FOR” the adoption of the Merger Agreement and “FOR” the adjournment proposal. In addition, our CEO, Gary A. Johnson, (holding approximately     % of the outstanding shares of the Common Stock) has entered into an agreement with Parent pursuant to which he has agreed to vote his shares “FOR” the adoption of the Merger Agreement. If our directors and executive officers (including Gary A. Johnson) vote their shares in favor of adopting the Merger Agreement,     % of the outstanding shares of the Common Stock will have voted for the proposal to adopt the Merger Agreement. This means that additional holders of more than approximately     % of all shares entitled to vote at the Special Meeting would need to vote for the proposal to adopt the Merger Agreement in order for it to be adopted.

 

Stockholders of record may submit proxies by mail. Stockholders who wish to submit a proxy by mail should complete, date, sign and return the proxy card in the envelope furnished. If you hold your shares in your name as a stockholder of record, you may vote by telephone or electronically through the Internet by following the instructions included with your proxy card. Stockholders who hold shares beneficially through a nominee (such as a bank or broker) may be able to submit a proxy by mail or by telephone or the Internet if those services are offered by the nominee.

 

Proxies received at any time before the Special Meeting, and not revoked or superseded before being voted, will be voted at the Special Meeting. Where a specification is indicated by the proxy, it will be voted in accordance with the specification. If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the Merger Agreement and “FOR” the adjournment of the Special Meeting, if necessary, to solicit additional proxies, and in accordance with the recommendations of our Board of Directors on any other matters properly brought before the Special Meeting for a vote.

 

You have the right to revoke your proxy at any time before the vote taken at the Special Meeting as follows:

 

 

 

 

Please do not send in your stock certificates with your proxy card. When the Merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the Merger Consideration.

 

Our stockholders are entitled to appraisal rights under Delaware law in connection with the Merger. This means that you are entitled to have the value of your shares determined by the Delaware Court of Chancery and to

receive payment based on that valuation. The ultimate amount you receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to us before the vote is taken on the Merger Agreement and you must not vote in favor of the adoption of the Merger Agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Rights of Appraisal” beginning on page 77 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex D.

 

This proxy solicitation is being made and paid for by Vertrue. In addition, we have retained Georgeson Inc. to assist in the solicitation. We will pay Georgeson Inc. approximately $15,000 plus out-of-pocket expenses for its assistance. Our directors, officers, and regular employees, without additional remuneration, may also solicit proxies by telephone, telegraph, personal interviews, mail, e-mail, facsimile or other means of communication. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of the Common Stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.

 

We are not currently aware of any business to be acted upon at the Special Meeting other than the matters discussed in this proxy statement. Under our bylaws, business transacted at the Special Meeting is limited to the purposes stated in the notice of the Special Meeting, which is provided at the beginning of this proxy statement. If other matters do properly come before the Special Meeting, or at any adjournment or postponement of the Special Meeting, we intend that shares of the Common Stock represented by properly submitted proxies will be voted in accordance with the recommendations of our Board of Directors.

 

If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact us in writing at our principal executive offices at 20 Glover Avenue, Norwalk, Connecticut 06850, Attention: General Counsel, or by telephone at (203) 324-7635, or our proxy solicitor, Georgeson Inc. in writing at Georgeson Inc., 17 State Street, 10th Floor, New York, NY 10004, or by telephone at (212) 440-9800 (for banks and brokers) and (866) 577-4994 (for all others).

 

The reports, opinions or appraisals referenced in this proxy statement and filed as exhibits to the Schedule 13E-3 by Vertrue concurrently with this proxy statement will be made available for inspection and copying at the principal executive offices of Vertrue during its regular business hours by any interested holder of shares of the Common Stock.

 

This discussion of the Merger is qualified by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

 

Vertrue regularly reviews and evaluates its business strategy and strategic alternatives with the goal of enhancing stockholder value. As part of these reviews and evaluations, Vertrue’s Board of Directors and management on various occasions received advice from Jefferies Broadview, one of its financial advisors.

 

During the last quarter of calendar year 2005, Vertrue’s management received an unsolicited inbound inquiry from a private equity investor regarding a potential going-private transaction involving Vertrue. After deliberate consideration, Vertrue’s management (including Gary A. Johnson) met with representatives of this private equity investor to determine whether or not such inquiry was bona fide such that it merited the attention of the Board of Directors. At a meeting of Vertrue’s Board of Directors on May 11, 2006, Vertrue’s management informed the full board of this unsolicited inbound inquiry, and the Board of Directors engaged in extensive discussions regarding this inquiry and authorized management to continue discussions with this private equity investor. This investor did not formally propose a transaction.

 

Subsequently, several directors along with certain members of Vertrue’s management (including Gary A. Johnson) discussed with Jefferies Broadview the potential benefits of a managed sale process involving a group of potential bidders to elicit the best offer for a transaction involving Vertrue. Soon after such discussion, the Board of Directors instructed Vertrue’s management, with the assistance of Jefferies Broadview, to conduct a focused market check to assess broader interest in Vertrue.

 

From September 8 through the first two weeks of October 2006, Vertrue’s management, with the assistance of Jefferies Broadview, prepared due diligence materials to be made available to potential bidders in the focused market check. Jefferies Broadview also identified potential bidders and discussed their relative merits with Vertrue’s management.

 

On October 13, 2006, at a meeting of the Board of Directors, after discussing with representatives of Jefferies Broadview its assessment of the potential bidders for Vertrue, the Board of Directors authorized Jefferies Broadview to approach a mutually agreed upon group of financial buyers and to confirm and qualify any inbound indications of interest received by Vertrue. The initial focus of this effort was limited to financial buyers due to concerns about the detrimental effects on Vertrue of a sale process (especially an unsuccessful one) that involved strategic buyers. For example, Vertrue was concerned that the information provided to bidders would include confidential, proprietary strategies, the disclosure of which to strategic buyers could have a negative impact on Vertrue’s competitive position vis-à-vis such strategic buyer, as well as the increased likelihood of information leakage about Vertrue and the sale process if strategic buyers were included in the sale process at this stage and the negative effect that such leakage could potentially have on its business and its relationships with business partners, customers and employees.

 

From October 16 through November 17, 2006, Jefferies Broadview approached, on behalf of the Board of Directors, 12 financial buyers with respect to a transaction involving Vertrue. During such time, Vertrue also received four additional unsolicited indications of interest from financial buyers. Fifteen out of such 16 parties executed confidentiality agreements with Vertrue during this period in order to conduct initial due diligence, and initial management meetings were held with eight of such potential bidders.

 

At a November 17, 2006 board meeting, the Board of Directors received an update from Jefferies Broadview on the soliciting process. After extensive discussions, the Board of Directors concluded that there was sufficient interest from financial buyers to support the continuation of a sale process and, for the reasons noted above, to continue at this stage limiting the solicitation to financial, as opposed to strategic, buyers. For a variety of reasons, including the potential conflicts of interest that could result from the fact that (i) the initial sale effort was focused on financial buyers, many of which would be interested in having Vertrue’s management invest in the transaction and remain after a sale of Vertrue, and (ii) one of the members of the Board of Directors, Alec L. Ellison, was the

President of Jefferies Broadview, which would benefit from a sale of Vertrue, the Board of Directors, in order to facilitate the process, determined to establish a Special Committee consisting of all five of the independent, disinterested directors to assume control over, and conduct, the sale process going forward.

 

Shortly after that meeting, the five independent, disinterested directors met with representatives of FTN and Sullivan & Cromwell LLP (“S&C”) to discuss the role of the independent directors in the sale process and FTN’s and S&C’s potential engagements as independent advisors to the Special Committee. After further discussion, the independent directors determined to engage FTN as its independent financial advisor and S&C as its independent legal advisor on the basis of, among other things, (i) their internationally recognized reputation and experience in merger and acquisition transactions and (ii) the independent directors’ belief, based on the lack of prior dealings between Vertrue and such advisors, that FTN and S&C were each independent of Vertrue.

 

At a meeting held on December 15, 2006, the Board of Directors formally appointed the Special Committee consisting of all five independent, disinterested directors: Joseph E. Heid, Robert Kamerschen (as Chairman), Michael T. McClorey, Edward M. Stern and Marc S. Tesler (who, as noted previously, had already met separately with respect to the retention of independent advisors). The Board of Directors delegated to the Special Committee the full power and authority to, among other things, (i) review, evaluate and, if appropriate, negotiate a possible sale of Vertrue and any other strategic alternatives, as appropriate, (ii) reject or recommend to the Board of Directors a proposed transaction to sell Vertrue or any other strategic alternatives and (iii) retain, at Vertrue’s expense, its own independent legal, financial or other advisors.

 

Promptly after the full board meeting on the same date, the Special Committee held a meeting, during which the Special Committee members reviewed their mandate and ratified the engagements of FTN as the Special Committee’s independent financial advisor and S&C as its independent legal advisor. Representatives of S&C reviewed with the Special Committee its fiduciary duties generally and specifically in the context of a going-private transaction. Also at the meeting, the Special Committee reviewed with representatives of FTN the performance of the Common Stock and the merits of various strategic alternatives available to Vertrue (including a sale of certain of Vertrue’s assets and/or businesses, a leveraged stock repurchase and a sale of Vertrue) relative to stand-alone alternatives. Based on its financial analyses, representatives of FTN noted that, as a general matter, the Common Stock had historically been traded at a lower price/earnings multiple relative to its peer groups of online and offline marketing companies, as well as membership-based companies. Representatives of FTN attributed these findings to a number of factors, including the fact that Vertrue was essentially a collection of somewhat disparate assets that was not easily understood by the market, Vertrue’s historical earnings growth rate was not as high as those of its peers and the relatively low liquidity of the Common Stock due in part to the fact that a majority of shares of the Common Stock was concentrated in the hands of a few institutional investors and Vertrue’s management. This complexity of business lines, together with Vertrue’s relative small size and float, were likely reasons that the Common Stock was not followed closely by the research community. All of these factors limited the potential upside of the trading price of the Common Stock. The Special Committee considered and agreed with FTN’s analyses that the Common Stock was not fully valued by the market.

 

The Special Committee examined financial analyses relating to, and conducted extensive discussions with representatives of FTN regarding, potential strategic alternatives, including (i) a leveraged share repurchase, pursuant to which Vertrue would borrow money to repurchase the Common Stock; (ii) a leveraged dividend payment pursuant to which Vertrue would borrow money to pay a special one-time dividend to all stockholders; (iii) a strategic acquisition; and (iv) the sale of certain businesses or assets of Vertrue. After discussions with representatives of FTN regarding these potential strategic alternatives, the Special Committee determined, taking into account FTN’s financial analyses, that Vertrue should continue its efforts to pursue a potential sale transaction, as this remained Vertrue’s most attractive strategic alternative to maximize stockholder value for Vertrue’s unaffiliated stockholders.

 

The Special Committee determined not to proceed with a leveraged repurchase or dividend, as such alternatives would increase significantly the amount of Vertrue’s indebtedness, which FTN advised the Special Committee may reduce Vertrue’s price to earnings multiple. In addition, the Special Committee noted the inherent risks and uncertainties in achieving management’s forecasts and the increased significance of not achieving forecasts in the context of a highly leveraged company. In the case of the leveraged repurchase alternative, the

Special Committee also considered FTN’s view that a large share repurchase may result in additional low liquidity challenges for Vertrue and may result in even less analyst coverage and institutional investor interest.

 

The Special Committee also determined that a potential sale of certain businesses or assets of Vertrue would not be in the best interests of Vertrue’s unaffiliated stockholders. The Special Committee considered the challenges associated with operating as a smaller business with a potential resultant lower level of institutional investor interest. The Special Committee also expressed concerns as to whether any such sale proceeds could be effectively deployed as well as the difficulty of finding a buyer for the businesses and, accordingly, concluded that selling such businesses at this time was not in the best interests of the unaffiliated stockholders.

 

The Special Committee also determined not to proceed with a strategic acquisition as an alternative due to the risks associated with finding the right acquisition target and the uncertainty of a successful integration. In addition, Vertrue’s track-record with past acquisitions did not lead the Special Committee to believe that a strategic acquisition was likely to produce superior results for Vertrue or its unaffiliated stockholders than the Merger.

 

Further, the Special Committee determined not to approach strategic buyers at this early stage of the sale process due to various considerations, including (i) the concern that the information provided to bidders would include confidential, proprietary strategies, the disclosure of which to strategic buyers could have a negative impact on Vertrue’s competitive position vis-à-vis such strategic buyers, (ii) the increased likelihood of information leakage about Vertrue and the sale process if strategic buyers were included in the sale process at this stage and the effect that such leakage could potentially have on its business as well as its relationships with business partners, customers and employees, and (iii) the Special Committee’s belief, after its discussion with representatives of FTN, that there would not be much serious interest from strategic buyers in pursuing a transaction with Vertrue. However, the Special Committee determined to re-evaluate this question in January 2007, in light of then current developments in the sale process. In addition, the Special Committee determined that Jefferies Broadview should continue to play a role in the sale process because of the value of the relationships that it had developed with various financial buyers so long as the Special Committee and its advisors remained in control of, and directed, the sale process.

