UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
VERTRUE INCORPORATED
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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VERTRUE INCORPORATED
20 Glover Avenue
Norwalk, Connecticut 06850
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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Time and Date: 9:30 a.m. Eastern Time on Friday, November 17, 2006
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Place: Stamford Marriott
243 Tresser Boulevard
Stamford, Connecticut 06901
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Purposes: 1. Elect seven members of the Board of Directors, each
for a term of one year.
2. Approve the amendment to our Certificate of
Incorporation to increase our authorized shares of
common stock.
3. Approve the adoption of the Vertrue Incorporated
Management Incentive Plan.
4. Approve the adoption of the Vertrue Incorporated
2006 Restricted Stock Plan for Non-Employee
Directors.
5. Ratify the selection of PricewaterhouseCoopers LLP
by the Board of Directors as the Company's
independent registered public accounting firm for
the fiscal year ending June 30, 2007.
6. Transact such other business as may properly come
before the meeting or any adjournment thereof.
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Record Date: You can vote if you were a stockholder of record at the
close of business on October 6, 2006.
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The stockholder register of the Company at the record date will be open for
examination as required by Delaware law.
By Order of the Board of Directors,
James B. Duffy
Secretary
Norwalk, Connecticut
October ___, 2006
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES BY
MARKING YOUR VOTES ON THE ENCLOSED PROXY CARD, SIGNING AND DATING IT, AND
MAILING IT IN THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS
MAILED IN THE UNITED STATES.
Index
Introduction............................................................................................3
Voting Securities and Votes Required....................................................................3
Election of Directors...................................................................................4
Board of Directors and Committee Meetings...............................................................5
Corporate Governance Principles.........................................................................6
Director Compensation...................................................................................6
Security Ownership of Certain Beneficial Owners and Management..........................................7
Section 16(a) Beneficial Ownership Reporting Compliance.................................................8
Executive Compensation..................................................................................9
Certain Relationships and Related Transactions.........................................................13
Report of the Executive Officer Development and Compensation Committee.................................14
Stock Performance Graph................................................................................16
Approval of the Amendment to Our Certificate of Incorporation to Increase Our Authorized Shares........17
Approval of the Adoption of the Management Incentive Plan..............................................18
Approval of the Adoption of the 2006 Restricted Stock Plan for Non-Employee Directors..................21
Ratification of the Selection of Independent Registered Public Accounting Firm.........................24
Report of the Audit Committee..........................................................................25
Code of Conduct........................................................................................26
Other Matters..........................................................................................26
Solicitation Expenses..................................................................................26
Stockholders' Proposals................................................................................26
Communications with the Board..........................................................................26
Audit Committee Charter................................................................................27
Proposed Amendment to the Restated Certificate of Incorporation........................................30
Management Incentive Plan..............................................................................31
2006 Restricted Stock Plan for Non-Employee Directors..................................................37
2
VERTRUE INCORPORATED
20 Glover Avenue
Norwalk, Connecticut 06850
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
Introduction
We are providing these proxy materials in connection with the solicitation
of proxies by the Board of Directors of Vertrue Incorporated for use at our 2006
Annual Meeting of Stockholders. Throughout this proxy statement, we refer to
Vertrue Incorporated as the "Company," "we," "us," or "our."
You are invited to attend our 2006 Annual Meeting of Stockholders on
Friday, November 17, 2006. This proxy statement is to be mailed on or about
October 18, 2006. All proxies will be voted in accordance with the stockholders'
instructions, and if no choice is specified, the proxies will be voted in favor
of the matters set forth in the accompanying Notice of Annual Meeting. Any proxy
may be revoked by a stockholder at any time before its exercise by delivery of
written revocation or a subsequently dated proxy to the Secretary of the Company
or by voting in person at the annual meeting.
Our 2006 Annual Report to Stockholders and Annual Report on Form 10-K are
being mailed to stockholders together with this proxy statement.
Voting Securities and Votes Required
Holders of Vertrue common stock at the close of business on October 6,
2006, the record date for the meeting, are entitled to these proxy materials and
to vote their shares at the meeting. As of the record date, there were x,xxx,xxx
shares of common stock outstanding and entitled to vote. Holders of common stock
are entitled to one vote per share.
The presence or representation by proxy of the holders of a majority of the
shares of common stock issued and outstanding and entitled to vote at the Annual
Meeting constitutes a quorum for the transaction of business at the annual
meeting. Shares of common stock represented in person or by proxy (including
shares that abstain or do not vote with respect to one or more of the matters
presented for stockholder approval) will be counted for purposes of determining
whether a quorum is present.
The affirmative vote of the holders of common stock representing a majority
of the votes cast on a matter at the annual meeting is required to approve the
matters set forth in proposals 3, 4, and 5 in the accompanying Notice of Annual
Meeting. Holders of a majority of the shares of common stock entitled to vote is
required to approve the matters set forth in Proposal 2. Approval of Proposal 1,
which relates to the election of directors, requires a plurality of the votes
cast.
Shares that abstain from voting as to a particular matter and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter will not be counted as votes in favor of such matter and will also not be
counted as votes cast or shares voting on such matter. Accordingly, abstentions
and "broker non-votes" will have no effect on the voting on matters that require
the affirmative vote of a certain percentage of the shares voting on the matter.
We participate in the practice of "householding" proxy statements and
annual reports. This means that only one copy of this proxy statement and annual
report may have been sent to multiple stockholders in your household. If you
would like to obtain another copy of either document, please contact our
Secretary at 20 Glover Avenue, Norwalk, Connecticut, 06850. If you would like to
receive separate copies of the proxy statement and annual report in the future
you may contact us at the above address.
3
PROPOSAL 1
Election of Directors
The persons named in the enclosed proxy will vote to elect each of the
persons nominated as directors, unless authority to vote for the election of the
nominees is withheld by marking the proxy to that effect. The Company has a
Corporate Governance and Nominating Committee and all nominations are approved
by the Board of Directors. Each nominee has indicated his willingness to serve,
if elected, but if any nominee should be unable to stand for election, proxies
may be voted for a substitute nominee designated by the Board of Directors. Each
director is to be elected for a term of one year.
The Board of Directors recommends that you vote "FOR" the nominees.
Set forth below are the name, age and certain other information with
respect to each of the directors.
Alec L. Ellison, 43, has been our director since 1989. Mr. Ellison has been
affiliated with Broadview International LLC, an investment bank, since 1988 and
has served as a Managing Director since 1993 and President since 2001. As of
December 2003, Broadview International became a Division of Jefferies & Co., an
investment banking firm. Mr. Ellison holds a B.A. from Yale University and an
M.B.A. from Harvard Business School, where he was a Baker Scholar.
Joseph E. Heid, 60, has been our director since 2004 and has served as
Chairman, President, and Chief Executive Officer of Esprit de Corp from 1999 to
2002. From 1997 to 1999, he served as President of Revlon International. He
previously served as Senior Vice President of Sara Lee Corporation and CEO and
President of Sara Lee's Personal Products Group of North America. Mr. Heid
currently serves as a director of UST Inc. He is a certified public accountant
and holds a B.B.A. from St. John's University.
Gary A. Johnson, 51, our co-founder, has served as our President, Chief
Executive Officer and director since our inception in 1989. Mr. Johnson received
a B.S. from Tufts University and an M.B.A. from Harvard Business School.
Robert Kamerschen, 70, has been our director since 2002. Since 2005, he has
been the Chairman of Survey Sampling International, Inc., a private company that
provides internet and telephone survey sampling to marketing research companies,
as well as a private investor and strategic consultant. He is the retired
Chairman and Chief Executive Officer of ADVO, Inc., a full service targeted
direct mail advertising company where he served as CEO from 1988 to 1999. He
also served as Chairman and CEO of DIMAC Corporation, a full service direct
marketing company from 1999 to 2002. Mr. Kamerschen has also served in key
leadership roles in a number of prominent sales and marketing driven businesses
involving significant turnaround and/or transformation initiatives. Mr.
Kamerschen currently serves on the boards of the following public companies: IMS
Health Incorporated, MDC Partners, Inc., and R.H. Donnelley Corporation. Mr.
Kamerschen received a B.S. and M.B.A from Miami University (Ohio).
Michael T. McClorey, 47, has been our director since 2001. Mr. McClorey
served as President of Health Services Marketing, an operating unit of Catalina
Marketing Corporation, a targeted marketing firm, and as a member of the Office
of the President from 2000 to 2002. He also served as President and Chief
Executive Officer of Health Resource Publishing Company, a subsidiary of
Catalina Marketing Corporation, from 1995 to 2002. Mr. McClorey holds a B.B.A.
in finance from the University of Cincinnati.
Edward M. Stern, 47, has been our director since 2002. Since 2004, Mr.
Stern has served as the President and Chief Executive Officer of Neptune
Regional Transmission System, LLC, a company which is constructing an
approximately $600 million, 660 megawatt, 65 mile undersea electric transmission
system that will interconnect Sayreville, New Jersey with Long Island, New York.
From 1991 through 2004, Mr. Stern was employed by Enel North America, Inc., (a
subsidiary of Enel SpA, an Italian electric utility company) and its
predecessor, CHI Energy, Inc., an energy company which owned or operated nearly
one hundred power plants in seven countries, specializing in renewable energy
technologies including hydroelectric projects and wind farms. While at Enel
North America, Inc. and CHI Energy, Inc., Mr. Stern served as General Counsel
and, commencing in 1999, as President, Director and Chief Executive Officer. Mr.
Stern currently serves on the Board of Directors of Energy Photovoltaics, Inc.,
a Princeton, NJ based manufacturer of solar energy products and systems. Mr.
Stern received B.A., J.D. and M.B.A. degrees from Boston University and is a
member of the Massachusetts Bar and the Federal Energy Bar.
4
Marc S. Tesler, 60, has been our director since 1996. From 1995 to 2001, he
was a general partner of Technology Crossover Ventures, L.P., a private
partnership specializing in information technology investments. Mr. Tesler
received his B.S. from the University of Massachusetts and his M.B.A. from New
York University.
Board of Directors and Committee Meetings
The Board held six meetings during fiscal 2006. All incumbent directors
attended more than 75% of the board and committee meetings during fiscal 2006.
All directors in office at the time attended the 2005 Annual Meeting. During
fiscal 2006, the Board had three committees to assist it in carrying out its
responsibilities. These committees consisted of an Audit Committee, an Executive
Officer Development and Compensation Committee, and a Corporate Governance and
Nominating Committee. Our Board has determined that the following members are
independent in accordance with the listing requirements of The NASDAQ Stock
Market ("NASDAQ"): Mr. Heid, Mr. Kamerschen, Mr. McClorey, Mr. Stern, and Mr.
Tesler. The roles, responsibilities, and duties of the Board and each of its
committees are formalized in written charters, all of which are available upon
written request. All written requests should be sent to the attention of the
Company's General Counsel. The Corporate Governance and Nominating Committee
Charter was included as Annex D of our 2004 proxy statement. The Audit Committee
Charter is included as Annex A of this 2006 proxy statement.
The current membership of each of our Board Committees is provided below:
--------------------- ---------------- ---------------------------------- -------------------------
Executive Officer Development and Corporate Governance and
Name Audit Committee Compensation Committee Nominating Committee
--------------------- ---------------- ---------------------------------- -------------------------
Joseph E. Heid C X -
--------------------- ---------------- ---------------------------------- -------------------------
Robert Kamerschen X - C
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Michael T. McClorey - X X
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Edward M. Stern - C -
--------------------- ---------------- ---------------------------------- -------------------------
Marc S. Tesler X - X
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C = Chairperson
Audit Committee
The Audit Committee is responsible for the appointment of our independent
registered public accounting firm, discussing and reviewing the scope and the
fees of the annual audit and reviewing the results thereof with the independent
registered public accounting firm, reviewing and approving non-audit services of
the independent registered public accounting firm, reviewing compliance with
existing major accounting and financial policies of the Company, reviewing the
adequacy of the financial organization of the Company, and reviewing
management's procedures and policies relative to the adequacy of the Company's
internal accounting controls and compliance with federal and state laws relating
to accounting practices. Our consolidated financial statements and management's
assessment of internal control over financial reporting are currently audited by
PricewaterhouseCoopers LLP ("PwC"). The Audit Committee met nine times during
fiscal 2006 with representatives from PwC.
The Board has reviewed the composition of the Audit Committee and has
determined that all members of the Audit Committee are independent within the
meaning of the listing standards of NASDAQ and that the Audit Committee includes
at least one financial expert, Mr. Heid, as defined by the rules of the
Securities and Exchange Commission ("SEC").
Executive Officer Development and Compensation Committee
The Executive Officer Development and Compensation Committee assists the
Board in developing and implementing our executive compensation practices and
incentive and equity-based compensation plans, as well as oversees the
development of our executive officers. The Committee has authority to grant
stock options under our 2005 Equity Incentive Plan, 1996 Stock Option Plan, 1995
Executive Officers Stock Option Plan, and the 1995 Non-Employee Directors Stock
Option Plan to all of our employees, directors, and officers, including those
persons who are required to file reports pursuant to Section 16(a) of the
Exchange Act. No more awards will be granted under the 1996 Stock Option Plan,
the 1995 Executive Officers Stock Option Plan, or the 1995 Non-Employee
Directors Stock Option Plan, as such plans have expired. The Committee will have
the authority to administer and grant performance-based cash awards pursuant to
the Management Incentive Plan and the equity-based awards pursuance to the 2006
Restricted Stock Plan for Non-Employee Directors if such plans are approved by
the stockholders at the annual meeting. The Committee also administers our 1996
Employee Stock Purchase Plan and our Long-Term Incentive Plan. In addition, the
Committee has
5
authority to make all benefit and participation decisions under our Supplemental
Retirement Plan and Long-Term Incentive Plan, except those matters that require
stockholder approval. This committee met six times during fiscal 2006.
