UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

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Filed by a Party other than the Registrant o

 

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o  Preliminary Proxy Statement

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

o  Definitive Proxy Statement

þ  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

VERTRUE INCORPORATED

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Vertrue Incorporated

20 Glover Avenue

Norwalk, Connecticut 06850

 

 

 

 

SUPPLEMENT TO PROXY STATEMENT

Amendment to Agreement and Plan of Merger — Your Vote is Very Important

 

 

July 31, 2007

 

Dear Fellow Stockholder:

 

On or about June 13, 2007, we mailed to you a definitive proxy statement dated June 12, 2007 (the “Definitive Proxy”) relating to a special meeting of stockholders (the “Special Meeting”) of Vertrue Incorporated, a Delaware corporation (“Vertrue,” “we” or the “Company”), scheduled for July 12, 2007 to consider a proposal to adopt the Agreement and Plan of Merger, dated as of March 22, 2007 (the “Merger Agreement”), by and among the Company, Velo Holdings Inc., a Delaware corporation (“Parent”), and Velo Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent is owned and/or backed by the equity commitment of an investor group consisting of One Equity Partners, Rho Ventures and Brencourt Credit Opportunities Master, Ltd. and Brencourt BD, LLC (collectively, “Brencourt Equity”). Under the terms of the Merger Agreement, Merger Sub will be merged with and into Vertrue, with Vertrue continuing as the surviving corporation (the “Merger”).

 

At the Special Meeting on July 12, 2007, the stockholders voted to adjourn the meeting until July 31, 2007 to permit the solicitation of additional proxies to adopt the Merger Agreement. The Special Meeting will be reconvened on Tuesday, July 31, 2007, at 9:30 a.m., Eastern Time, at the Stamford Marriott Hotel & Spa, 243 Tresser Boulevard, Stamford, Connecticut; however, we expect to convene the Special Meeting for the sole purpose of adjourning the Special Meeting to August 15, 2007 in order to permit the solicitation of additional proxies and to provide stockholders with additional time to consider the changes to the Merger effectuated by the Amendment (as defined below), including the Revised Merger Consideration (as defined below), and to review the enclosed proxy supplement. The further adjourned Special Meeting will be held on Wednesday, August 15, 2007, at 9:30 a.m., Eastern Time, at the Stamford Marriott Hotel & Spa, 243 Tresser Boulevard, Stamford, Connecticut.

 

As you may know, on July 18, 2007, the parties to the Merger Agreement amended the Merger Agreement to increase the consideration payable to Vertrue stockholders to $50.00 per share in cash, without interest, from $48.50 per share in cash, without interest. If the Merger is completed, you will be entitled to receive $50.00 in cash (less any applicable withholding taxes), without interest, for each share of Vertrue common stock, par value $0.01 per share (the “Common Stock”), that you own (the “Revised Merger Consideration”). In connection with the amendment to the Merger Agreement, on July 18, 2007, Parent entered into an agreement with Brencourt Advisors, LLC (“Brencourt Advisors”), pursuant to which Brencourt Advisors (i) agreed, on its behalf and on behalf of its managed accounts and funds, to vote in favor of the adoption of the amended Merger Agreement and the approval of the Merger and against any action adverse to the Merger, and (ii) was granted an option to acquire, for itself and/or one or more of its managed accounts, an interest in equity securities of Parent in an amount of not less than $10 million and not more than $25 million. On July 26, 2007, Brencourt Advisors gave irrevocable notice to Parent that it was exercising this option, on behalf of Brencourt Equity, to invest in equity securities of Parent in an amount of $25 million. As of the date hereof, Brencourt Advisors owned approximately 27.9% of the Common Stock.

 

Our board of directors (the “Board of Directors”), after careful consideration and following receipt of the unanimous recommendation of the Special Committee of the Board of Directors (the “Special Committee”) consisting of five independent and disinterested directors, has unanimously determined that the Merger is advisable and that the terms of the Merger are fair to and in the best interests of Vertrue and its stockholders (other than the

Chief Executive Officer of Vertrue, Gary A. Johnson, and any other members of senior management of Vertrue who elect to invest in equity securities of Parent in connection with the Merger), and approved the amended Merger Agreement and the transactions contemplated thereby, including the Merger. FTN Midwest Securities Corp., financial advisor to the Special Committee, has delivered a fairness opinion to the effect that, as of July 18, 2007, and based upon and subject to the factors, qualifications, limitations and assumptions set forth therein, the Revised Merger Consideration to be received by the holders of shares of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares) pursuant to the amended Merger Agreement was fair, from a financial point of view, to such holders. Jefferies Broadview, a division of Jefferies & Company, Inc., financial advisor to the Board of Directors, has also delivered a fairness opinion to the effect that, as of July 18, 2007, and based upon and subject to the assumptions, limitations, qualifications and factors contained in its opinion, the Revised Merger Consideration to be received by holders of shares of the Common Stock pursuant to the amended Merger Agreement was fair, from a financial point of view, to such holders (other than Parent, Merger Sub and their respective affiliates).

 

Attached to this letter is a supplement to the Definitive Proxy containing additional and updated information about Vertrue and the amended Merger Agreement. Please read the proxy supplement carefully and in its entirety together with the Definitive Proxy (which was previously mailed to you). We also encourage you, if you have not done so already, to review carefully the Definitive Proxy that was previously mailed to you.

 

The record date for the adjourned Special Meeting has not changed and will not change when the meeting is adjourned on July 31, 2007 to August 15, 2007. The record date will remain June 7, 2007. This means that only holders of record of the Common Stock at the close of business on June 7, 2007 are entitled to vote at the Special Meeting.

 

Your vote is very important. We cannot complete the Merger unless holders of a majority of all outstanding shares of the Common Stock entitled to vote on the matter vote to adopt the amended Merger Agreement. Our Board of Directors unanimously recommends that you vote “FOR” the proposal to adopt the amended Merger Agreement. The failure of any stockholder to vote on the proposal to adopt the amended Merger Agreement will have the same effect as a vote against the adoption of the amended Merger Agreement.