 

From October 15 through December 31, 2006, representatives of Jefferies Broadview, on the instructions of the Board of Directors (before the Special Committee was established) and on the instructions of the Special Committee (after the Special Committee was established), had discussions relating to a potential going-private transaction with 36 financial buyers (including the 12 financial buyers noted above that were approached between October 16 and November 17, 2006). Thirty-two out of the 36 financial buyers entered into confidentiality agreements with Vertrue to facilitate diligence and an assessment of a possible transaction. From November 1 through December 31, 2006, representatives of Jefferies Broadview, at the instruction of the Board of Directors (before the Special Committee was established) and at the instruction of the Special Committee (after the Special Committee was established) on the basis of discussions with FTN and Jefferies Broadview with respect to the relative merits of such potential buyers and their relative interest, held introductory meetings and/or participated in discussions with 20 of the 32 financial buyers who had entered into confidentiality agreements, of which seven (including OEP) expressed initial indications of interest at a value greater than $47.50 per share. Over the course of the following weeks, representatives of Jefferies Broadview held several follow-up meetings with these seven bidders, which were also granted access to an electronic data room containing additional business, financial and legal information. During this time period, two of such seven bidders informed Jefferies Broadview that they had determined not to continue in the sale process.

 

On January 5, 2007, the Special Committee met with its advisors as well as with Jefferies Broadview to review recent developments in the sale process. After such review, representatives of Jefferies Broadview were excused from the meeting. The Special Committee then reviewed again with its advisors other strategic alternatives, including a potential acquisition of another company by Vertrue and various other scenarios that contemplated a potential distribution of cash dividends by Vertrue to its stockholders. After further discussion and taking into account FTN’s financial analyses, the Special Committee determined that an acquisition by Vertrue of another company would not likely have a material positive impact on Vertrue’s growth, but the Special Committee requested that FTN update its dividend distribution analyses based on the questions asked by certain members of the Special Committee in order that the Special Committee might further consider such alternative. After further discussions,

the Special Committee concluded that it would continue the sale process, since, at this stage, it remained Vertrue’s best strategic alternative to enhance stockholder value. In that respect, the Special Committee discussed with its advisors the establishment of a bidding process that would elicit the highest reasonably attainable value for its stockholders.

 

On January 8, 2007, OEP submitted an initial indication of interest at $50.00 per share to acquire Vertrue.

 

On January 9, 2007, FTN and Jefferies Broadview, at the instruction of the Special Committee, distributed a letter prepared by S&C that outlined the bidding process to the five bidders (including OEP) that remained interested after conducting preliminary due diligence. The letter set February 2, 2007 as the deadline by which such bidders would be required to submit a firm bid for Vertrue.

 

On January 19, 2007, the Special Committee met with its legal and financial advisors as well as with representatives of Jefferies Broadview to review the status of the bidding process. After such review, representatives of Jefferies Broadview were excused, and representatives of S&C reviewed with the Special Committee its fiduciary duties and the material terms of the proposed draft merger agreement to be provided to the bidders. The Special Committee and its advisors then discussed whether strategic buyers should be contacted at this stage of the process. After extensive discussions, the Special Committee again determined not to pursue strategic buyers at this point in the process, taking into account the same considerations noted previously, as well as (i) input from representatives of FTN and Jefferies Broadview, indicating that they believed there would not likely be serious interest from third-party strategic buyers and (ii) the Special Committee’s determination, after discussions with the representatives of S&C, that the draft merger agreement would include a “go-shop” provision to permit the Special Committee to actively solicit interest from strategic buyers after an agreement with a financial buyer was in place. A few days later, at the instruction of the Special Committee, S&C distributed a draft merger agreement and related limited guaranty to the five remaining interested bidders, to which the bidding process letter was sent.

 

Throughout January 2007, the Special Committee’s advisors and Jefferies Broadview managed and facilitated the five bidders’ due diligence review of Vertrue, which included discussions and meetings with Vertrue’s management. On January 24, 2007, The New York Post published an article speculating that Vertrue was for sale. Also on January 24, 2007, Vertrue announced its earnings for the second quarter of fiscal year 2007. The results for the second quarter ended December 31, 2006 announced on January 24, 2007 met or exceeded the guidance provided by Vertrue’s management in the October 31, 2006 press release for most of the financial metrics with the exception of free cash flow which was below the low end of Vertrue’s guidance. The trading price of the Common Stock increased from $40.12 per share to $46.79 per share in the five days following January 24, 2007.

 

Shortly after publication of The New York Post article speculating that Vertrue was for sale, Jefferies Broadview was contacted by two strategic buyers, each of which inquired whether Vertrue was for sale. Jefferies Broadview informed each of these two parties that Vertrue would review any offers that it would receive, but neither of these two parties made any further inquiries or submitted an offer.

 

By the end of February 2, 2007, the bidding deadline, the Special Committee received only one bid, which was a $48.00 per share bid from OEP conditioned upon, among other things, Vertrue entering into an exclusivity agreement with OEP. Two bidders informed Jefferies Broadview that they had determined not to continue in the sale process. On February 2, 2007, representatives of Jefferies Broadview, at the instruction of the Special Committee, contacted the other two bidders that remained in the sale process to inquire as to the status of their potential bids. These two bidders indicated that they were still considering whether or not to submit a bid and would make a final determination during the week of February 5, 2007.

 

On February 7, 2007, the Special Committee met with its advisors and Jefferies Broadview to discuss the terms of the OEP offer, including why OEP’s offer price of $48.00 per share was lower than its preliminary indication of $50.00 per share. Jefferies Broadview informed the Special Committee that it had spoken to OEP and the price difference was due to concerns OEP uncovered during due diligence, including higher-than-expected earn-out payments related to Vertrue’s prior acquisitions, including My Choice Medical (a subsidiary of Vertrue). The Special Committee also discussed with its advisors and Jefferies Broadview OEP’s request for a period of exclusivity. Given that the other two bidders had informed Jefferies Broadview that they might submit a bid during the week of February 5, 2007, the Special Committee determined that it would be preferable to wait to review the contents of any such bids before making a determination regarding the requested period of exclusivity. Accordingly,

the Special Committee determined to hold another meeting during the week of February 12, 2007 to review any such further bids that might have been received by that time and to further discuss the exclusivity issue. The Special Committee also instructed its advisors to, in the meantime, negotiate with OEP to obtain a price increase in exchange for a short-term exclusivity agreement. At or around midnight of February 8, 2007, OEP delivered its mark-up of the draft merger agreement, which deleted the “go-shop” provision and proposed other changes.

 

On February 9, 2007, after extensive discussions and negotiations between representatives of OEP and the Special Committee’s advisors, OEP increased its offer from $48.00 to $48.50 per share. During the week of February 5, 2007, the Special Committee received only one additional bid from one of the two bidders that Jefferies Broadview contacted on February 2, 2007, which bid did not include committed financing and was at a price significantly below OEP’s offer price.

 

On February 12, 2007, the Special Committee met with its advisors to review OEP’s increased offer in light of its mark-up of the draft merger agreement and to reconsider strategic alternatives in light of updated financial analyses prepared by FTN, which included the effect of the earn-out payments with regard to Vertrue’s acquisition of My Choice Medical and updated dividend distribution analyses. After an extensive discussion with representatives of FTN about its revised financial analyses, the Special Committee confirmed its prior determination that neither sales of certain businesses of Vertrue, distributions of dividends to stockholders nor an acquisition of another company would likely have any material positive impact on Vertrue’s growth and that a leveraged repurchase of the Common Stock would be too risky because of the assumption of a significant amount of debt and further reduction of the Common Stock’s liquidity. The Special Committee once again determined that the best way to maximize stockholder value would be to continue to pursue a sale of Vertrue. The Special Committee then discussed with representatives of S&C OEP’s proposed material changes to the draft merger agreement, including the proposed deletion of the “go-shop” provision, and with representatives of FTN its financial analyses of OEP’s offer price. After further discussion, the Special Committee concluded, taking into account FTN’s financial analyses, that OEP’s offer price of $48.50 per share was within an acceptable price range and therefore, if OEP were to agree to a “go-shop” provision in the merger agreement, then it would be in the best interest of Vertrue and its stockholders to execute a limited exclusivity agreement. Accordingly, the Special Committee authorized its advisors to initiate negotiations with OEP on the terms of a “go-shop” provision and an exclusivity agreement. During the course of February 12 and February 13, 2007, the Special Committee’s advisors and OEP’s advisors negotiated the “go-shop” provision.

 

On February 13, 2007, the Special Committee met with its advisors to discuss OEP’s “go-shop” proposal that would permit the Special Committee to actively solicit up to eight strategic buyers for a period of 25 days after the signing of a merger agreement, noting that this had been negotiated upward from an initial OEP proposed limit of five strategic buyers over a period of 15 days. In light of the fact that OEP’s offer was the highest offer that the Special Committee had received, and the fact that OEP had agreed to a limited “go-shop” provision, the Special Committee determined to execute an exclusivity agreement with OEP, which could be terminated at the Special Committee’s option at any time after February 28, 2007, and permit OEP and its advisors to conduct additional due diligence on Vertrue. On February 16, 2007, Vertrue and OEP entered into the exclusivity agreement.

 

From February 13, 2007 until the signing of the Merger Agreement on March 22, 2007, OEP and its advisors conducted further due diligence on Vertrue. Also during this time, OEP and Dechert LLP, OEP’s legal advisor, negotiated the terms of the draft merger agreement, limited guaranty and other related documents with the Special Committee and S&C.

 

On February 23, 2007, the Special Committee reviewed with its advisors recent developments in the sale process and OEP’s request to extend the term of the exclusivity agreement due to the longer-than-expected due diligence process. After further discussion, the Special Committee determined that it was appropriate to extend the term of the exclusivity agreement from February 28 to March 7, 2007 for various reasons, including that significant progress had been made on negotiating the terms of the draft merger agreement, and that the Special Committee had not received any other offers.

 

On March 4, 2007, the Special Committee discussed with its advisors the status of negotiations with OEP. After reviewing the status of the draft merger agreement and the significant progress that had been made, the Special Committee authorized Gary A. Johnson to negotiate with OEP the proposed terms of his equity rollover and post-transaction employment (which the Special Committee had previously prohibited him from discussing with OEP).

In addition, no member of senior management, other than Gary A. Johnson, engaged in any discussions with the Parent/Sponsors regarding the possibility of investing in the Parent prior to the signing of the Merger Agreement. (Subsequent to the signing of the Merger Agreement, Gary A. Johnson has initiated preliminary discussions regarding the opportunity to invest in Parent with two other members of senior management, Jay T. Sung and Gerald A. Powell, but the terms and conditions of any such investment have not yet been determined. Further, it is anticipated that prior to the consummation of the Merger, discussions will be held with all other members of senior management regarding the opportunity to invest in Parent.) Thereafter and through March 21, 2007, OEP and their legal counsel, and Gary A. Johnson and his legal counsel, Morgan, Lewis & Bockius LLP, negotiated the terms of Gary A. Johnson’s equity rollover, voting commitment, employment terms, equity incentive, severance and continuing representation on the board of directors of the Surviving Corporation.

 

At a Special Committee meeting on March 5, 2007, the Special Committee discussed with its advisors preliminary steps of soliciting strategic buyers during the “go-shop” period. The Special Committee also discussed negotiation strategies after representatives of S&C reviewed the material terms of the draft merger agreement and other outstanding issues, including in particular the details of the “go-shop” provision. In addition, noting the importance of the “go-shop” to ensure effective solicitation of strategic buyers, the Special Committee determined to amend the FTN engagement letter to provide FTN with a financial incentive to solicit higher bids during the “go-shop” period after the merger agreement was executed.

 

During the week of March 12, 2007, OEP informed the Special Committee’s advisors that it was in the process of forming a consortium for purposes of effecting the proposed acquisition of Vertrue. The consortium consists of OEP, Oak Investment Partners and Rho Ventures (which we refer to collectively as the “Sponsors”).

 

From February 22 through March 20, 2007, the Special Committee also negotiated with OEP (and then the Sponsors after the consortium was formed) limited guaranties to be entered into by the Sponsors in connection with the merger agreement. Under such limited guaranties, the Sponsors would guarantee the payment of the termination fee payable by Parent and Merger Sub under the merger agreement in certain circumstances.

 

On March 20, 2007, at a meeting of the Special Committee, the Special Committee reviewed with its advisors the Sponsors’ final financing package and the outstanding issues of the draft merger agreement, including (i) the Sponsors’ request that its transaction expenses be paid by Vertrue in the event that Vertrue’s stockholders fail to adopt the merger agreement and (ii) certain matters relating to the “go-shop” provision. At the meeting, representatives of S&C also reviewed with the Special Committee its fiduciary duties and recent Delaware law developments in going-private transactions. Following further discussion on these matters, the Special Committee provided guidance to its Chairman, Robert Kamerschen, FTN and S&C on how to respond to these issues, and, in particular, instructed them to seek a reduction of the termination fee payable during the “go-shop” period in order to further facilitate the Special Committee’s efforts to solicit acquisition proposals from strategic buyers during the “go-shop” period.