The Board has reviewed the composition of the Executive Officer Development
and Compensation Committee and has determined that all members are independent
within the meaning of the listing standards of NASDAQ.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee is responsible for
assisting the Board of Directors in identifying individuals qualified to become
members of the Board and its committees, recommending to the Board nominees for
director in connection with the Company's proxy statement and annual meeting of
stockholders and assisting the Board in developing and implementing the
Company's Corporate Governance Principles. The Committee also oversees the
evaluation of the Board of Directors and reviews and resolves conflict of
interest situations. The Corporate Governance and Nominating Committee met three
times during fiscal 2006.
The Board has reviewed the composition of the Corporate Governance and
Nominating Committee and has determined that all members are independent within
the meaning of the revised listing standards of NASDAQ. Stockholders wishing to
recommend candidates for consideration by the Corporate Governance and
Nominating Committee may do so by writing to the Secretary of the Company and
providing the candidate's name, biographical data, and qualifications. The
Committee evaluates candidates for director on the basis of their understanding
of marketing, finance, and the Company's business, as well as the candidate's
educational and professional background.
Corporate Governance Principles
The Board has adopted a set of Corporate Governance Principles and the
Corporate Governance and Nominating Committee is responsible for overseeing the
Principles and reporting recommendations to the Board concerning corporate
governance matters. The Principles include the following items concerning the
Board:
o Board Composition - The Board believes that it should be composed of
no less than five and no more than eight members, a majority of which
must be independent in accordance with the listing requirements of
NASDAQ. The Board periodically evaluates whether a larger or smaller
number of directors would be preferable.
o Board Meetings - Independent directors meet on a regular basis apart
from other Board members and management and the Chairman of the Board
is responsible for setting the agenda. Directors have access to our
employees to ensure that they can ask questions and obtain information
necessary to fulfill their duties. Our independent directors meet
periodically, but at least twice annually, in executive session with
no management directors or management present.
o Board and Committee Self-Evaluations - The Corporate Governance and
Nominating Committee is responsible for conducting an annual
evaluation of the performance of the full Board and reporting its
conclusions to the Board. In addition, each committee is responsible
for evaluating its performance annually.
Director Compensation
Each non-employee director receives cash compensation consisting of an
annual retainer of $25,000 per fiscal year and $1,500 for each board or
committee meeting attended. In addition, each chairperson receives annual cash
compensation of $7,500 for Audit Committee and $5,000 for Executive Officer
Development and Compensation and Corporate Governance and Nominating committees.
All directors are reimbursed for expenses incurred in connection with their
attendance at Board or committee meetings.
Except for Mr. Johnson, all directors are not employed by the Company and
have been eligible to receive options to purchase shares of common stock
pursuant to the 1995 Non-Employee Director Stock Option Plan and the 1996 Stock
Option Plan. Options granted under these plans have terms of ten years, become
exercisable in four equal annual installments, and are exercisable at the market
price of our common stock on NASDAQ on the date of grant. In 2006, we granted
2,000 options exercisable at $38.21 to each of Mr. Ellison, Mr. Tesler, and Mr.
McClorey.
No more option grants will be made pursuant to either the 1995 Non-Employee
Director Stock Option Plan or the 1996 Stock Option Plan as such plans have
expired.
6
At the annual meeting, stockholders will vote to approve the 2006
Restricted Stock Plan for Non-Employee Directors which, if approved, will
provide that non-employee directors will receive the following, subject to the
discretion of the Executive Officer Development and Compensation Committee:
o an initial grant of restricted shares on the date of stockholder
approval of the plan equal to $45,000, based on the closing price of
the Company's common stock on such date; and
o an annual grant of restricted shares on July 15th of each year
(commencing in calendar year 2007) equal to $90,000 in value, based on
the closing price of the Company's common stock on the date of grant.
The restricted shares will vest on each of the first, second, and third
anniversaries of the relevant dates of grant. This change to the director's
compensation will be effective upon stockholder approval of the plan at the
annual meeting. See "Proposal 4 - Approval of the Vertrue 2006 Restricted Stock
Plan for Non-Employee Directors" for more information.
Security Ownership of Certain Beneficial Owners and Management
The table below shows certain information based on the latest available public
information, with respect to the beneficial ownership of the our common stock as
of September 13, 2006 by (i) each person known by us to beneficially own more
than 5% of the outstanding shares of our common stock, (ii) each director and
each person nominated to become director, (iii) each of our executive officers,
and (iv) all current directors and executive officers of the Company as a group:
Number of Shares Percentage of Common
Name and Address of Beneficial Owners Beneficially Owned (1) Stock Outstanding (2)
----------------------------------------------------------- ----------------------- ------------------------
Thomas W. Smith (3) 2,228,321 23.0%
323 Railroad Avenue
Greenwich, CT 06830
Scott Vassalluzzo (4) 1,491,681 15.4%
323 Railroad Avenue
Greenwich, CT 06830
Prescott Investors, Inc. 1,478,681 15.3%
323 Railroad Avenue
Greenwich, CT 06830
Barclays Global Investors NA 1,229,114 12.7%
45 Fremont Street
San Francisco, CA 94105
Neuberger Berman LLC 771,400 8.0%
605 Third Avenue
New York, NY 10158
Directors, Executive Officers and Nominees
-----------------------------------------------------------
Gary A. Johnson (5) 1,175,641 11.5%
James B. Duffy (6) 348,097 3.5%
Vincent DiBenedetto (7) 181,161 1.8%
Alec L. Ellison (8) 67,634 *
Edward M. Stern (9) 52,000 *
Michael T. McClorey (10) 50,930 *
Marc S. Tesler (11) 47,093 *
Robert Kamerschen (12) 40,500 *
Joseph E. Heid (13) 2,500 *
All current directors and executive officers as a group
(9 persons) (14) 1,965,556 18.1%
---------------------
* Less than or equal to 1%.
7
(1) Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise noted. The number of shares of common stock
beneficially owned is determined under the rules of the SEC and is not
necessarily indicative of beneficial ownership for any other purpose. The
inclusion herein of any shares of common stock deemed beneficially owned
does not constitute an admission of beneficial ownership of such shares.
Any reference in the footnotes below to stock options held by the person in
question relates to stock options that are currently exercisable or
exercisable within 60 days after September 13, 2006.
(2) Calculated by taking the named persons' beneficial ownership as disclosed
above as a percentage of the total number of shares outstanding of
9,682,004 as of September 13, 2006, plus any shares subject to options held
by the person in question that are currently exercisable or exercisable
within 60 days after September 13, 2006.
(3) Includes 1,478,681 shares held by Prescott Investors, Inc. which Mr. Smith,
as investment manager for Prescott Investors, Inc., may be deemed to
beneficially own.
(4) Includes 1,478,681 shares held by Prescott Investors, Inc. which Mr.
Vassalluzzo, as investment manager for Prescott Investors, Inc., may be
deemed to beneficially own.
(5) Includes 525,710 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006. Includes 54,000 shares held in trust for the benefit of Mr. Johnson's
children. Mr. Johnson disclaims beneficial ownership of such shares.
(6) Includes 298,007 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
(7) Includes 117,820 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
(8) Includes 51,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
(9) Includes 50,000 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006 for which Mr. Stern disclaims beneficial ownership.
(10) Includes 48,300 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
(11) Includes 41,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
(12) Includes 37,500 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
(13) Represents shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
(14) Includes 1,172,837 shares issuable upon the exercise of outstanding options
presently exercisable or exercisable within 60 days after September 13,
2006.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers, directors, and persons who own more than 10% of our
common stock to file reports of ownership and changes of ownership with the SEC.
Executive officers, directors, and more than 10% owners of our common stock are
required by the regulations promulgated by the SEC to furnish us with copies of
all Forms 3, 4, and 5 filed. Based on our records and other information provided
to us, we believe that our officers and directors subject to these reporting
requirements filed the required reports on a timely basis for fiscal 2006.
8
Executive Compensation
Executive Officers
The table below lists our Chief Executive Officer and our other executive
officers who served during the year ended June 30, 2006 (collectively, the
"Named Executive Officers"), as well as their respective ages and positions held
as of June 30, 2006:
Name Age Position
---- --- --------
Gary A. Johnson 51 President and Chief Executive Officer, Director
James B. Duffy 52 Executive Vice President and Chief Financial Officer
Vincent DiBenedetto 49 Executive Vice President, Health and Insurance Services
Gary A. Johnson, our co-founder, has served as President, Chief Executive
Officer, 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. Effective July 1, 2006, Mr. Duffy
was appointed as our Chief Operating Officer. He will continue to serve as
Executive Vice President and Chief Financial Officer in addition to his new
role.
Vincent DiBenedetto has served as our Executive Vice President, Health and
Insurance Services since he joined us in 2000.
Summary of Compensation
The table below shows certain compensation information for the fiscal year
indicated with respect to our Named Executive Officers who served during the
fiscal year ended June 30, 2006:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
----------------------------------- ----------------------
Name and Principal Position Fiscal Salary ($) Bonus ($) Other Annual Securities LTIP All Other
Year Compensation Underlying Payouts Compensation
($) Options ($) (2) ($) (3)
(shares) (1)
--------------------------------- ------- ---------- ---------- ------------- ------------- -------- -------------
Gary A. Johnson 2006 640,000 732,160 69,028 (4) 50,000 210,991 3,775
President and Chief 2005 600,000 571,200 120,806 (4) 50,000 - 2,344
Executive Officer 2004 600,000 1,227,600 (5) 42,000 - 384
James B. Duffy 2006 430,000 295,152 (5) 20,000 82,741 3,732
Executive Vice President and 2005 405,000 231,336 (5) 20,000 - 2,344
Chief Financial Officer 2004 405,000 414,315 (5) 22,000 - 1,509
Vincent DiBenedetto 2006 400,400 175,535 (5) 10,000 82,741 3,775
Executive Vice President, 2005 400,400 150,000 (5) 15,000 - 2,344
Health and Insurance Services 2004 400,400 119,640 (5) 10,000 - 1,509
(1) We did not grant any restricted stock awards or stock appreciation rights
during the years ended June 30, 2006, 2005 and 2004.
(2) The amounts reported in this column consists of our Long-Term Incentive
Plan ("LTIP"), which provides long-term incentive payments based on
attainment of specified objective business performance measures over 3-year
performance cycles.
(3) The amounts reported in this column consist solely of our matching
contributions under the 401(k) Retirement Savings Plan.
(4) Fiscal 2006 and 2005 include $37,260 and $88,478, respectively, for Mr.
Johnson's personal use of a corporate jet that we use under a flexible
aircraft fractional sharing arrangement. The value of this benefit is
determined based on the incremental cost invoiced for the personal use. No
other amount included in this total exceeds 25% of the total reported for
Mr. Johnson.
9
(5) In accordance with the current rules of the SEC, other compensation in the
form of perquisites and other personal benefits has been omitted because
the aggregate amount of such perquisites and other personal benefits is the
lesser of $50,000 or ten percent of the total salary and bonus reported for
the Named Executive Officer during the respective fiscal year ended June
30.
Option Grants
The table below shows certain information concerning option grants during
the fiscal year ended June 30, 2006 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------------------
Number of Potential Realizable Value at
Securities Percent of Total Assumed Annual Rates of
Underlying Options Granted to Exercise Stock Price Appreciation for
Options Employees in Price Expiration Option Term (3)
Name Granted (#) (1) Fiscal Year (2) ($/Sh) Date 5% ($) 10% ($)
-------------------- ---------------- ------------------- -------- ---------- -------------- --------------
Gary A. Johnson 50,000 21.3% 38.21 7/6/2015 1,201,503 3,044,845
James B. Duffy 20,000 8.5% 38.21 7/6/2015 480,601 1,217,938
Vincent DiBenedetto 10,000 4.3% 38.21 7/6/2015 240,301 608,969
(1) These options generally vest and become exercisable in four equal annual
installments (i.e., 25% per year) and expire at the earlier of either
termination of employment or ten years from the grant date. In the event of
a change in control of the Company, the Board has the discretion to provide
that all options become exercisable in full immediately prior to such
event.
(2) Based on the total of 235,000 stock options the Company granted to
employees in fiscal 2006.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date these options were granted to their expiration
dates. The assumed rates of appreciation are mandated by the rules of the
SEC and do not represent our estimate or projection of future stock prices.
This table does not take into account any appreciation or depreciation in
the price of our common stock to date. Actual gain, if any, on stock option
exercises will depend on future performance of our common stock and the
date on which the options are exercised. Values shown are net of the option
exercise price, but do not include deductions for tax or other expenses
associated with the exercise.
Option Exercises and Holdings
The table below shows certain information concerning aggregate exercises of
stock options during the fiscal year ended June 30, 2006 by each of the Named
Executive Officers and the number and value of unexercised options held by each
of them on June 30, 2006:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised In-the-
Shares Underlying Unexercised Money Options at Fiscal Year-
Acquired on Value Options At Fiscal Year-End End ($) (1)
Name Exercise (#) Realized ($) (#) Exercisable/Unexercisable Exercisable/Unexercisable
-------------------- ------------------- ---------------------- ------------------------------ -----------------------------
Gary A. Johnson 21,000 658,799 463,210 / 138,500 10,227,993 / 2,046,526
James B. Duffy 78,000 2,548,259 270,507 / 61,000 5,866,637 / 928,791
Vincent DiBenedetto - - 101,570 / 33,750 2,432,550 / 534,768
(1) The per share value of unexercised in-the-money options is calculated by
subtracting the per share option exercise price from the last per share
sale price of the our common stock on NASDAQ on June 30, 2006 ($43.03) for
those options which have an exercise price below our stock price on June
30, 2006.