 

For your convenience, we have enclosed revised proxy cards with the proxy supplement. If you have already delivered a properly executed proxy card regarding the Merger proposal, you do not need to do anything unless you wish to change your vote. If you have not previously submitted a proxy or if you wish to revoke or change your prior voting instruction, please submit a proxy by telephone or over the Internet, or complete, date, sign and return your proxy card as soon as possible. If you are a registered holder and have already submitted a properly executed proxy card, you can also attend the adjourned meeting and vote in person to change your vote. If your shares are held in “street name” by your bank, brokerage firm or other nominee, and if you have already provided instructions to your nominee but wish to change those instructions, you should provide new instructions following the procedures provided by your nominee.

 

If you have additional questions about the Merger after reading the proxy supplement, please contact our proxy solicitor, Georgeson Inc., by telephone at (212) 440-9800 (for banks and brokers) and (866) 577-4994 (for all others).

 

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

 

Sincerely,

 

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

 

This supplement and the form of proxy are dated July 31, 2007, and are first being mailed to stockholders on or about July 31, 2007.

 

TABLE OF CONTENTS

 

 

 

 

 

For a discussion of the material factors considered by our Board of Directors and the Special Committee in reaching their conclusions and the reasons why our Board of Directors and the Special Committee determined that the Merger is fair, see “Update to Special Factors — Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger” beginning on page S-17.

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

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

attended the meeting. At the meeting, representatives of each of S&C and MNAT reviewed for the Special Committee its fiduciary duties. The Special Committee discussed the Brencourt Letter, which focused on certain specific assumptions underlying the analyses of Jefferies Broadview and a potential leveraged recapitalization. After consideration and deliberation, the Special Committee authorized Vertrue to seek permission from OEP to approach Brencourt Advisors.

 

On June 25, 2007, Robert Kamerschen, the Chairman of the Special Committee (hereinafter referred to as Mr. Kamerschen), with OEP’s consent and joined by representatives from each of S&C and FTN, held a discussion with Brencourt Advisors to obtain clarification regarding certain of the statements made in the Brencourt Letter.

 

On June 26, 2007, the Special Committee held a telephonic meeting to further discuss the Brencourt Agreement and the Ramius Agreement, and, in light of the fact that Brencourt Advisors had amassed a substantial stake in the Company through transactions in the market, to consider whether to recommend that the Board of Directors adopt a Stockholder Protection Rights Agreement (the “Rights Agreement”). Representatives from each of S&C and MNAT reviewed for the Special Committee its fiduciary duties. A representative from S&C discussed the terms of the proposed Rights Agreement, and noted that it would discourage Brencourt Advisors from acquiring additional shares of the Common Stock and would discourage any other person from acquiring 15% or more of shares of the Common Stock without first seeking the Board of Directors approval of an amendment to the Rights Agreement or a redemption of the Rights provided for in the Rights Agreement. The Special Committee considered whether the additional acquisition of shares by Brencourt Advisors or an acquisition of 15% or more of shares of the Common Stock by any other person would pose a threat to the Company and its stockholders. Among other things, the Special Committee determined once again that the leveraged recapitalization advocated by Brencourt Advisors was not in the best interests of the Company or its stockholders because it posed too great a risk to the Company and its stockholders and should not be pursued by the Company. The Special Committee was concerned that, absent the Rights Agreement, Brencourt Advisors, Ramius or some other third party might obtain control of the Company without paying a control premium to the other holders of the Common Stock. After further consideration and deliberation, the Special Committee concluded that adopting the Rights Agreement would be a reasonable response to address the concerns identified by the Special Committee, and would neither preclude the Company’s stockholders from rejecting the Merger Agreement nor coerce the stockholders into voting in favor of the Merger Agreement, and recommended that the Board of Directors approve the Rights Agreement.

 

On July 2, 2007, the Board of Directors held a telephonic meeting to discuss the proposed Rights Agreement and the concerns identified by the Special Committee. Following the July 2 meeting, the Board of Directors approved the Rights Agreement by unanimous written consent. On July 3, 2007, Vertrue executed the Rights Agreement.

 

From and after June 22, 2007, and through the signing of the amendment to the Merger Agreement, Vertrue’s management and representatives of FTN and S&C, from time to time, contacted the Sponsors to inquire whether the Sponsors would increase the merger consideration.

 

On July 9, 2007, Mr. Kamerschen, joined by representatives from each of S&C and FTN, held a discussion with Ramius to obtain clarification regarding Ramius’ position with regard to the Merger.

 

On Wednesday, July 11, 2007, the Sponsors called Brencourt Advisors to inquire whether Brencourt Advisors was prepared to meet to discuss supporting the Merger if the Sponsors increased the merger consideration. During the telephone call, the Sponsors indicated that they were prepared to meet to discuss an increase of the merger consideration by $0.50 per share to $49.00 per share. Brencourt Advisors indicated that it did not believe it was worth meeting to discuss such an increase. Following the call, the Sponsors informed Mr. Kamerschen of this discussion.

 

In the afternoon of July 11, 2007, at the request of Mr. Kamerschen, representatives from Brencourt Advisors and OEP held a meeting with Mr. Kamerschen in an effort to determine whether the parties could agree to revise the terms of the Merger Agreement in a manner that would convince Brencourt Advisors to support the Merger Agreement. At that meeting, representatives from OEP indicated that they were prepared to increase the merger consideration to $50.00 per share but were unwilling to go any higher. OEP also indicated that since Oak might not participate in the transaction at the higher price, there might be an opportunity for Brencourt Advisors to co-invest in

Parent. The meeting ended without the parties reaching any agreement and later discussions through intermediaries also proved fruitless, as OEP continued to refuse to increase the merger consideration above $50.00 per share. Later that evening, Brencourt Advisors indicated that it would be willing to vote in favor of an adjournment of the Special Meeting on July 12, 2007 in order to permit the representatives from Brencourt Advisors and OEP to continue discussions regarding a potential increase in the merger consideration and a potential co-investment by Brencourt Advisors in Parent.

 

At the Special Meeting convened on July 12, 2007, the stockholders approved a measure to adjourn the Special Meeting to July 31, 2007.

 

Between July 12, 2007 and July 16, 2007, representatives from Brencourt Advisors, OEP and the Company continued discussions regarding a potential increase in the merger consideration and a potential co-investment by Brencourt Advisors in Parent.

