<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CHECKFREE CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
CHECKFREE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
OCTOBER 30, 1997
AND
PROXY STATEMENT
================================================================================
IMPORTANT
PLEASE MARK, SIGN AND DATE YOUR PROXY
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
<PAGE> 3
CHECKFREE CORPORATION
4411 East Jones Bridge Road
Norcross, Georgia 30092
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 29, 1997
To Our Stockholders:
The Annual Meeting of Stockholders of CheckFree Corporation will be
held at the Company's headquarters, 4411 East Jones Bridge Road, Norcross,
Georgia, on Thursday, October 30, 1997, at 12:00 p.m., local time, for the
following purposes:
(1) To elect two Class II Directors of the Company each to serve
for a three-year term expiring at the 2000 Annual Meeting of
Stockholders.
(2) To approve the Company's Amended and Restated 1995 Stock
Option Plan.
(3) To adopt the Company's Incentive Compensation Plan.
(4) To transact any other business which may properly come before
the meeting or any adjournment thereof.
You will be most welcome at the meeting, and we hope you can attend.
Directors and officers of the Company and representatives of its independent
public accountants will be present to answer your questions and to discuss its
business.
We urge you to execute and return the enclosed proxy as soon as
possible so that your shares may be voted in accordance with your wishes. If you
attend the meeting, you may vote in person and your proxy will not be used.
By Order of the Board of Directors,
Curtis A. Loveland
Secretary
----------------------------------------------------------
PLEASE SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
----------------------------------------------------------
<PAGE> 4
CHECKFREE CORPORATION
4411 East Jones Bridge Road
Norcross, Georgia 30092
-----------------------------
PROXY STATEMENT
-----------------------------
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 30, 1997
-----------------------------
This Proxy Statement is furnished to the stockholders of CheckFree
Corporation (the "Company") in connection with the solicitation of proxies to be
used in voting at the Annual Meeting of Stockholders to be held on October 30,
1997, and at any adjournment thereof. The enclosed proxy is solicited by the
Board of Directors of the Company. This Proxy Statement and the enclosed proxy
will be first sent or given to the Company's stockholders on approximately
September 29, 1997.
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. Representatives of the
Company may solicit proxies by mail, telegram, telephone, or personal interview.
The shares represented by the accompanying proxy will be voted as
directed if the proxy is properly signed and received by the Company prior to
the meeting. If no directions are made to the contrary, the proxy will be voted
FOR the nominees for director named herein; FOR the approval of the Company's
Amended and Restated 1995 Stock Option Plan described herein; and FOR the
adoption of the Company's Incentive Compensation Plan. Any stockholder giving a
proxy has the power to revoke it at any time before it is exercised by filing a
written notice with the Secretary of the Company prior to the meeting.
Stockholders who attend the meeting may vote in person and their proxies will
not be used.
Holders of record of Common Stock of the Company at the close of
business on September 12, 1997, will be entitled to vote at the Annual Meeting.
At that time, the Company had 54,686,159 shares of Common Stock outstanding and
entitled to vote. Each share of Common Stock outstanding on the record date
entitles the holder to one vote on each matter submitted at the Annual Meeting.
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock of the Company is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Abstentions and broker non-
votes are counted for purposes of determining the presence or absence of a
quorum. Broker non-votes occur when brokers, who hold their customers' shares in
street name, sign and submit proxies for such shares and vote such shares on
some matters, but not others. Typically, this would occur when brokers have not
received any instructions from their customers, in which case the brokers, as
the holders of record, are permitted to vote on "routine" matters, which
typically include the election of directors.
The election of the director nominees requires the favorable vote of a
plurality of all votes cast by the holders of Common Stock at a meeting at which
a quorum is present. Proxies that are marked "Withhold Authority" and broker
non-votes will not be counted toward such nominee's achievement of a plurality
and thus will have no effect. Each other matter to be submitted to the
stockholders for approval or ratification at the Annual Meeting requires the
affirmative vote of the holders of a majority of the Common Stock present and
entitled to vote on the matter. For purposes of
1
<PAGE> 5
determining the number of shares of Common Stock voting on the matter,
abstentions will be counted and will have the effect of a negative vote; broker
non-votes will not be counted and thus will have no effect.
