`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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(cid:134) Soliciting Material Pursuant to §240.14a-12
Medifast, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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displays a currently valid OMB control number.
MEDIFAST, Inc.
To our Stockholders:
You are cordially invited to attend our 2007 Annual Meeting of Stockholders on Friday, September 7, 2007. This meeting will be held at 10:00 a.m.,
Eastern Standard Time, at the Breakers Hotel, One South County Rd., Palm Beach, FL 33480. During the meeting, we will discuss each item of business
described in the accompanying Notice of Annual Meeting and Proxy Statement, update you on important developments in our business and respond to any
questions that you may have about us.
Information about the matters to be acted on at the meeting is contained in the accompanying Notice of Annual Meeting and Proxy Statement.
I would like to take this opportunity to remind you that your vote is very important. Please take a moment now to cast your vote in accordance with the
instructions set forth on the enclosed proxy card. In addition, if you would like to attend the meeting in person, please see the admission instructions set forth in
the Notice of Annual Meeting of Stockholders accompanying this letter and on the enclosed proxy card.
I look forward to seeing you at the meeting.
Best regards,
Bradley T. MacDonald
Chairman of the Board
2
Medifast Inc.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
To Be Held Friday, September 7, 2007
To the Shareholders:
NOTICE IS HEREBY GIVEN that the 2007 Annual General Meeting of Shareholders of Medifast Inc., a Delaware Corporation, or the Company, will be
held on Friday, September 7, 2007 at 10:00 a.m., Eastern Standard Time, at the Breakers Hotel, One South County Rd., Palm Beach, FL 33480 for the
following purposes:
1. Elect three Class I directors for a three year term ending in 2010;
2. Elect three directors to a one year term ending in 2008;
3. Ratify the appointment of the Company’s independent registered public accountants for fiscal 2007;
4. Amend the Bylaws of the Corporation to empower the Board of Directors to elect a Vice-Chairman of the Board.
5. Act upon such other matters as may properly come before the meeting.
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Only shareholders of record at the close of
business on July 16, 2007, are entitled to notice of and to vote at the meeting and any subsequent adjournment(s) or postponement(s) of the meeting.
All shareholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible. Shareholders attending the meeting may vote in person even if they have returned a
proxy card.
`
By Order of the Board of Directors,
Bradley T. MacDonald
Chairman of the Board
Owings Mills, MD
July 23, 2007
3
Table of Contents
THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
Information Concerning Solicitation and Voting
PROPOSAL 1: THE ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
Director Independence
Board Meetings
Director Compensation
Shareholder Communications with the Board of Directors
Committees of the Board
PROPOSAL 2: THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED
5
6
9
9
10
11
11
PUBLIC ACCOUNTANTS
Audit Committee Report
Fees to Independent Registered Public Accountants for Fiscal 2005 and 2006
Pre-Approval Policy
12
13
14
14
PROPOSAL 3: AMEND THE BYLAWS OF THE CORPORATION TO INCLUDE THE VICE-CHAIRMAN
14
POSITION
15
17
21
22
23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ADDITIONAL INFORMATION
OTHER MATTERS
Compensation Discussion and Analysis
Summary Compensation Table
4
Information Concerning Solicitation and Voting
THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
Place, Time and Date of Meeting. This Proxy Statement is being furnished to the Company’s shareholders in connection with the solicitation of proxies
on behalf of our Board of Directors for use at the Meeting to be held on Friday, September 7, 2007, at 10:00 a.m., Eastern Standard Time, and at any subsequent
adjournment(s) or postponement(s) of the Meeting, for the purposes set forth herein and in the accompanying Notice of Annual General Meeting of
Shareholders. The Meeting will be held at the Breakers Hotel, One South County Rd., Palm Beach, FL 33480.
Record Date and Voting Securities. Only shareholders of record at the close of business on July 16, 2007, or the Record Date, are entitled to notice of
and to vote at the Meeting. The Company has one series of Common Shares outstanding. As of July 16, 2007, 13,669,098 Common Shares were issued and
outstanding and held of record by 170 registered holders.
Voting. Each shareholder is entitled to one vote for each Common Share held on the Record Date on all matters submitted for consideration at the Meeting. A
quorum, representing the holders of not less than a majority of the issued and outstanding Common Shares entitled to vote at the Meeting, must be present in
person or by proxy at the Meeting for the transaction of business. Common Shares that reflect abstentions are treated as Common Shares that are present and
entitled to vote for the purposes of establishing a quorum and for purposes of determining the outcome of any matter submitted to the shareholders for a vote.
Each issued and outstanding share of common stock entitles the holder to one vote. Directors are elected by a plurality vote of shares present at the meeting,
meaning that the director nominee with the most affirmative votes for a particular slot is elected for that slot. In an uncontested election of directors, the plurality
requirement is not a factor. The holders of common stock are not entitled to cumulate their votes in the election of directors. Abstentions will not count as votes
cast and will have no effect on the outcome of this proposal. We expect that brokers will be entitled to vote on this proposal, but any broker non-vote will have
no effect on the outcome of the proposal.
The Company is not aware of any matter, other than as referred to in this proxy statement, to be presented at the meeting.
Revocability of Proxies. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by either
(a) delivering to the Corporate Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date or (b) attending the
Meeting and voting in person.
Solicitation Expenses. This solicitation of proxies is made by the Board of Directors and all related costs will be borne by the Company. Proxies may be
solicited by certain of our directors, officers and regular employees, without additional compensation, in person, by telephone, facsimile or electronic mail.
Except as described above, we do not presently intend to solicit proxies other than by mail. We will, upon request, reimburse brokerage firms and others for
their reasonable expenses in forwarding solicitation material to the beneficial owners of Common Shares.
This Proxy Statement contains summaries of certain documents, but you are urged to read the documents themselves for the complete information. The
summaries are qualified in their entirety by reference to the complete text of the document. In the event that any of the terms, conditions or other provisions of
any such document is inconsistent with or contrary to the description or terms in this Proxy Statement, such document will control. Each of these documents, as
well as those documents referenced in this Proxy Statement as being available in print upon request, are available upon request to the Company by following the
procedures described under “Annual Report, Financial and Additional Information.”
5
PROPOSAL 1:
THE ELECTION OF DIRECTORS
The number of directors in each class is determined by the Board of Directors and consists of as nearly equal a number of directors as possible.
These directors are classified as Class I, Class II and Class III. The term of Class I Directors which is up for re-election is up for a three-year term ending in
2010. The term of Class II Directors will expire in 2008. The term for Class III Directors will expire in 2009.
The table below sets forth the name of each Class of director nominated. The nominees for Class I directors are to be voted at the Meeting. The
Board of Directors has nominated Charles P. Connolly, Bradley T. MacDonald, and Donald F. Reilly for election as Class I directors to serve three-year terms
expiring at the 2010 annual general meeting. The Board has also nominated Dennis M. McCarthy to a one year term and it is intended that he will be nominated
as a Class II director in 2008. The Board of Directors has nominated Rich T. Aab to a one year term and it is intended that he will be nominated as a Class III
director in 2009. In addition, the Board of Directors has nominated Michael S. McDevitt to a one year term and it is intended that he will be nominated as a
class III director in 2009. Upon shareholder approval for the election of the Chief Executive Officer, Michael S. McDevitt, his father, Michael J. McDevitt
plans to voluntarily remove himself from the Board of Directors. Each nominee has consented to be named as a nominee and, to the present knowledge of the
Company, is willing to serve as a director, if elected. Should any of the nominees not remain a nominee at the end of the meeting (a situation which is not
anticipated), solicited proxies will be voted in favor of those who remain as nominees and may be voted for substitute nominees. Unless contrary instructions are
given on the proxy, the shares represented by a properly executed proxy will be voted “FOR” the election of nominated Charles P. Connolly, Bradley T.