 

During the course of March 20, 2007, the parties and their respective advisors negotiated the remaining outstanding terms of the draft merger agreement. The Sponsors agreed to reduce the termination fee payable during the “go-shop” period from $22.5 million to $17.5 million and remove any limitation on the number of strategic buyers that the Special Committee could actively solicit during the “go-shop” period, and in return the Special Committee agreed to cause Vertrue to pay the expenses of the Sponsors, subject to a $4 million cap, following a termination of the merger agreement if Vertrue’s stockholders fail to adopt the merger agreement.

 

A joint meeting of the Special Committee and the full Board of Directors was held on March 21, 2007. At the meeting, a representative of Jefferies Broadview stated that it had delivered its written opinion on March 20, 2007 and confirmed at the meeting that, as of the date of such opinion and based upon and subject to the assumptions, limitations, qualifications and factors contained in its opinion, the Merger Consideration was fair, from a financial point of view, to the stockholders of Vertrue (other than Parent, Merger Sub and their respective affiliates). Representatives of Jefferies Broadview were then excused. The representatives of FTN then rendered to the Special Committee its oral opinion, which was subsequently confirmed in writing, to the effect that, as of the date of such opinion and based upon and subject to the assumptions, limitations, qualifications and other matters described in its opinion, the Merger Consideration was fair, from a financial point of view, to the holders of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares). Representatives of S&C reviewed with the

Special Committee and the full Board of Directors their fiduciary duties and the material changes to the draft merger agreement and the limited guaranties since the last time they reviewed the drafts of such documents. In addition, Gary A. Johnson summarized the material terms of his arrangements with the Sponsors, including that he would agree to vote his shares of the Common Stock for the adoption of the merger agreement pursuant to an agreement that he would enter into with the Sponsors. After considering the proposed terms of the merger agreement and other transaction documents and the various presentations of its legal and financial advisors, the Special Committee unanimously resolved to recommend that the Board of Directors approve and declare advisable the merger agreement and the Merger and that the Board of Directors resolve to recommend that Vertrue’s stockholders adopt the merger agreement. Following further discussions among members of the full Board of Directors, the Board of Directors unanimously approved and declared advisable the merger agreement and the Merger and resolved to recommend that Vertrue’s stockholders adopt the merger agreement.

 

In the morning of March 22, 2007, the Special Committee was informed by its advisors that all documents were prepared to be executed, in accordance with the terms discussed and summarized previously, including the material terms of Gary A. Johnson’s agreement with the Sponsors. The Special Committee confirmed its previous recommendation.

 

On March 22, 2007, Vertrue, Parent and Merger Sub executed the Merger Agreement and issued a press release announcing the Merger and describing the “go-shop” period process prior to the opening of trading on the NASDAQ.

 

From March 22, 2007 through April 15, 2007 (the end of the “go-shop” period), under the supervision of the Special Committee, representatives of FTN contacted 20 potential strategic buyers, including marketing companies (online and offline), Internet companies, advertising agencies and publishing and media companies that they believed, and the Special Committee agreed, based on size and business interests, would be capable of, and might be interested in, making an acquisition proposal for Vertrue. Such 20 potential strategic buyers included the two strategic buyers that contacted Jefferies Broadview shortly after publication of The New York Post article as noted above. During the “go-shop” process, Vertrue did not receive any proposal that could reasonably be expected to result in a proposal superior to the Merger Agreement, enter into any confidentiality agreement or receive any indication of interest.

 

On May 9, 2007, a putative stockholder class action lawsuit related to the Merger Agreement was filed by two purported stockholders of Vertrue in the Court of Chancery in and for New Castle County in the State of Delaware against Vertrue, its directors, and the Sponsors. The lawsuit, captioned Berg v. Ellison, et al. (Case No. 2949), alleges, among other things, that the price agreed to in the Merger Agreement was inadequate and unfair to the Vertrue stockholders and that the defendants breached their duties to the stockholders and/or aided breaches of duty by other defendants in negotiating and approving the Merger Agreement. The complaint alleges claims for breach of fiduciary duty and seeks injunctive, declaratory and other equitable relief. Vertrue believes that this complaint is without merit.

 

The Special Committee

 

The Special Committee, acting with the advice and assistance of its independent legal and financial advisors, evaluated and negotiated the Merger proposal, including the terms and conditions of the Merger Agreement, with Parent and Merger Sub. The Special Committee unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of Vertrue and our unaffiliated stockholders and recommended to our Board of Directors that (i) the Board of Directors approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, and (ii) the Board of Directors recommend the adoption by our stockholders of the Merger Agreement.

 

In the course of reaching its determination, the Special Committee considered the following substantive factors and potential benefits of the Merger, each of which the Special Committee believed supported its decision but which are not listed in any relative order of importance:

 

 

 

 

 

 

 

 

 

In addition, the Special Committee believed that sufficient procedural safeguards were and are present to ensure the fairness of the Merger and to permit the Special Committee to represent effectively the interests of the unaffiliated stockholders without retaining an unaffiliated representative to act solely on behalf of the unaffiliated stockholders. The Special Committee considered a number of factors relating to these procedural safeguards, including those discussed below, each of which it believed supported its decision (but which are not listed in any relative order of importance) and provided assurance of the fairness of the Merger to the unaffiliated stockholders:

 

 

 

 

 

In light of the procedural safeguards discussed above, the Special Committee did not consider it necessary to explicitly require adoption of the Merger Agreement by at least a majority of unaffiliated stockholders. In that regard, stockholders should note that as of       , 2007, the record date, our CEO, Gary A. Johnson held and is entitled to vote, in the aggregate, approximately     % of the outstanding shares of the Common Stock.

 

The Special Committee also considered a variety of risks and other potentially negative factors concerning the Merger Agreement and the Merger, including the following:

 

 

In the course of reaching its decision to approve the Merger Agreement, the Special Committee did not consider the liquidation value of Vertrue’s assets because it considers Vertrue to be a viable going concern business and views the trading history of the Common Stock as an indication of its value as such. The Special Committee did consider the disposition of particular assets of Vertrue and determined, taking into account the analyses performed by FTN and Jefferies Broadview, that the divestiture of such assets was unlikely to enhance the value of Vertrue. Having considered the absence of significant advantages to disposing of particular assets, the Special Committee did not consider it necessary to pursue an analysis of Vertrue’s liquidation value. The Special Committee did not consider net book value, which is an accounting concept, as a factor because it believed that net book value is not a material indicator of the value of Vertrue as a going concern but rather is indicative of historical costs. Vertrue’s net book value per share as of March 31, 2007 was $0.59. This value is substantially below the $48.50 per share cash Merger Consideration.

 

The Special Committee’s consideration of the factors described above reflects its assessment of the fairness of the Merger to Vertrue’s unaffiliated stockholders in relation to the going concern value of Vertrue on a stand-alone basis. The Special Committee considered the going concern value of Vertrue in making its determination regarding fairness. To measure Vertrue’s going concern value, the Special Committee considered the analyses of discounted cash flow with respect to Vertrue (based on the projected financial information provided to FTN and Jefferies Broadview by the management of Vertrue) as well as a comparison of certain stock market data for selected publicly traded companies to similar information for Vertrue, each contained in the presentations provided by FTN and Jefferies Broadview. The Special Committee considered the analyses and the opinion of each of FTN and Jefferies Broadview, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the Merger Agreement and has adopted the analyses of FTN and Jefferies Broadview.

 

Summaries of the separate FTN and Jefferies Broadview presentations provided to the Special Committee are set forth in “Special Factors — Opinions of Financial Advisors” beginning on page 29.

 

The foregoing discussion summarizes the material factors considered by the Special Committee in its consideration of the Merger. After considering these factors, the Special Committee concluded that the positive factors relating to the Merger Agreement and the Merger outweighed the potential negative factors. In view of the wide variety of factors considered by the Special Committee, and the complexity of these matters, the Special Committee did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the Special Committee may have assigned different weights to various factors. The Special Committee approved and recommended the Merger Agreement and the Merger based upon the totality of the information presented to and considered by it.

 

Our Board of Directors

 

Our Board of Directors, following receipt of the unanimous recommendation of the Special Committee, at a meeting described above on March 21, 2007, unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of Vertrue and our unaffiliated stockholders; (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and (iii) recommended the adoption by our stockholders of the Merger Agreement. As Gary A. Johnson is the only director who is an employee of Vertrue, this approval of the Merger Agreement and the Merger by our Board of Directors constitutes the approval by a majority of our directors who are not employees of Vertrue. In reaching these determinations, our Board of Directors considered (i) the fact that the Special Committee received opinions delivered by FTN and Jefferies as to the fairness, as of the date of such opinions, and based upon and subject to the various factors, assumptions, qualifications and limitations set out therein, from a financial point of view, to our unaffiliated stockholders of the Merger Consideration to be received by such holders in the Merger, (ii) one of the members of the Board of Directors, Alec L. Ellison, is the President of Jefferies Broadview, financial advisor to Vertrue, which will be entitled to a fee in connection with the Merger, and (iii) the unanimous recommendation and analysis of the Special Committee, as described above, and adopted such recommendation and analysis in reaching its determinations.

 

The foregoing discussion summarizes the material factors considered by our Board of Directors in its consideration of the Merger. In view of the wide variety of factors considered by our Board of Directors, and the complexity of these matters, our Board of Directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of our Board of Directors may have assigned different weights to various factors. Our Board of Directors approved and recommends the Merger Agreement and the Merger based upon the totality of the information presented to and considered by it.

 

Our Board of Directors recommends that you vote “FOR” the adoption of the Merger Agreement.

 

  Schedule 13D filed by Brencourt Advisors, LLC

 

On May 18, 2007, Brencourt Advisors LLC filed a statement on Schedule 13D (which it amended on May 23, 2007 and which we refer to, as amended, as the Brencourt statement) with the SEC. In an exhibit to the Brencourt statement, Brencourt expressed its position that the merger consideration is too low and suggested that the Board pursue an alternative value-enhancing transaction, in particular, a leveraged recapitalization of Vertrue. The Special Committee and the Board previously examined, with the assistance of FTN, a wide range of potential alternative value enhancing transactions, including a leveraged recapitalization of Vertrue, and concluded that the Merger is the best alternative for Vertrue. See “— Background of the Merger” beginning on page 18 and “— Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger” beginning on page 24. The Board and the Special Committee have considered the position set forth in the Brencourt statement and for the reasons set forth in this proxy statement, have rejected the Brencourt analysis and continue to believe, as of the date of this proxy statement, that the Merger Consideration is fair to and that the Merger is the best alternative for Vertrue and its unaffiliated stockholders.

 

The Brencourt statement focused on certain specific assumptions underlying the analyses of Jefferies Broadview, but did not point to any incorrect calculations or fundamental errors. Furthermore, Brencourt’s

analysis has flaws: for example, (i) Brencourt suggests that Jefferies Broadview should have used a lower WACC in calculating discounted cash flows, but Jefferies Broadview calculated its WACC using assumptions provided by Ibbotson Associates, a widely accepted authority for such calculations, and FTN, which did in fact use a lower WACC, nevertheless derived illustrative equity values per share inclusive of the Merger Consideration, (ii) Brencourt suggests that Jefferies Broadview’s analysis is based on a single discount rate when in fact Jefferies Broadview used a range of discount rates in their analyses, (iii) Brencourt suggests that Jefferies Broadview should have based its implied EBITDA multiple for the Merger on projections or adjusted EBITDA (in order to adjust for increased market spend in the first half of 2007) as opposed to actual trailing twelve month results, while in fact Jefferies Broadview and FTN each did consider and present to the Board the implied EBITDA multiple for the Merger based on each of actual results and projected EBITDA (see pages 31 and 41), and (iv) Brencourt used only selective aspects of the Affinion transaction to support its view that alternative transactions would increase shareholder value more than the Merger.

 

Finally, the Special Committee, in arriving at its recommendation, considered a wide range of factors in addition to the analyses and opinions presented by Jefferies Broadview and FTN. For example, the Special Committee considered the industry risks of remaining as a stand-alone company, which include the high amount of regulation and increased propensity for lawsuits in the Company’s Direct Response Marketing business and other businesses (such as litigation involving the company in Iowa and recent litigation by sixteen state attorneys general against a national bank and Trilegiant Corp. (a competitor of Vertrue now known as Affinion Group)) concerning direct mail practices and the risk of future legislation such as “do not call list” legislation that restricts or imposes penalties upon our business. The Special Committee also noted that the market response to the proposed merger, both in the public markets and in the context of Vertrue’s six month auction process involving 32 potential financial sponsors and over 20 potential strategic bidders (but which resulted in only the OEP bid and one other bid for Vertrue, which was materially lower than the OEP bid) did not yield any superior offer or indicate that alternative strategies would be better for Vertrue’s stockholders. Finally, the Special Committee also considered the risk-adjusted value of the Merger (i.e., the additional value arising from the likelihood that the Merger will close) in contrast to the risks associated with remaining a stand-alone company and with other alternative strategies and concluded that the Merger is in the best interest of Vertrue and its unaffiliated stockholders.