10
Securities Authorized for Issuance under Equity Compensation Plans
Number of securities
Number of Weighted- remaining available
securities to be average for future issuance
issued upon Exercise under equity
exercise of price of compensation plans
outstanding outstanding (excluding securities
Plan category options options reflected in (a))
---------------- ----------- ---------------------
(a) (b) (c)
Equity compensation plans approved by
security holders 1,553,000 $ 27.90 1,289,000
Equity compensation plans not approved
by security holders (1) 978,000 17.40 209,000
---------------- ----------- ---------------------
Total 2,531,000 $ 23.85 1,498,000
================ =========== =====================
(1) These shares represent an increase in the share reserve approved by
stockholders during 2002 under the 1996 Stock Option Plan. These options
have an exercise price per share equal to or greater than the fair market
value at the grant date and generally become exercisable over a four to
five year period and expire at the earlier of termination of employment or
ten years from the grant date.
11
Defined Benefit Plan
We sponsor an unfunded, nonqualified defined benefit pension plan that
provides retirement benefits to certain executives selected by the Executive
Officer Development and Compensation Committee of the Board of Directors. The
table below shows the annual benefits payable for 10 years to the Named
Executive Officers assuming the required 10 years of service is attained and a
normal retirement age of 60 under the terms of the defined benefit pension plan:
Years of
Accrued Normal Annual
Name Service Retirement Benefit ($) (1)
-------------------- ---------- -----------------------------
Gary A. Johnson 16 $230,000
James B. Duffy 10 $120,000
Vincent DiBenedetto 11 $120,000
(1) If an individual participant were to retire at or after age 55 but before
age 60, his annual retirement benefit would be 50% of the estimated normal
annual retirement benefit stated above.
Long-Term Incentive Plan
For certain executives determined by the Executive Officer Development
and Compensation Committee of the Board of Directors, the LTIP provides
long-term incentive payments based on attainment of specified objective business
performance measures over 3-year performance cycles. Incentive awards payable to
any participant with respect to any performance cycle shall not exceed $3.0
million. This plan is unfunded.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Performance or Estimated Future Payouts under
Other Non-Stock Price-Based Plans
Period Until --------------------------------------
Maturation or Minimum Target Maximum
Name Payout ($) ($) ($)
-------------------- ---------------- ---------- --------- ----------
Gary A. Johnson 2006 - 2008 250,000 500,000 900,000
James B. Duffy 2006 - 2008 125,000 250,000 450,000
Vincent DiBenedetto 2006 - 2008 60,000 120,000 180,000
Payouts for the fiscal 2006 - 2008 performance period will be
determined when the performance period has been completed and will be based on
growth of revenue before deferral, adjusted earnings before interest, taxes,
depreciation, and amortization, and free cash flow per share. If the minimum
performance level is not met, no awards will be paid. Awards earned by the Named
Executive Officers under this plan for the performance period 2004 - 2006 are
shown in the "LTIP Payouts" column of the Summary Compensation Table and were
based on growth in revenue before deferral, cash basis operating income, and
operating cash flow per share. There were no amounts paid related to fiscal 2004
or 2005 because no performance periods ended during those fiscal years.
Executive Termination Benefits Policy
Our Executive Officer Development and Compensation Committee adopted an
Executive Termination Benefits Policy, which will be effective as of October 16,
2006, for key management personnel of the Company including the Named Executive
Officers unless such individual is a party to an existing employment or
severance agreement with the Company or any affiliate, in which case they will
not be eligible for benefits under the policy. The policy provides that in the
event the participant's employment is terminated without "cause" or for "good
reason" (as such terms are defined in the policy), then the participant is
entitled to receive:
(i) between 1 and 2.99 times base salary and bonus;
(ii) twenty-four months of medical, dental, and other group health
benefits coverage as provided to similarly situated employees who
continue to be employed by the Company, solely for the chief
executive officer and chief operating officer of the Company;
12
(iii) a supplemental retirement benefit as provided under the terms of
the Company's supplemental executive retirement plan;
(iv) a pro-rata portion of the participant's target long-term
incentive award for each applicable three-year period in which
the executive is participating at the time of termination; and
(v) full vesting of all outstanding equity awards for certain
participants.
Also, in the event of a "change in control" (as defined in the policy)
all outstanding equity awards will fully vest for certain participants. Such
amounts are to be paid in a lump sum within ten days of the termination date,
except that payment will be delayed for six months for certain individuals as
required by 409A of the Internal Revenue Code. Payment of amounts under the
policy are contingent on the participant signing a release of claims against the
Company. The policy will terminate on July 1, 2010, unless such date is during a
potential change in control period, within two years following the date of a
change in control (as defined in the policy) or while the Company still has
outstanding obligations under the policy.
Certain Relationships and Related Transactions
We have a policy that all material transactions between us and our
officers, directors and other affiliates must (i) be approved by a majority of
the members of our Board of Directors and by a majority of the disinterested
members of our Board of Directors and (ii) be on terms that are no less
favorable to us than could be obtained from unaffiliated third parties.
We engaged Jefferies & Co. for investment banking and other services
during fiscal 2006, which were approved pursuant to our policy. Mr. Ellison, a
board member, is the President and a Managing Director of Broadview
International LLC, a division of Jeffries & Co. We incurred $44,000 of fees with
Jefferies & Co. during fiscal 2006.
For a description of option grants to some of our executive officers,
see "Executive Compensation -- Option Grants."
13
Report of the Executive Officer Development and Compensation Committee
The Executive Officer Development and Compensation Committee of the
Board of Directors was composed of three independent non-employee directors
during fiscal 2006: Mr. Stern, Mr. Heid, and Mr. McClorey. The Executive Officer
Development and Compensation Committee is responsible for developing and
implementing the policies that govern both annual cash compensation and
performance-based equity compensation of our executive officers.
This report is submitted by the Compensation Committee and addresses
our policies for fiscal 2006 as they applied to our senior management, including
the Named Executive Officers.
Compensation Philosophy
The objectives of the executive compensation program are to (i) align
compensation with business objectives, individual performance and the interests
of stockholders, (ii) motivate and reward high levels of performance, (iii)
recognize and reward the achievement of Company goals and (iv) enable the
Company to attract and retain key employees.
In evaluating both individual and corporate performance for purposes of
determining salary and bonus levels and stock option grants, the Committee
places significant emphasis on the extent to which strategic and business plan
goals are met, including the progress and success of the Company with respect to
matters such as achieving operating budgets, establishing strategic marketing,
distribution and development alliances, developing products and enhancing the
Company's strategic position, as well as on the Company's overall financial
performance.
Executive Compensation in Fiscal 2006
The compensation programs for our executives established by the
Committee consist of four elements based upon the foregoing objectives: (i) base
salary and benefits competitive with the marketplace; (ii) short-term and
long-term incentive bonuses based on individual and Company performance; (iii)
stock-based equity incentives in the form of participation in the 2005 Equity
Incentive Plan, 1996 Stock Option Plan, 1995 Executive Officers' Stock Option
Plan, and the 1996 Employee Stock Purchase Plan and (iv) perquisites that in
total do not exceed $50,000 in value per executive except for Mr. Johnson. The
Committee believes that providing a base salary and benefits to its executive
officers that are competitive with the marketplace enables the Company to
attract and retain key executives. In addition, the Committee believes that
bonuses based on both corporate and individual performance provide incentives to
its executive officers that align their interests with those of the Company and
its stockholders. The Committee generally provides executive officers
discretionary stock option awards to reward them for achieving specified
business objectives and to provide them with long-term ownership opportunities.
In evaluating the salary level, bonuses and equity incentives to award to each
current executive officer, the Committee examines the progress which the Company
has made in areas under the particular executive officer's supervision, such as
development or sales, and the overall performance of the Company. In addition,
the Executive Officer Development and Compensation Committee has retained an
independent outside compensation consulting firm, with whom the Committee meets
at least annually.
In determining the salary and bonuses of each executive officer,
including the Named Executive Officers, the Committee and the Board of Directors
consider numerous factors such as (i) the individual's performance, including
the expected contribution of the executive officer to the Company's goals, (ii)
the Company's long-term needs and goals, including attracting and retaining key
management personnel, (iii) the Company's competitive position, including market
data on the compensation of executive officers of comparable companies and (iv)
the Company's financial performance measured against financial targets approved
by the Board of Directors and the Committee. To the extent determined to be
appropriate, the Committee also considers general economic conditions and the
historic compensation levels of the individual.
Stock option grants made pursuant to the 1996 Stock Option Plan in the
fiscal years ended June 30, 2006, 2005, and 2004 were designed to make a portion
of the overall compensation of the executive officers receiving such awards vary
depending upon the performance of our common stock. As a result of the vesting
schedule applicable to these stock options, these grants also serve as a means
of retaining these individuals. In making stock option grants to executives, the
Committee considers a number of factors, including the performance of the
executive, the responsibilities of the executive and the executive's current
stock or option holdings.
14
Benefits and Perquisites
The Company's executive officers are entitled to receive medical
benefits and life insurance benefits and to participate in the Company's 401(k)
Retirement Savings Plan on the same basis as other full-time employees of the
Company. Additionally, the Company's Named Executive Officers are entitled to
participate in the LTIP plan and a nonqualified defined benefit retirement plan.
Certain perquisites are also provided to certain executive officers, including
limited personal use of a corporate jet, a car allowance, long-term care
insurance and long-term disability insurance. The 1996 Employee Stock Purchase
Plan, which is available to virtually all employees, including the Named
Executive Officers, allows participants to purchase shares of our common stock
at a discount of approximately 15% from the fair market value at the beginning
or end of the applicable purchase period.
Compensation of the Chief Executive Officer in Fiscal 2006
The compensation philosophy applied by the Committee in establishing
the compensation for the Company's President and Chief Executive Officer is the
same as for all senior management of the Company - to provide a competitive
compensation opportunity that rewards performance.
During fiscal 2006, Mr. Johnson served as our President and Chief
Executive Officer and was paid a base salary of $640,000 and a bonus of
$732,160. The Committee determined Mr. Johnson's base salary based on the same
market criteria used for other senior officers. The determination of Mr.
Johnson's bonus was based upon the successful attainment of specific financial
goals established by the Committee. For fiscal 2006, the financial goals were
based on revenue before deferral and cash operating income targets. Based on the
Company's results, Mr. Johnson's bonus plan provided for a pay out of 114% of
the target amount. Mr. Johnson was also granted options to purchase 50,000
shares of common stock at an exercise price of $38.21 per share under the 1996
Stock Option Plan. In addition, he earned a payout of $210,991 from the 2004 -
2006 LTIP, based on the Company's attainment of specific financial goals
established by the Committee, which were revenue before deferral, cash basis
operating income, and operating cash flow per share.
Compliance with Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows tax deductions to publicly-traded
corporations for compensation over $1.0 million paid to the corporation's Chief
Executive Officer or certain of its other highly compensated employees.
Qualifying performance-based compensation will not be subject to this
disallowance if certain requirements are met. The Committee believes that it is
in the best interests of the Company's stockholders to comply with such tax law,
while still maintaining the goals of the Company's executive compensation
program. Accordingly, where it is deemed necessary and in the best interests of
the Company to continue to attract and retain the best possible executive talent
and to motivate such executives to achieve the goals inherent in the Company's
business strategy, the Committee will recommend, and the Company is expected to
pay, compensation to executive officers which may exceed the limits of
deductibility.
EXECUTIVE OFFICER DEVELOPMENT AND
COMPENSATION COMMITTEE
Edward M. Stern (Chairperson)
Joseph E. Heid
Michael T. McClorey
15
Stock Performance Graph
The graph below compares the cumulative total stockholder return on our
common stock during the period from June 30, 2001 to June 30, 2006 with the
cumulative total return over the same period of (i) the NASDAQ Total Return
Index (U.S.) and (ii) the Dow Jones Consumer Services Index. This comparison
assumes $100 was invested on June 30, 2001 in our common stock, the NASDAQ Total
Return Index (U.S.) and the Dow Jones Consumer Services Index and assumes
dividends, if any, are reinvested.
[GRAPHIC OMITTED]
Cumulative Total Return Data
June 30, June 30, June 30, June 30, June 30, June 30,
2001 2002 2003 2004 2005 2006
-------------- -------------- -------------- -------------- -------------- --------------
Vertrue Incorporated $ 100.00 $ 80.08 $ 85.65 $ 128.00 $ 168.37 $ 185.96
NASDAQ Total Return Index (U.S.) $ 100.00 $ 68.12 $ 75.63 $ 95.33 $ 96.36 $ 102.50
Dow Jones Consumer Services Index $ 100.00 $ 81.79 $ 82.10 $ 93.39 $ 98.83 $ 102.26
16
Proposal 2
Approval of the Amendment to Our Certificate of Incorporation to
Increase Our Authorized Shares
Our Board of Directors unanimously approved and recommended for
submission to the stockholders an amendment to our Restated Certificate of
Incorporation to provide for an increase in the number of shares of common
stock, par value $0.01 per share, included in the authorized capital of the
Company, from 40,000,000 shares to 80,000,000, subject to the an affirmative
vote of the holders of a majority of the shares of the Company's common stock
outstanding and entitled to vote on the record date. The proposed amendment
would not change the number of shares of preferred stock of the Company that is
currently authorized (1,000,000 preferred shares). The text of this proposed
amendment is included in the Certificate of Amendment attached as Annex B to
this proxy statement.
Our Board of Directors recommends that you vote "FOR" this proposal.