MacDonald, Donald F. Reilly, Dennis M. McCarthy, Richard T. Aab, and Michael S. McDevitt.
The Company did not receive any shareholder nominations for director.
The table below sets forth information about the six nominees and the directors whose terms of office continue beyond the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” MESSRS. CHARLES P. CONNOLLY, BRADLEY T. MACDONALD,
DONALD F. REILLY, DENNIS M. MCCARTHY, RICHARD T. AAB, AND MICHAEL S. MCDEVITT
6
NOMINEES
Name and Experience
Charles P. Connolly, age 58, is currently an independent director focusing on bank relationships, debt
refinancing, merger and acquisition strategy and executive compensation design. Mr. Connolly spent
29 years at First Union Corp. that merged with Wachovia Bank in 2001. He retired in 2001 as the
President and CEO of First Union Corp. Mr. Connolly serves on the Boards of numerous non-profit
organizations. He holds an MBA from the University of Chicago and AB from Villanova University.
Class
I
Director
Since
2006
Bradley T. MacDonald, age 59, is the Chairman of the Board of Medifast, Inc. Mr. MacDonald has
I
1996
been Chairman of the Board of Medifast, Inc. since January 1998 and was also Chief Executive officer
until March of 2007. He was the principal architect of the turnaround of Medifast and formulated the
“Direct to Consumer” business models that are the primary drivers of Revenue to this day. He also was
the co-founder of Take Shape for Life and acquired the Clinic operations in 2002. During his time as
CEO, he managed the company to 29 consecutive quarters of profits and improved shareholders equity
from negative $4 million to over $27 million in less than seven years. He also increased the Company’s
market cap from less than $1 million to over $100 million and listed the company on the NYSE. In
2006, Mr. MacDonald received the prestigious and audited Ernst and Young award of “Entrepreneur of
the Year” for the state of Maryland in the consumer products category. Also, he helped lead the
Company to national recognition in Forbes Magazine ranking Medifast 28th of the top 200 small
companies in America . From 1991 through 1994, Colonel MacDonald returned to active duty to be
Deputy Director and Chief Financial Officer of the Retail, Food, Hospitality and Recreation Businesses
for the United States Marine Corps. Prior thereto, Mr. MacDonald served as Chief Operating Officer
of the Bonneau Sunglass Company, President of Pennsylvania Optical Co., Chairman and CEO of
MacDonald and Associates, which had major financial interests in a retail drug, consumer candy, and
pilot sunglass companies. Mr. MacDonald was national president of the Marine Corps Reserve
Officers Association and retired from the United States Marine Corps Reserve as a Colonel in 1997,
after 27 years of service. He has been appointed to the Defense Advisory Board for Employer Support
of the Guard and Reserve (ESGR) Mr. MacDonald serves on the Board of Directors of the Wireless
Accessories Group (AMEX: XWG). He also serves on the Board of Directors of the Marine Corps
Reserve Toys for Tots Foundation and is on the Board of Trustees of Villa Julie College of
Stevenson, Maryland and the Institute of Notre Dame, the oldest Catholic girl’s urban high school in
Maryland, located in Baltimore. Mr. MacDonald is the father of Margaret MacDonald who performs
the role of President and Chief Operating Officer at Medifast, Inc. and the brother of board member
Michael C. MacDonald.
Donald F. Reilly, OSA, age 59, holds a Doctorate in Ministry (Counseling) from New York Theological
I
1998
and an M.A. from Washington Theological Union as well as a B.A. from Villanova University.
Reverend Don Reilly was ordained a priest in 1974. His assignments included Associate Pastor, Pastor
at St. Denis, Havertown, Pennsylvania, Professor at Villanova University, Personnel Director of the
Augustinian Province of St. Thomas of Villanova, Provincial Counselor, Founder of SILOAM
Ministries where he ministers and counsels HIV/AIDS patients and caregivers. He is currently on the
Board of Directors of Villanova University, and is Board Member of Prayer Power. Fr. Reilly was
recently re-elected Provincial of the Augustinian Order at Villanova, PA. He oversees more than 220
Augustinian Friars and their service to the Church, teaching at universities and high schools, ministering
to parishes, serving as chaplain in the Armed Forces and hospitals, ministering to AIDS victims, and
serving missions in Japan and South America.
Dennis M. McCarthy, age 62, practiced law for 21 years as a civil litigator in tort and contract cases. He
was the founding member and managing partner of a Columbus, Ohio based law firm. Additionally, he
served active duty in the U.S. Marine Corps for 23 years and served 18 years in reserve service. Mr.
McCarthy retired from the Marine Corps in 2005 in the grade of Lieutenant General after four years in
command of all Marine Reserve forces. Mr. McCarthy is currently the Executive Director of the
Reserve Officers Association, a congressionally chartered association devoted to national defense. In
addition to Medifast, he is a member of the Board of Directors of Rivada Networks.
Richard T. Aab, age 58, co-founded US LEC in June 1996 and has served as Chairman of the Board of
Directors since that time. He also served as Chief Executive Officer from June 1996 until July 1999.
Between 1982 and 1997, Mr. Aab held various positions with ACC Corp., an international
telecommunications company in Rochester, NY, including Chairman and Chief Executive Officer, and
served as a director. Mr. Aab is a member of the Board of Trustees of the University of Rochester, the
University of Rochester Medical Center, Rochester Institute of Technology and various private
corporate institutions.
7
II
2006
III
2007
Michael S. McDevitt, age 29, is the Chief Executive Officer and Chief Financial Officer of Medifast, Inc.
Mr. McDevitt joined Medifast in 2002 as Controller and was promoted to Vice President of Finance in
January 2004. In March of 2005 he was promoted to President and subsequently promoted to the
position of President and Chief Financial Officer in January of 2006. In March of 2007, Mr. McDevitt
was promoted to Chief Executive Officer. Prior to joining Medifast, Mr. McDevitt worked as a
Financial Analyst for The Blackstone Group, an investment and advisory firm based in New York, NY.
III
2007
CONTINUING DIRECTORS
Name and Experience
Class
Director
Since
Michael C. MacDonald, age 53, is president of global accounts and marketing operations for Xerox
II
1998
Corporation, Stamford, Conn. He was named to this position in October 2004 and was appointed a
corporate senior vice president in July 2000. Mac Donald is responsible for directing the company’s
largest global accounts, improving the customer experience, corporate marketing, xerox.com,
advertising, worldwide public relations and marketing communications. Most recently, Mac Donald
was president, North American Solutions Group responsible for all products, services and solutions sold
by Xerox direct sales force in the United States and Canada. Prior to that, he served as the group’s
senior vice president of marketing and chief of staff. Mac Donald is on the board of directors of the
Rochester Institute of Technology, PAETEC, and the Jimmy V Foundation. He is also a board member
of the CMO Council North American Advisory Board. Mr. MacDonald completed executive business
and management programs at Columbia University in 1992 and the International Senior Management
Program at Harvard University in 1998
Mary T. Travis, age 56, is currently employed with Sunset Mortgage Company, L.P. in Pennsylvania as
II
2002
the Senior Vice President of wholesale operations and was formerly the Vice President of operations for
the Financial Mortgage Corporation. Mrs. Travis is an expert in mortgage banking with over 36 years
of diversified experience. She is an approved instructor of the Mortgage Bankers Association
Accredited School of Mortgage Banking. Mrs. Travis was also formally a delegate and 2nd Vice
president of the Mortgage Bankers Association of Greater Philadelphia and the Board of Governors of
the State of Pennsylvania.