 

On July 16, 2007, Parent notified the Special Committee and the Company that it was prepared, subject to the approval of the Board of Directors, to enter into an agreement with Brencourt Advisors (the “Brencourt Voting Agreement”), pursuant to which (i) Brencourt Advisors would agree to vote all of its shares of the Common Stock in favor of the adoption of the Merger Agreement, as it would be amended, to increase the merger consideration to $50.00 per share from $48.50 per share and (ii) Parent would provide Brencourt Advisors an option (exercisable, on behalf of Brencourt Equity, for a period of five business days following Brencourt Advisors obtaining access to Vertrue’s diligence data site) to purchase, on behalf of Brencourt Equity, equity securities of Parent in the amount of no less than $10 million and no more than $25 million on the same terms as Rho Ventures. The proposed Brencourt Voting Agreement would terminate upon the first to occur of (i) termination of the Merger Agreement, as it would be amended, by its terms and (ii) the effective time of the Merger. Parent also advised the Company that Oak had indicated that it did not wish to invest in Parent if Parent increased the merger consideration to $50.00 per share. OEP and Rho Ventures indicated on that day they were willing to agree to replace the entire amount of Oak’s equity commitment in Parent, in the event that Brencourt Advisors elected not to co-invest in Parent.

 

On July 17, 2007, the Special Committee and the Board of Directors held a combined telephonic meeting to discuss the proposal received from the Sponsors, including the following proposed actions: (i) an amendment to the Merger Agreement to increase the merger consideration to $50.00 per share, (ii) Parent entering into the Brencourt Voting Agreement, (iii) an amendment to the Rights Agreement to exempt the transactions contemplated by the Brencourt Voting Agreement, (iv) an agreement to terminate Oak’s obligations under the Oak Limited Guaranty (the “Oak Agreement”) and (v) an amendment to the OEP Limited Guaranty and an amendment to the Rho Ventures Limited Guaranty pursuant to which OEP and Rho Ventures would guarantee the portion of Parent’s termination fee previously guaranteed by Oak (collectively, the “Guarantee Amendments”). Representatives from S&C, FTN, Jefferies Broadview and MNAT were also in attendance. At the meeting, a representative of S&C summarized the terms of the proposal received from the Sponsors and discussed various issues relating to the proposal. The Special Committee and the Board of Directors then received presentations from each of FTN and Jefferies Broadview on the financial aspects of the proposal. After consideration and deliberation, in which FTN and Jefferies Broadview participated, the Special Committee unanimously agreed that S&C should be instructed to negotiate with Dechert LLP, counsel to the Sponsors (“Dechert”), a potential amendment to the Merger Agreement that would increase the merger consideration to $50.00 per share.

 

On July 18, 2007, the Special Committee and the Board of Directors convened a telephonic meeting, together with representatives of S&C, FTN, Jefferies Broadview and MNAT. S&C explained the terms of the proposed Brencourt Voting Agreement and the proposed amendment to the Merger Agreement, and FTN delivered its oral opinion to the Special Committee and Jefferies Broadview delivered its oral opinion to the Board of Directors, each later confirmed by delivery of a written opinion, dated July 18, 2007, to the effect that, as of such date and based on and subject to the various factors, assumptions, qualifications and limitations set forth in the opinion, the $50.00 per share merger consideration to be received by holders of shares of the Common Stock was fair from a financial point of view to the holders of such shares (other than shares held in the treasury of Vertrue, by Parent and Merger Sub and their affiliates, and dissenting shares).

 

After consideration and deliberation in which S&C, FTN, Jefferies Broadview and MNAT participated, the Special Committee voted unanimously to recommend that the Board of Directors approve the amendment to the

Merger Agreement, the Brencourt Voting Agreement, the amendment to the Rights Agreement, the Oak Agreement and the Guarantee Amendments.

 

After consideration and deliberation, the Board of Directors unanimously adopted the unanimous recommendation of the Special Committee and declared the Amended Merger Agreement advisable and both procedurally and substantively fair to Vertrue’s unaffiliated stockholders and in the best interests of Vertrue’s stockholders. The Board of Directors then unanimously approved the execution, delivery and performance of the amendment to the Merger Agreement, the Brencourt Voting Agreement, the amendment to the Rights Agreement, the Oak Agreement and the Guarantee Amendments, and determined to recommend the approval and adoption of the Amended Merger Agreement by the stockholders of Vertrue. The Company then executed the amendment to the Rights Agreement.

 

Following the July 18 meeting and execution of the amendment to the Rights Agreement, Parent and Brencourt Advisors executed the Brencourt Voting Agreement, and Parent, Merger Sub and Vertrue executed the amendment to the Merger Agreement. OEP and Vertrue executed an amendment to the OEP Limited Guaranty, Rho Ventures and Vertrue executed an amendment to the Rho Limited Guaranty, and Oak and Vertrue executed the Oak Agreement. In the morning of July 19, 2007, Vertrue issued a press release announcing the amended transaction, the amendment to the Rights Agreement and the Brencourt Voting Agreement.

 

On July 19, 2007, Brencourt Advisors entered into a customary non-disclosure agreement with Vertrue, which includes a standstill provision that, terminates upon the later of (i) September 1, 2007 and (ii) the termination of the Merger Agreement.

 

On July 26, 2007, Brencourt Advisors, on behalf of Brencourt Equity, gave Parent a notice, exercising its option to purchase $25 million in equity securities of Parent on the same terms as Rho Ventures.

 

 

Summaries of the separate FTN and Jefferies Broadview presentations provided to the Special Committee and the Board of Directors, respectively, are set forth in “Update to Special Factors — Opinions of Financial Advisors” beginning on page S-19.