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation
provides for a classified board of directors with three classes. Each class of
directors consists, as nearly as practical, of one-third of the total number of
directors. Effective August 8, 1995, the total number of authorized directors
was fixed at seven. The Board of Directors proposes the election of two
incumbent Class II Directors at the 1997 Annual Meeting of Stockholders to
continue service as Class II Directors. Four incumbent Class I and Class III
Directors will continue in office. The nominees for Class II Directors, if
elected, will serve for three-year terms expiring at the 2000 Annual Meeting of
Stockholders. The Company will have one vacancy on its Board of Directors for a
Class III Director.
Mark A. Johnson and Eugene F. Quinn are currently Class II Directors of
the Company and are being nominated by the Board of Directors for re-election as
Class II Directors.
It is intended that, unless otherwise directed, the shares represented
by the enclosed proxy will be voted FOR the election of Messrs. Johnson and
Quinn as Class II Directors. In the event that any nominee for director should
become unavailable, the number of directors of the Company may be decreased
pursuant to the By-Laws, or the Board of Directors may designate a substitute
nominee, in which event the shares represented by the enclosed proxy will be
voted for such substitute nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR.
The following table sets forth for each nominee and each continuing
director of the Company, such person's name, age, and his position with the
Company:
CLASS II DIRECTORS
(NOMINEES FOR TERMS EXPIRING IN 2000)
<TABLE>
<CAPTION>
NAME Age Position
- ------------------------------- ------------ ----------------------------------
<S> <C> <C>
Mark A. Johnson 44 Vice Chairman, Corporate
Development and Marketing,
and Director
Eugene F. Quinn 43 Director
</TABLE>
CLASS I DIRECTORS
(TERMS EXPIRE IN 1999)
<TABLE>
<CAPTION>
NAME Age Position
- ------------------------------- ------------ ----------------------------------
<S> <C> <C>
George R. Manser 66 Director
William P. Boardman 56 Director
</TABLE>
2
<PAGE> 6
CLASS III DIRECTORS
(TERMS EXPIRE IN 1998)
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --------- ----------------------------------
<S> <C> <C>
Peter J. Kight 41 Chairman of the Board,
President and
Chief Executive Officer
Jeffrey M. Wilkins 53 Director
</TABLE>
Mark A. Johnson has served as Vice Chairman, Corporate Development and
Marketing of the Company since May 1997. He has been a Director of the Company
since 1983. Mr. Johnson also serves as Executive Vice President of the following
subsidiaries of the Company: Bow Tie Systems, Inc., Security APL, Inc.,
Servantis Services, Inc., CheckFree Investment Corporation, Servantis Systems
Holdings, Inc., CheckFree Software Solutions, Inc., and CheckFree Services
Corporation. Mr. Johnson served as Executive Vice President, Business
Development from 1993 to 1997, Treasurer from 1993 to 1996, as Senior Vice
President of the Company from 1991 to 1993, and as a Vice President from 1982 to
1991.
Eugene F. Quinn has served as a Director of the Company since 1994.
Since March 1997, Mr. Quinn has served as Senior Vice President for Online and
Interactive Services at MTV Networks, a division of Viacom, Inc. From 1984 to
1997, Mr. Quinn served as a senior executive at Tribune Company and its Chicago
Tribune subsidiary.
George R. Manser has served as a Director of the Company since 1983.
Since July 1994, Mr. Manser has served as Chairman of Uniglobe Travel (Capital
Cities) Inc., which franchises travel agencies in certain areas of the U.S. From
1985 to 1994, he served as Chairman of North American National Corporation, a
life insurance holding company. Mr. Manser is a Director of Cardinal Health
Inc., a publicly-held wholesale drug distributor, State Auto Financial
Corporation, a publicly-held insurance company, AmeriLink Corporation, a
publicly-held cabling services company, and Hallmark Financial Services, Inc., a
publicly-held insurance services company. He is also an Advisory Director to the
Corporate Finance Department of J.C. Bradford & Co., a NASD broker-dealer.