Joseph D. Calderone, age 58, is the Associate Director of Campus Ministry at Villanova University. He
III
2003
formerly spent over eight years with the Loyola University Medical Center as the hospital Chaplain and
taught multiple courses including Introduction to the Practice of Medicine and Business Ethics. Rev.
Calderone recently retired as a Captain in the US Navy Reserves. He served as the Wing Chaplain for
the 4th Marine Aircraft Wing.
George Lavin, Jr, Esq., age 78, is a senior partner at Lavin, Oneil, Ricci, Ceprone & Disipio. Mr. Lavin is
a 1951 graduate of Bucknell University. He attended the University of Pennsylvania School of Law,
receiving an LL.B. in 1956, and then served as a Special Agent, Federal Bureau of Investigation, United
States Department of Justice, until 1959. Mr. Lavin is one of the dominant product liability defense
attorneys in the nation. He has had regional responsibilities in several automotive specialty areas, and
has been called upon to try matters throughout the county on behalf of his clients. Mr. Lavin's present
practice and specialty emphasizes his commitment to defending the automotive industry. Mr. Lavin is
admitted to practice before the Supreme Court of Pennsylvania, the United States Court of Appeals for
the Third Circuit and the United States District Courts for the Eastern and Middle Districts of
Pennsylvania. He is a member of the Faculty Advisory Board of the Academy of Advocacy, the
Association of Defense Counsel, The Defense Research Institute, The American Board of Trial
Advocates, and the Temple University Law School faculty. He has also been elected a fellow of the
American College of Trial Lawyers. On March 1, 1994, Mr.Lavin assumed the title of Counsel to The
Firm.
III
2005
Michael J. McDevitt, age 58, is a retired FBI Special Agent with over 29 years of government service with
the United States Marine Corps and the FBI. He had attained Senior Executive status within the FBI's
Investigative Technology Branch and is currently providing consulting services, focusing on physical
threat and risk assessments and conducting specialized training for law enforcement and US
Government entities. Mr. McDevitt is the father of the Company’s Chief Executive Officer and Chief
Financial Officer, Michael S. McDevitt.
III
2002
8
ADDITIONAL INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES
THE BOARD OF DIRECTORS
Director Independence
The Board consists of 9 members of which 8 are non-management directors. Determination as to the qualifications of an independent directors are
determined under section 303A.02 of the New York Stock Exchange, or the NYSE, Listed Company Manual and the Company’s Categorical Standards of
Independence. The NYSE’s independence guidelines and the Company’s categorical standards include a series of objective tests, such as the director is not an
employee of the Company and has not engaged in various types of business dealings involving the Company, which would prevent a director from being
independent. The Board of Directors has affirmatively determined that none of the Company’s independent directors had any relationships with the Company.
The Board, in applying the above referenced standards has affirmatively determined the Company’s current independent directors are: Joseph D.
Calderone, Charles P. Connolly, George Lavin, Jr. Esq., Dennis M. McCarthy, Donald F. Reilly, and Mary T. Travis.
Board Meetings
For the fiscal year ended December 31, 2006 (“Fiscal 2006”), the Board of Directors held four meetings. All Board members attended at least 75% of the
aggregate number of Board meetings and applicable committee meetings held while such individuals were serving on the Board of Directors, or such
committees. Under the Company’s Principles of Corporate Governance, which is available on the Company’s website www.choosemedifast.com, by following
the link through “Investor Relations” to “Corporate Governance,” each director is expected to dedicate sufficient time, energy and attention to ensure the
diligent performance of his or her duties, including attending meetings of the shareholders of the Company, the Board of Directors and committees of which he
or she is a member. Six directors attended the 2006 annual general meeting.
It is the policy of the Board of Directors to hold four regularly scheduled meetings, each of which include an executive session of non-management
directors without the presence of management. Additional meetings of the Board of Directors and executive sessions of non-management directors may be held
from time to time as required. Mr. Donald F. Reilly serves as the presiding director at the executive sessions of non-management directors.
9
2006 Director Compensation
The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2006.
Name
Joseph D. Calderone
Charles P. Connolly
George Lavin, Esq.
Michael C. MacDonald
Dennis M. McCarthy
Michael J. McDevitt
Rev. Donald F. Reilly, OSA
Mary T. Travis
Fees Earned or
Paid in Cash
($)
Stock Awards
($)(1)
Option
Awards ($)
Non-Equity Incentive
Plan Compensation
($)
Change in Pension Value
and Nonqualified
Deferred Compensation
Earnings ($)
All other
Compensation ($)
Total ($)
-
-
-
-
-
-
-
-
$9,375
3,206
9,375
9,375
3,206
9,375
12,500
12,500
$9,375
3,206
9,375
9,375
3,206
9,375
12,500
12,500
Employee Directors do not receive any additional compensation for their services as director.
Additional fees are paid to the Chairman of each committee which in fiscal 2006 amounted to an additional 500 shares of Medifast, Inc. stock granted to
the Chairman of each committee.
(1)
Amounts are calculated based on provisions of Statement of Financial Accounting Standards, or SFAS, No 123R, “Share
Based Payments.” See note 1 of the consolidated financial statement of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2006 regarding assumptions underlying valuation of equity awards.
The table below summarizes the equity based awards held by the Company’s non-employee directors as of December 31, 2006:
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
2,500
-
-
2,500
2,500
2,500
2,500
2,500
Number of
Securities
Underlying
Unexercised
Options (#)
Un-Exercisable
-
-
-
-
-
-
-
-
Number
Shares or
Units of
Stock That
Have Not
Vested
Market Value
of Shares or
Units of
Stock that
have not
Vested
Option
Exercise
Option
Expiration
Price ($)
Date
Vested (#)
($)
$4.80
4/4/2008
4/4/2008
4/4/2008
4/4/2008
4/4/2008
4/4/2008
4.80
4.80
4.80
4.80
4.80
10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Name
Joseph D. Calderone
Charles P. Connolly
George Lavin, Esq.
Michael C. MacDonald
Dennis M. McCarthy
Michael J. McDevitt
Rev. Donald F. Reilly, OSA
Mary T. Travis
Shareholder Communications with the Board of Directors
Shareholders and other parties interested in communicating directly with the Board of Directors, non-management directors as a group or individual
directors, including Mr. Donald F. Reilly in his capacity as the presiding director of executive sessions of non-management directors, may do so by writing to
Medifast, Inc., c/o Corporate Secretary, 11445 Cronhill Drive, Owings Mills, MD 2111, indicating to whose attention the communication should be directed.