 

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

 

Our Board of Directors

 

Our Board of Directors, following receipt of the unanimous recommendation of the Special Committee, at a meeting described above on July 18, 2007 unanimously (i) determined that the Amended Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of Vertrue and our unaffiliated stockholders; (ii) approved the Amended Merger Agreement and the transactions contemplated thereby, including the Merger; and (iii) recommended the adoption by our stockholders of the Amended Merger Agreement. As Gary A. Johnson is the only director who is an employee of Vertrue, this approval of the Amended Merger Agreement and the Merger by our Board of Directors constitutes the approval by a majority of our directors who are not employees of Vertrue. In reaching these determinations, our Board of Directors considered (i) the fact that the Special Committee received an opinion delivered by FTN and the Board of Directors received an opinion delivered by Jeffries Broadview as to the fairness, as of the date of such opinions, and based upon and subject to the various factors, assumptions, qualifications and limitations set out therein, from a financial point of view, to our unaffiliated stockholders of the Revised Merger Consideration to be received by such holders in the Merger; (ii) one of the members of the Board of Directors, Alec L. Ellison, is the President of Jefferies Broadview, financial advisor to Vertrue, which will be entitled to a fee in connection with the Merger; and (iii) the unanimous recommendation and analysis of the Special Committee, as described above and in the Definitive Proxy, and adopted such recommendation and analysis in reaching its determinations.

 

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

 

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

account any independent appraisal or valuation of any of Vertrue’s assets or liabilities (contingent or otherwise). FTN did not express a view as to the federal, state or local tax consequences of the Merger.

 

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

 

The following is a summary of the material financial analyses presented by FTN to the Special Committee in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by FTN. The order of analyses described does not represent the relative importance or weight given to those analyses by FTN. The analyses must be considered as a whole. Considering any portion of such analyses or other factors considered by FTN without considering all such analyses and factors could create a misleading or incomplete view of the process underlying the conclusions expressed herein. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary, and, alone, are not a complete description of FTN’s financial analyses. The following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before July 17, 2007, and is not necessarily indicative of current market conditions.

 

Implied Transaction Multiples

 

FTN calculated selected implied transaction multiples for Vertrue based on the $50.00 to be paid for each share of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares). FTN calculated an implied equity consideration by multiplying $50.00 by the total number of outstanding shares of the Common Stock on a fully diluted basis. Equity value was calculated by using the treasury stock method and included convertible debt and outstanding options. FTN then calculated an implied enterprise value based on the implied equity consideration by adding the amount of Vertrue’s net debt, as provided by Vertrue’s management, to the implied equity consideration. Based on the foregoing, FTN calculated that the implied equity value of Vertrue amounted to $663.9 million and the implied enterprise value of Vertrue (including a $45.3 million contingent liability recorded on December 31, 2006 in connection with the acquisition of MyChoice Medical, Inc.) amounted to $806.5 million.

 

As used in this description of FTN’s financial analyses, EBITDA means earnings before interest, taxes, depreciation and amortization. Estimates of future financial performance for Vertrue used by FTN in its analyses were based on forecasts prepared by Vertrue’s management. Based on the foregoing, FTN calculated the following transaction multiples implied by the $50.00 to be paid for each share of the Common Stock (other than shares held in the treasury of Vertrue and dissenting shares):

 

 

The following table sets forth the multiples referred to above:

 

 

Transaction Premium Analysis

 

FTN calculated the premium implied by the Revised Merger Consideration of $50.00 per share of the Common Stock over the market price per share of the Common Stock at certain times. FTN compared the Revised Merger Consideration of $50.00 per share with the following trading prices for the Common Stock:

 

 

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

 

Applying the Revised Merger Consideration of $50.00 per share, the results of FTN’s calculations are reflected below:

 

 

FTN also analyzed acquisition premiums for the two years prior to July 17, 2007 for all public companies, all small cap companies (those with a market capitalization of less than $1 billion) and all Internet services companies, and, for each category, the market mean and median premium percentages one day prior to announcement, one

week prior to announcement and one month prior to announcement. FTN excluded deals with premiums below negative ten percent and those with premiums greater than 100% from its analysis. FTN obtained the information for the foregoing analyses from Capital IQ. The results of FTN’s analysis are summarized in the table below:

 

 

FTN also analyzed various premiums for acquisitions of public companies during the two years prior to March 20, 2007, where the premium paid was between zero and five percent from the share price of the target company one day prior to the announcement of the transaction, the target company was a U.S. company, the transaction was valued at greater than $100 million, and all of the capital stock of the target company was purchased. FTN’s analysis showed 36 transactions within such criteria, of which 23 demonstrated meaningful price appreciation (as described below) from an “undisturbed” stock price. FTN used the price at which the target company was trading prior to any public announcement or rumor of a potential transaction and/or review of strategic alternatives, whether or not substantiated. For selected transactions, the “undisturbed” stock price was based on the lowest stock price for the 30-day period prior to the announcement of the transaction. The 23 transactions ranged in transaction value from $226 million to $7,770 million. For the 23 transactions that FTN selected, the average premium over the “undisturbed” stock price was equal to 23%, the premiums for the transaction price per share over the stock price one day prior to the announcement of the transaction ranged from 0.2% to 4.9%, and the premiums for the price per share paid over the “undisturbed” stock price ranged from 9.0% to 41.4%.

 

Discounted Cash Flow Analyses

 

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

 

In performing the illustrative discounted cash flow analysis, FTN applied discount rates ranging from 12.0% to 14.0% to the projected EBITDA of Vertrue for the calendar year 2010. FTN also applied exit value EBITDA multiples ranging from 6.0x to 7.0x. This analysis was based on EBITDA of $159.1 million for the fiscal year ended June 30, 2010, based on Vertrue management’s forecasts. Based on the foregoing, FTN derived illustrative implied equity values per share ranging from $47.15 to $57.61 per share with respect to Vertrue Common Stock. The financial information provided by Vertrue’s management and used in the analysis included earn-out payments by Vertrue related to prior acquisitions of $45.3 million and $12.2 million in the fiscal years ended June 30, 2007 and June 30, 2008, respectively, and cost of debt refinance of $16 million, as provided by Vertrue. The fully diluted share count used in the analysis varied based on implied value per share.

 

Using the same forecasts, FTN applied perpetual growth rates ranging from 2.0% to 4.0%. FTN also applied discount rates ranging from 12.0% to 14.0% to the projected free cash flows of Vertrue for the fiscal years ended June 30, 2008 through June 30, 2010. This analysis was based on an unlevered free cash flow of $93.9 million for

the fiscal year ended June 30, 2010, based on Vertrue management’s forecasts. Based on the foregoing, FTN derived illustrative implied per share equity values ranging from $38.83 to $60.38 per share.