Overview
We are required by Delaware law to obtain stockholder approval for any
amendment to our Restated Certificate of Incorporation. After considering the
current number of issued and outstanding common stock, our current outstanding
equity obligations and various other factors discussed below, the Board has
determined that it is necessary to increase the number of shares of our common
stock authorized for issuance from 40,000,000 shares to 80,000,000 shares. If
approved by our stockholders, the increase in authorized capital would become
effective by filing the Certificate of Amendment with the Secretary of State of
the State of Delaware, which we plan to do as soon as reasonably practicable
after the annual meeting.
Reasons for the Proposal
Our Board believes that the proposed amendment will both enhance our
ability to respond to various corporate opportunities which may arise in the
future and grant added flexibility for issuances of equity while maintaining
enough shares in reserve to satisfy current obligations. As of October 6, 2006,
the Company had XX shares of common stock issued and outstanding and XX shares
of common stock held in treasury. In addition, XX shares are reserved for
issuance upon the exercise of stock options or conversion of our convertible
notes due 2010. Unissued shares are available for issuance, from time to time,
for various corporate purposes, including stock splits, stock dividends,
employee benefit and compensation plans, acquisitions and public or private
sales for cash as a means of raising capital. The increase in the authorized
number of shares of common stock would mean that additional shares would be
available for issuance from time to time at the discretion of the Board without
further stockholder action, except as may be required for a particular
transaction by law, the policies of NASDAQ or any contractual obligations of the
Company that may be in effect at the time of issuance.
Principal Effects on the Rights of Current Stockholders
The terms of the additional shares of common stock will be identical to
those of the currently outstanding shares of common stock. The proposal to
increase the authorized capital of the Company, however, may affect the rights
of the existing holders of common stock to the extent that future issuances of
common stock reduce each existing stockholder's proportionate ownership and
voting rights in the Company. In addition, possible dilution caused by future
issuances of common stock could lead to a decrease in our net income per share
in future periods and a resulting decline in the market price of our common
stock. Our stockholders have no preemptive rights with respect to common stock.
Thus, should the Board elect to issue additional shares with respect to common
stock, existing stockholders would not have any preferential rights to purchase
such shares. Although an increase in the number of authorized shares of common
stock could, under certain circumstances, be construed as having an
anti-takeover effect (for example, by diluting the stock ownership of a person
seeking to effect a change in the composition of the Board or contemplating a
tender offer or other transaction for the combination of the Company with
another company), the Company is not proposing this amendment to the Restated
Certificate of Incorporation in response to any effort to accumulate the
Company's stock or to obtain control of the Company by means of a merger, tender
offer, or solicitation in opposition to management. It is not anticipated that
adoption of the amendment would have any other effects on the holders of our
common stock.
17
Proposal 3
Approval of the Adoption of the Management Incentive Plan
Our Board of Directors has recommended and asks that you approve the
Management Incentive Plan. Our Board adopted the Management Incentive Plan on
September 25, 2006, subject to stockholder approval. The Company believes that
by granting cash-based performance awards, its employees will be motivated to
contribute to the long-term growth and profitability of the Company and thereby
increase shareholder value.
The following is a general description of the material features of the
Management Incentive Plan. A copy of the Management Incentive Plan is attached
as Annex C to this proxy statement. Approval of the above proposal related to
the Management Incentive Plan will require the affirmative vote of the holders
of a majority of the shares of the Company's common stock outstanding and
entitled to vote on the record date. Stockholders may vote (1) "FOR," (2)
"AGAINST," or (3) "ABSTAIN," from voting on Proposal 3.
Our Board of Directors recommends that you vote "FOR" this proposal.
Purposes and Eligibility
The purpose of the Management Incentive Plan is (i) to provide
cash-based incentive compensation opportunities based on the achievement of
specified performance goals to certain employee directors, officers, and
employees of the Company and its subsidiaries to incentivize such individuals to
contribute to the long-term growth and profitability of the Company and (ii) to
assist the Company with attracting, retaining, and motivating highly qualified
individuals who are in a position to make significant contributions to the
Company and its subsidiaries. The Executive Officer Development and Compensation
Committee of the Board has the authority and discretion to designate the
employees who are eligible for an award under the Management Incentive Plan,
subject to the terms of the plan. The Executive Officer Development and
Compensation Committee is referred to herein as the "committee". As of September
25, 2006, approximately 375 individuals were eligible to receive awards under
the Management Incentive Plan.
Effective Date
If approved by the stockholders, the Management Incentive Plan would
become effective for the Company's fiscal year 2007.
Maximum Dollar Amount of Awards
A maximum of $3,000,000 for each annual fiscal year performance period
may be awarded to any one participant who is subject to Section 162(m) of the
Internal Revenue Code.
Performance Awards
The committee may grant annual incentive performance awards to eligible
individuals in its sole discretion. Such awards will be payable in cash at the
end of each annual performance period. Payment will be contingent upon the
achievement of pre-established performance goals (as discussed below) by the end
of the annual performance period. The committee will assign a target amount
within an eligibility scale that will be payable to each participant if the
performance goals are achieved. The committee has the sole authority to
determine the range of the payment values of an award and the performance goals
that must be achieved before payment will be made. In general, a participant
will not be entitled to payment of an incentive performance award unless the
participant is continuously employed by the Company until the end of the annual
performance period, except in cases of the participant's death, total
disability, retirement, or resignation for "good reason" (as defined below). In
the case of retirement or resignation for good reason, the participant will be
entitled to receive a payment equal to 100% of the target amount pro-rated based
on the number of full calendar months of active employment during that
performance period. In the event of death or total disability during a
performance period, the Participant will be entitled to receive a payment equal
to 100% of the target amount such performance period. Such amount will not be
subject to pro-ration.
For purposes of the Management Incentive Plan, "good reason" means
either: (i) a failure by the Company to pay material compensation or benefits
due and payable to the participant in connection with his or her employment or
(ii) a change in the participant's principal work location which would require a
participant to commute 50 miles more each way compared to the distance commuted
just prior to such change.
18
Performance Goals
The Management Incentive Plan contains provisions intended to enable
compensation paid to those executive officers whose compensation is subject to
the deduction limitations of Section 162(m) of the Internal Revenue Code to
qualify as "performance-based compensation" that will be fully deductible by the
Company. At the beginning of each annual performance period, the committee will
establish objective business performance goals for the performance period. The
goals will be comprised of specified levels of one or more of the following
criteria as determined in the discretion of the committee: net income growth;
cash flow growth; sales growth; pre-tax or post-tax profit levels; expense
reduction levels; implementation of critical projects or processes; free cash
flow; free cash flow per share; cash flow per share, earnings per share; net
earnings per share; total stockholder return; return on assets; return on
equity; market price of the Company's common stock; earnings before interest,
taxes, depreciation and amortization ("EBITDA"); adjusted EBITDA; revenue; and
revenue before deferral. In addition, for any awards not intended to qualify as
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code, the committee may establish performance targets based on other performance
goals as it deems appropriate. The performance goals may be based on objectives
that are related to the individual participant or objectives that are
Company-wide or related to a subsidiary, division, department, region, function
or business unit and may be measured on an absolute or cumulative basis or on
the basis of percentage of improvement over time, and may be measured in terms
of Company performance (or performance of the applicable subsidiary, division,
department, region, function, or business unit) or measured relative to selected
peer companies or a market index. Final award payments, if any, will be payable
to the participants in a single cash payment as soon as practicable after the
end of the performance period. Award payments may be greater than the target
amount, but may not exceed two hundred percent (200%) of the target amount if an
individual participant's performance exceeds such participant's performance
goals. The committee retains the right to reduce any award if it believes that
individual performance does not warrant the award calculated by reference to the
result or for other legitimate business reasons.
Change in Control
Upon a change in control (as defined below) of the Company, the amount
payable to a participant for each uncompleted performance period as of the date
of the change in control will be equal to 100% of the participant's target
amount, prorated based on the number of full calendar months completed during
such performance period. This amount will be paid in cash to the participant as
soon as practicable but no later than thirty days after such event.
For purposes of the Management Incentive Plan, "change in control"
generally means any of the following:
(i) after the effective date of the plan, any transfer to,
assignment to, or any acquisition by any person, corporation
or other entity, or group thereof, of the beneficial ownership
of any securities of the Company, which transfer, assignment
or acquisition results in such person, corporation, entity, or
group thereof, becoming the beneficial owner, directly or
indirectly, of securities of the Company representing more
than fifty percent (50%) of the combined voting power of the
Company's then outstanding securities; or
(ii) a majority of members of the Company's board of directors is
replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the
members of the Company's board of directors prior to the date
of the appointment or election; or
(iii) any person, corporation or other entity, or group thereof
acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair
market value equal to or more than seventy-five percent (75%)
of the total gross fair market value of all of the assets of
the Company immediately prior to such acquisition or
acquisitions. For this purpose, gross fair market value means
the value of the assets of the corporation, or the value of
the assets being disposed of, determined without regard to any
liabilities associated with such assets; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company.
However, none of these events will constitute a change in control for
purposes of the plan unless such event also constitutes a "change in ownership,"
"change in effective control," or "change in the ownership of a substantial
portion of the Company's assets" as defined under Section 409A of the Internal
Revenue Code.
19
Adjustment of Awards
The committee will have the right (to the extent permitted by Section
162(m) of the Internal Revenue Code for awards intended to be subject to Section
162(m)) to adjust the performance goals and the target amounts (either up or
down) during a performance period, if it determines that external changes or
other unanticipated business conditions have materially affected the fairness of
the performance goals and the Company's ability to meet them. In addition,
performance goals and final award payment amounts will be calculated (to the
extent permitted by Section 162(m) of the Internal Revenue Code for awards
intended to be subject to Section 162(m)) without regard to any changes in
accounting standards that may be required by the Financial Accounting Standards
Board after the performance goals or target amounts have been established.
Amendment
Our Board may amend, suspend, or terminate the Management Incentive
Plan at any time. However, no termination, amendment, or suspension may
materially and adversely alter or impair the rights of a participant in any
award previously earned under the plan without the consent of the participant.
Our Board of Directors, however, may amend the plan or any award without the
consent of a participant to comply or take into account changes in applicable
tax laws, accounting rules and other applicable laws, rules and regulations or
to ensure that an award is not subject to interest and penalties under Section
409A of the Internal Revenue Code.
Plan Benefits
Because awards under the Management Incentive Plan are determined by
the committee in its sole discretion, the Company cannot determine the benefits
or amounts that will be received or allocated in the future under the Management
Incentive Plan.
20
Proposal 4
Approval of the Adoption of the 2006 Restricted Stock Plan for
Non-Employee Directors
Our Board of Directors has recommended and asks that you approve the
2006 Restricted Stock Plan for Non-Employee Directors. Our Board adopted the
plan on September 25, 2006, subject to stockholder approval. The Board
periodically assesses director compensation in light of market practices and the
practices of the Company's peer companies. In connection with this assessment,
the Board's outside consultant recommended that the total amount of the
compensation package of the Board be increased, especially in light of the time
and work commitment required of directors. The outside consultant recommended
that this increase take the form of additional equity-based compensation to
reflect the trend towards giving directors a greater equity stake. In addition,
this plan will replace our 1995 Non-Employee Director Stock Option Plan and the
1996 Stock Option Plan. The Board approved the change to director compensation
and adopted the 2006 Restricted Stock Plan for Non-Employee Directors, subject
to stockholder approval, and believes that this change will allow the Company to
be competitive in attracting and motivating directors.
The following is a general description of the material features of the
2006 Restricted Stock Plan for Non-Employee Directors. A copy of the plan is
attached as Annex D to this proxy statement. Approval of the above proposal
related to the 2006 Restricted Stock Plan for Non-Employee Directors will
require the affirmative vote of the holders of a majority of the shares of the
Company's common stock outstanding and entitled to vote on the record date.
Stockholders may vote (1) "FOR," (2) "AGAINST," or (3) "ABSTAIN," from voting on
Proposal 4.
Our Board of Directors recommends that you vote "FOR" this proposal.
Purpose and Eligibility
The purpose of the 2006 Restricted Stock Plan for Non-Employee
Directors is (i) to attract, retain, and motivate highly qualified persons who
are not employees of the Company or any of its subsidiaries to serve as
directors of the Company and (ii) to encourage them to make a maximum
contribution to the success of the Company and its subsidiaries and to further
align their interests with those of stockholders of the Company. Awards under
the 2006 Restricted Stock Plan for Non-Employee Directors may be granted only to
members of our Board who are not employees of the Company or any of its
subsidiaries. We refer to these members of our Board of Directors herein as
"non-employee directors". As of September 25, 2006, the Company had six
non-employee directors.
Administration
The Executive Officer Development and Compensation Committee will
administer the 2006 Restricted Stock Plan for Non-Employee Directors, referred
to herein as the "committee". The committee will determine all questions of
interpretation, administration, and application of the 2006 Restricted Stock
Plan for Non-Employee Directors. The committee's determinations shall be final
and binding in all matters relating to the plan. The committee may authorize any
officer of the Company to execute and deliver an agreement on behalf of the
Company to a participant in the plan.
Effective Date
The effective date of the 2006 Restricted Stock Plan for Non-Employee
Directors is the date of stockholder approval of the plan.