 

For additional discussion of the Special Committee’s reasons for the Merger and consideration of alternative transactions, see “— Background of the Merger” beginning on page 18 and “— Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger” beginning on page 24.

 

Financial Opinion of FTN

 

FTN rendered an oral opinion (subsequently confirmed in writing) on March 21, 2007 to the Special Committee to the effect that, as of March 21, 2007 and based upon and subject to the factors, qualifications, limitations and assumptions set forth therein, the $48.50 in cash per share of the Common Stock to be received by the holders of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares) pursuant to the Merger Agreement was fair, from a financial point of view, to the such holders.

 

The full text of the written opinion of FTN, dated March 21, 2007, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement and incorporated into this proxy statement by reference. FTN provided its opinion for the information and assistance of the Special Committee in connection with its consideration of the Merger. The opinion of FTN is not a recommendation as to how any holder of the Common Stock should vote or act with respect to the Merger.

 

In connection with rendering its opinion and performing its related financial analyses, FTN reviewed, among other things:

 

 

 

 

FTN also held discussions with Vertrue’s management concerning the operations, business strategy, current financial performance and prospects for Vertrue and with Vertrue’s management and the Special Committee regarding their views of the strategic rationale for the Merger. In addition, FTN compared certain aspects of Vertrue’s financial performance with comparable public companies, analyzed available public information concerning other mergers and acquisitions comparable in whole or in part to the Merger, and assisted in negotiations and discussions related to the Merger among Vertrue, Parent and their respective financial and legal advisors. FTN also performed other studies, analyses and investigations and considered other financial, economic and market criteria it considered appropriate in arriving at its opinion.

 

In rendering its opinion, FTN relied, without independent verification, on the accuracy and completeness of all of the financial and other information that was publicly available or furnished to it by Vertrue or its advisors. With respect to the financial projections examined by FTN, FTN assumed, with the Special Committee’s permission, that such projections were reasonably prepared and reflect the best available estimates and good faith judgments of Vertrue’s management as to the future performance of Vertrue. FTN expressed no view with respect to such projections or the information and data or other assumptions on which they were based. FTN also assumed that, in the course of obtaining the necessary regulatory and third party approvals, consents and releases for the Merger, no modification, delay, limitation, restriction or condition would be imposed that would have a material adverse effect on the Merger and that the Merger would be consummated in accordance with applicable laws and regulations and the terms of the Merger Agreement as set forth in the March 21, 2007 draft thereof, without waiver, amendment or modification of any material term, condition or agreement. The opinion of FTN did not address the relative merits of the Merger as compared to other business strategies that may have been available to Vertrue, nor did it address the underlying business decision of Vertrue to proceed with the Merger. Further, the opinion of FTN addressed only the fairness from a financial point of view of the price per share to Vertrue stockholders as a whole, and did not address any other aspect of the Merger. FTN did not make or take into account any independent appraisal or valuation of any of Vertrue’s assets or liabilities (contingent or otherwise). FTN did not express a view as to the federal, state or local tax consequences of the Merger.

 

For purposes of its opinion, FTN assumed that Vertrue was not involved in any material transaction other than the Merger, other publicly announced transactions and those activities undertaken in the ordinary course of conducting its business. The opinion of FTN was necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of the date of its opinion, and the opinion of FTN speaks only as of the date thereof.

 

The following is a summary of the material financial analyses presented by FTN to the Special Committee in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by FTN. The order of analyses described does not represent the relative importance or weight given to those analyses by FTN. The analyses must be considered as a whole. Considering any portion of such analyses or other factors considered by FTN without considering all such analyses and factors could create a misleading or incomplete view of the process underlying the conclusions expressed herein. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary, and, alone, are not a complete description of FTN’s

financial analyses. The following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 20, 2007, and is not necessarily indicative of current market conditions.

 

Implied Transaction Multiples

 

FTN calculated selected implied transaction multiples for Vertrue based on the $48.50 to be paid for each share of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares). FTN calculated an implied equity consideration by multiplying $48.50 by the total number of outstanding shares of the Common Stock on a fully diluted basis. Equity value was calculated by using the treasury stock method and included convertible debt and outstanding options. FTN then calculated an implied enterprise value based on the implied equity consideration by adding the amount of Vertrue’s net debt, as provided by Vertrue’s management, to the implied equity consideration. Based on the foregoing, FTN calculated that the implied equity value of Vertrue amounted to $640.8 million and the implied enterprise value of Vertrue (not including a $45.3 million contingent liability recorded on December 31, 2006 in connection with the acquisition of MyChoice Medical, Inc.) amounted to $730.9 million.

 

As used in this description of FTN’s financial analyses, EBITDA means earnings before interest, taxes, depreciation and amortization. Estimates of future financial performance for Vertrue used by FTN in its analyses were based on forecasts prepared by Vertrue’s management. Based on the foregoing, FTN calculated the following transaction multiples implied by the $48.50 to be paid for each share of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares):

 

 

The following table sets forth the multiples referred to above:

 

 

Transaction Premium Analysis

 

FTN calculated the premium implied by the Merger Consideration of $48.50 per share of the Common Stock over the market price per share of the Common Stock at certain times. FTN compared the Merger Consideration of $48.50 per share with the following trading prices for the Common Stock:

 

 

 

FTN noted also that the Common Stock rose from $40.12 to $46.79 over the course of the five-day period following a news report on January 24, 2007 of a potential sale of Vertrue.

 

Applying the Merger Consideration of $48.50 per share, the results of FTN’s calculations are reflected below:

 

 

FTN also analyzed acquisition premiums for the two years prior to March 20, 2007 for all public companies, all small cap companies (those with a market capitalization of less than $1 billion) and all Internet services companies, and, for each category, the market mean and median premium percentages one day prior to announcement, one week prior to announcement and one month prior to announcement. FTN excluded deals with premiums below negative ten percent and those with premiums greater than 100% from its analysis. FTN obtained the information for the foregoing analyses from Capital IQ. The results of FTN’s analysis are summarized in the table below:

 

 

FTN also analyzed various premiums for acquisitions of public companies during the two years prior to March 20, 2007, where the premium paid was between zero and five percent from the share price of the target company one day prior to the announcement of the transaction, the target company was a U.S. company, the transaction was valued at greater than $100 million, and all of the capital stock of the target company was purchased. FTN’s analysis showed 36 transactions within such criteria, of which 23 demonstrated meaningful price appreciation (as described below) from an “undisturbed” stock price. FTN used the price at which the target company was trading prior to any public announcement or rumor of a potential transaction and/or review of strategic alternatives, whether or not substantiated. For selected transactions, the “undisturbed” stock price was based on the lowest stock price for the 30 day period prior to the announcement of the transaction. The 23 transactions ranged in transaction value from $226 million to $7,770 million. For the 23 transactions that

FTN selected, the average premium over the “undisturbed” stock price was equal to 23%, the premiums for the transaction price per share over the stock price one day prior to the announcement of the transaction ranged from 0.2% to 4.9%, and the premiums for the price per share paid over the “undisturbed” stock price ranged from 9.0% to 41.4%.

 

Discounted Cash Flow Analyses

 

FTN performed illustrative discounted cash flow sensitivity analyses to determine indications of illustrative implied equity values per share of Vertrue Common Stock based on financial information and projections provided by Vertrue’s management.

 

In performing the illustrative discounted cash flow analysis, FTN applied discount rates ranging from 12.0% to 14.0% to the projected EBITDA of Vertrue for the calendar year 2010. FTN also applied exit value EBITDA multiples ranging from 6.0x to 7.0x. This analysis was based on EBITDA of $159.1 million for the fiscal year ended June 30, 2010, based on Vertrue management’s forecasts. Based on the foregoing, FTN derived illustrative implied equity values per share ranging from $46.85 to $57.24 per share with respect to Vertrue Common Stock. The financial information provided by Vertrue’s management and used in the analysis included earn-out payments by Vertrue related to prior acquisitions of $46.6 million and $12.2 million in the fiscal years ended June 30, 2007 and June 30, 2008, respectively. The fully diluted share count used in the analysis varied based on implied value per share.

 

Using the same forecasts, FTN applied perpetual growth rates ranging from 2.0% to 4.0%. FTN also applied discount rates ranging from 12.0% to 14.0% to the projected free cash flows of Vertrue for the fiscal years ended June 30, 2007 through June 30, 2010. This analysis was based on an unlevered free cash flow of $96.7 million for the fiscal year ended June 30, 2010, based on Vertrue management’s forecasts. Based on the foregoing, FTN derived illustrative implied per share equity values ranging from $39.96 to $61.41 per share.

 

The EBITDA multiple range was selected to be consistent with the EBITDA multiples at which Vertrue traded as a public company. The growth rate range was selected as a market-standard to be consistent with long-term growth in the economy. The discount rates were generated by undertaking a weighted average cost of capital (WACC) analysis on Vertrue.

 

Leveraged Buyout Analysis

 

FTN performed an illustrative leveraged buyout sensitivity analysis using Vertrue management’s forecasts. The financial information provided by management and used in the analysis included earn-out payments by Vertrue related to prior acquisitions of $46.6 million and $12.2 million in the fiscal years ended June 30, 2007 and June 30, 2008, respectively. The fully diluted share count used in such analyses varied according to implied price per share. Estimated cost synergies were not included for purposes of this analysis.

 

FTN assumed, for purposes of this analysis, illustrative implied exit multiples of EBITDA ranging from 6.0x to 7.0x, which reflect illustrative implied purchase prices that a hypothetical financial buyer might pay for Vertrue. FTN also assumed, for purposes of this analysis, illustrative internal rates of return required by a hypothetical financial buyer upon exit ranging from 22.5% to 27.5%. This analysis resulted in illustrative implied offer prices per share of the Common Stock ranging from $46.75 to $52.53 per share.

 

Using the same forecasts, FTN also assumed illustrative leverage ratios (including senior and subordinated debt) of 4.5x to 5.5x EBITDA in a hypothetical exit transaction, and illustrative internal rates of return required by a hypothetical financial buyer ranging from 22.5% to 27.5%. This analysis resulted in illustrative implied offer prices per share of the Common Stock ranging from $48.33 to $54.44 per share.

 

Selected Companies Analysis

 

FTN calculated certain ratios and other parameters for Vertrue based on Vertrue’s valuation as of March 19, 2007 and its “undisturbed” valuation as of January 23, 2007, in each case, adjusted to a calendar year basis and based on estimates provided by Vertrue’s management, and compared it to the corresponding ratios and parameters for selected publicly traded companies in the marketing and advertising industry peer composites (online and

offline) and membership-based marketing industry peer composite. The peer composites were comprised of the following companies:

 

 

Although none of the selected companies is directly comparable to Vertrue, the companies included were chosen because they are publicly traded companies with operations that, for purposes of this analysis, may be considered similar to certain operations of Vertrue. Projected information for all peer companies was based on information from Capital IQ. In each case, the valuation of the peer group companies was as of March 19, 2007, except that Catalina Marketing Corp. was valued as of its closing price on December 17, 2006, prior to the announcement of its going-private transaction. For each company and Vertrue, FTN analyzed the EBITDA margin, earnings per share long term growth rate, or EPS LTGR, the ratio of enterprise value to revenues, the ratio of enterprise value to EBITDA, and the P/E ratio based on the calculations of Capital IQ, in each case, other than with respect to EPS LTGR, for the fiscal years ended 2006, 2007 and 2008, respectively.

 

EBITDA Margin Analysis.  EBITDA margin is defined as EBITDA divided by total revenue. A higher EBITDA margin indicates higher degree of profitability, exclusive of non-cash items, and implies a higher valuation. The following table sets forth EBITDA margin analysis for Vertrue and the high and low EBITDA margins, where available, for the selected publicly traded companies in each peer composite:

 

 

Earnings Per Share Long Term Growth Rate Analysis.  The EPS LTGR for each of the peer companies was based on research analysts’ average projected long-term growth rate. A higher EPS LTGR indicates greater

profitability in the future and implies a higher valuation. The following table sets forth EPS LTGR for Vertrue and the mean and median EPS LTGF for selected publicly traded companies in each peer composite:

 

 

Enterprise Value/Revenues Ratio Analysis.  The Enterprise Value/Revenue Ratio compares a theoretical takeover price to total revenues. A higher ratio indicates higher expectations of future growth and/or profitability and implies a higher valuation. The following table summarizes the results of the enterprise value to revenues ratio (or EV/Revenue ratio) analysis for Vertrue and the mean and median EV/Revenue ratios for the selected companies in the peer composites reviewed:

 

 

Enterprise Value/EBITDA Ratio Analysis.  The Enterprise Value/EBITDA Ratio compares a theoretical takeover price to EBITDA. A higher ratio indicates higher expectations of future growth and/or profitability and

implies a higher valuation. The following table summarizes the results of the enterprise value to EBITDA ratio analysis for Vertrue and the means and medians for the selected companies in the peer composites reviewed:

 

 

P/E Ratio Analysis.  The P/E Ratio compares the price per share of common stock to the earnings per share of common stock and a higher ratio indicates higher expectations of future growth and/or profitability and implies a higher valuation. The following table summarizes the results of the Price to Earnings ratio analysis for Vertrue and the mean and median P/E Ratios for the selected companies in the peer composites reviewed:

 

 

In addition, FTN conducted a month-by-month comparison of the trailing price to earnings ratios of Vertrue and each of the three peer composite groups for the two-year period from February 2005 to February 2007. The composite group indices in the analysis were market-cap weighted, and, within the marketing and advertising industry (offline) peer composite, Valassis Communications, Inc.’s acquisition of ADVO, Inc. was considered only until the July 5, 2006 announcement of the transaction. As compared to each peer group, FTN’s trailing P/E analysis demonstrated that Vertrue’s P/E ratio was at a lower multiple than those of the three peer composite groups during the majority of the period reviewed, except that Vertrue’s P/E ratio was above the offline peer composite multiples from June 2006 through February 2007. FTN’s analysis demonstrated that the trading price of Vertrue at March 20, 2007 was not at an unnaturally low point and was consistent with the company’s historic performance.