 

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

 

Leveraged Buyout Analysis

 

FTN performed an illustrative leveraged buyout sensitivity analysis using Vertrue management’s forecasts. The financial information provided by management and used in the analysis included earn-out payments by Vertrue related to prior acquisitions of $45.3 million and $12.2 million in the fiscal years ended June 30, 2007 and June 30, 2008, respectively, and cost of debt refinance of $16 million, as provided by Vertrue. The fully diluted share count used in such analyses varied according to implied price per share. Estimated cost synergies were not included for purposes of this analysis.

 

FTN assumed, for purposes of this analysis, illustrative implied exit multiples of EBITDA ranging from 6.0x to 7.0x, which reflect illustrative implied purchase prices that a hypothetical financial buyer might pay for Vertrue. FTN also assumed, for purposes of this analysis, illustrative internal rates of return required by a hypothetical financial buyer upon exit ranging from 22.5% to 27.5%. This analysis resulted in illustrative implied offer prices per share of the Common Stock ranging from $48.84 to $55.38 per share.

 

Using the same forecasts, FTN also assumed illustrative leverage ratios (including senior and subordinated debt) of 4.5x to 5.5x EBITDA in a hypothetical exit transaction, and illustrative internal rates of return required by a hypothetical financial buyer ranging from 22.5% to 27.5%. This analysis resulted in illustrative implied offer prices per share of the Common Stock ranging from $47.66 to $54.19 per share.

 

Selected Companies Analysis

 

FTN calculated certain ratios and other parameters for Vertrue based on Vertrue’s valuation as of July 17, 2007 and its “undisturbed” valuation as of January 23, 2007, in each case, adjusted to a calendar year basis and based on estimates provided by Vertrue’s management, and compared it to the corresponding ratios and parameters for selected publicly traded companies in the marketing and advertising industry peer composites (online and offline) and membership-based marketing industry peer composite. The peer composites were comprised of the following companies:

 

 

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

 

EBITDA Margin Analysis.  EBITDA margin is defined as EBITDA divided by total revenue. A higher EBITDA margin indicates higher degree of profitability, exclusive of non-cash items, and implies a higher

valuation. The following table sets forth EBITDA margin analysis for Vertrue and the high and low EBITDA margins, where available, for the selected publicly traded companies in each peer composite:

 

 

Earnings Per Share Long Term Growth Rate Analysis.  The EPS LTGR for each of the peer companies was based on research analysts’ average projected long-term growth rate. A higher EPS LTGR indicates greater profitability in the future and implies a higher valuation. The following table sets forth EPS LTGR for Vertrue and the mean and median EPS LTGF for selected publicly traded companies in each peer composite:

 

 

Enterprise Value/Revenues Ratio Analysis.  The Enterprise Value/Revenue Ratio compares a theoretical takeover price to total revenues. A higher ratio indicates higher expectations of future growth and/or profitability and implies a higher valuation. The following table summarizes the results of the enterprise value to revenues ratio

(or EV/Revenue ratio) analysis for Vertrue and the mean and median EV/Revenue ratios for the selected companies in the peer composites reviewed:

 

 

Enterprise Value/EBITDA Ratio Analysis.  The Enterprise Value/EBITDA Ratio compares a theoretical takeover price to EBITDA. A higher ratio indicates higher expectations of future growth and/or profitability and implies a higher valuation. The following table summarizes the results of the enterprise value to EBITDA ratio analysis for Vertrue and the means and medians for the selected companies in the peer composites reviewed:

 

 

P/E Ratio Analysis.  The P/E Ratio compares the price per share of common stock to the earnings per share of common stock and a higher ratio indicates higher expectations of future growth and/or profitability and implies a

higher valuation. The following table summarizes the results of the Price to Earnings ratio analysis for Vertrue and the mean and median P/E Ratios for the selected companies in the peer composites reviewed:

 

 

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

 

Selected Transactions Analysis

 

FTN analyzed certain publicly available information relating to selected transactions involving companies in the online advertising and consumer marketing industry that were announced between July 2004 and July 2007 and the offline advertising and consumer marketing industry that were announced between July 2005 and March 2007. In the online advertising and consumer marketing industry, the transaction values ranged from $12 million to $5,963 million and in the offline advertising and consumer marketing industry, the transaction values ranged from $46 million to $3,383 million.

 

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

 

Online Advertising and Consumer Marketing Industry

 

 

 

Offline Advertising and Consumer Marketing Industry

 

 

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

 

The following table shows the results of this analysis:

 

 

The transaction value of the Merger as a multiple of Revenues for the latest twelve months as of March 31, 2007 is 1.1x and the transaction value as a multiple of EBITDA for the latest twelve months as of March 31, 2007 is 9.0x. FTN also summarized certain terms of Apollo Management, L.P.’s October 2005 acquisition of the Marketing Services Division of Cendant Corporation for $1.83 billion. FTN calculated the ratio of such acquisition’s transaction value as a multiple of LTM Revenues and LTM EBITDA, which equaled 1.2x and 5.4x, respectively.

 

Miscellaneous

 

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

FTN prepared these analyses for the purpose of undertaking a study to enable FTN to render its opinion as to the fairness, from a financial point of view, to the holders of Vertrue Common Stock (other than shares held in the treasury of Vertrue and dissenting shares) of the $50.00 per share of the Common Stock to be received by such holders pursuant to the Amended Merger Agreement. FTN’s opinion does not address the underlying business decision of Vertrue to engage in the transaction. FTN’s analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities may be sold. FTN’s analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Vertrue, FTN or any other person assumes responsibility if future results are materially different from those forecasted.

 

The $50.00 per share purchase price for Vertrue stockholders was determined through arms’ length negotiations among the Special Committee and the Sponsors and was approved by Vertrue’s Board of Directors. FTN provided advice to the Special Committee during these negotiations. FTN did not, however, recommend any specific amount of consideration to Vertrue, the Special Committee or the Board of Directors or that any specific amount of consideration constituted the only appropriate consideration for the proposed Merger.