Common Stock Subject to the Plan
A maximum of 150,000 shares of the Company's common stock may be issued
under the 2006 Restricted Stock Plan for Non-Employee Directors. The shares
subject to the plan will be made available from authorized but unissued shares
of the Company's common stock or from shares of the Company's common stock
issued and held in the treasury of the Company. For purposes of determining the
number of shares that remain available for issuance under the 2006 Restricted
Stock Plan for Non-Employee Directors, the number of shares corresponding to
awards under the plan that are forfeited or expire for any reason without having
been settled or delivered will be added back to the number of shares that remain
available for issuance and again be available for the grant of awards under the
plan. The number of shares remaining available for issuance will be reduced by
the number of shares subject to outstanding awards under the plan. The number
and kind of securities authorized for issuance under the 2006 Restricted Stock
Plan for Non-Employee Directors shall be equitably adjusted by the committee in
the event of a stock split, reverse stock spit, stock dividend,
recapitalization, reorganization, reclassification, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination, exchange of shares, or
any similar corporate transaction affecting the Company's common stock in order
to preserve, but not increase, the benefits or potential benefits intended to be
made available under the plan.
21
Restricted Shares
The number of restricted shares that shall be granted to each
non-employee director shall be determined by the committee from time to time. It
is currently anticipated that, as of the effective date of the plan, each person
who is or, for the first time becomes, a non-employee director on or subsequent
to the date of shareholder approval of the 2006 Restricted Stock Plan for
Non-Employee Directors will be granted an initial grant of restricted shares
under the plan determined by dividing (i) $45,000 by (ii) the fair market value
of one share of the Company's common stock on the date of grant. Such initial
grant shall be pro-rated where such grant is made after the beginning of the
Company's fiscal year, except that the initial grant made on the date of
stockholder approval of the Plan shall not be pro-rated. In addition, it is
currently anticipated that on July 15, 2007 and each subsequent anniversary of
that date, each non-employee director will automatically be granted an annual
grant of restricted shares under the plan. The number of restricted shares that
will be granted to each non-employee director pursuant to each annual grant,
will be determined by dividing (i) $90,000 by (ii) the fair market value of one
share of the Company's common stock on the date of grant. In addition to the
initial grant and annual grants, the committee, in its discretion, may award
additional restricted shares to a non-employee director to award an exceptional
contribution made by the non-employee director to the Company. A participant
will have all rights of a stockholder as to restricted shares (including, to the
extent applicable, the right to receive dividends and to vote) except that none
of the restricted shares may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of unless and until the shares have vested.
The initial grant and each annual grant of restricted shares under the
plan will vest in equal annual installments on each of the first, second, and
third anniversaries of the date of grant and all restrictions on such shares
shall lapse. If the services of a participant as a director of the Company
terminate due to the retirement of the participant as required by the age
limitation for directors of the Company, all of the participant's unvested
restricted shares will vest and be delivered to the participant and all
restrictions under the plan and the award agreement covering the restricted
shares shall lapse. If the services of a participant as a director of the
Company terminate for any other reason, the participant will forfeit all
unvested restricted shares as of the date of termination, unless a majority of
the Board determines otherwise.
Change in Control
In the event of a change in control of the Company, all restricted
shares will vest and be delivered to participants and all restrictions under the
plan and the award agreement covering the restricted shares will lapse. For
purposes of the 2006 Restricted Stock Plan for Non-Employee Directors, "change
in control" generally means any of the following:
(i) after the effective date of the plan, any transfer to,
assignment to, or any acquisition by any person, corporation
or other entity, or group thereof, of the beneficial ownership
of any securities of the Company, which transfer, assignment
or acquisition results in such person, corporation, entity, or
group thereof, becoming the beneficial owner, directly or
indirectly, of securities of the Company representing more
than fifty percent (50%) of the combined voting power of the
Company's then outstanding securities; or
(ii) a majority of members of the Company's board of directors is
replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the
members of the Company's board of directors prior to the date
of the appointment or election; or
(iii) any person, corporation or other entity, or group thereof
acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair
market value equal to or more than seventy-five percent (75%)
of the total gross fair market value of all of the assets of
the Company immediately prior to such acquisition or
acquisitions. For this purpose, gross fair market value means
the value of the assets of the corporation, or the value of
the assets being disposed of, determined without regard to any
liabilities associated with such assets; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company.
22
However, none of these events will constitute a change in control for
purposes of the plan unless such event also constitutes a "change in ownership,"
"change in effective control," or "change in the ownership of a substantial
portion of the Company's assets" as defined under Section 409A of the Internal
Revenue Code, with respect to any award subject to Section 409A.
Amendment and Termination
The committee may at any time terminate or, from time to time, amend,
modify or suspend the 2006 Restricted Stock Plan for Non-Employee Directors.
However, no termination, amendment, modification or suspension will be effective
without the approval of the stockholders of the Company if their approval is
required by law or under the rules of the National Association of Securities
Dealers' Automated Quotation System. In addition, no termination, amendment,
modification or suspension of the plan may materially and adversely alter or
impair the rights of a participant in any award previously made under the plan
without the consent of the holder of the award. The committee, however, may
amend the plan or any award under the plan without the consent of a participant
to comply with, or take into account changes in, applicable tax laws, securities
laws, accounting rules and other applicable laws, rules and regulations or to
ensure that an award is not subject to interest and penalties under Section 409A
of the Internal Revenue Code. Unless earlier terminated in accordance with
above, the Plan will terminate on the tenth anniversary of the effective date of
the Plan, and no further awards may be granted under the Plan after the date of
termination of the Plan but vesting will continue.
Plan Benefits
As described above, non-employee directors will receive an initial
grant of restricted shares on the date of stockholder approval of the 2006
Restricted Stock Plan. Based on the closing price of a share of Company common
stock on September 25, 2006 of $40.77, the estimated number of shares that the
Company would expect to allocate to the non-employee directors pursuant to the
initial grant on the date of stockholder approval is 1,104 shares. However,
because the first annual grant is not until July 15, 2007 and each anniversary
thereof, and due to the possible fluctuation in stock price, and because the
Committee may determine the number of restricted shares to grant pursuant to the
plan, we can not determine the amounts that will be received or allocated in the
future pursuant to the annual grants to non-employee directors or pursuant to
subsequent initial grants to new non-employee directors under the 2006
Restricted Stock Plan. Only non-employee directors are eligible to receive
grants under the 2006 Restricted Stock Plan. No officers or employees of the
Company are eligible to participate in the 2006 Restricted Stock Plan and,
therefore, no benefit will accrue to such persons.
23
Proposal 5
Ratification of the Selection of Independent Registered Public Accounting Firm
Our Board, at the recommendation of the Audit Committee, has selected
PricewaterhouseCoopers LLP ("PwC") as our independent registered public
accounting firm for the fiscal year ending June 30, 2007. PwC has served as our
independent registered public accounting firm since 1990. If this proposal is
not approved at the annual meeting, the Board may reconsider its selection of
PwC.
Representatives of PwC are expected to be present at the annual
meeting. They will have the opportunity to make a statement if they desire to do
so and will also be available to respond to appropriate questions from
stockholders.
Our Board of Directors recommends that you vote "FOR" this proposal.
Fees Paid to PwC
The table below provides a summary of the aggregate fees billed to us
related to fiscal years 2006 and 2005 by PwC for professional services:
2006 2005
---------------- ---------------
Audit fees $ 1,005,000 $ 905,000
Audit related fees 93,000 128,000
Tax fees 213,000 232,000
Other - -
---------------- ---------------
Total fees $ 1,311,000 $ 1,265,000
================ ===============
Audit fees - These are fees for professional services performed by PwC
for the integrated audit of our financial statements and internal control over
financial reporting and review of financial statements included in our 10-Q
filings, as well as services that are normally provided in connection with
statutory and regulatory filings or engagements.
Audit related fees - These are fees for assurance and related services
performed by PwC that are related to the performance of the audit or review of
our financial statements. This includes: employee benefit plans, attestations
that are not required by statute or regulation, due diligence related to mergers
and acquisitions, and consulting on financial accounting and reporting
standards.
Tax fees - These fees are for tax compliance services, including the
preparation of tax returns and tax advisory services.
Other fees - These fees are for research and other software purchased
by us from PwC.
Pre-Approval Policies and Procedures
The Audit Committee pre-approves all audit and permissible non-audit
services to be provided by the independent registered public accounting firm.
These services may include audit services, audit-related services, tax services
and other services. Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or category of
services. The independent registered public accounting firm and management are
required to report periodically to the Audit Committee regarding the extent of
services provided by the independent registered public accounting firm in
accordance with this pre-approval and the fees for the services performed to
date. The Audit Committee may also pre-approve particular services on a case by
case basis.
24
Report of the Audit Committee
The Audit Committee of the Board reviews our financial reporting
process on behalf of the Board and operates under a written charter adopted by
the Board. The adequacy of the charter is evaluated annually.
The Audit Committee consists of Mr. Heid, Mr. Kamerschen, and Mr.
Tesler, none of whom is an officer or employee of the Company and all of whom
are independent within the meaning of the applicable rules governing audit
committees. The Board has determined that Mr. Heid is an audit committee
financial expert, as defined by SEC guidelines.
Management is responsible for preparing our consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America, for establishing and maintaining adequate internal
control over financial reporting and for evaluating the effectiveness of the
Company's internal control over financial reporting. PwC, our independent
registered public accounting firm, is responsible for performing an independent
integrated audit of our consolidated financial statements and its internal
control over financial reporting in accordance with the standards of the Public
Company Accounting Oversight Board (United States) and issuing their report
based on that audit. The Audit Committee is responsible for appointing,
monitoring and managing the independent registered public accounting firm.
In carrying out its duties, the Audit Committee reviewed and discussed
with management and PwC our audited consolidated financial statements as of and
for the fiscal year ended June 30, 2006, management's assessment of the
effectiveness of the Company's internal control over financial reporting and the
PwC's evaluation of our internal control over financial reporting. Management
represented to the Audit Committee that our consolidated financial statements
were prepared in accordance with accounting principles generally accepted in the
United States. The Audit Committee also discussed with PwC matters required to
be discussed by Statement on Auditing Standards No. 61, "Communication with
Audit Committees, as amended."
In addition, the Committee has discussed with PwC, their independence
from the Company and its management, including the matters in the written
disclosures and the letter required by the Independence Standards Board Standard
No. 1, "Independence Discussions with Audit Committees."
The Audit Committee discussed with PwC the overall scope and plans for
its audit. The Audit Committee meets with PwC, with and without management
present, to discuss the results of its examination, the evaluation of the
Company's internal controls and the overall quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board approved, that
the audited financial statements and management's assessment of internal control
over financial reporting be included in our annual report on Form 10-K for the
year ended June 30, 2006, for filing with the Securities and Exchange
Commission. The Audit Committee and the Board appointed the selection of PwC to
audit our financial statements for fiscal year ending June 30, 2007, subject to
stockholder approval.
AUDIT COMMITTEE
Joseph A. Heid (Chairperson)
Robert Kamerschen
Marc S. Tesler
25
Code of Conduct
We have a Code of Conduct that requires all employees and directors,
including the Named Executive Officers and senior management, to read and to
adhere to the Code of Conduct in discharging their responsibilities. Employees
and directors are required to report any conduct that they believe in good faith
to be an actual or apparent violation of the Code of Conduct. The Code of
Conduct was filed as Exhibit 14 to our quarterly report on Form 10-Q filed on
May 14, 2004.
Other Matters
The Board does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented at the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
Solicitation Expenses
We will bear the costs of soliciting proxies for the meeting. In
addition to solicitations by mail, our directors, officers, and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph, and personal interviews, and we reserve the right to retain outside
agencies for the purpose of soliciting proxies. Brokers, custodians, and
fiduciaries will be requested to forward proxy soliciting material to the owners
of shares held in their names, and we will reimburse them for out-of-pocket
expenses incurred on behalf of us.
Stockholders' Proposals
If you wish to submit a proposal to be included in the proxy statement
for our 2007 annual meeting, you must deliver the proposal to us no later than
June 1, 2007. All proposals must be in writing and sent to: General Counsel, 20
Glover Avenue, Norwalk, CT, 06850.
For any proposal that is not submitted for inclusion in next year's
proxy statement, but is instead sought to be presented directly at our 2007
annual meeting, SEC rules permit management to vote proxies in its discretion if
we: (1) receive notice of the proposal before the close of business on September
3, 2007 and advise stockholders in the 2007 proxy statement about the nature of
the matter and how management intends to vote on such matter; or (2) do not
receive notice of the proposal prior to the close of business on September 3,
2007. Notices of intention to present proposals at the 2007 annual meeting
should be in writing and sent to: General Counsel, 20 Glover Avenue, Norwalk,
CT, 06850.
Communications with the Board
The Company's Annual Meeting of Stockholders provides an opportunity
each year for stockholders to ask questions of or otherwise communicate directly
with members of the Board on appropriate matters. If you have questions or need
more information about the meeting or any of the matters described in this proxy
statement, please write to: General Counsel, 20 Glover Avenue, Norwalk, CT,
06850. Copies of written communications received at such address will be
provided to the Board or the relevant director unless such communications are
considered, in the reasonable judgment of the General Counsel, to be
inappropriate for submission to the intended recipient(s).
By Order of the Board of Directors,
/s/ James B. Duffy
James B. Duffy
Secretary
October XX, 2006
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND, YOU MAY VOTE YOUR SHARES BY MARKING YOUR VOTES ON THE
ENCLOSED PROXY CARD, SIGNING AND DATING IT, AND MAILING IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED
STATES. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
26
ANNEX A
Vertrue Incorporated
Audit Committee Charter
I. Purpose
The purpose of the Audit Committee is to assist the board of directors
in fulfilling its responsibilities to oversee the Company's financial reporting
process, including monitoring the integrity of the Company's financial
statements and the independence, qualifications and performance of the Company's
external auditors.
II. Responsibilities and Duties
In furtherance of its purpose, the Committee shall have the following
authority and responsibilities:
(i) Recommend to the board for selection and stockholder
ratification, the independent registered public accounting
firm to examine the Company's accounts, controls and financial
statements;
(ii) The Committee shall have the sole authority to approve all
audit engagement fees and terms and the Committee shall
pre-approve any non-audit service provided by the Company's
independent auditor.