Under a process approved by the Board of Directors for handling letters received by the Company and addressed to non-management directors, the Corporate
Secretary of the Company reviews all such correspondence and forwards to members of the Audit Committee a summary and/or copies of any such
correspondence that, in the opinion of the Corporate Secretary, deal with the functions of the Board of Directors or committees thereof, or that he otherwise
determines requires their attention. Directors may at any time review a log of all correspondence received by the Company and addressed to members of the
Board of Directors and request copies of any such correspondence.
Committees of the Board
Our Board of Directors has a standing audit committee, nominating and corporate governance committee, compensation committee, and executive
committee.
Audit Committee
Our audit committee consists of Joseph Calderone, Charles Connolly, George Lavin, and Mary Travis, each of whom are independent as discussed above
under “— Director Independence.” As required by Rule 303A.07 of the NYSE Listed Company Manual, the Board of Directors has affirmatively determined
that each audit committee member is financially literate, and that Mr. Connolly is an “audit committee financial expert,” as defined in Item 407(d)(5) of
Regulation S-K.
The principal duties of the audit committee are as follows:
(cid:121)
have the sole authority and responsibility to hire, evaluate and, where appropriate, replace the independent auditors;
(cid:121) meet and review with management and the independent auditors the interim financial statements and the Company’s disclosures under
Management’s Discussion and Analysis of Financial Condition and Results of Operations prior to the filing of the Company’s Quarterly Reports
on Form 10-Q;
(cid:121) meet and review with management and the independent auditors the financial statements to be included in the Company’s Annual Report on
Form 10-K (or the annual report to shareowners) including (i) their judgment about the quality, not just acceptability, of the Company’s
accounting principles, including significant financial reporting issues and judgments made in connection with the preparation of the financial
statements; (ii) the clarity of the disclosures in the financial statements; and (iii) the Company’s disclosures under Management’s Discussion and
Analysis of Financial Condition and Results of Operations, including critical accounting policies;
(cid:121)
(cid:121)
(cid:121)
(cid:121)
review and discuss with management, the internal auditors and the independent auditors the Company’s policies with respect to risk assessment
and risk management;
review and discuss with management, the internal auditors and the independent auditors the Company’s internal controls, the results of the
internal audit program, and the Company’s disclosure controls and procedures, and quarterly assessment of such controls and procedures;
establish procedures for handling complaints regarding accounting, internal accounting controls and auditing matters, including procedures for
confidential, anonymous submission of concerns by employees regarding accounting and auditing matters; and
review and discuss with management, the internal auditors and the independent auditors the overall adequacy and effectiveness of the
Company’s legal, regulatory and ethical compliance programs.
Our Board of Directors has adopted a written charter for the audit committee which is available on the Company’s website at www.choosemedifast.com by
following the links through “Investor Relations” to “Corporate Governance.” In fiscal 2006, the audit committee met five times.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee consists of Joseph Calderone, Donald F. Reilly, and George Lavin, all of whom are independent as
discussed above under “— Director Independence.”
The principal duties of the nominating and corporate governance committee are as follows:
• to recommend to our Board of Directors proposed nominees for election to the Board of Directors both at annual general
meetings and to fill vacancies that occur between general meetings; and
• to make recommendations to the Board of Directors regarding the Company’s corporate governance matters and
practices.
11
Our Board of Directors has adopted a written charter for the nomination and corporate governance committee which is available on the Company’s
website at www.choosemedifast.com by following the links through “Investor Relations” to “Corporate Governance.” In fiscal 2006, the nomination and
corporate governance committee met four times.
Compensation Committee
The compensation committee currently consists of George Lavin, Jr., Esq, Dennis M. McCarthy, Esq., Donald F. Reilly, and Mary Travis, all of whom
were independent as discussed above under “— Director Independence.”
The principal duties of the compensation committee are as follows:
(cid:121) measure the Chief Executive Officer’s performance against his goals and objectives pursuant to the Company plans;
(cid:121)
(cid:121)
(cid:121)
(cid:121)
determine the compensation of the Chief Executive Officer after considering the evaluation by the Board of Directors of his performance;
review and approve compensation of elected officers and all senior executives based on their evaluations, taking into account the evaluation by
the Chief Executive Officer;
review and approve any employment agreements, severance arrangements, retirement arrangements, change in control agreements/provisions,
and any special or supplemental benefits for each elected officer and senior executive of the Company;
approve, modify or amend all non-equity plans designed and intended to provide compensation primarily for elected officers and senior
executives of the Company;
(cid:121) make recommendations to the Board regarding adoption of equity plans; and
(cid:121) modify or amend all equity plans.
Our Board of Directors has adopted a written charter for the compensation committee which is available on the Company’s website at
www.choosemedifast.com by following the links through “Investor Relations” to “Corporate Governance.” In fiscal 2006, the compensation committee met four
times.
Executive Committee
Messrs. Bradley T. MacDonald, Michael C. MacDonald, Michael J. McDevitt, and Dennis M. McCarthy, Esq. are members of the Executive Committee.
The Executive Committee has all the authority of the Board of Directors, except with respect to certain matters that by statute may not be delegated by the
Board of Directors. The Committee meets periodically during the year to develop and review strategic operational and management polices for the Company.
The Committee held three meetings during fiscal 2006.
PROPOSAL 2:
THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
The audit committee has selected Bagell, Josephs, Levine & Co, LLC as the Company’s independent registered public accountants for the fiscal year
ending December 31, 2007. Services provided to the Company and its subsidiaries by Bagell, Josephs, Levine & Co, LLC in fiscal 2005 and 2006 are described
under “— Fees to Independent Registered Public Accountants for Fiscal 2005 and 2006” below. Additional information regarding the audit committee is
provided in the Report of the Audit Committee below.
The Company has been advised that representatives of Bagell, Josephs, Levine & Co, LLC will be present at the Meeting where they will have an
opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
In the event shareholders do not ratify the appointment of Bagell, Josephs, Levine & Co, LLC, the appointment will be reconsidered by the audit
committee and the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF BAGELL, JOSEPHS, LEVINE
& CO., LLC AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR FISCAL 2007.
12
Audit Committee Report
The audit committee is responsible for monitoring our financial auditing, accounting and financial reporting processes and our system of internal controls,
and selecting the independent public accounting firm on behalf of the Board of Directors. Our management has primary responsibility for our internal controls
and reporting process. Our independent registered public accounting firm, Bagell, Josephs, Levine & Company, LLC, is responsible for performing an
independent audit of our consolidated financial statements, management’s assessment of the effectiveness of our internal control over financial reporting and the
effectiveness of our internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United
States) and issuing an opinion thereon. In this context, the audit committee met regularly and held discussions with management and Bagell, Josephs, Levine &
Company, LLC. Management represented to the audit committee that the consolidated financial statements for the fiscal year 2006 were prepared in accordance
with U.S. generally accepted accounting principles.
The audit committee hereby reports as follows:
• The audit committee has reviewed and discussed the audited consolidated financial statements and accompanying
management’s discussion and analysis of financial condition and results of operations with our management and Bagell,
Josephs, Levine & Co, LLC. This discussion included Bagell, Josephs, Levine & Co., LLC’s judgments about the quality,
not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of
disclosures in the financial statements.
• The audit committee also discussed with Bagell, Josephs, Levine & Company, LLC the matters required to be discussed
by the applicable Statements on Auditing Standards, including SAS No. 61 and No. 90, as amended (Communication
with Audit Committees).