William P. Boardman has served as a Director of the Company since July
1996. Mr. Boardman has been an officer of Bank One Corp. since 1984 and is
currently Senior Executive Vice President.
Peter J. Kight is the founder of the Company and has served as
Chairman, President, and Chief Executive Officer since 1981. He has also serves
as President of the following subsidiaries of the Company: Bow Tie Systems,
Inc., Security APL, Inc., Servantis Services, Inc., CheckFree Investment
Corporation, Servantis Systems Holdings, Inc., CheckFree Software Solutions,
Inc., and CheckFree Services Corporation. Mr. Kight is a Director of Metatec
Corporation, a publicly-held company which distributes information utilizing CD
ROM technology.
Jeffrey M. Wilkins has served as a Director of the Company since 1990.
Since August 1989, Mr. Wilkins has served as Chairman and Chief Executive
Officer of Metatec Corporation, a publicly-held company which distributes
information utilizing CD ROM technology.
INFORMATION CONCERNING THE BOARD OF DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL
STOCKHOLDERS
MEETINGS, COMMITTEES, AND COMPENSATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of five meetings
during the fiscal year ended June 30, 1997 ("Fiscal 1997"). During Fiscal 1997,
each of the directors attended 75% or more of the total number of (i) meetings
of
3
<PAGE> 7
the Board, and (ii) meetings of committees of the Board on which such director
served. During Fiscal 1997, directors who are not employees of the Company
received a $500 retainer for each fiscal quarter, $500 for each Board meeting
attended and $250 for each committee meeting attended, plus out-of-pocket
expenses incurred in connection with attendance at such meetings. Additionally,
in the past, non-employee directors received stock options granted under the
existing stock option plans upon their election to the Board of Directors to
acquire from 15,000 to 26,307 shares of Common Stock. The exercise price for
such options ranges from $0.57 to $14.25 per share. Such options vested 20% a
year over a five year period and terminated ten years after grant.
Effective May 2, 1997, each non-employee director will receive each
year, stock options under the 1995 Stock Option Plan to acquire 8,000 shares of
Common Stock, which options will vest 100% after one year and terminate ten
years after grant. In addition, each non-employee director will receive
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board and meetings of committees of the Board.
The Board of Directors has two standing committees: a Stock Option and
Compensation Committee and an Audit Committee. The Stock Option and Compensation
Committee has the authority to (i) administer the Company's stock option plans,
including the selection of optionees and the timing of option grants; and (ii)
review and monitor key employee compensation policies and administer the
Company's management compensation plans. The members of the Stock Option and
Compensation Committee are Messrs. Quinn, Boardman and Manser.
The Audit Committee recommends the annual appointment of the Company's
independent public accountants with whom the Audit Committee reviews the scope
of audit and non-audit assignments and related fees, the accounting principles
used by the Company in financial reporting, internal financial auditing
procedures and the adequacy of the Company's internal control procedures.
Messrs. Manser, Quinn, and Wilkins serve as members of the Audit Committee.
EXECUTIVE OFFICERS
In addition to Peter J. Kight and Mark A. Johnson, the following
persons are executive officers of the Company:
Jay N. Whipple, III, age 40, has served as Vice Chairman of the Company
since August 1997. Prior to his election as Vice Chairman, Mr. Whipple served as
President of Investment Services and as Executive Vice President of Portfolio
Services of the Company from 1996 to 1997. Mr. Whipple was founder of Security
APL, Inc., a company acquired by the Company in March 1996, and served as its
Chairman, President and Chief Executive Officer from 1978 to 1996.
Peter F. Sinisgalli, age 41, has served as Chief Operating Officer of
the Company since November 1996. From 1994 to 1996, Mr. Sinisgalli was Executive
Vice President and Chief Financial Officer of Dun & Bradstreet Software. From
1993 to 1994, Mr. Sinisgalli was Senior Vice President - Group Finance of Dun &
Bradstreet Corporation. From 1990 to 1992, Mr. Sinisgalli held various positions
with Nielson Media Research, a division of Dun & Bradstreet Corporation.