 

Selected Transactions Analysis

 

FTN analyzed certain publicly available information relating to selected transactions involving companies in the online advertising and consumer marketing industry that were announced between July 2004 and December 2006 and the offline advertising and consumer marketing industry that were announced between July 2005 and February 2007. In the online advertising and consumer marketing industry, the transaction values ranged from

$12 million to $1,295 million and in the offline advertising and consumer marketing industry, the transaction values ranged from $46 million to $3,383 million.

 

The transactions that FTN reviewed, listed by acquirer / target (date of announcement) included:

 

Online Advertising and Consumer Marketing Industry

 

 

Offline Advertising and Consumer Marketing Industry

 

 

For each of the selected transactions, FTN calculated the ratio of transaction value as a multiple of latest twelve month revenues prior to the announcement of the transaction, or LTM Revenues, and the latest twelve months EBITDA prior to the announcement of the transaction, or LTM EBITDA. A higher ratio indicates that greater consideration was paid in the transaction relative to revenues or EBITDA respectively, and implies a higher valuation. Data regarding LTM Revenues and LTM EBITDA were based on Capital IQ, company press releases and public filings.

 

The following table shows the results of this analysis:

 

 

The transaction value of the Merger as a multiple of 2006 Revenues is 1.1x and the transaction value as a multiple of 2006 EBITDA is 8.1x. FTN also summarized certain terms of Apollo Management, L.P.’s October 2005 acquisition of the Marketing Services Division of Cendant Corporation for $1.83 billion. FTN calculated the ratio of

such acquisition’s transaction value as a multiple of LTM Revenues and LTM EBITDA, which equaled 1.2x and 5.4x, respectively.

 

Miscellaneous

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. FTN’s analyses must be considered as a whole. Considering any portion of such analyses or the factors considered, without considering all such analyses and factors, could create a misleading or incomplete view of the process underlying the conclusions expressed therein. In arriving at its fairness determination, FTN considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, FTN made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Vertrue or the Merger.

 

FTN prepared these analyses for the purpose of undertaking a study to enable FTN to render its opinion as to the fairness, from a financial point of view, to the holders of Vertrue Common Stock (other than shares held in the treasury of Vertrue and dissenting shares) of the $48.50 per share of the Common Stock to be received by such holders pursuant to the Merger Agreement. FTN’s opinion does not address the underlying business decision of Vertrue to engage in the transaction. FTN’s analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities may be sold. FTN’s analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Vertrue, FTN or any other person assumes responsibility if future results are materially different from those forecasted.

 

The $48.50 per share purchase price for Vertrue stockholders was determined through arms’-length negotiations among the Special Committee and the Sponsors and was approved by Vertrue’s Board of Directors. FTN provided advice to the Special Committee during these negotiations. FTN did not, however, recommend any specific amount of consideration to Vertrue, the Special Committee or the Board of Directors or that any specific amount of consideration constituted the only appropriate consideration for the proposed Merger.

 

As described above, FTN’s opinion to the Special Committee was one of many factors taken into consideration by the Special Committee in making its decision to recommend the Merger Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by FTN in connection with its fairness opinion and is qualified in its entirety by reference to the written opinion of FTN attached as Annex B to this proxy statement.

 

FTN Midwest Securities Corp. and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed securities and other transactions. FTN was retained by Vertrue to advise the Special Committee in connection with the Special Committee’s consideration of various strategic alternatives, including a possible sale of Vertrue. FTN participated in certain of the negotiations leading to the proposed Merger. FTN provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions in and hold securities of Vertrue or JP Morgan Chase & Co., an affiliate of Parent, for its own account and for the accounts of its customers. FTN received a fee of $1.5 million for rendering its opinion. On March 5, 2007, in order to provide FTN with a financial incentive to solicit higher bids during the “go-shop” period after the Merger, the Special Committee decided to revise the FTN engagement letter to provide FTN with an additional fee of $500,000 in the event Vertrue enters into a transaction whereby its shareholders receive consideration greater than $48.50 per share of the Common Stock. In addition, Vertrue agreed to reimburse FTN for its expenses, including attorneys’ fees and disbursements, and to indemnify FTN and related persons against various liabilities, including liabilities under federal securities laws.

 

Opinion of Jefferies Broadview

 

Jefferies Broadview was engaged to render an opinion to the Special Committee as to whether the Merger Consideration to be received by the holders of shares of Common Stock pursuant to the Merger Agreement is fair, from a financial point of view, to such holders (other than Parent, Merger Sub and their respective affiliates). On March 20, 2007, Jefferies delivered to the Special Committee its oral opinion, subsequently confirmed in writing, that, as of the date of its opinion, based upon and subject to the assumptions, limitations, qualifications and factors contained in its opinion, the Merger Consideration to be received by the holders of shares of the Common Stock pursuant to the Merger Agreement is fair, from a financial point of view, to such holders (other than Parent, Merger Sub and their respective affiliates).

 

The full text of the written opinion of Jefferies Broadview is attached to this proxy statement as Annex C and incorporated into this proxy statement by reference. We urge you to read that opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken in arriving at that opinion.

 

Jefferies Broadview’s opinion is for the use and benefit of the Special Committee in its consideration of the Merger, and Jefferies Broadview’s opinion does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to Vertrue, nor does it address the underlying business decision by Vertrue to engage in the Merger or the terms of the Merger Agreement or the documents referred to therein. Jefferies Broadview’s opinion does not constitute a recommendation as to how you or any other holder of shares of the Common Stock should vote on the Merger or any matter related thereto. In addition, Vertrue did not ask Jefferies Broadview to address, and Jefferies Broadview’s opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Vertrue, other than the holders of shares of the Common Stock. Jefferies Broadview expresses no opinion as to the price at which shares of the Common Stock would trade at any time.

 

In arriving at its opinion, Jefferies Broadview, among other things:

 

(i) reviewed a draft Merger Agreement dated March 19, 2007;

 

(ii) reviewed certain publicly available financial and other information about Vertrue;

 

(iii) reviewed certain information furnished to Jefferies Broadview by Vertrue’s management, including financial forecasts and analyses, relating to the business, operations and prospects of Vertrue;

 

(iv) held discussions with members of Vertrue’s senior management concerning the matters described in clauses (ii) and (iii) above;

 

(v) reviewed the share trading price history and valuation multiples for the Common Stock and compared them with those of certain publicly traded companies that Jefferies Broadview deemed relevant;

 

(vi) compared the proposed financial terms of the Merger with the financial terms of certain other transactions that Jefferies Broadview deemed relevant; and

 

(vii) conducted such other financial studies, analyses and investigations as Jefferies Broadview deemed appropriate.

 

In Jefferies Broadview’s review and analysis and in rendering its opinion, Jefferies Broadview assumed and relied upon, but did not independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by Vertrue or that was publicly available to Jefferies Broadview, or that was otherwise reviewed by Jefferies Broadview. In Jefferies Broadview’s review, Jefferies Broadview did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies Broadview conduct a physical inspection of any of the properties or facilities of, Vertrue, nor was Jefferies Broadview furnished with any such evaluations or appraisals of such physical inspections, nor does Jefferies Broadview have any responsibility to obtain any such evaluations or appraisals.

 

With respect to the financial forecasts provided to and examined by Jefferies Broadview, Jefferies Broadview notes that projecting future results of Vertrue is inherently subject to uncertainty. Vertrue informed

Jefferies Broadview, and Jefferies Broadview assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of Vertrue’s management as to the future financial performance of Vertrue. Jefferies Broadview expresses no opinion as to Vertrue’s financial forecasts or the assumptions on which they were made.

 

Jefferies Broadview assumed that the final form of the Merger Agreement would be substantially similar to the last draft reviewed by Jefferies Broadview. Jefferies Broadview also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Vertrue, Parent or the contemplated benefits of the Merger.

 

Jefferies Broadview’s opinion was based on economic, monetary, regulatory, market and other conditions existing and that could be evaluated as of the date of its opinion. Jefferies Broadview has no obligation to advise any person of any change in any fact or matter affecting its opinion of which Jefferies Broadview may have become aware of or of which Jefferies Broadview could become aware after the date of its opinion.

 

The following is a brief summary of the analyses performed by Jefferies Broadview in connection with its opinion. This summary is not intended to be an exhaustive description of the analyses performed by Jefferies Broadview but includes all material factors considered by Jefferies Broadview in rendering its opinion. Jefferies Broadview drew no specific conclusions from any individual analysis, but subjectively factored its observations from all of these analyses into its qualitative assessment of the Merger consideration. Each analysis performed by Jefferies Broadview is a common methodology utilized in determining valuations. Although other valuation techniques may exist, Jefferies Broadview believes that the analyses described below, when taken as a whole, provide the most appropriate analyses for Jefferies Broadview to arrive at its opinion.

 

Discounted Cash Flow Analysis

 

Jefferies Broadview examined the value of Vertrue based on projected free cash flow estimates. The free cash flow estimates were generated utilizing financial projections from July 1, 2007 through June 30, 2010 that were prepared and furnished to Jefferies Broadview by Vertrue’s management and financial projections from July 1, 2010 through June 30, 2012 that were derived by Jefferies Broadview based on certain financial assumptions provided by Vertrue’s management and then confirmed by Vertrue’s management. A range of terminal values at June 30, 2012 was determined by ascribing terminal growth rates, which ranged from 2.0% to 3.0%, to the projected free cash flow for the trailing twelve-month period (“TTM”) ending June 30, 2012. Jefferies Broadview calculated a discount rate of 16.7% based on the Capital Asset Pricing Model using the calculated median capital structure adjusted beta for three of the four public company comparables (excluding Rewards Network, Inc.), adjusting for a market risk premium of 7.8% and then adding a size premium of 2.3%. Based on a range of terminal growth rates (2.0%-3.0%) and discount rates (15.0%-18.0%), Jefferies Broadview calculated values ranging from $41.78 to $55.71 per share with a median implied equity value of $47.77 per share, calculated using a discount rate of 16.5% and a terminal growth rate of 2.5%.

 

While discounted cash flow analysis is a widely accepted and practiced valuation methodology, it relies on a number of assumptions, including growth rates and discount rates. The valuation derived from the discounted cash flow analysis is not necessarily indicative of Vertrue’s present or future value or results. Discounted cash flow analysis in isolation from other analyses is not an effective method of evaluating transactions.

 

Comparable Transaction Analysis

 

Jefferies Broadview analyzed one previous transaction that it deemed most comparable to the Merger from a business model and product portfolio perspective, Apollo Management L.P.’s acquisition of Cendant Corporation’s Marketing Services Division (now known as Affinion Group, or “Affinion”), announced July 26, 2005. Jefferies Broadview reviewed other previous direct marketing and Internet-related transactions, determined that they involved targets very different from Vertrue in terms of business model, scale and breadth of offerings and consequently did not conduct detailed analyses of such other transactions.

 

Jefferies Broadview considered certain publicly available actual financial data relating to the Affinion transaction, including the adjusted purchase price ($1.825 billion) and the seller’s actual revenue ($1.474 billion) and EBITDA ($291.8 million) for the TTM prior to the announcement of the Affinion transaction. From this information, Jefferies Broadview calculated an Affinion transaction multiple of 6.25x TTM EBITDA, calculated based on financial data of Cendant Corporation’s Marketing Services Division set forth in Affinion’s Form S-4 filed with the SEC on May 8, 2006 and adjusted for non-recurring charges and gains, which Jefferies Broadview noted implied a per Vertrue share price of $30.99.

 

The transaction utilized in the comparable transaction analysis is not identical to the Merger. In evaluating the transaction, Jefferies Broadview made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of either Vertrue or the Sponsors. Mathematical analysis of comparable transaction data in isolation from other analyses is not an effective method of evaluating transactions.