• Bagell, Josephs, Levine & Company, LLC also provided to the audit committee the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the
audit committee has discussed with Bagell, Josephs, Levine & Company, LLC the accounting firm’s independence. The
audit committee also considered whether non-audit services provided by during the last fiscal year were compatible with
maintaining the accounting firm’s independence.
Based on the reviews and discussions referred to above, the audit committee has recommended to the Board of Directors that the audited consolidated
financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2006, for filing with the Securities and Exchange
Commission, or the SEC. The audit committee also selected, subject to shareholder ratification, Bagell, Josephs, Levine & Company, LLC to serve as our
independent registered public accounting firm for the year ending December 31, 2007.
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Charles P. Connolly, Chairman
Joseph D. Calderone
George Lavin, Jr., Esq.
Mary T. Travis
13
Fees to Independent Registered Public Accountants for Fiscal 2005 and 2006
The following services were provided by Bagell, Josephs, Levine & Co during fiscal 2005 and 2006:
2005
2006
$90,000
10,000
$179,000
21,000
$100,000
$200,000
Audit Fees(1)
Tax fees(2)
All other fees
Total
(1)
Audit fees consist of fees for professional services rendered for the audit of the Company’s consolidated financial
statements included in the Company’s Annual Report on Form 10-K, including the audit of internal controls required by
Section 404 of the Sarbanes-Oxley Act of 2002, and the review of financial statements included in the Company’s
Quarterly Reports on Form 10-Q, and for services that are normally provided by the auditor in connection with statutory
and regulatory filings or engagements.
(2) Tax fees were billed for tax compliance services
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. The Audit Committee has adopted a policy for the pre-approval of services provided by the
independent auditors.
Under the policy, pre-approval is generally provided for work associated with the following:
• registration statements under the Securities Act of 1933 (for example, comfort letters or consents);
• due diligence work for potential acquisitions or dispositions;
• attest services not required by statute or regulation;
• adoption of new accounting pronouncements or auditing and disclosure requirements and accounting or regulatory consultations;
• internal control reviews and assistance with internal control reporting requirements;
• review of information systems security and controls;
• tax compliance, tax planning and related tax services, excluding any tax service prohibited by regulatory or other oversight authorities; expatriate
and other individual tax services; and
• assistance and consultation on questions raised by regulatory agencies.
For each proposed service, the independent auditors are required to provide detailed back-up documentation at the time of approval to permit the Audit
Committee to make a determination whether the provision of such services would impair the independent auditors’ independence.
The Audit Committee has approved in advance certain permitted services whose scope is routine across business units, including statutory or other
financial audit work for non-U.S. subsidiaries that is not required for the 1934 Act audits.
PROPOSAL 3:
AMEND THE BYLAWS OF THE CORPORATION TO
INCLUDE THE VICE-CHAIRMAN POSITION
Medifast’s shareholders are being asked to approve the amendment of the Bylaws of the Corporation to empower the Board of Directors to elect a
Vice-Chairman of the Board who will assume the duties of the Chairman in his absence and provide Board succession planning.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE AMENDMENT OF THE BYLAWS TO EMPOWER THE BOARD OF
DIRECTORS TO ELECT A VICE-CHAIRMAN FO THE BOARD.
14
COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Program
EXECUTIVE COMPENSATION
Our Compensation Committee of the Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the
Company’s compensation philosophy. The Compensation Committee ensures that the total compensation paid to our named executive officers is fair,
reasonable and competitive. Generally, the types of compensation and benefits provided to our named executive officers are similar to those provided to other
officers and employees of the Company.
Throughout this discussion, the individuals who served as our CEO and CFO during Fiscal 2006, as well as the other individuals included in the
Summary Compensation Table on page 10, are referred to as the “named executive officers.”
Objectives of Compensation Program
The main objective of our executive compensation program is to create a competitive total rewards package based on the attainment of short-term
performance objectives and long-term strategic goals. Accordingly, our executive compensation program consists of the following three principal elements: base
salary, cash bonus and equity grants in the form of stock options and restricted stock, with an emphasis on incentive compensation rather than base salary. Our
executives are also eligible to participate in employee benefit and retirement plans offered by the Company, which currently include defined contribution and
401(k) plans, and health care and other insurance programs. The benefit programs available to executives are the same as those available to all other eligible
employees.
Decision-Making; Role of Executive Officers in Compensation Decisions
The Compensation Committee of our Board of Directors is comprised solely of non-affiliate independent Directors who meet the independence
requirements of the NYSE. Our Compensation Committee makes all decisions regarding the compensation of our CEO, including establishing the performance
goals and objectives for our CEO, evaluating our CEO’s performance in light of the goals and objectives that were set, and determining and recommending to
our Board the CEO’s compensation based on that evaluation.
Our CEO makes recommendations to our Compensation Committee for the compensation of our Chief Operating Officer and all other named executive
officers. Our Compensation Committee and Board may accept or adjust such recommendations as they determine in the best interests of the Company and its
stockholders and has final approval over all such compensation decisions. To the extent not established by our Board of Directors, our Compensation
Committee is also authorized to establish compensation and benefits for our Chairman and for new and existing non-affiliate independent Directors.
Our Chairman, CEO, and Vice President of Human Resources provide advice, analysis and recommendations to our Compensation Committee.
Elements of Executive Compensation
Our Compensation Committee also evaluates the achievement of corporate, individual and organizational objectives for each executive officer during the
prior fiscal year. Each element of compensation is chosen in order to attract and retain the necessary executive talent, reward corporate performance and provide
incentive for the attainment of long-term strategic goals. The allocation of each element of compensation is determined by our Compensation Committee for
each executive based on the following factors:
•
•
•
Performance against corporate, individual and organizational objectives for the fiscal year;
Importance of particular skill sets and professional abilities to the achievement of long-term strategic goals; and
Contribution as a leader, corporate representative and member of the senior management team.
These elements support our overall compensation philosophy by creating a balanced focus on shorter-term corporate performance and the achievement of
longer-term business goals and stockholder value. While we believe in structuring executive compensation plans that give our executives incentive to deliver
certain objective elements of corporate financial performance over specified time periods, we do not believe in a purely mechanical approach. Instead, part of
our executive compensation philosophy includes an element of reward for non-quantitative achievements demonstrated by our executives in the actions and
decisions they have taken throughout the year. When establishing our executive compensation plans for a given year, it is not possible to foresee all of the
challenges and demands that will be made of our executives, both as a management team and in their areas of individual responsibility. We believe that by
rewarding the quality of our decision-making and leadership, in addition to the achievement of quantifiable results, we are building a management team capable
of creating stockholder value over the longer-term, while remaining disciplined in delivering shorter-term financial results. Accordingly, there is no pre-
15
established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Rather, the Compensation
Committee reviews information provided by its compensation consultant, industry surveys and peer company data to determine appropriate level and mix of
incentive compensation. Income from such incentive compensation is realized as a result of the performance of the Company and the individual, depending on
the type of award, compared to established goals.
Base Salary
Our base salary determinations principally reflect the skills and performance levels of individual executives, the needs of the Company, and pay practices
of comparable public companies. It is not our policy to pay our executive officers at the highest base salary level. Instead, we establish executive base salaries
conservatively at or below a midpoint level relative to an appropriate set of peers. We believe this policy sets a prudent and fiscally responsible tone for the
Company’s overall base salary compensation programs.