(iii) Determine whether to recommend to the board that the Company's
annual financial statements and quarterly financial
statements, including matters required to be reviewed under
applicable legal, regulatory or NASDAQ requirements, should be
approved. To carry out this responsibility, the Audit
Committee shall:
- review and discuss the audited financial statements
with management and the independent auditors;
- discuss with the independent auditors the matters
required by Statement on Auditing Standards No. 61;
- review and discuss with the independent auditors the
written disclosures required by Independence
Standards Board Standard No. 1 regarding their
independence and, where appropriate, recommend that
the board of directors take appropriate action in
response to the disclosures to satisfy itself of the
independence of the Company's independent auditors;
- based upon the reviews and discussions, issue its
report for inclusion in the Company's Proxy
Statement;
- meet with the independent auditors without the
presence of management to review the Company's
accounting practices, internal accounting controls
and such other matters as the Committee deems
appropriate;
- regularly report to the board of directors its
conclusions with respect to the matters that the
Committee has considered;
- resolve disagreements between management and the
auditor regarding financial reporting; and
- establish procedures for the receipt, retention, and
treatment of complaints regarding accounting,
internal accounting controls or auditing matters and
for establishing the confidential, anonymous
submission by employees of concerns regarding
questionable accounting or auditing matters.
(iv) To review the Company's financial reporting and accounting
standards and principles, significant changes in such
standards or principles or in their application and the key
accounting decisions affecting the Company's financial
statements, including alternatives to, and the rationale for,
the decisions made.
(v) While the Committee has the duties and responsibilities set
forth in this Charter, the Committee is not responsible for
planning or conducting audits and interim reviews or for
determining whether the Corporation's financial statements are
complete and accurate and in accordance with generally
accepted accounting principles. Similarly, it is not the
Committee's responsibility to ensure that the Corporation
complies with all laws and regulations, policies, procedures
and practices, including conflict of interest policies.
27
III. Advisors
The Committee shall have the exclusive authority, at the
Company's expense, to retain (including authority to approve fees and other
retention terms) such independent consulting, legal and other advisors as it
shall deem appropriate to fulfill its responsibilities without management or
board approval.
IV. Meetings
The Committee shall meet at least four times annually, or more
frequently if circumstances dictate. Any member of the Committee may call a
meeting of the Committee upon due notice to each other member at least
seventy-two hours prior to the meeting. Two members shall constitute a quorum.
If a quorum is present, a majority of the members present shall decide any
question brought before the Committee.
V. Minutes
The Committee will keep minutes of each meeting. The minutes will be
kept by the Chief Financial Officer or by a member of the Committee.
VI. Committee Chair
The Committee chair will be a director appointed by the board on the
recommendation of the Corporate Governance and Nominating Committee. If the
Committee chair is absent from a meeting, another member of the Committee will
act as chair.
VII. Term
Members will be appointed by the board for a one-year term or until a
successor is appointed and qualified upon the recommendation of the Corporate
Governance and Nominating Committee. The Board will fill vacancies on the
Committee and may remove a Committee member from the Committee at any time
without cause.
VIII. Number of Members
The Committee shall consist of at least three members as the board
shall from time-to-time determine.
IX. Membership
All of the members of the Committee shall be independent as determined
by the board applying the definition of (i) "independent director" as
established by the Nasdaq Stock Market, Inc. ("NASDAQ"); (ii) "non-employee
directors" within the meaning of Rule 16b-3 of the Securities Exchange Act of
1934 and the rules promulgated thereunder as well as the Sarbanes-Oxley Act of
2002; and (iii) "outside director" under Section 162(m) of the Internal Revenue
Code of 1986 and the rules promulgated thereunder, all as amended from
time-to-time. Further, each member shall meet all applicable requirements of the
Audit Committee Policy of the New York Stock Exchange with respect to
independence and financial expertise and at least one member shall be an audit
committee financial expert as defined by rules promulgated by the Securities
Exchange Commission.
X. Subcommittees
The Committee may delegate authority and responsibilities to
subcommittees as it deems proper.
28
XI. Non-member Attendance
The Chief Financial Officer will be invited to each meeting; however,
the Committee will meet at least twice a year without executive or senior
management participation. Attendance may be by telephone as provided in the
Company's bylaws.
XII. Amendment and Revision
Not less than annually, the Committee will review this charter and
recommend to the board any changes it deems advisable. The board may, at any
time (acting on its initiative, or on recommendation of the Committee), amend
this charter.
XIII. Agenda
The agenda for each meeting will be set by the Committee chair after
conferring with the other Committee members and with the appropriate members of
management.
XIV. Board Reports
The Committee will inform the board from time-to-time and when
appropriate of the actions it has taken in fulfillment of the Committee's
responsibilities under this charter.
XV. Performance Review
The Committee will annually review its performance, which will include
eliciting input from management and the board on the performance of the
Committee. The Committee will report the results of such self-assessment to the
board.
29
ANNEX B
Proposed Amendment to the Restated Certificate of Incorporation
Certificate of Amendment to
Restated Certificate of Incorporation of
Vertrue Incorporated
Vertrue Incorporation, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that:
FIRST, the name of the Corporation is Vertrue Incorporated.
SECOND, the amendment to the Restated Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
THIRD, the Restated Certificate of Incorporation of the Corporation is
hereby amended so that the first sentence of Article IV shall read in its
entirety as follows:
"The total number of shares of all classes of stock which the
Corporation has authority to issue is eighty-one million (81,000,000) shares,
consisting of eighty million (80,000,000) shares of common stock, par value of
One Cent ($0.01) per share (the "Common Stock"), and One Million (1,000,000)
shares of preferred stock, par value of One Cent ($0.01) per share (the
"Preferred Stock")."
30
ANNEX C
Vertrue Incorporated
Management Incentive Plan
1. Purposes of the Plan
The purposes of the Plan are to (a) promote the long-term success of
the Company and its Subsidiaries and to increase shareholder value by providing
Eligible Individuals with incentives to contribute to the long-term growth and
profitability of the Company by granting them performance-based awards and (b)
assist the Company in attracting, retaining and motivating highly qualified
individuals who are in a position to make significant contributions to the
Company and its Subsidiaries.
2. Definitions and Rules of Construction
(a) Definitions. For purposes of the Plan, the following capitalized
words shall have the meanings set forth below:
"Affiliate" means any Parent or Subsidiary and any person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company.
"Award" means performance-based cash awards granted to Eligible
Individuals pursuant to the terms of the Plan.
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
Exchange Act.
"Board" means the Board of Directors of the Company, as constituted
from time to time.
"Cause" means: (i) the Participant's material dishonesty (including,
without limitation, embezzlement, financial misrepresentation, fraud, theft, or
other similar action) in his or her dealings with the Company or any other
entity with which the Company is engaged in or attempting to be engaged in
commerce; (ii) the Participant's conviction of, or entry of a plea of nolo
contendere to, the commission of a felony; (iii) any act or omission by the
Participant that actually has, and which either the Participant intends to have
or the Participant or a reasonable person would expect to have, a material
adverse effect on the Company; or (iv) if the Participant is a party to an
employment agreement governing the terms of his or her employment with the
Company, and the employment agreement includes a definition of termination for
cause, then for purposes of this Plan, the term Cause also includes the grounds
included in such definition, provided that if the definition in the employment
agreement is inconsistent with this Plan, the terms of this Plan shall control.
"Change in Control" means:
(i) after the Effective Date, any transfer to, assignment to, or any
acquisition by any person, corporation or other entity, or group thereof, of the
beneficial ownership, within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, of any securities of the Company, which transfer,
assignment or acquisition results in such person, corporation, entity, or group
thereof, becoming the beneficial owner, directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities; or
(ii) a majority of members of the Company's board of directors is
replaced during any 12-month period by directors whose appointment or election
is not endorsed by a majority of the members of the Company's board of directors
prior to the date of the appointment or election; or
(iii) Any person, corporation or other entity, or group thereof
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or persons) assets from the Company that
have a total gross fair market value equal to or more than seventy-five percent
(75%) of the total gross fair market value of all of the assets of the Company
immediately prior to such acquisition or acquisitions. For this purpose, gross
fair market value means the value of the assets of the corporation, or the value
of the assets being disposed of, determined without regard to any liabilities
associated with such assets; or
(iv) The stockholders of the Company approve a plan of complete
liquidation of the Company.
31
Notwithstanding the foregoing, with respect to an Award that is subject
to Section 409A of the Code and the payment of which will accelerate upon a
Change in Control, no event set forth herein will constitute a Change in Control
for purposes of the Plan unless such event also constitutes a "change in
ownership," "change in effective control," or "change in the ownership of a
substantial portion of the Company's assets" as defined under Section 409A of
the Code and the regulations and guidance promulgated thereunder.
"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations thereunder.
"Committee" means Executive Officer Development and the Compensation
Committee of the Board, any successor committee thereto or any other committee
appointed from time to time by the Board to administer the Plan, which committee
shall meet the requirements of Section 162(m) of the Code and Section 16(b) of
the Exchange Act; provided, however, that if any Committee member is found not
to have met the qualification requirements of Section 162(m) of the Code and
Section 16(b) of the Exchange Act, the Committee may determine that any actions
taken or Awards granted by the Committee will not be invalidated by such failure
to so qualify.
"Company" means Vertrue Incorporated, a Delaware corporation and, where
the context so requires, all present and future Subsidiaries of the Company, or
any successor to all or substantially all of the Company's business that adopts
the Plan.
"EBITDA" has the meaning set forth in Section 5(a) of the Plan.
"Effective Date" means the date on which the Plan is adopted by the
Board or the Committee.
"Eligible Individuals" means the individuals described in Section 4(a)
of the Plan who are eligible for Awards under the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Good Reason" means any of the following: (i) a failure by the Company
to pay material compensation or benefits due and payable to the Participant in
connection with his or her employment; or (ii) a change in the Participant's
principal work location which would require the Participant to commute 50 miles
more each way compared to the distance commuted just prior to the Change in
Control.
"Parent" means a corporation which owns or beneficially owns a majority
of the outstanding voting stock or voting power of the Company.
"Participant" means an Eligible Individual who has been granted an
Award under the Plan.
"Performance Goal" means the individual and/or Company performance
measures established by the Committee.
"Performance Period" means the annual fiscal year period established by
the Committee over which Performance Goals are measured.
"Person" means any person, entity or "group" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, except that such term
shall not include (i) the Company or any of its Subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, (iv) a corporation owned, directly
or indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company, or (v) a person or group
as used in Rule 13d-1(b) under the Exchange Act.
"Plan" means the Vertrue Incorporated Management Incentive Plan, as
amended or restated from time to time.
"Retirement" means a Participant's retirement from employment with the
Company after attaining age 55 and completing at least 10 years of service (as
determined under the Company's tax-qualified retirement plan).
32
"Subsidiary" means (i) a domestic or foreign corporation or other
entity with respect to which the Company, directly or indirectly, has the power,
whether through the ownership of voting securities, by contract or otherwise, to
elect at least a majority of the members of such corporation's board of
directors or analogous governing body, or (ii) any other domestic or foreign
corporation or other entity in which the Company, directly or indirectly, has an
equity or similar interest and which the Committee designates as a Subsidiary
for purposes of the Plan.
"Target Amount" means the target cash amount (within an eligibility
scale) established by the Committee for a Participant to potentially earn for a
Performance Period.
"Total Disability" means a Participant who has suffered a total or
permanent disability as determined under the Company's long term disability
benefits plan.
(b) Rules of Construction. The masculine pronoun shall be deemed to
include the feminine pronoun, and the singular form of a word shall be deemed to
include the plural form, unless the context requires otherwise. Unless the text
indicates otherwise, references to sections are to sections of the Plan.
3. Administration
(a) Committee. The Plan shall be administered by the Committee, which
shall have full power and authority, subject to the express provisions hereof,
to:
(i) select the Participants from the Eligible Individuals;
(ii) grant Awards in accordance with the Plan;
(iii) determine the Target Amount in connection with an Award;
(iv) determine the terms and conditions of each Award, including,
without limitation, those related to payment, Performance Periods, Performance
Goals, and, subject to Section 5(d), the effect, if any, of a Change in Control
of the Company;
(v) subject to Sections 9 and 10(g) of the Plan, amend the
terms and conditions of an Award after the granting thereof;
(vi) specify and approve the provisions of any documentation delivered
to Participants in connection with their Awards and construe and interpret any
such documentation;
(vii) make factual determinations in connection with the administration
or interpretation of the Plan;
(viii) prescribe, amend and rescind administrative regulations, rules
and procedures relating to the Plan;
(ix) employ such legal counsel, independent auditors and consultants as
it deems desirable for the administration of the Plan and to rely upon any
opinion or computation received therefrom;
(x) vary the terms of Awards to take account of tax or accounting laws
or regulations and other regulatory requirements;
(xi) correct any defects, supply any omission or reconcile any
inconsistency in the Plan; and
(xii) make all other determinations and take any other action desirable
or necessary to interpret, construe or implement properly the provisions of the
Plan.
(b) Plan Construction and Interpretation. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe and
interpret the Plan.
(c) Determinations of Committee Final and Binding. All determinations
by the Committee or its delegate in carrying out and administering the Plan and
in construing and interpreting the Plan shall be final, binding and conclusive
for all purposes and upon all persons interested herein.