 

Comparable Public Company Analysis

 

Comparable Public Company Analysis is a method of valuing an entity relative to publicly-traded companies with similar products or services, similar operating or financial characteristics, or servicing similar customers or markets. Jefferies Broadview reviewed and compared selected financial data for four publicly traded companies chosen by Jefferies Broadview that were deemed to be comparable to Vertrue. Jefferies Broadview selected these four companies based on their participation in the comparable offline and online consumer subscription services industry and their similar revenues to Vertrue (i.e., less than $1.0 billion in revenue for the TTM ended December 31, 2006). The comparable companies chosen by Jefferies Broadview included:

 

 

For each of the comparable companies, Jefferies Broadview calculated total market capitalization as a multiple of (i) that company’s EBITDA for the TTM ended December 31, 2006, as reflected in periodic reports filed with the SEC, and (ii) that company’s projected EBITDA, to the extent available, for the year ending December 31, 2007, as set forth in selected analyst reports. TMC was calculated as equity market capitalization, plus total debt and preferred stock, less cash and cash equivalents as of December 31, 2006. Jefferies Broadview also calculated price-to-earnings (P/E) multiples for each of the comparable companies by dividing each company’s respective closing stock price on March 16, 2007 by (i) that company’s earnings per share (EPS) for the TTM ended December 31, 2006, as reflected in periodic reports filed with the SEC, and (ii) that company’s projected earnings per share, to the extent available, for the year ending December 31, 2007, as set forth in selected analyst reports.

 

Jefferies Broadview next calculated the corresponding multiples for Vertrue in the Merger on the same basis, but (i) defining equity market capitalization (for purposes of calculating TMC) as the $48.50 Merger Consideration multiplied by the sum of the number of diluted shares outstanding plus the additional shares that would be issued upon conversion of convertible notes, (ii) using the Merger Consideration instead of stock closing price, and (iii) using management projections instead of selected analyst reports for projected EBITDA and EPS for the year ending December 31, 2007.

 

The resulting multiples are set forth in the table below:

 

 

 

 

With respect to each ratio, a higher multiple implies a higher valuation. The comparable public company analyses performed by Jefferies Broadview indicated an implied Vertrue equity price per share ranging from $25.11 to $40.11 based on a 5.5 x — 7.5 x TTM EBITDA multiple (assuming $86.9 million in EBITDA) and an implied Vertrue equity price per share ranging from $40.51 to $47.74 based on a 15.0 x – 18.0 x TTM P/E multiple (assuming $34.8 million in net income). Jefferies Broadview noted that the proposed per share merger price of $48.50 per share exceeded these ranges.

 

No company utilized in the comparable public company analysis is identical to Vertrue. Jefferies Broadview made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Vertrue and the Sponsors. Mathematical analysis of comparable public companies (such as determining means and medians) in isolation from other analyses is not an effective method of evaluating transactions.

 

Premiums Paid Analysis

 

Using publicly available information, Jefferies Broadview conducted premiums paid analyses using two different sets of transactions, announced since January 1, 2005, involving North American sellers and equity consideration between $100.0 million and $2.0 billion.

 

First, Jefferies Broadview reviewed the following 12 consumer-focused digital media and marketing services transactions:

 

 

For each of the target companies involved in the 12 transactions, Jefferies Broadview examined the closing stock price one day, forty days and 60 days prior to announcement of the relevant transaction in order to calculate the mean, high, 75th percentile, median, 25th percentile, and low premiums paid by the acquiror over the target’s

closing stock price at those points in time. Jefferies Broadview then compared those premiums to the premium implied by the $48.50 Merger Consideration over Vertrue’s undisturbed stock price of $39.20 on the date 40 days prior to the announcement of the Merger. A summary of the 40-day premiums observed in this first premiums paid analysis is set forth in the table below:

 

 

Next, Jefferies Broadview reviewed the following 14 software and services going private transactions:

 

 

For each of the target companies involved in the 14 transactions, Jefferies Broadview examined the closing stock price one day, 40 days and 60 days prior to announcement of the relevant transaction in order to calculate the mean, high, 75th percentile, median, 25th percentile, and low premiums paid by the acquiror over the target’s closing stock price at those points in time. Jefferies Broadview then compared those premiums to the premium implied by the $48.50 Merger Consideration over Vertrue’s undisturbed stock price of $39.20 on the date 40 days prior to the announcement of the Merger. A summary of the 40 day premiums observed in this second premiums paid analysis is set forth in the table below:

 

Conclusion

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Jefferies Broadview considered the results of all of its analyses as a whole and, did not attribute any particular weight to any analysis or factor considered by it. Furthermore, Jefferies Broadview believes that selecting any portion of its analysis, without considering all analyses, would create an incomplete view of the process underlying its opinion. In performing its analyses, Jefferies Broadview made numerous assumptions with respect to industry performance and general business and economic conditions and other matters, many of which are beyond the control of Vertrue. The analyses performed by Jefferies Broadview are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Jefferies Broadview did not recommend any specific consideration to the Special Committee or that any specific consideration constituted the only appropriate consideration with respect to the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

Miscellaneous

 

Jefferies Broadview has, in the past, provided financial advisory and financing services to Vertrue and may continue to do so and has received, and may receive, fees for the rendering of such services. In addition, Jefferies Broadview may seek to, in the future, provide financial advisory and financing services to Vertrue, Parent or entities that are affiliated with Vertrue or Parent, for which Jefferies Broadview would expect to receive compensation. In addition, you should note that a managing director of Jefferies Broadview is also a director of Vertrue.

 

Pursuant to an engagement letter dated November 27, 2006, the Special Committee agreed to cause Vertrue to pay Jefferies Broadview a fee in connection with rendering its opinion to the Special Committee, $2 million of which was payable upon delivery of Jefferies Broadview’s opinion and approximately $6 million of which is payable contingent upon consummation of the Merger. The Special Committee also agreed to cause Vertrue to reimburse Jefferies Broadview for its expenses incurred in connection with rendering its opinion to the Special Committee and to indemnify Jefferies Broadview against liabilities arising out of or in connection with the services rendered by Jefferies Broadview in connection with rendering its opinion to the Special Committee.

 

Jefferies Broadview and their affiliates, in the ordinary course of their business, may publish research reports regarding the securities of Vertrue and its affiliates, may trade or hold such securities for their own account and the accounts of their customers and, accordingly, may at any time hold long or short positions in those securities.

 

Certain Management Financial Projections

 

Although Vertrue periodically may issue limited guidance to investors concerning its expected financial performance, Vertrue does not as a matter of course publicly disclose detailed financial projections. However, in connection with potential buyers’ review of Vertrue and in the course of the negotiations between Vertrue and potential buyers, Vertrue provided potential buyers, the Special Committee’s financial advisor, FTN, and Vertrue’s financial advisor, Jefferies Broadview, with non-public, financial projections for the years ending June 30, 2007 through June 30, 2010 prepared by Vertrue management for internal planning purposes. FTN and Jefferies Broadview used such financial projections in their financial analyses. A summary of these financial projections is set forth below.

 

Vertrue Summary Financial Projections
(all amounts are in millions and are approximate)

 

 

 

Significant assumptions underlying Vertrue’s financial projections included the following:

 

 

In addition, Jefferies Broadview used, in its financial analyses, financial projections from July 1, 2010 through June 30, 2012 that were derived by Jefferies Broadview based on certain assumptions (described immediately after the following chart) provided by Ventrue’s management and then confirmed by Vertrue’s management. A summary of these financial projections is set forth below.

 

Summary Financial Projections
(all amounts are in millions and are approximate)

 

 

 

 

Significant assumptions, provided by Vertrue’s management, underlying the financial projections from July 1, 2010 through June 30, 2012 derived by Jefferies Broadview included the following:

 

 

Such financial projections (i) were prepared or confirmed, as applicable, in good faith by Vertrue’s management on a basis consistent with the accounting principles used in Vertrue’s historical financial statements, but no assurance can be given regarding future events, and therefore such financial projections cannot be considered a reliable predictor of future operating results, and should not be relied on as such, (ii) were not prepared with a view toward public disclosure or with a view toward complying with the U.S. generally accepted accounting principles (“GAAP”), published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information and (iii) are not historical fact and should not be relied upon as being necessarily indicative of future results. It should be noted that EBITDA is not a measure of performance under GAAP, and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. Further, Vertrue management’s calculation of EBITDA may differ from that used by others. In light of the foregoing, and considering that Vertrue’s stockholders meeting will be held at least six months after the date the financial projections set forth above were prepared, as well as the uncertainties inherent in any financial projections, stockholders are cautioned not to rely on these financial projections.

 

In addition, the estimates and assumptions underlying the financial projections set forth above involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions. These estimates and assumptions may not be realized and are inherently

subject to significant business, economic, competitive and regulatory uncertainties, all of which are difficult to predict and many of which are beyond the control of Vertrue. The inclusion of these financial projections should not be interpreted as an indication that Vertrue considers this information a reliable prediction of future results, and this information should not be relied on for that purpose. These projections are not included in this document in order to induce any Vertrue stockholder to vote to adopt the Merger Agreement, or to impact any investment decision with respect to the Common Stock. See “Special Note Regarding Forward-Looking Statements” beginning on page 13.

 

The projections included in this proxy statement have been prepared by or confirmed by, as applicable, and are the responsibility of, Vertrue’s management. PricewaterhouseCoopers, LLP, Vertrue’s independent registered public accounting firm, has not examined or compiled any of the projections, and accordingly, PricewaterhouseCoopers LLP does not express an opinion or any form of assurance with respect thereto. The PricewaterhouseCoopers LLP report incorporated by reference in this proxy statement relates to Vertrue’s historical financial information. It does not extend to the projections and should not be read to do so.

 

VERTRUE HAS NOT UPDATED AND DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THESE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR PREPARATION OR TO REFLECT THE OCCURRENCE OF SUBSEQUENT EVENTS EVEN IN THE EVENT THAT ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE NO LONGER APPROPRIATE.

 

Under the rules governing “going private” transactions, Gary A. Johnson is deemed to be engaged in a “going private” transaction and is required to express his reasons for the Merger to our unaffiliated stockholders. Gary A. Johnson is making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

 

The purpose of the Merger for Gary A. Johnson is to immediately realize in cash the value of a portion of his holdings in Vertrue and, through his rollover equity commitment, to benefit from any future earnings and growth of Vertrue after its stock ceases to be publicly traded. Gary A. Johnson believes that public company status imposes a number of limitations on Vertrue, including restraints associated with meeting the expectations of market analysts and the costs of being a publicly traded company. Accordingly, one of the purposes of the Merger for Gary A. Johnson is to afford Vertrue greater operating flexibility, allowing management to concentrate on long-term growth and to reduce managements focus on the quarter to quarter performance often emphasized by the public markets.

 

Purpose and Reasons for the Merger of Parent, Merger Sub and the Sponsors

 

For Parent and Merger Sub, the purpose of the Merger is to effectuate the transactions contemplated by the Merger Agreement. For the Sponsors, the purpose of the Merger is to allow them, along with the management investors, to own the equity interests in Vertrue and to bear the rewards and risks of such ownership after shares of the Common Stock cease to be publicly traded.

 

Parent, Merger Sub and the Sponsors believe that it is best for Vertrue to operate as a privately held entity. As a privately held entity, Vertrue will have the flexibility to focus on continuing improvements to its business without the constraints and distractions caused by the public equity market’s valuation of Vertrue. Moreover, Parent, Merger Sub and the Sponsors believe that Vertrue’s future business prospects can be improved through the active participation of the Sponsors in the strategic direction and operations of Vertrue. Although Parent, Merger Sub and the Sponsors believe that there will be significant opportunities associated with their investment in Vertrue, they realize that there are also substantial risks (including the risks and uncertainties relating to Vertrue’s prospects, including the prospects described in management’s projections summarized under “Opinions of Financial Advisors— Certain Management Financial Projections”).

 

Under SEC rules, Gary A. Johnson is required to provide certain information regarding his position as to the fairness of the Merger to the unaffiliated stockholders of Vertrue. Gary A. Johnson is making the statements included in this section solely for purposes of complying with such requirements. Gary A. Johnson’s views as to the

fairness of the Merger should not be construed as a recommendation to any stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement.

 

Gary A. Johnson has interests in the Merger different from, and in addition to, the other stockholders of Vertrue. These interests are described under “Special Factors — Interests of Vertrue’s Directors and Executive Officers in the Merger.”

 

Gary A. Johnson did not undertake a formal evaluation of the fairness of the Merger or engage a financial advisor for such purposes. However, Gary A. Johnson believes that the Merger Agreement and the Merger are substantively and procedurally fair to the unaffiliated stockholders of Vertrue and has adopted the analyses and conclusions of the Special Committee based upon the reasonableness of those analyses and conclusions and his knowledge of Vertrue, as well as the factors considered by, and the findings of, the Special Committee with respect to the fairness of the Merger to such stockholders (see “Special Factors — Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger”), other than, in each case, with respect to the financial presentations of FTN and Jefferies which was provided for the information and assistance of the Special Committee and upon which Gary A. Johnson is not entitled to rely. Notwithstanding that Gary A. Johnson is not entitled to rely thereon, Gary A. Johnson did consider the fact that the Special Committee received opinions from FTN and Jefferies Broadview to the effect that, as of the date of the fairness opinions, and based upon and subject to the various factors, assumptions, qualifications and limitations set out in the fairness opinions, the $48.50 price per share to be received by the unaffiliated stockholders was fair to such stockholders from a financial point of view (see “— Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger”).