 

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

 

FTN Midwest Securities Corp. and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed securities and other transactions. FTN was retained by Vertrue to advise the Special Committee in connection with the Special Committee’s consideration of various strategic alternatives, including a possible sale of Vertrue. FTN participated in certain of the negotiations leading to the proposed Merger. FTN provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions in and hold securities of Vertrue or JP Morgan Chase & Co., an affiliate of Parent, for its own account and for the accounts of its customers. FTN received a fee of $1.5 million for its advisory services and rendering its opinion on March 21, 2007 and will receive an additional $250,000 for rendering the July 18, 2007 opinion. If the Merger is consummated, FTN will receive an additional fee of $500,000 because Vertrue entered into a transaction whereby its stockholders will receive consideration greater than $48.50 per share of the Common Stock. In addition, Vertrue agreed to reimburse FTN for its expenses, including attorneys’ fees and disbursements, and to indemnify FTN and related persons against various liabilities, including liabilities under federal securities laws.

 

Opinion of Jefferies Broadview

 

Jefferies Broadview was engaged to render an opinion to the Board of Directors as to whether the original merger consideration to be received by the holders of shares of Common Stock pursuant to the original merger agreement is fair, from a financial point of view, to such holders (other than Parent, Merger Sub and their respective affiliates). As a result of the Amendment, Jefferies Broadview’s engagement was amended to require Jefferies Broadview to render a separate opinion to the Board of Directors as to whether the Revised Merger Consideration to be received by the holders of shares of Common Stock pursuant to the Amended Merger Agreement is fair, from a financial point of view, to such holders (other than Parent, Merger Sub and their respective affiliates). On July 18, 2007, Jefferies Broadview delivered to the Board of Directors its oral opinion, subsequently confirmed in writing, that, as of the date of its opinion, based upon and subject to the assumptions, limitations, qualifications and factors contained in its opinion, the Revised Merger Consideration to be received by the holders of shares of the Common Stock pursuant to the Amended Merger Agreement is fair, from a financial point of view, to such holders (other than Parent, Merger Sub and their respective affiliates). Jefferies Broadview’s July 18, 2007 opinion is referred to hereinafter in this “Opinion of Jefferies Broadview” section as the “opinion.”

The full text of the Jefferies Broadview July 18, 2007 written opinion is attached to this Proxy Supplement as Annex C and incorporated into this Proxy Supplement by reference. We urge you to read that opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken in arriving at that opinion.

 

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

 

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

 

1. reviewed the Amended Merger Agreement;

 

2. reviewed a draft, dated July 18, 2007, of the Amendment;

 

3. reviewed certain publicly available financial and other information about Vertrue;

 

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

 

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

 

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

 

7. compared the proposed financial terms of the Merger with the financial terms of certain other transactions that Jefferies Broadview deemed relevant; and

 

8. conducted such other financial studies, analyses and investigations as Jefferies Broadview deemed appropriate.

 

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

 

With respect to the financial forecasts provided to and examined by Jefferies Broadview, Jefferies Broadview notes that projecting future results of Vertrue is inherently subject to uncertainty. Vertrue informed Jefferies Broadview, and Jefferies Broadview assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of Vertrue’s management as to the future financial performance of Vertrue. Jefferies Broadview expresses no opinion as to Vertrue’s financial forecasts or the assumptions on which they were made.

 

Jefferies Broadview assumed that the final form of the Amendment would be substantially similar to the draft, dated July 18, 2007, of the Amendment reviewed by Jefferies Broadview. Jefferies Broadview also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the Merger, no

delay, limitation, restriction or condition would be imposed that would have an adverse effect on Vertrue, Parent or the contemplated benefits of the Merger.

 

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

 

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

 

Discounted Cash Flow Analysis

 

Jefferies Broadview examined the value of Vertrue based on projected free cash flow estimates. The free cash flow estimates were generated utilizing financial projections from July 1, 2007 through June 30, 2010 that were prepared and furnished to Jefferies Broadview by Vertrue’s management and financial projections from July 1, 2010 through June 30, 2012 that were derived by Jefferies Broadview based on certain financial assumptions provided by Vertrue’s management and then confirmed by Vertrue’s management. A range of terminal values at June 30, 2012 was determined by ascribing terminal growth rates, which ranged from 2.5% to 3.5%, to the projected free cash flow for the trailing twelve-month period (“TTM”) ending June 30, 2012. Jefferies Broadview calculated a discount rate of 15.9% based on the Capital Asset Pricing Model using the calculated median capital structure adjusted beta for three of the four public company comparables (excluding Rewards Network, Inc.), adjusting for a market risk premium of 7.1% and then adding a size premium of 2.3%. Based on a range of terminal growth rates (2.5%-3.5%) and discount rates (15.0%-17.0%), Jefferies Broadview calculated values ranging from $45.83 to $57.30 per share with a median implied equity value of $50.91 per share, calculated using a discount rate of 16.0% and a terminal growth rate of 3.0%.

 

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

 

Comparable Transaction Analysis

 

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

 

Jefferies Broadview considered certain publicly available actual financial data relating to the Affinion transaction, including the adjusted purchase price ($1.825 billion) and the seller’s actual revenue ($1.474 billion) and EBITDA ($291.8 million) for the TTM prior to the announcement of the Affinion transaction. From this information, Jefferies Broadview calculated an Affinion transaction multiple of 6.25x TTM EBITDA, calculated based on financial data of Cendant Corporation’s Marketing Services Division set forth in Affinion’s Form S-4 filed with the SEC on May 8, 2006 and adjusted for non-recurring charges and gains, which Jefferies Broadview noted implied a per Vertrue share price of $33.57 based on Vertrue’s EBITDA for the TTM ended March 31, 2007.

 

The transaction utilized in the comparable transaction analysis is not identical to the Merger. In evaluating the transaction, Jefferies Broadview made judgments and assumptions with regard to industry performance, general

business, economic, market and financial conditions and other matters, many of which are beyond the control of either Vertrue or the Sponsors. Mathematical analysis of comparable transaction data in isolation from other analyses is not an effective method of evaluating transactions.