(d) Delegation of Authority. To the extent not prohibited by applicable
laws, rules and regulations, the Committee may, from time to time, delegate some
or all of its authority under the Plan to a subcommittee or subcommittees
thereof or other persons or groups of persons it deems appropriate under such
conditions or limitations as it may set at the time of such delegation or
thereafter; provided, however, that the Committee may not delegate its authority
(i) to make Awards to employees (A) whose compensation for such fiscal year may
be subject to the limit on deductible compensation pursuant to Section 162(m) of
the Code or (B) who are officers of the Company who are delegated authority by
the Committee hereunder, or (ii) pursuant to Section 9 of the Plan. For purposes
of the Plan, reference to the Committee shall be deemed to refer to any
subcommittee, subcommittees, or other persons or groups of persons to whom the
Committee delegates authority pursuant to this Section 3(d).
33
(e) Liability of Committee. Subject to applicable laws, rules and
regulations: (i) no member of the Board or Committee or any officer or employee
of the Company to whom any duties or responsibilities are delegated hereunder
shall be liable for any action or determination made in connection with the
operation, administration or interpretation of the Plan and (ii) the Company
shall indemnify, defend and hold harmless each such person from any liability
arising from or in connection with the Plan, except where such liability results
directly from such person's fraud, willful misconduct or failure to act in good
faith. In the performance of its responsibilities with respect to the Plan, the
Committee shall be entitled to rely upon information and/or advice furnished by
the Company's officers or employees, the Company's accountants, the Company's
counsel and any other party the Committee deems necessary, and no member of the
Committee shall be liable for any action taken or not taken in reliance upon any
such information and/or advice.
4. Eligibility
(a) Eligible Individuals. Awards may be granted to officers, employees
or employee directors of the Company or any of its Subsidiaries. The Committee
shall have the authority to select the persons to whom Awards may be granted and
to determine the terms of Awards to be granted to each such Participant.
(b) No right to Participate. The Committee shall have no obligation to
grant any Eligible Individual an Award or to designate an Eligible Individual as
a Participant solely by reason of such Eligible Individual having received a
prior Award or having been previously designated as a Participant. The Committee
may designate an Eligible Individual as a Participant for overlapping periods of
time.
5. Awards in General
(a) Performance Goals. The Committee shall determine in its sole
discretion whether any Eligible Individual shall have the opportunity to earn
incentive compensation under the Plan during any Performance Period. If the
Committee decides to offer such opportunity to one or more Eligible Individuals,
then the Committee shall determine whether any Award under the Plan is intended
to be "performance-based compensation" as that term is used in Section 162(m) of
the Code. Any such Awards designated to be "performance-based compensation"
shall be conditioned on the achievement of one or more Performance Goals to the
extent required by Section 162(m) of the Code and will be subject to all other
conditions and requirements of Section 162(m). The Performance Goals will be
comprised of specified levels of one or more of the following performance
criteria as the Committee deems appropriate: net income growth; cash flow
growth; sales growth; pre-tax or post-tax profit levels; expense reduction
levels; implementation of critical projects or processes; free cash flow; free
cash flow per share; cash flow per share, earnings per share; net earnings per
share; total stockholder return, return on assets; return on equity; market
price of the Company's Common Stock; earnings before interest, taxes,
depreciation and amortization ("EBITDA"); adjusted EBITDA; revenue; and revenue
before deferral. In addition, for any Awards not intended to qualify as
"performance-based compensation" under Section 162(m) of the Code, the Committee
may establish performance targets based on other Performance Goals as it deems
appropriate. The Performance Goals may be described in terms of objectives that
are related to the individual Participant or objectives that are Company-wide or
related to a Subsidiary, division, department, region, function or business unit
and may be measured on an absolute or cumulative basis or on the basis of
percentage of improvement over time, and may be measured in terms of Company
performance (or performance of the applicable Subsidiary, division, department,
region, function or business unit) or measured relative to selected peer
companies or a market index. The applicable Performance Goals will be
established by the Committee prior to the commencement of the applicable
Performance Period (or such later date permitted by Section 162(m) of the Code).
Each Participant will be assigned a Target Amount payable if Performance Goals
are achieved. With respect to Awards intended to be subject to Section 162(m) of
the Code, any payment of an Award shall be conditioned on the written
certification of the Committee that the Performance Goals and any other material
conditions of the Award were satisfied. Final Award payments, if any, will be
payable to the Participant in a single cash payment as soon as practicable after
the end of the Performance Period. If a Participant's performance exceeds such
Participant's Performance Goals, Awards may be greater than the Target Amount,
but may not exceed two hundred percent (200%) of such Participant's Target
Amount. The Committee retains the right to reduce any Award if it believes that
individual performance does not warrant the Award calculated by reference to the
result or for other legitimate business reasons.
(b) Limitations on Awards. The maximum amount of an Award that may be
payable under the Plan to any Participant who is subject to Section 162(m) of
the Code for any Performance Period shall be $3,000,000.
34
(c) Termination of Employment. (i) Except as otherwise provided in this
Section 5(c), a Participant will not be entitled to payment for a Performance
Period and will forfeit all rights to any Award for such Performance Period
unless such Participant has remained continuously employed by the Company until
the end of the Performance Period.
(ii) In the event that a Participant's employment is terminated by
reason of the Participant's Retirement, or by the Participant for Good Reason,
the Participant will be entitled to an Award/payment equal to 100% of such
Participant's Target Amount for the Performance Period pro-rated based on the
number of full calendar months of active employment completed during such
uncompleted Performance Period.
(iii) In the event that a Participant's employment is terminated by
reason of such Participant's death or Total Disability, the Participant or his
or her designated beneficiary or legal representative will be entitled to an
Award/payment equal to 100% of such Participant's Target Amount for the
Performance Period which shall not be pro-rated for such Performance Period.
(d) Change in Control. In the event of a "Change in Control" of the
Company, outstanding Awards granted under the Plan shall be payable as follows:
The Award/payment to a Participant for any uncompleted
Performance Period as of the date of the Change in Control will be equal to 100%
of such Participant's Target Amount for the Performance Period pro-rated based
on the number of full calendar months of active employment completed during such
uncompleted Performance Period. Such amount shall be paid to each Participant as
soon as practicable, but no later than 30 days, after such event.
6. Non-Transferability of Rights
Except as expressly provided by the Committee, a Participant's rights
and interests under the Plan may not be assigned or transferred in whole or in
part either directly or by operation of law or otherwise (except in an event of
the participant's death), including, but not limited to, by way of execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no
such rights or interests of any participant under the Plan shall be subject to
any obligation or liability of such participant other than any obligations or
liabilities owed by the Participant to the Company.
7. Adjustment of Awards
The Committee shall have the right (to the extent permitted by Section
162(m) of the Code and the regulations and interpretative rulings thereunder for
Awards intended to be subject to Section 162(m) of the Code) to adjust the
Performance Goals and the Target Amounts (either up or down) during a
Performance Period, if it determines that external changes or other
unanticipated business conditions have materially affected the fairness of the
Performance Goals and the Company's ability to meet them. In addition,
Performance Goals and final award payment amounts will be calculated (to the
extent permitted by Section 162(m) of the Code and the regulations and
interpretative rulings thereunder for Awards intended to be subject to Section
162(m) of the Code) without regard to any changes in accounting standards that
may be required by the Financial Accounting Standards Board after the
Performance Goals or Target Amounts have been established.
8. Effective Date
The Plan shall become effective on the Effective Date, subject to
approval by the shareholders of the Company.
9. Amendment and Termination
Subject to applicable laws, rules and regulations, the Board may at any
time terminate or, from time to time, amend, modify or suspend the Plan. No
termination, amendment, modification or suspension of the Plan shall materially
and adversely alter or impair the rights of a Participant in any Award
previously earned under the Plan without the consent of the holder thereof.
Notwithstanding the foregoing, the Board shall have broad authority to amend the
Plan or any Award under the Plan without the consent of a Participant to the
extent it deems necessary or desirable (a) to comply with, or take into account
changes in, applicable tax laws, accounting rules and other applicable laws,
rules and regulations or (b) to ensure that an Award is not subject to interest
and penalties under Section 409A of the Code.
10. Miscellaneous
(a) Tax Withholding. The Company or a Subsidiary, as appropriate, shall
have the right to deduct from all cash payments made to a Participant (whether
or not such payment is made in connection with an Award) any applicable taxes
required to be withheld with respect to such payments.
35
(b) No Right to Awards or Employment. No person shall have any claim or
right to receive Awards under the Plan. Neither the Plan, the grant of Awards
under the Plan nor any action taken or omitted to be taken under the Plan shall
be deemed to create or confer on any Eligible Individual any right to be
retained in the employ of the Company or any Subsidiary or other Affiliate
thereof, or to interfere with or to limit in any way the right of the Company or
any Subsidiary or other Affiliate thereof to terminate the employment of such
Eligible Individual at any time. No Award shall constitute salary, recurrent
compensation or contractual compensation for the year of grant, any later year
or any other period of time. Payments received by a Participant under any Award
made pursuant to the Plan shall not be included in, nor have any effect on, the
determination of employment-related rights or benefits under any other employee
benefit plan or similar arrangement provided by the Company and the
Subsidiaries, unless otherwise specifically provided for under the terms of such
plan or arrangement or by the Committee.
(c) Section 162(m) of the Code. With respect to Awards intended to
qualify under 162(m) of the Code, the Plan is intended to comply in all respects
with Section 162(m) of the Code.
(d) Satisfaction of Obligations. Subject to applicable law, the Company
may apply any amount received upon payment of an Award to any obligations a
Participant owes to the Company and the Subsidiaries in connection with the Plan
or otherwise, including, without limitation, or any tax obligations.
(e) Unfunded Plan. The Plan is intended to constitute an unfunded plan
for incentive compensation. To the extent any person acquires any right to
receive payments hereunder, such rights shall be no greater than those of a
general unsecured creditor of the Company.
(f) Headings. The headings of sections herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan.
(g) Section 409A of the Code. If any provision of the Plan contravenes
any regulations or Treasury guidance promulgated under Section 409A of the Code
or would cause an Award to be subject to interest and penalties under Section
409A of the Code, such provision of the Plan may be modified by the Committee to
maintain, to the maximum extent practicable, the original intent of the
applicable provision without contravening the provisions of Section 409A of the
Code. Moreover, any discretionary authority that the Committee may have pursuant
to the Plan shall not be applicable to an Award that is subject to Section 409A
of the Code to the extent such discretionary authority would contravene Section
409A or the regulations or guidance promulgated thereunder.
(h) Governing Law. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Connecticut.
36
ANNEX D
Vertrue Incorporated
2006 Restricted Stock Plan for Non-Employee Directors
Article I
General
Section 1.1 Purpose.
The purpose of the Vertrue Incorporated 2006 Restricted Stock Plan for
Non-Employee Directors (the "Plan") is to attract, retain and motivate highly
qualified persons who are not employees of Vertrue Incorporated, a Delaware
corporation (the "Company"), or any of its Subsidiaries to serve as directors of
the Company and to encourage them to make a maximum contribution to the success
of the Company and its Subsidiaries and to further align their interests with
those of shareholders of the Company.
Section 1.2 Definitions.
As used in the Plan, the following terms shall have the following
meanings:
a) "Agreement" means the written agreement or certificate or
other documentation governing an Award under the Plan, which
shall contain terms and conditions not inconsistent with the
Plan and which shall incorporate the Plan by reference.
b) "Annual Grant" has the meaning set forth in Section 2.1.
c) "Award" means the Restricted Shares granted to Participants in
accordance with Section 2.1.
d) "Beneficial Owner" has the meaning set forth in Rule 13d-3
under the Exchange Act.
e) "Board" means the Board of Directors of the Company.
f) "Change of Control" means any of the following:
i) any transfer to, assignment to, or any acquisition by
any person, corporation or other entity, or group
thereof, of the beneficial ownership, within the
meaning of Section 13(d) of the Securities Exchange
Act of 1934, of any securities of the Company, which
transfer, assignment or acquisition results in such
person, corporation, entity, or group thereof,
becoming the beneficial owner, directly or
indirectly, of securities of the Company representing
more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities;
or
ii) a majority of members of the Company's board of
directors is replaced during any 12-month period by
directors whose appointment or election is not
endorsed by a majority of the members of the
Company's board of directors prior to the date of the
appointment or election; or
iii) any person, corporation or other entity, or group
thereof acquires (or has acquired during the 12-month
period ending on the date of the most recent
acquisition by such person or persons) assets from
the Company that have a total gross fair market value
equal to or more than seventy-five percent (75%) of
the total gross fair market value of all of the
assets of the Company immediately prior to such
acquisition or acquisitions. For this purpose, gross
fair market value means the value of the assets of
the corporation, or the value of the assets being
disposed of, determined without regard to any
liabilities associated with such assets; or
iv) the stockholders of the Company approve a plan of
complete liquidation of the Company.
Notwithstanding the foregoing, with respect to an Award that is subject
to Section 409A of the Code and the payment or settlement of which will
accelerate upon a Change in Control, no event set forth herein will constitute a
Change in Control for purposes of the Plan or any Award Document unless such
event also constitutes a "change in ownership," "change in effective control,"
or "change in the ownership of a substantial portion of the Company's assets" as
defined under Section 409A of the Code and the regulations and guidance
promulgated thereunder.