 

Furthermore, while Gary A. Johnson is a director of Vertrue, because of his differing interests in the Merger he did not participate in the negotiation of the Merger Agreement or the evaluation or approval of the Merger Agreement and the Merger. For these reasons, Gary A. Johnson does not believe that his interests in the Merger influenced the decision of the Board of Directors with respect to the Merger Agreement or the Merger.

 

The foregoing discussion of the information and factors considered and given weight by Gary A. Johnson in connection with the fairness of the Merger Agreement and the Merger is not intended to be exhaustive but is believed to include all material factors considered by Gary A. Johnson. Gary A. Johnson did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching his position as to the fairness of the Merger Agreement and the Merger. Gary A. Johnson believes that these factors provide a reasonable basis for his belief that the Merger is fair to the unaffiliated stockholders of Vertrue.

 

Position of Parent, Merger Sub and the Sponsors as to Fairness

 

Under one interpretation of the rules governing “going private” transactions, one or more of Parent, Merger Sub and the Sponsors may be deemed to be affiliates of Vertrue and as such, in order to comply with the requirements of Rule 13e-3, may be required to express their beliefs as to the fairness of the Merger to our unaffiliated stockholders. Based on their interpretation, Parent, Merger Sub and the Sponsors are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

 

None of Parent, Merger Sub or the Sponsors participated in the deliberation process of the Special Committee and none of them participated in the conclusions of the Special Committee or the board of directors of Vertrue that the Merger was fair to the unaffiliated stockholders of Vertrue, nor did they undertake any independent evaluation of the fairness of the Merger. However, based upon the same factors considered by, and the findings of, the Special Committee and the Board of Directors with respect to the fairness of the Merger to such unaffiliated stockholders as set forth in this proxy statement (see “ — Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger”), which findings and related analyses Parent, Merger Sub and the Sponsors adopt, other than, in each case, with respect to the financial presentations of FTN and Jefferies which were provided for the information and assistance of the Special Committee and upon which Parent, Merger Sub and the Sponsors are not entitled to rely, Parent, Merger Sub and the Sponsors believe that the Merger Agreement and the Merger are substantively and procedurally fair to the unaffiliated stockholders. Notwithstanding that Parent, Merger Sub and the Sponsors are not entitled to rely thereon, Parent, Merger Sub and the Sponsors considered the fact that

the Special Committee received opinions from FTN and Jefferies Broadview to the effect that, as of the date of the fairness opinions, and based upon and subject to the various factors, assumptions, qualifications and limitations set out in the fairness opinions, the $48.50 price per share to be received by the unaffiliated shareholders was fair to such shareholders from a financial point of view (see “ — Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger”).

 

While each of Parent, Merger Sub and the Sponsors believe that the Merger is substantively and procedurally fair to the unaffiliated stockholders, they attempted to negotiate the terms of a transaction that would be most favorable to them, and not to the stockholders of Vertrue, and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were fair to such stockholders. None of Parent, Merger Sub or the Sponsors believes that it has or had any fiduciary duty to Vertrue or its stockholders, including with respect to the Merger and its terms. The stockholders of Vertrue were, as described elsewhere in this proxy statement, represented by the Special Committee that negotiated with the Sponsors on their behalf, with the assistance of independent legal and financial advisors.

 

The reasons of Parent, Merger Sub and the Sponsors as to the fairness of the Merger should not be construed as a recommendation to any stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement.

 

The foregoing discussion of the information and factors considered and given weight by Parent, Merger Sub and the Sponsors in connection with the fairness of the Merger Agreement and the Merger is not intended to be exhaustive but is believed to include all material factors considered by the Parent, Merger Sub and the Sponsors. Parent, Merger Sub and the Sponsors did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Merger Agreement and the Merger. Parent, Merger Sub and the Sponsors believe that these factors provide a reasonable basis for their belief that the Merger is fair to the unaffiliated shareholders.

 

The purpose of the Merger for Vertrue is to enable its unaffiliated stockholders to immediately realize the value of their investment in Vertrue through their receipt of the Merger Consideration. Another purpose of the Merger is to create greater operating flexibility, allowing management to concentrate on long-term growth rather than the short-term expectations of the financial markets. In light of the foregoing, and given our stock price and the economic and market conditions affecting us and our industry sector as a whole, we believe our long-term objectives can best be pursued as a private company.

 

The reason for structuring the transaction as a Merger is to effect the transaction following the approval of the holders of a majority of the shares of the Common Stock. The reasons for undertaking the transaction at this time are described above under “— Background of the Merger” beginning on page 18.

 

It is expected that, upon consummation of the Merger (and excluding the transactions contemplated in connection with the Merger as described in this proxy statement), the operations of Vertrue will be conducted substantially as they currently are being conducted, although the Sponsors have discussed with Vertrue’s management the possibility of selling certain of the assets or business of Vertrue. The Sponsors have advised Vertrue, except as set forth above, that they do not have any current intentions, plans or proposals to cause us to engage in any of the following:

 

 

Nevertheless, following consummation of the Merger, the management and/or Board of Directors of the Surviving Corporation may initiate a review of the Surviving Corporation and its assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what changes, if any, would be desirable following the Merger to enhance the business and operations of the Surviving Corporation and may cause the Surviving Corporation to engage in the types of transactions set forth above if the management and/or Board of

Directors of the Surviving Corporation decides that such transactions are in the best interest of the Surviving Corporation upon such review. The Surviving Corporation expressly reserves the right to make any changes it deems appropriate in light of such evaluation and review or in light of future developments.

 

If the Merger Agreement is adopted by Vertrue’s stockholders and the other conditions to the closing of the Merger are either satisfied or waived, Merger Sub will be merged with and into Vertrue, with Vertrue being the Surviving Corporation. Vertrue will continue its operations as a privately-held company with all if its equity interests owned by Parent.

 

Effect on Outstanding Equity and Options

 

Upon the consummation of the Merger, each share of the Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than shares owned by Vertrue or any wholly-owned subsidiary of Vertrue, shares owned by Parent, Merger Sub or any other wholly-owned subsidiary of Parent immediately prior to the effective time of the Merger or shares held by stockholders who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive $48.50 in cash, without interest and less any applicable withholding taxes. Upon the consummation of the Merger, each outstanding option to purchase shares of the Common Stock, vested or unvested, will be cancelled and only entitle the holder of such option to receive a cash payment equal to the total number of shares of the Common Stock subject to such option multiplied by the amount (if any) by which $48.50 exceeds the option exercise price, without interest and less any applicable withholding taxes. Upon consummation of the Merger, each outstanding share of restricted stock will be cancelled and only entitle the holder of such restrictive stock to receive a cash payment of $48.50, without interest and less any applicable withholding taxes.

 

Effect on Ownership in Vertrue after the Merger

 

Following the Merger, the entire equity in the Surviving Corporation will be owned through Parent by the Sponsors, Gary A. Johnson, any management investors and any additional investors that the Sponsors permit to invest in Parent, and these persons will be the sole beneficiaries of our future earnings and growth, if any, and will also bear the risks of ongoing operations, including the risks of any decrease in our value after the Merger and the operational and other risks related to the incurrence by the Surviving Corporation of significant additional debt as described below under “— Financing of the Merger” beginning on page 52.

 

Following the Merger, Vertrue’s unaffiliated stockholders will have no interest in Vertrue’s net book value or net earnings. The table below sets forth the direct and indirect interests in Vertrue’s net book value and net earnings of Gary A. Johnson prior to and immediately after the Merger, based upon the net book value of Vertrue of $0.59 per share as of March 31, 2007 and net income of Vertrue of $19,796,000 for the nine months ended March 31, 2007. Immediately following the Merger, the entire interest in Vertrue’s net book value and net income that is not ultimately held by Gary A. Johnson, the other management investors or the Sponsors will be held through Parent by any additional investors that the Sponsors permit to invest in Parent or the Surviving Corporation.

 

 

 

 

 

Effect on Organization and Management of Vertrue

 

In connection with the Merger, Gary A. Johnson and other management investors will receive benefits and be subject to obligations in connection with the Merger that are different from, or in addition to, the benefits and obligations of the unaffiliated stockholders, as described in more detail under “— Interests of Vertrue’s Directors and Executive Officers in the Merger” beginning on page 55. The incremental benefits include the right and commitment of Gary A. Johnson and other management investors to make an agreed upon equity investment in Parent in cash and/or by exchanging a portion of the Common Stock for equity interests in Parent. A detriment to Gary A. Johnson and other management investors is that their new shares of common stock in Parent will not initially be and may not be registered under the federal securities laws and such shares will be relatively illiquid without an active public trading market for such securities. In addition, such new shares of Parent will also be subject to a stockholders agreement restricting the ability of Gary A. Johnson and other management investors to sell such equity. Additional incremental benefits to Gary A. Johnson and other management investors include, among others, continuing as executive officers of the Surviving Corporation, executing employment and related agreements with the Surviving Corporation and, receiving grants of restricted stock of Parent pursuant to a new management equity incentive plan that will be adopted by Parent. Furthermore, it is contemplated that Gary A. Johnson will continue as a director and the CEO of the Surviving Corporation. A potential detriment to Gary A. Johnson and the management investors is that the Sponsors will own a majority of Parent’s and therefore indirectly the Surviving Corporation’s shares, will control the Board of Directors’ of Parent and therefore the Surviving Corporation and will be able to exert substantial influence over the governance and operations of Parent and therefore the Surviving Corporation following the Merger.

 

At the effective time of the Merger, the directors of Merger Sub will become the directors of the Surviving Corporation and the current officers of Vertrue will become the officers of the Surviving Corporation. The certificate of incorporation of Vertrue will be amended to be the same as the certificate of incorporation of Merger Sub as in effect immediately prior to the effective time of the Merger, except that the name of the Surviving Corporation shall continue to be “Vertrue Incorporated.” The bylaws of Merger Sub in effect immediately prior to the effective time of the Merger will become the bylaws of the Surviving Corporation.

 

Effect on Listing and Registration of the Common Stock

 

After the Merger, the Common Stock will no longer be quoted on the NASDAQ. In addition, the registration of the Common Stock under the Exchange Act will be terminated. As a result, Vertrue will no longer be required to file periodic or other reports with the SEC with respect to its Common Stock or to deliver proxy statements or information statements in connection with stockholders’ meetings. If Vertrue (as the Surviving Corporation) completes a registered exchange or public offering of debt securities, however, it would again be required to file periodic reports with the SEC under the Exchange Act for a period of time following that transaction.

 

If the Merger Agreement is not adopted by Vertrue’s stockholders or if the Merger is not completed for any other reason, stockholders will not receive any payment for their shares of the Common Stock in connection with the Merger. Instead, Vertrue will remain an independent public company and the Common Stock will continue to be quoted and traded on the NASDAQ. In addition, if the Merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that Vertrue stockholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, the nature of the Internet direct marketing services industry on which Vertrue’s business largely depends, and general industry, economic, regulatory and market conditions. Accordingly, if the Merger is not consummated, there can be

no assurance as to the effect of these risks and opportunities on the future value of your Vertrue shares. From time to time, Vertrue’s Board of Directors will evaluate and review, among other things, the business operations, properties, dividend policy and capitalization of Vertrue and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholder value. If the Merger Agreement is not adopted by Vertrue’s stockholders or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Vertrue will be offered, or that the business, prospects or results of operations of Vertrue will not be adversely impacted.

 

Under certain circumstances, if the Merger is not completed, Vertrue will be obligated to pay Parent a termination fee of $22.5 million or reimburse Parent for its out-of-pocket expenses, up to $4.0 million. In addition, under certain circumstances, if the Merger is not completed, Parent has agreed to pay Vertrue a termination fee of $17.5 million. See “The Merger Agreement — Termination Fees” beginning on page 73. Pursuant to the Merger Agreement, Vertrue and the Sponsors have entered into limited guarantees on a pro-rata basis guaranteeing Parent’s obligation to pay a termination fee of $17.5 million to Vertrue.