 

Comparable Public Company Analysis

 

Comparable Public Company Analysis is a method of valuing an entity relative to publicly-traded companies with similar products or services, similar operating or financial characteristics, or servicing similar customers or markets. Jefferies Broadview reviewed and compared selected financial data for four publicly traded companies chosen by Jefferies Broadview that were deemed to be comparable to Vertrue. Jefferies Broadview selected these four companies based on their participation in the comparable offline and online consumer subscription services industry and their similar revenues to Vertrue (i.e., less than $1.5 billion in revenue for the TTM ended March 31, 2007). The comparable companies chosen by Jefferies Broadview included:

 

 

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

 

Jefferies Broadview next calculated the corresponding multiples for Vertrue in the Merger on the same basis, but (i) defining equity market capitalization (for purposes of calculating TMC) as the $50.00 Revised Merger Consideration multiplied by the sum of the number of diluted shares outstanding plus the additional shares that would be issued upon conversion of convertible notes, (ii) using the Revised Merger Consideration instead of stock closing price, and (iii) using management projections instead of selected analyst reports for projected EBITDA and EPS for the year ending December 31, 2007.

 

The resulting multiples are set forth in the table below:

 

 

 

 

With respect to each ratio, a higher multiple implies a higher valuation. The comparable public company analyses performed by Jefferies Broadview indicated an implied Vertrue equity price per share ranging from $39.13 to $51.58 based on a 7.0 x — 9.0 x TTM EBITDA multiple (based on $88.9 million in EBITDA in the TTM ended March 31, 2007) and an implied Vertrue equity price per share ranging from $47.96 to $52.78 based on a 18.0 x —

20.0 x TTM P/E multiple (based on $35.1 million in net income in the TTM ended March 31, 2007). Jefferies Broadview noted that the Revised Merger Consideration of $50.00 was within this range.

 

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

 

Premiums Paid Analysis

 

Using publicly available information, Jefferies Broadview conducted premiums paid analyses using two different sets of transactions announced since January 1, 2005. The first set of transactions involved North American sellers in the consumer-focused digital media and marketing services industry and equity consideration between $100.0 million and $2.0 billion. The second set of transactions were going-private transactions in the North American software and services industry that involved equity consideration between $250.0 million and $2.0 billion.

 

First, Jefferies Broadview reviewed the following 13 consumer-focused digital media and marketing services transactions:

 

 

For each of the target companies involved in the 13 transactions, Jefferies Broadview examined the closing stock price one trading day, 40 trading days and 60 trading days prior to announcement of the relevant transaction in order to calculate the mean, high, 75th percentile, median, 25th percentile, and low premiums paid by the acquiror over the target’s closing stock price at those points in time. Jefferies Broadview then compared those premiums to the premium implied by the $50.00 Revised Merger Consideration over Vertrue’s undisturbed stock price of $39.20 on the date 40 trading days prior to March 16, 2007. A summary of the 40-trading day premiums observed in this first premiums paid analysis is set forth in the table below:

 

Next, Jefferies Broadview reviewed the following 15 software and services going private transactions:

 

 

For each of the target companies involved in the 15 transactions, Jefferies Broadview examined the closing stock price one trading day, 40 trading days and 60 trading days prior to announcement of the relevant transaction in order to calculate the mean, high, 75th percentile, median, 25th percentile, and low premiums paid by the acquiror over the target’s closing stock price at those points in time. Jefferies Broadview then compared those premiums to the premium implied by the $50.00 Revised Merger Consideration over Vertrue’s undisturbed stock price of $39.20 on the date 40 trading days prior to March 16, 2007. A summary of the 40-trading day premiums observed in this second premiums paid analysis is set forth in the table below:

 

 

Conclusion

 

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

Miscellaneous

 

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

 

Pursuant to an engagement letter dated November 27, 2006 (the “Jefferies Broadview Engagement Letter”), the Board of Directors agreed to cause Vertrue to pay Jefferies Broadview a fee in connection with rendering an opinion regarding the original merger consideration to be received by the holders of shares of the Common Stock, pursuant to the Merger Agreement (the “Jefferies Broadview March 20, 2007 Opinion”), $2 million of which was paid upon delivery of the Jefferies Broadview March 20, 2007 Opinion and approximately $6.3 million of which is payable upon consummation of the Merger (the “Contingent Fee”). Pursuant to an amendment to the Engagement Letter, dated July 18, 2007, the Board of Directors agreed to cause Vertrue to pay Jefferies Broadview a $0.5 million fee in connection with rendering the opinion, which fee became payable to Jefferies Broadview upon delivery of the opinion. If the Merger is consummated and the $0.5 million fee has been paid, it will be credited against the Contingent Fee, which will cause the Contingent Fee to be approximately $5.8 million. The Board of Directors has also agreed to cause Vertrue to reimburse Jefferies Broadview for its expenses incurred in connection with rendering the Jefferies Broadview March 20, 2007 Opinion and the opinion and to indemnify Jefferies Broadview against liabilities arising out of or in connection with the services rendered by Jefferies Broadview in connection with rendering the Jefferies Broadview March 20, 2007 Opinion and the opinion.

 

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

and of Our Board of Directors; Fairness of the Merger”), which findings and related analyses Parent, Merger Sub and the Sponsors adopt, other than, in each case, with respect to the financial presentations of FTN and Jefferies Broadview which were provided for the information and assistance of the Special Committee and the Board of Directors, and upon which Parent, Merger Sub and the Sponsors are not entitled to rely, Parent, Merger Sub and the Sponsors believe that the Amended Merger Agreement and the Merger are substantively and procedurally fair to the unaffiliated stockholders. Notwithstanding that Parent, Merger Sub and the Sponsors are not entitled to rely thereon, Parent, Merger Sub and the Sponsors considered the fact that the Special Committee and the Board of Directors received opinions from FTN and Jefferies Broadview, respectively, to the effect that, as of the date of the fairness opinions, and based upon and subject to the various factors, assumptions, qualifications and limitations set out in the fairness opinions, the $50.00 price per share to be received by the unaffiliated stockholders was fair to such stockholders from a financial point of view (see “— Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger”).

 

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

 

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

 

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

opinions, and based upon and subject to the various factors, assumptions, qualifications and limitations set out in the fairness opinions, the $50.00 price per share to be received by the unaffiliated stockholders was fair to such stockholders from a financial point of view (see “ — Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger”).