Target Bonus
Cash bonuses principally reflect the Company’s financial performance and achievement of corporate objectives established by our Board prior to the
fiscal year. The executive bonus plan is designed to reward our executives for the achievement of shorter-term financial goals, predominantly revenue growth
and profitability, with cash flow and other operating ratios also considered. The allocation of the bonus pool among the employees, including senior executives,
is at the discretion of the Compensation Committee. The Chief Executive Officer, Chief Financial Officer and other senior executives discuss and jointly
develop recommended bonus allocations among the staff within the various functional areas of the Company. In addition, the Chief Executive Officer prepares
an allocation of bonus payments among the senior executive group. In consultation with the Chief Executive Officer, the Compensation Committee evaluates,
adjusts and approves the amount and allocation of the bonus pool. In determining the cash bonus allocation among senior executives, the Compensation
Committee and the Chief Executive Officer consider each executive’s a) contribution to current and long-term corporate goals, and b) value in the labor market.
Equity Compensation
Stock option and restricted stock awards principally reflect the responsibilities to be assumed by each executive in the upcoming fiscal year, the
responsibilities of each executive in prior periods, the size of awards made to each executive in prior years relative to the Company’s overall performance,
available stock for issuance under our Option Plan, and potential grants in future years. The Committee believes that stock option and restricted stock grants
(1) align the interests of executives with long-term stockholder interests, (2) give executives a significant, long-term interest in the Company’s success, and
(3) help retain key executives in a competitive market for executive talent. The Company does not plan on issuing stock options as part of compensation in
2007 and beyond.
Equity Ownership by Executives
We do not currently have a formal equity ownership requirement for our executives. However, we encourage our executives to own equity in the
Company on a voluntary basis. All of our named executive officers own stock, restricted stock and vested and unvested stock options. We periodically review
the vested and unvested equity holdings of our executives and evaluate whether these holdings sufficiently align the interests of our executives with the long-
term interests of our stockholders. We may consider adopting equity ownership requirements in the future.
We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions to be included in this proxy statement.
Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to
above be included in this proxy statement.
Compensation Committee Report
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Donald F. Reilly, Chairman
George Lavin, Jr., Esq.
Dennis M. McCarthy, Esq.
Mary Travis
16
The following table sets forth the annual and long-term compensation for the fiscal year ended December 31, 2006, of the Company’s Chief Executive
Officer and Chief Financial Officer and each of the three other most highly compensated executive officers. These individuals, including the Chief Executive
Officer and Chief Financial Officer are collectively referred to in this proxy statement as the Named Executive Officers.
2006 Summary Compensation Table
Name and Pricipal Position
Bradley T. MacDonald
Chief Executive Officer, Chairman
Michael S. McDevitt
President, Chief Financial Officer
Leo Williams
Executive Vice President
Margaret MacDonald
Executive VP of Operations
Brendan N. Connors
VP of Finance
Year
2006
Salary
($)
$225,000
Stock
Awards
($)(1)
-
Option
Awards
($)(1)
-
2006
99,000
289,000
2006
125,000
-
2006
81,000
237,000
2006
80,000
47,000
-
-
-
-
Bonus
($)(2)
-
27,500
-
4,000
4,000
Nonqualified
Deferred
Compensation
Contributions
($)
$100,000
All Other
($)(3)
$6,600
Total
($)
$331,600
3,800
419,300
3,800
128,800
2,400
324,400
1,400
132,400
(1)
(2)
Amounts are calculated based on provisions of SFAS, No 123R, “Share Based Payments.” See note 1 of the consolidated
financial statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 regarding
assumptions underlying valuation of equity awards.
Bonus amounts determined as more specifically discussed above under “—Compensation Discussion and Analysis”
(3) The amounts represent the Company’s matching contributions under the 401(K) plan.
2006 Grants of Plan-Based Awards
There were no grants of plan-based awards to the Named Executive Officers for the fiscal year ended December 31, 2006.
17
Outstanding Equity Awards at Fiscal Year-End Table
Option Awards
Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Bradley T. MacDonald
Chief Executive Officer, Chairman
Michael S. McDevitt
President, Chief Financial Officer
Leo Williams
Executive Vice President
Margaret MacDonald
Executive VP of Operations
Brendan N. Connors
VP of Finance
Number of
Securities
Underlying
Unexercised
Options (#)
Option
Exercise
Option
Expiration
Number
Shares or
Units of Stock
That Have Not
Vested
Market Value
of Shares or
Units of Stock
that have not
Vested
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units or
Other rights
Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned Shares,
Units or Other
rights That Have
Not Vested
Un-Exercisable
100,000
-
Price ($)
Date
$6.25
2/8/2011
Vested (#) (1)
-
-
($) (2)
(#)
($)
100,000
6,666
-
26,667
-
3,333
-
2.87
3.83
-
3/31/2010
226,666
2,849,191
10/28/2010
-
-
-
185,000
2,325,450
2.87
3/31/2010
37,000
465,090
-
-
-
-
-
-
-
-
-
-
Each option has a five year life and an exercise price per share equal to 100% of the estimated fair value of our common stock on the date of grant.
(1)
(2)
The restricted stock grants vest over five and six years of service as described below under “Narrative Disclosure to Summary Compensation Table
and Grants of Plan-Based Awards”
The market value of shares of stock that have not vested is based on the closing price of our common stock on December 29, 2006, or $12.57 per
share.
18
2006 Option Exercises and Stock Vested Table
The following table sets forth information regarding option exercises and stock vesting for the Named Executive Officers during 2006.
Name
Bradley T. MacDonald
Chief Executive Officer, Chairman
Michael S. McDevitt
President, Chief Financial Officer
Leo Williams
Executive Vice President
Margaret MacDonald
Executive VP of Operations
Brendan N. Connors
VP of Finance
Option Awards
Stock Awards
Number of
Shares Acquired
on Exercise
(#)
26,667
-
7,696
-
-
16,667
-
10,176
-
Value Realized
on Exercise
($)(1)
$172,002
-
149,553
-
-
126,669
-
183,473
-
Number of
Shares
Acquired on
Vesting
(#)
Value
Realized on
Vesting
($)(2)
-
-
15,000
33,333
-
15,000
25,000
3,000
5,000
-
-
81,000
208,331
-
81,000
156,250
16,200
31,250
(1) Represents the difference between the exercise price and the fair market value of the common stock on the date of exercise, multiplied by the number of
options exercised.
(2) Represents the number of restricted shares vested, and the number of shares vested multiplied by the fair market value of the common stock on the vesting
date.
Equity Compensation Plan Information at Fiscal Year Ended December 31, 2006
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
(b)
524,079 (1)
-
$6.12
-
Number of
securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
(c)
928,421
-
(1) Consists of 321,579 shares of common stock issuable upon the exercise of outstanding options and 202,500 shares of common stock issuable upon the
exercise of outstanding warrants.
19
2006 Non-Qualified Deferred Compensation Table
The following table sets forth all non-qualified deferred compensation of the Named Executive Officers for the fiscal year ended December 31, 2006.