37
g) "Committee" means Executive Officer Development and the
Compensation Committee of the Board, any successor committee
thereto or any other committee appointed from time to time by
the Board to administer the Plan, which committee shall meet
the requirements of Section 16(b) of the Exchange Act;
provided, however, that if any Committee member is found not
to have met the qualification requirements of Section 16(b) of
the Exchange Act, the Committee may determine that any actions
taken or Awards granted by the Committee will not be
invalidated by such failure to so qualify.
h) "Common Stock" means the common stock of the Company, par
value $0.01 per share.
i) "Code" means the Internal Revenue Code of 1986, as amended,
including any successor law thereto, and the rules and
regulations promulgated thereunder from time to time.
j) "Company" has the meaning set forth in Section 1.1.
k) "Date of Grant" means the date on which the Initial Grant or
an Annual Grant is made.
l) "Effective Date" means the effective date of the Plan provided
for in Article VI below.
m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
n) "Fair Market Value" means, with respect to a share of Common
Stock, the fair market value thereof as of the relevant date
of determination, as determined in accordance with the
valuation methodology approved by the Board. In the absence of
any alternative valuation methodology approved by the Board,
the Fair Market Value of a share of Common Stock shall equal
the closing selling price of a share of Common Stock on the
trading day immediately preceding the date on which such
valuation is made as reported on the composite tape for
securities listed on NASDAQ, or such national securities
exchange as may be designated by the Board, or, in the event
that the Common Stock is not listed for trading on NASDAQ or
such national securities exchange as may be designated by the
Board but is quoted on an automated system, on such automated
system, in any such case on the valuation date (or, if there
were no sales on the valuation date, the average of the
highest and lowest quoted selling prices as reported on said
composite tape or automated system for the most recent day
during which a sale occurred).
o) "Initial Grant" has the meaning set forth in Section 2.1.
p) "NASDAQ" means the National Association of Securities Dealers'
Automated Quotation System.
q) "Non-Employee Director" means any member of the Board who is
not an employee of the Company or any of its Subsidiaries.
r) "Participant" means any Non-Employee Director to whom an Award
has been granted under the Plan.
38
s) "Person" means any person, entity or "group" within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, except that such term shall not include (i) the
Company or any of its Subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly,
by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company, or (v)
a person or group as used in Rule 13d-1(b) under the Exchange
Act.
t) "Plan" has the meaning set forth in Section 1.1.
u) "Subsidiary" means a domestic or foreign corporation or other
entity with respect to which the Company, directly or
indirectly, has the power, whether through the ownership of
voting securities, by contract or otherwise, to elect at least
a majority of the members of such corporation's board of
directors or analogous governing body.
Section 1.3 Administration of the Plan.
The Plan shall be administered by the Committee and the Committee
members shall determine all questions of interpretation, administration and
application of the Plan. The Committee's determinations shall be final and
binding in all matters relating to the Plan. The Committee may authorize any
officer of the Company to execute and deliver an Agreement on behalf of the
Company to a Participant.
Subject to applicable laws, rules and regulations: (i) no member of the
Board or Committee or any officer or employee of the Company to whom any duties
or responsibilities are delegated hereunder shall be liable for any action or
determination made in connection with the operation, administration or
interpretation of the Plan and (ii) the Company shall indemnify, defend and hold
harmless each such person from any liability arising from or in connection with
the Plan, except where such liability results directly from such person's fraud,
willful misconduct or failure to act in good faith. In the performance of its
responsibilities with respect to the Plan, the Committee shall be entitled to
rely upon information and/or advice furnished by the Company's officers or
employees, the Company's accountants, the Company's counsel and any other party
the Committee deems necessary, and no member of the Committee shall be liable
for any action taken or not taken in reliance upon any such information and/or
advice.
Section 1.4 Eligible Persons.
Awards shall be granted only to Non-Employee Directors.
Section 1.5 Common Stock Subject to the Plan.
Subject to adjustment in accordance with the provisions of Article III
hereof, the maximum number of shares of Common Stock that may be issued under
the Plan shall be 150,000 shares. The shares of Common Stock shall be made
available from authorized but unissued shares of Common Stock or from shares of
Common Stock issued and held in the treasury of the Company. For purposes of
determining the number of shares that remain available for issuance under the
Plan, the number of shares corresponding to Awards under the Plan that are
forfeited or expire for any reason without having been settled or delivered
shall be added back to the Plan limit and again be available for the grant of
Awards. The number of shares remaining for issuance will be reduced by the
number of shares subject to outstanding Awards.
Article II
Restricted Shares
Section 2.1 Grants of Restricted Shares
Each person who is a Non-Employee Director or who becomes a
Non-Employee Director for the first time on or subsequent to the Effective Date
shall be granted Restricted Shares (an "Initial Grant"). In addition, on July
15, 2007 and each subsequent anniversary thereof (each, an "Annual Grant"), each
Non-Employee Director shall automatically be granted Restricted Shares. The
number of Restricted Shares that shall be granted to each such Non-Employee
Director shall be determined by the Committee from time to time. As of the
Effective Date, (i) the number of Restricted Shares to be granted pursuant to
the Initial Grant shall be determined by dividing (i) $45,000 by (ii) the Fair
Market Value of one share of common stock on the Grant Date and (ii) the number
of Restricted Shares that shall be granted to each such Non-Employee Director
pursuant to each Annual Grant shall be determined by dividing (A) $90,000 by (B)
the Fair Market Value of one share of Common Stock on the Date of Grant. If the
Date of Grant is not a business day on which the Fair Market Value can be
determined, then the Fair Market Value shall be determined as of the last
business day preceding the relevant Date of Grant on which the Fair Market Value
can be determined. The terms and conditions of the Award shall be set forth in
an Agreement which shall be delivered to the Participants reasonably promptly
following the relevant Date of Grant of such Award. In the event that an Initial
Grant is made to a Non-Employee Director after July 1 of any fiscal year, such
Initial Grant shall be prorated for that portion of the fiscal year in which the
Non-Employee Director is serving in the capacity of a Non-Employee Director of
the Company. Notwithstanding the previous sentence, the Initial Grant made on
the Effective Date shall not be pro-rated. In addition to the Initial Grant and
Annual Grants, the Committee, in its discretion, may award an additional number
of Restricted Shares to a Non-Employee Director to award an exceptional
contribution made by such Non-Employee Director to the Company.
39
Section 2.2 Vesting.
Subject to Section 2.5, the Initial Grant and each Annual Grant shall
vest in equal annual installments on each of the first, second and third
anniversaries of the relevant Date of Grant. In the event of a Change in
Control, all Restricted Shares shall vest and be delivered to Participants in
accordance with Section 2.5. On the date on which Restricted Shares vest, all
restrictions under the Plan and the Agreement covering such Restricted Shares
shall lapse as to such Restricted Shares.
Section 2.3 Rights and Restrictions Governing Restricted Shares.
The Participant shall have all rights of a shareholder as to the shares
of Common Stock subject to an Award (including, to the extent applicable, the
right to receive dividends and to vote) except that none of the Restricted
Shares may be sold, transferred, assigned, pledged or otherwise encumbered or
disposed of unless and until such shares have vested.
Section 2.4 Delivery of Restricted Shares.
Shares of Common Stock issued in connection with an Award may be
evidenced in such manner as the Company in its discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance
of one or more stock certificates. If stock certificates are issued, on the date
of vesting of the Restricted Shares, such certificates shall be delivered to the
Participant or such certificates shall be credited to a brokerage account if the
Participant so directs; provided, however, that such certificates shall bear
such legends as the Committee, in its sole discretion, may determine to be
necessary or advisable in order to comply with applicable federal or state
securities laws.
Section 2.5 Termination of Services.
If the services of a Participant as a director of the Company terminate
due to the retirement of the Participant as required by the age limitation for
directors of the Company, all unvested Restricted Shares of the Participant
shall vest and be delivered to the Participant in accordance with Section 2.4
and all restrictions under the Plan and the Agreement covering such Restricted
Shares shall lapse. If the services of a Participant as a director of the
Company terminate for any other reason, then unless a majority of the Board
determines otherwise, the Participant shall forfeit all unvested Restricted
Shares as of the date of such termination.
Article III
Adjustments
Notwithstanding any other provision of the Plan or any Agreement, the
number and kind of securities authorized for issuance under Section 1.5 of the
Plan shall be equitably adjusted by the Committee in the event of a stock split,
reverse stock spit, stock dividend, recapitalization, reorganization,
reclassification, merger, consolidation, extraordinary dividend, split-up,
spin-off, combination, exchange of shares, or any similar corporate transaction
affecting the Common Stock in order to preserve, but not increase, the benefits
or potential benefits intended to be made available under the Plan. All
adjustments pursuant to this Article III shall be made by the Committee whose
determination as to what adjustments shall be made and the extent thereof, shall
be final.
40
Article IV
Miscellaneous
Section 4.1 No Right to Re-election.
Nothing in the Plan shall be deemed to create any obligation on the
part of the Board to nominate any of its members for re-election by the
Company's stockholders, nor confer upon any Participant the right to remain a
member of the Board for any period of time, or at any particular rate of
compensation.
Section 4.2 Restriction on Transfer.
The rights of a Participant with respect to any Awards under the Plan
shall not be transferable by the Participant to whom such Awards are granted
except by will or the laws of descent and distribution; provided, however, that
the Committee may, in its discretion and subject to the terms and conditions
that it may specify, permit the transfer of an Award for no consideration (i) to
a Participant's family member, (ii) to one or more trusts established in whole
or in part for the benefit of one or more of such family members or (iii) to one
or more entities which are beneficially owned in whole or in part by one or more
such family members..
Section 4.3 No Restriction on Right of Company to Effect Corporate Changes.
The Plan shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the shares of Common Stock or the rights thereof or which are convertible
into or exchangeable for shares of Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
Section 4.4 Headings.
The headings of articles and sections herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan. Section 4.5 Governing Law.
The Plan and all rights hereunder shall be construed in accordance with
and governed by the laws of the State of Connecticut.
Article V
Amendment and Termination
Subject to applicable laws, rules and regulations, the Committee may at
any time terminate or, from time to time, amend, modify or suspend the Plan;
provided, however, that no termination, amendment, modification or suspension
will be effective without the approval of the shareholders of the Company if
such approval is required by law or under the rules of NASDAQ. No termination,
amendment, modification or suspension of the Plan shall materially and adversely
alter or impair the rights of a Participant in any Award previously made under
the Plan without the consent of the holder thereof. Notwithstanding the
foregoing, the Committee shall have broad authority to amend the Plan or any
Award under the Plan without the consent of a Participant to the extent it deems
necessary or desirable (a) to comply with, or take into account changes in,
applicable tax laws, securities laws, accounting rules and other applicable
laws, rules and regulations or (b) to ensure that an Award is not subject to
interest and penalties under Section 409A of the Code.
Article VI
Effective Date
The Effective Date of the Plan is the date of shareholder approval of
the Plan. Unless earlier terminated in accordance with Article V above, the Plan
shall terminate on the tenth anniversary of the Effective Date, and no further
Awards may be granted hereunder after such date.
41
VERTRUE INCORPORATED
PROXY FOR THE 2006 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY, NOVEMBER 17, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY AND
SHOULD BE RETURNED AS SOON AS POSSIBLE
The undersigned having received notice of the 2006 Annual Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) Gary A. Johnson and James B. Duffy, and
each of them, attorneys or attorney of the undersigned (with full power of
substitution in them and each of them) for and in the name(s) of the undersigned
to attend the 2006 Annual Meeting of Stockholders of the Company to be held on
Friday, November 17, 2006 at 9:30 a.m. local time at the Stamford Marriott, 243
Tresser Boulevard, Stamford, Connecticut 06901, and any adjournments thereof,
and to vote and act upon the matters listed on the reverse side in respect of
all shares of stock of the Company which the undersigned may be entitled to vote
or act upon, with all the powers the undersigned would possess if personally
present.
In their discretion, the proxy holders are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments thereof. The
shares represented by this proxy will be voted as directed by the undersigned.
Shares abstained from voting and "broker non-votes" will not count as votes in
favor of such matter and will also not be counted as votes cast or shares voting
on such matter. Attendance of the undersigned at the meeting or at any
adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing.
Address Changes: ____________________________________________________
_______________________________________________________________________________
(If you noted any Address Changes above, please mark
corresponding box on the reverse side.)
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
DETACH AND RETURN THIS PORTION ONLY
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS [X]
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Vote on Directors
1. To elect the following nominees for director:
For Withhold For All To withhold authority to vote for any individual nominee,
All All Except mark "For All Except" and write the nominee's name on the
line below.
[ ] [ ] [ ]
--------------------------------------------------------
01) Alec L. Ellison
02) Joseph A. Heid
03) Gary A. Johnson
04) Robert Kamerschen
05) Michael T. McClorey
06) Edward M. Stern
07) Marc S. Tesler
Vote on Proposals
2. To approve the amendment to the Certificate of Incorporation to increase our authorized shares of common stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the adoption of the Vertrue Incorporated Management Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To approve the adoption of the Vertrue Incorporated 2006 Restricted Share Plan for Non-Employee Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent registered public accounting
firm for the current year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER
INDICATION IS MADE, THE PROXIES SHALL VOTE "FOR" ALL DIRECTOR NOMINEES AND "FOR" PROPOSALS 2, 3, 4, and 5.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES BY MARKING THE VOTES ON
THE ENCLOSED PROXY CARD, SIGNING AND DATING IT, AND MAILING IT IN THE ENCLOSED ENVELOPE. NO POSTAGE NEED BE AFFIXED IF THE
PROXY IS MAILED IN THE UNITED STATES.
A VOTE "FOR" ALL DIRECTOR NOMINEES AND "FOR" PROPOSALS 2, 3, 4, AND 5 IS RECOMMENDED BY THE BOARD OF DIRECTORS.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING AND ANY ADJOURNMENT THEREOF.
For address changes, please check this box and write Yes No
them on the back where indicated. [ ] Please indicate if you plan to attend this meeting. [ ] [ ]
____________________________________________________________ _________________________________________________________
Signature Date Signature (joint owner) Date
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT OWNERS, BOTH SHOULD SIGN. WHEN SIGNING
AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE NAME BY AUTHORIZED OFFICER, GIVING FULL TITLE. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON, GIVING FULL TITLE.
2