 

On May 17, 2007, Brencourt Advisors wrote to the Company to express its views that the $48.50 per share in cash contained in the Merger Agreement as originally executed was too low and undervalued the Company by most measures, as more fully described in such letter (which Brencourt Advisors made public at the time via a filing on Schedule 13D, filed on May 18, 2007 and first amended on May 23, 2007). Brencourt Advisors in that letter suggested instead that the Company undertake a leveraged recapitalization transaction by borrowing sufficient sums to fund, together with cash on hand at the Company, a per share dividend of at least $30.00. On June 21, 2007, Brencourt Advisors wrote to the Company a second letter to once again express its views that the original merger consideration of $48.50 per share in cash was too low and undervalued the Company by several measures in addition to those disclosed in the May 17 letter, as more fully described in such letter (which Brencourt Advisors made public at the time via a filing amending the Schedule 13D) and once again suggested that the Board of Directors pursue an alternative value-enhancing transaction, including a leveraged recapitalization of Vertrue. Brencourt Advisors’ analysis was not performed with the benefit of any access to Company non-public information and Brencourt Advisors obtained no commitment from any funding source for its leveraged dividend plan.

 

Brencourt Advisors subsequently negotiated with the Sponsors an increase in the per share merger consideration and agreed to vote its shares of the Common Stock in favor of the transaction at the higher price of $50.00 per share. In making that decision, Brencourt Advisors was aware of recent difficulties in the corporate credit and equity markets that might present a greater risk for the proposed leveraged dividend transaction and equity valuation. Brencourt Advisors was also aware that, despite Brencourt Advisors’ public opposition to the Merger Agreement, no firm, credible and fully financed competing offer to acquire the Company had been made since the publication of Brencourt Advisors’ May 17 letter. In addition, Brencourt Advisors negotiated to have OEP and Rho Ventures increase its offer. Brencourt Advisors was advised that an investor, Oak, had indicated that it did not wish to invest in Parent if Parent increased the merger consideration to $50.00 per share. The Brencourt Parties believe that the transactions contemplated under the Amended Merger Agreement is the best transaction available to the Company stockholders, under current market conditions.

 

The Brencourt Parties do not believe that they have any fiduciary duty to Vertrue or its stockholders, including with respect to the Merger and its terms. The stockholders of Vertrue were, as described in the Definitive Proxy and elsewhere in this Proxy Supplement, represented by the Special Committee that negotiated with the Sponsors and Brencourt Advisors on their behalf, with the assistance of independent legal and financial advisors.

 

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

 

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

Effect on Outstanding Equity and Options

 

Upon the consummation of the Merger, each share of the Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than shares owned by Vertrue or any wholly owned subsidiary of Vertrue, shares owned by Parent, Merger Sub or any other wholly owned subsidiary of Parent immediately prior to the effective time of the Merger or shares held by stockholders who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive $50.00 in cash, without interest and less any applicable withholding taxes. Upon the consummation of the Merger, each outstanding option to purchase shares of the Common Stock, vested or unvested, will be cancelled and only entitle the holder of such option to receive a cash payment equal to the total number of shares of the Common Stock subject to such option multiplied by the amount (if any) by which $50.00 exceeds the option exercise price, without interest and less any applicable withholding taxes. Upon consummation of the Merger, each outstanding share of restricted stock will be cancelled and only entitle the holder of such restrictive stock to receive a cash payment of $50.00, without interest and less any applicable withholding taxes.

 

Effect on Ownership in Vertrue after the Merger

 

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

 

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

 

 

 

 

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

 

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

 

 

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

 

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

 

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

 

The table below sets forth, as of July 18, 2007 (for each of our “named executive officers,” and our executive officers as a group): (i) the number of stock options held by such person, including unvested stock options that will vest upon the consummation of the Merger, (ii) the cash payment that may be made in respect of the foregoing employee stock options upon the consummation of the Merger, (iii) the aggregate number of shares of restricted stock that will vest upon consummation of the Merger, (iv) the aggregate cash payment that will be made in respect of the foregoing restricted stock upon the consummation of the Merger, (v) the estimated cash payments made under each of the Management Incentive Plan and the Long-Term Incentive Plans (collectively referred to as the “Incentive Plans”) upon the consummation of the Merger, (vi) the cash payment that will be made in respect of all other stock owned by such person (including shares owned through employee benefit plans, but excluding stock options and restricted stock) and (vii) the total cash payment such person will receive in respect of all payments described in this table if the Merger is consummated (in all cases before applicable withholding taxes).

 

 

Benefits Accruing after the Merger

 

Gary A. Johnson’s Investment in Parent

 

In connection with the Merger Agreement, Parent and Gary A. Johnson entered into a letter agreement (as amended, the “Rollover Commitment Letter”) pursuant to which Gary A. Johnson agreed to contribute his shares of the Common Stock valued at $20 million to Parent immediately before the consummation of the Merger in exchange for equity interests in Parent. Each share that Gary A. Johnson contributes shall be valued at $50.00 per share. Gary A. Johnson’s equity investment, inclusive of his expected interest in restricted equity under Parent’s

equity incentive plan, is expected to represent approximately 13.2% of the outstanding voting stock of Parent, as of the closing of the Merger. For more information on the Rollover Commitment Letter, see “Rollover and Voting Agreement,” in the Definitive Proxy, beginning on page 76.

 

Other Management Investors

 

Subsequent to the signing of the Amended Merger Agreement, several other members of Vertrue’s management team were provided an opportunity to invest in Parent by purchasing equity securities of Parent in connection with the consummation of the Merger. As of the date of this Proxy Supplement, although no definitive agreements have been reached, several other members of the management team are expected to invest in Parent; however, the equity investment by each management investor, excluding Gary A. Johnson, is currently expected to represent an immaterial amount of the voting stock of Parent; and the equity investment of Gary A. Johnson in Parent is currently expected to represent approximately 13.2% of the outstanding voting stock of Parent as of the closing of the Merger. As of the date of this Proxy Supplement, Vertrue senior management (including Gary A. Johnson’s 11.5% beneficial interest) beneficially owns approximately 18.4% of our outstanding Common Stock.

 

 

Except as set forth above, there have been no transactions in shares of the Common Stock during the past 60 days by Vertrue or any of its officers or directors, or by any of its majority-owned subsidiaries or any of its pension, profit-sharing or similar plans, or by Gary A. Johnson or any of his associates.

 

None of Parent, Merger Sub or the Sponsors have purchased the Common Stock since March 22, 2007.