Executive
Contributions in
Last FY
($)
Company
Contributions
in Last FY
($)(1)
$100,000
-
-
-
-
-
-
-
-
Aggregate
Earnings in Last
FY
($)
Aggregate
Withdrawals/Di
stributions
($)
$80,120
-
-
-
-
-
-
-
-
-
Aggregate
Balance at Last
FYE
($)
$933,921
-
-
-
-
Bradley T. MacDonald
Chairman, Chief Executive Officer
Michael S. McDevitt
President, Chief Financial Officer
Leo Williams
Executive Vice President
Margaret MacDonald
Executive VP of Operations
Brendan N. Connors
VP of Finance
(1) All amounts are reported in compensation on the “2006 Summary Compensation Table”
Deferred Compensation Plans
We maintain a non-qualified deferred compensation plan, effective September 10, 2003, for Senior Executive management. Currently, Bradley
MacDonald is the only participant in the plan. Under the deferred compensation plan that became effective in 2003, executive officers of the Company,
including the Named Executive Officers, may defer a portion of their salary and bonus (performance-based compensation) annually. A participant may elect to
receive distributions of the accrued deferred compensation in a lump sum or in installments upon retirement
Each participating officer may request that the deferred amounts be allocated among several available investment options established and offered by
the Company. These investment options provide market rates of return and are not subsidized by the Company. The benefit payable under the plan at any time
to a participant following termination of employment is equal to the applicable deferred amounts, plus or minus any earnings or losses attributable to the
investment of such deferred amounts. The amount of compensation in any given fiscal year that is deferred by each Named Executive Officer is included in the
Summary Compensation Table under the column headings “Salary” or “Non-Equity Incentive Plan Compensation”, as appropriate.
The Company has established a trust for the benefit of participants in the deferred compensation plan. Pursuant to the terms of the trust, as soon as
possible after any deferred amounts have been withheld from a plan participant, the Company will contribute such deferred amounts to the trust to be held for
the benefit of the participant in accordance with the terms of the plan and the trust.
Retirement payouts under the plan upon an executive officer’s retirement from the Company are payable either in a lump-sum payment or in annual
installments over a period of up to ten years. Upon death, disability or termination of employment, all amounts shall be paid in a lump-sum payment as soon as
administratively feasible. In 2006, the Company made a $100,000 contribution to Bradley MacDonald’s deferred compensation plan as a performance bonus.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards
We have entered into employment agreements with certain Named Executive Officers, certain terms of which are summarized below.
Bradley T. MacDonald. Mr. MacDonald entered into a five year employment agreement effective February 8, 2006. Mr. MacDonald was granted
100,000 options over a five year vesting period beginning on February 8, 2007 in consideration for his five year commitment and to align his interest with the
interests of long-term shareholders. Upon termination of Mr. MacDonald’s employment by the Company without cause, or upon his resignation for good
reason, he would be entitled to receive an amount equal to one and a half times the sum of his highest annualized salary payable in equal monthly installments
30 days after his termination of employment for a period of one year.
Michael S. McDevitt. Mr. McDevitt entered into a six year employment agreement effective February 8, 2006. Mr. McDevitt was granted 200,000
shares of Medifast, Inc. restricted common stock over a six year vesting period beginning on February 8, 2006 in consideration for his six year commitment and
to align his interests with the interests of long-term shareholders. Upon termination of Mr. McDevitt’s employment by the Company without cause, or upon his
resignation for good reason, he would be entitled to receive an amount equal to one and a half times the sum of his highest annualized salary payable in equal
monthly installments 30 days after his termination of employment for a period of one year.
Margaret MacDonald. Ms. MacDonald entered into a six year employment agreement effective February 8, 2006. Ms. MacDonald was granted 150,000
shares of Medifast, Inc. restricted common stock over a six year vesting period beginning on February 8, 2006 in consideration for his six year commitment and
to align her interests with the interests of long-term shareholders. Upon termination of Ms. MacDonald’s employment by the Company without cause, or upon
her resignation for good reason, she would be entitled to receive an amount equal to one and a half times the sum of his highest annualized salary payable in
equal monthly installments 30 days after her termination of employment for a period of one year.
20
Brendan N. Connors. Mr. Connors entered into a six year employment agreement effective February 8, 2006. Mr. Connors was granted 30,000 shares
of Medifast, Inc. restricted common stock over a six year vesting period beginning on February 8, 2006 in consideration for his six year commitment and to
align his interests with the interests of long-term shareholders. Upon termination of Mr. Connors’ employment by the Company without cause, or upon his
resignation for good reason, he would be entitled to receive an amount equal to one and a half times the sum of his highest annualized salary payable in equal
monthly installments 30 days after his termination of employment for a period of one year.
Potential Payments upon Termination or Change in Control
As of December 31, 2006, the Company had entered into employment agreements with each of the Named Executive Officers. As described in more detail
above under “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards” The employment agreements with the Named
Executive Officers generally provide for the payment of benefits if the executive’s employment with the Company is terminated either by the Company without
Cause or by the executive for Good Reason. The employment agreements with the Named Executive Officers do not provide for any additional payments or
benefits upon a termination of employment by the Company for Cause, upon the executive’s resignation other for Good Reason, as applicable, or upon the
executive’s death or disability. Upon termination by the Company without cause, or upon his or her resignation for good reason, all of the Named Executive
officers are entitled to receive an amount equal to one and a half times his or her highest annualized base salary payable in equal monthly installments 30 days
after his or her termination of employment. If a named executive had been terminated without cause of December 31, 2006 they would have received the
following amounts:
Severance ($)(1)
Bradley T. MacDonald $337,500
Michael S. McDevitt $148,500
Margaret MacDonald $121,500
Brendan N. Connors $120,000
(1) Based on 2006 salary
If there were a change in control, which is defined as a sale of the majority of the assets of the company or a change of control of the Board of Directors as a
result of a third party shareholder acquiring or holding over 10% of the common stock and attempting to nominate a majority of the Board of Directors in favor
of his/her shareholder block, the executives would have received the following amounts as of December 31, 2006:
Bradley T. MacDonald
Michael S. McDevitt
Margaret MacDonald
Brendan N. Connors
(1) Based on 2006 salary.
Accelerated
Vesting of
Stock Awards
($)(2)
$632,000
2,849,192
2,325,450
465,090
Severance
($)(1)
$337,500
148,500
121,500
120,000
Total
$969,500
2,997,692
2,446,950
585,090
(2) Accelerated vesting of stock awards were based on NYSE close price of the Common Shares
on December 29, 2006 of $12.57 per share, and for option awards the difference between $12.57 and the exercise or base price of the award.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows as of December 31, 2006, the amount and percentage of our outstanding common stock beneficially owned by each person
who is known by us to beneficially own more than 5% of our outstanding common stock.
Name and Address of
5% Beneficial Owner
Bjurman, Barry & Associates (2)
10100 Santa Monica Blvd. Suite 1200
Los Angeles, CA 90067
Shares
Beneficially
Owned (1)
Percent of
Outstanding
Common Stock
739,538
5.4%
21
The following table shows as of April 24, 2007 the amount and percentage of our outstanding common stock beneficially owned (unless otherwise
indicated) by each of our (i) directors and nominees for directors, (ii) Named Execurtive Officers and (iii) our directors, nominees for director and executive
officers as a group.