 

Under the HSR Act and the rules promulgated thereunder by the FTC, the Merger may not be completed until notification and report forms have been filed by Parent and Vertrue with the FTC and the Antitrust Division of DOJ and the applicable waiting period has expired or been terminated. Vertrue and Parent filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of DOJ on March 30, 2007. The waiting period was terminated on April 11, 2007. Nevertheless, at any time before or after the completion of the Merger, the FTC or the DOJ or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the Merger, to rescind the Merger or to seek divestiture of particular assets of Vertrue or Parent. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. Although there is no assurance that they will not do so, we do not expect any regulatory authority, state or private party to take legal action under the antitrust laws. The term “antitrust laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other federal and state statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designated or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

 

In addition, the transaction is subject to mandatory pre-Merger notification under the Canadian Competition Act. A request for an Advance Ruling Certificate was filed with the Canadian Competition Authorities on April 5, 2007 and was granted on April 18, 2007. In addition, pursuant to the Investment Canada Act, Parent must also notify the Investment Review Division of Industry Canada of the proposed Merger at any time prior to, but not later than 30 days following the consummation of the Merger. Also, under Canadian banking law, Parent is required to apply for approval from the Minister of Finance (Canada) in order for it to acquire indirect control of the Canadian affiliates of Vertrue. An application requesting such approval was filed on April 2, 2007 and was granted on May 18, 2007.

 

Except as described above, Vertrue is unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Merger Agreement or completion of the Merger.

 

Equity Financing

 

On March 22, 2007, Parent received an equity commitment letter from each of the Sponsors, pursuant to which each Sponsor committed to contribute to Parent in connection with the proposed Merger up to the respective amount of cash set forth below:

 

 

OEP may assign its committed amount to other investors. As of the date of this proxy statement, no decision has been made regarding whether OEP will assign any of it committed amount to other investors. The obligation to fund the commitments under the equity commitment letters is subject to the satisfaction or waiver by Parent of the conditions precedent to Parent’s and Merger Sub’s obligation to complete the Merger as set forth in the Merger Agreement. Neither Vertrue nor any other person or entity other than Parent has any rights under the equity commitment letters. Each equity commitment letters will terminate upon the earliest of:

 

 

In addition, Gary A. Johnson has committed to contribute up to $20 million of the Common Stock (valued at $48.50 per share) to Parent in exchange for equity interests in Parent, see “Rollover and Voting Agreement” beginning on page 76, and each other current member of Vertrue senior management is expected to be provided an opportunity to invest in Parent by contributing a portion of his or her shares of the Common Stock to Parent in exchange for equity of Parent or otherwise purchasing equity securities of Parent in connection with the consummation of the Merger. As of the date of this proxy statement, no decision has been made regarding which additional members of senior management will become management investors. The equity investment by the management investors, excluding Gary A. Johnson, is currently expected to represent, in the aggregate an immaterial amount of the voting stock of Parent, both in relation to the aggregate equity investment of, and voting control acquired by, the Sponsors.

 

Debt Financing

 

Parent has received a debt commitment letter, dated as of March 22, 2007, from the Debt Financing Sources pursuant to which, subject to the conditions set forth therein:

 

 

The debt commitments expire on December 6, 2007. The documentation governing the First Lien Facilities and the Second Lien Facility has not been finalized and, accordingly, the actual terms of such facilities may differ from those described in this proxy statement.

 

Conditions Precedent to the Debt Commitments

 

The availability of the First Lien Facilities and the Second Lien Facility is subject to, among other things, there not having occurred since December 31, 2006 a “Company Material Adverse Effect” as defined in the “The Merger Agreement — Representations and Warranties” beginning on page 65, consummation of the Merger in accordance with the Merger Agreement (and no provision thereof having been waived or amended in a manner materially adverse to the lenders or the arrangers without the reasonable consent of JPMCB and JPMSI (together with JPMCB, collectively “JPMorgan”) and LBI), the repaying or refinancing of certain existing indebtedness of Vertrue and its subsidiaries, and the negotiation, execution and delivery of definitive documentation.

 

Facilities

 

General.  The borrower under the First Lien Facilities and the Second Lien Facility will initially be Merger Sub, and after giving effect to the Merger of Merger Sub with and into Vertrue, will be Vertrue, as the Surviving Corporation in the Merger. The First Lien Facilities will be comprised of a $430.0 million senior secured first lien term loan facility with a term of seven years and a $30.0 million senior secured first lien revolving credit facility with a term of six years. The Second Lien Facility will be comprised of a $200.0 million secured second lien term loan facility with a term of eight years. A portion of such Second Lien Facility will be drawn on the closing date and the remaining portion will be drawn on or before the 45th day following the closing date. The revolving credit facility will include sublimits for the issuance of letters of credit and swingline loans. No alternative financing arrangements or alternative financing plans have been made in the event that the First Lien Facilities or the Second Lien Facility are not available as anticipated.

 

LBI and JPMorgan have been appointed as joint lead arrangers and exclusive joint bookrunners for the First Lien Facilities and the Second Lien Facility. LCPI will be the sole and exclusive administrative agent and JPMorgan will be the sole and exclusive syndication agent.

 

Vertrue will redeem or repurchase, or defease, all of its outstanding 91/4% Senior Notes due 2014 prior to the consummation of the Merger (or, in the case that all such notes are not redeemed, repurchased or defeased, Vertrue will obtain consents to amend the related indenture to eliminate substantially all of the restrictive covenants and certain events of default therein). In addition, immediately after the Merger, Vertrue will deposit in a segregated escrow account an amount equal to the aggregate principal amount of Vertrue’s 5.5% Convertible Senior Subordinated Notes due 2010 which have not been converted into equity on or prior to the date of the Merger.

 

Interest Rate and Fees.  Loans under the First Lien Facilities and the Second Lien Facility are expected to bear interest, at the borrower’s option, at (i) a rate equal to LIBOR (London Interbank Offered Rate) plus an applicable margin or (ii) a rate equal to the higher of (a) the rate published on the British Banking Association Telerate Page 5 and (b) the federal funds rate plus 0.50%, plus (in either case) an applicable margin. In addition, the Surviving Corporation will pay customary commitment fees (subject to step-down decreases on terms to be agreed) and letter of credit fees under the revolving credit facilities. Upon the initial funding of the First Lien Facilities and the Second Lien Facility, Parent has also agreed to pay an underwriting fee to the Debt Financing Sources.

 

Prepayments and Amortization.  The borrower will be permitted to make voluntary prepayments at any time and required to make mandatory prepayments of the First Lien Facility term loan with (i) net cash proceeds of non-ordinary course asset sales (subject to reinvestment rights and other exceptions and, with respect to sales of certain of the borrower’s businesses, the right to make distributions to the equity investors of Parent upon pro-forma achievement of a prescribed total leverage multiple), (ii) issuances of debt for borrowed money (other than permitted debt) and (iii) beginning with the first full fiscal year after the closing date, 50% of the Surviving Corporation’s excess cash flow (to be defined) (subject to step-downs based upon total leverage thresholds to be

agreed). After the First Lien Facility term loan has been repaid in full, to the extent amounts would otherwise have been required to mandatorily prepay the First Lien Facility term loan (to the extent resulting from debt issuances or dispositions of assets), then such amounts will be applied as a mandatory prepayment to amounts outstanding under the Second Lien Facility. The First Lien Facility term loan may be voluntarily prepaid without premium or penalty (other than LIBOR breakage costs, if applicable). Voluntary prepayments of the Second Lien Facility must be accompanied by a prepayment fee of (i) if prepaid during the first year, 2% of the principal prepaid, and (ii) if prepaid during the second year, 1% of the principal prepaid. The First Lien Facility term loan will also have required interim amortization payments, payable quarterly, in an amount equal to 1% per annum with the balance payable at the final maturity date of such term loan.

 

Guarantors.  All obligations under the First Lien Facilities and the Second Lien Facility will be guaranteed by Parent and each existing and future direct and indirect restricted, material domestic subsidiary of the Surviving Corporation.

 

Security.  The obligations of the borrower and the guarantors under the First Lien Facilities and the Second Lien Facility and any hedging obligations to which a lender or an affiliate thereof is a counterparty will be secured, subject to permitted liens and other agreed upon exceptions, by a first priority lien (in the case of the First Lien Facilities) or a second priority lien (in the case of the Second Lien Facility) on the equity interests of the borrower and each of its direct and indirect material, restricted domestic subsidiaries and on 65% of the equity interests of the borrower’s and any guarantor’s direct first tier foreign subsidiaries, and by first priority security interests (in the case of the First Lien Facilities) or second priority security interests (in the case of the Second Lien Facility) in substantially all tangible and intangible present and future assets of the borrowers and the guarantors except, in the case of any foreign subsidiary, to the extent such security interest would be prohibited by applicable provisions or would result in materially adverse tax consequences, and except to the extent the administrative agent determines that the cost of obtaining such security interest is excessive in relation to the benefit thereof. To the extent any collateral (other than collateral that can be perfected by the filing of uniform commercial code financing statements or the delivery of the stock certificate(s) of the borrower and its domestic restricted subsidiaries) is not provided on the closing date after the use of commercially reasonable efforts to do so, the delivery of such collateral will not constitute a condition precedent to the availability of the First Lien Facilities or the Second Lien Facility on the closing date but will be required to be delivered after the closing date pursuant to arrangements to be mutually agreed.

 

Other Terms.  The First Lien Facilities and the Second Lien Facility will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, sales of assets, mergers, acquisitions and consolidations, dividends and other distributions, redemptions, transactions with affiliates, prepayments of certain subordinated indebtedness, and, solely with respect to the revolving credit facility, a maximum total leverage ratio (with step-downs to be agreed). Although the same types of negative covenants will generally be applicable to both the First Lien Facilities and the Second Lien Facility, the negative covenants applicable to the Second Lien Facility will provide greater flexibility under certain circumstances in a manner to be agreed. The First Lien Facilities and the Second Lien Facility will also include customary events of default, including a change of control default.

 

In connection with the Merger Agreement, each of the Sponsors has agreed to guarantee certain of the payment obligations of Parent and Merger Sub under the Merger Agreement, up to a maximum amount equal to their respective pro rata share of a termination fee of $17.5 million. Each guarantee will remain in full force and effect until the earliest of the closing of the Merger, three months after the termination of the Merger Agreement and March 22, 2009.

 

We cannot seek specific performance to require Parent and Merger Sub to complete the Merger, and our exclusive remedy for the failure of Parent and Merger Sub to complete the Merger is the termination fee in the amount of $17.5 million described above payable to us in the circumstances described under “The Merger Agreement — Termination Fees” beginning on page 73.

 

In considering the recommendations of the Board of Directors, Vertrue’s stockholders should be aware that certain of Vertrue’s directors and executive officers have interests in the transaction that are different from, and/or in addition to, the interests of Vertrue’s stockholders generally. These interests may present Vertrue’s directors and executive officers with actual or potential conflicts of interests, and these interests, to the extent material, are described below. In addition, one of the members of the Board of Directors, Alec L. Ellison, is the President of Jefferies Broadview, financial advisor to Vertrue, which will be entitled to a fee in connection with the Merger. The Special Committee and the Board of Directors were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions to approve the Merger Agreement and to recommend that our stockholders vote in favor of adopting the Merger Agreement.

 

Benefits Accruing Prior to or Upon the Merger

 

Indemnification of Directors and Officers

 

The Merger Agreement provides that our directors and officers will be indemnified in respect of their past services and the Parent will maintain Vertrue’s current directors’ and officers’ liability insurance with a claim period of at least six years from the effective time of the Merger, subject to certain conditions. See “The Merger Agreement — Indemnification; Directors and Officers Insurance.”

 

Vertrue Equity Compensation and Bonus Plans

 

Upon the consummation of the Merger, all of our equity compensation awards (including our awards held by executive officers) will be subject to the following treatment:

 

 

See “The Merger Agreement — Merger Consideration and Effects of Merger” and “The Merger Agreement — Employee Benefit Plans” for a more complete discussion of the treatment of employee benefit plans.

 

The table below lists our CEO, Gary A. Johnson, and our other executive officers who served during the year ended December 31, 2006 (collectively, the “Named Executive Officers”), as well as their respective ages and positions held as of December 31, 2006.

 

 

Gary A. Johnson, our co-founder, has served as President, CEO, and a director since our inception in 1989.

 

James B. Duffy has served as our Executive Vice President and Chief Financial Officer since he joined us in 1996. As of July 1, 2006, Mr. Duffy was also appointed as our Chief Operating Officer.

 

Vincent DiBenedetto has served as our Executive Vice President of Health and Insurance Services since he joined us in 2000.

 

The table below sets forth, as of May 17, 2007 (for each of our “named executive officers,” and our executive officers as a group): (i) the number of stock options held by such person, including unvested stock options that will vest upon the consummation of the Merger, (ii) the cash payment that may be made in respect of the foregoing employee stock options upon the consummation of the Merger, (iii) the aggregate number of shares of restricted stock that will vest upon consummation of the Merger, (iv) the aggregate cash payment that will be made in respect

of the foregoing restricted stock upon the consummation of the Merger, (v) the estimated cash payments made under each of the Management Incentive Plan and the Long-Term Incentive Plans (collectively referred to as the “Incentive Plans”) upon the consummation of the Merger, (vi) the cash payment that will be made in respect of all other stock owned by such person (including shares owned through employee benefit plans, but excluding stock options and restricted stock), (vii) the total cash payment such person will receive in respect of all payments described in this table if the Merger is consummated (in all cases before applicable withholding taxes).