Name of Beneficial Owner
Bradley T. MacDonald (5)
Michael S. McDevitt
Margaret MacDonald
Donald F. Reilly
Michael C. MacDonald
Brendan N. Connors
Mary Travis
Michael J. McDevitt
Joseph D. Calderone
Leo Williams
Charles P. Connolly
George Lavin, Jr., Esq.
Dennis M. McCarthy, Esq.
All directors, nominees for directors and executive officers as a group
(13 persons)
Shares Beneficially
Owned (1)(3)
Shares
Acquirable
Within 60 days
(4)
Percent of
Outstanding
Common Stock (%)
829,550
264,118
139,900
58,350
56,119
51,509
20,200
17,400
9,200
8,436
6,575
3,200
1,575
1,466,132
-
-
-
-
-
-
-
-
-
-
-
-
-
6.09%
1.94%
1.03%
*
*
*
*
*
*
*
*
*
*
10.76%
*
(1)
less than 1%.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Under those rules and for purposes of the
table above (a) if a person has decision making power over either the voting or the disposition of any shares, that person is generally deemed to be a
beneficial owner of those shares; (b) if two or more persons have decision making power over either the voting or the disposition of any shares, they will
be deemed to share beneficial ownership of those shares, in which case the same shares will be included in share ownership totals for each of those
persons; and (c) if a person held options to purchase shares that were exercisable on, or became exercisable within 60 days of, April 24, 2007, that person
will be deemed to be the beneficial owner of those shares and those shares (but not shares that are subject to options held by any other stockholder) will
be deemed to be outstanding for purposes of computing the percentage of the outstanding shares that are beneficially owned by that person. Information
supplied by officers and directors.
(2) This information is based on Schedule 13G filed with the SEC on December 27, 2006.
(3) The shares set forth as beneficially owned by our executive officers and directors do not include the following outstanding options because they are not
exercisable within 60 days of April 24, 2007: Mr. Bradley T. MacDonald (80,000); and Mr. Leo Williams (3,333);
(4) Unless otherwise noted, reflects the number of shares that could be purchased by exercise of options available at April 24, 2007, or within 60 days
thereafter under our stock option plans.
(5) The shares set forth as beneficially owned by Mr. Bradley T. MacDonald include 396,402 shares owned by his wife Shirley MacDonald, and 46,447
shares owned by the MacDonald Family Trust. His daughter, Margaret MacDonald, beneficially owns 139,900 shares which added to Bradley T.
MacDonald’s 829,500 beneficially owned shares results in 969,450 shares owned by the MacDonald family.
ADDITIONAL INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who beneficially own more than ten percent of a
registered class of the Company’s equity securities to file with the SEC and the NYSE initial reports of ownership and reports of changes in ownership of equity
securities of the Company. Directors, officers and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms filed by them. In 2006, to the Company’s knowledge, based solely on a review of the copies of such filings on file with the
Company and written representations from the Company’s directors and executive officers, no Section 16(a) filing requirements were applicable to the
Company’s directors, executive officers and greater-than-ten-percent beneficial owners in fiscal 2006.
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Shareholder Proposals for the 2008 Annual General Meeting
Shareholders interested in submitting a proposal for inclusion in the proxy statement and form of proxy for the 2008 annual general meeting of
shareholders may do so by following the procedures prescribed in SEC Rule 14a-8 promulgated under the Exchange Act. To be eligible for inclusion, notice of
shareholder proposals must be received by the Company’s Corporate Secretary no later than December 1, 2007. Proposals should be sent to Corporate Secretary,
Medifast, Inc., 11445 Cronhill Dr., Owings Mills, MD 21117.
Codes of Business Conduct and Ethics and Corporate Governance Guidelines
Our Board of Directors has adopted a corporate Code of Business Conduct and Ethics applicable to our directors, officers, including our principal
executive officer, principal financial officer and principal accounting officer, and employees, as well as Corporate Governance Guidelines, in accordance with
applicable rules and regulations of the SEC and the NYSE. Each of our Code of Business Conduct and Ethics and Corporate Governance Guidelines are
available on our website at www.choosemedifast.com by following the links through “Investor Relations” to “Corporate Governance.”
Any amendment to, or waiver from, a provision of the Company’s Code of Business Conduct and Ethics with respect to the Company’s principal
executive officer, principal financial officer, principal accounting officer or controller will be posted on the Company’s website, www.choosemedifast.com.
Annual Report, Financial and Additional Information.
The Annual Financial Statements and Review of Operations of the Company for fiscal year 2006 can be found in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2006. A copy of the Company’s Annual Report on Form 10-K is being mailed concurrently with this Proxy
Statement to each shareholder of record on the Record Date.
The Company’s filings with the SEC are all accessible by following the links to “Investor Relations” on the Company’s website at
www.choosemedifast.com. The Company will furnish without charge a copy of the Company’s Annual Report on Form 10-K, including the financial statements
and schedules thereto, to any person requesting in writing and stating that he or she is the beneficial owner of Common Shares of the Company.
Requests and inquiries should be addressed to:
Investor Relations
Medifast, Inc.
11445 Cronhill Dr.
Owings Mills, MD 21117
The management of the Company knows of no other business to be presented at the Meeting. If, however, other matters properly come before the
Meeting, it is intended that the persons named in the accompanying proxy will vote thereon in accordance with their best judgment.
OTHER MATTERS
By Order of the Board of Directors
Dated: July 23, 2007
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PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 7, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Bradley T. MacDonald with full power of substitution, as attorneys for and in the name, place and stead of the
undersigned, to vote all the shares of the common stock of MEDIFAST, INC., owned or entitled to be voted by the undersigned as of the record date, at the
Annual Meeting of Shareholders of said Company scheduled to be held at the Breakers Hotel, One South County Rd., Palm Beach, FL 33480 on Friday,
September 7, 2007, at 10:00 A.M., Eastern Standard Time, and at any adjournment, postponement or continuation thereof, as follows:
1a. The re-election of three class I directors of the Company, each of whom is to hold office for three years ending in 2010.
Class I Directors: Charles P. Connolly, Bradley T. MacDonald, and Donald F. Reilly
|_| FOR All nominees (except as marked to the contrary below) |_| WITHHOLD
1b. To elect three directors to one-year terms ending in 2008.
Directors: Richard T. Aab, Dennis M. McCarthy, Michael S. McDevitt
|_| FOR All nominees (except as marked to the contrary below) |_| WITHHOLD
INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.
2. To approve the re-appointment of Bagell, Josephs, Levine & Company, LLC, an independent member of the RSM McGladrey alliance, as the
Company's independent auditors for the fiscal year ending December 31, 2007.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To Amend the Bylaws of the Corporation to empower the Board of Directors to elect a Vice-Chairman of the Board of Directors who will assume the
duties of the Chairman in his absence and provide Board succession planning.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To transact such other business as may properly come before the meeting or any adjournment thereof. (Please date and sign on reverse side).
This proxy, if properly executed and returned will be voted in accordance with the directions specified hereof. If no directions are specified, this proxy
will be voted FOR the election of the directors named above or their substitutes as designated by the Board of Directors.
This proxy will be voted as specified. If a choice is not specified, the shares represented by this proxy will be voted “FOR” each director nominee.
This proxy should be dated, signed by the stockholder(s), and returned promptly to us in the enclosed envelope. Persons signing in a fiduciary capacity should
so indicate.
SIGNATURE
SIGNATURE
DATE: , 2007
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