James S. Douglass, age 32, has served as Executive Vice President and
Chief Financial Officer of the Company since September 1996. From 1994 to 1996,
Mr. Douglass was Vice President - Corporate Controller and Chief Accounting
Officer for Medaphis Corporation. From 1988 to 1994, Mr. Douglass served in
various capacities with KPMG Peat Marwick LLP, most recently as senior manager.
Kenneth J. Benvenuto, age 38, has served as Executive Vice President,
Retail Electronic Services of the Company since May 1997. From March 1996 to May
1997, Mr. Benvenuto served as Executive Vice President, Corporate Services of
the Company. From 1994 to 1996, Mr. Benvenuto was employed by Servantis Systems
Holdings, Inc. as the Treasury Products Division President until its acquisition
by the Company in February 1996. From September 1993 to August 1994, Mr.
Benvenuto served as Vice President of Best Programs, Inc., an accounting
4
<PAGE> 8
software firm. From August 1986 to September 1993, Mr. Benvenuto was an
Executive Vice President of Mitchell Humphrey & Company, a client/server-based
financial management software firm.
Lynn D. Busing, age 45, has served as Executive Vice President,
Business Electronic Commerce of the Company since February of 1996. Mr. Busing
was Senior Vice President of Servantis Systems Holdings, Inc. from 1993 to 1996.
From 1987 to 1993, Mr. Busing held various management positions with Digital
Equipment Corporation.
Ravi Ganesan, age 31, has served as Executive Vice President and Chief
Technology Officer of the Company since January 1997. From 1990 to 1997, Mr.
Ganesan held various positions with Bell Atlantic, including Vice President -
Distributed Operations & Information Technology from 1995 to 1997.
Mark D. Phelan, age 43, has served as Executive Vice President, Sales
of the Company since May 1997. From March 1996 to May 1997, Mr. Phelan was the
Company's Executive Vice President, Retail Services. From October 1992 to March
1996, he served as Executive Vice President, Sales and Marketing of the Company.
From February 1982 to October 1992, Mr. Phelan served as a Sales Vice President
of AT&T Corporation, a worldwide telecommunications company.
Howard S. Baulch, age 44, has served as Executive Vice President,
Software Product Development of the Company since May 1997. From March 1996 to
May 1997, Mr. Baulch served as Executive Vice President, Systems Support and
Development of the Company. From July 1994 to March 1996, Mr. Baulch served as
Executive Vice President, Systems and Software Development of the Company. From
1992 to July 1994, Mr. Baulch served as Director of Systems Architecture for
Mead Data Central. He also served as Director of Quality Assurance for Mead Data
Central from 1990 to 1992.
Sean E. Feeney, age 39, has served as Executive Vice President,
Software Solutions of the Company since February 1997. During 1996, Mr. Feeney
served as Vice President, North America Channels & General Manager for Dun &
Bradstreet Software. From 1990 to 1995, Mr. Feeney held various sales positions
with Dun & Bradstreet Software.
Frank Polashock, age 42, has served as Executive Vice President and
General Manager, Investment Services Division of the Company since May 1997.
From 1981 to 1993, Mr. Polashock held several management positions within Dun &
Bradstreet Corporation, most recently as General Manager of Asia Pacific and
Latin America. From 1993 to May 1997 Mr. Polashock was involved with several
entrepreneurial ventures targeted at the Chinese marketplace.
Allen L. Shulman, age 49, has served as Senior Vice President and
General Counsel of the Company since May 1997. Immediately prior to joining the
Company, Mr. Shulman was the managing attorney for the Atlanta office of Horvath
& Lieber, P.C. From 1983 to 1996, Mr. Shulman was General Counsel and Chief
Financial Officer for United Refrigerated Services, Inc.
Stephen Olsen, age 37, has served as Senior Vice President and Chief
Information Officer of the Company since March 1997. From 1996 to 1997, Mr.
Olsen served as Vice President, Chief Information Officer of Geac Computer
Corporation. From 1990 to 1996, Mr. Olsen served as Vice President, Chief
Information Officer of Dun & Bradstreet Software.
Curtis A. Loveland, age 50, has served as Secretary of the Company
since 1983. Mr. Loveland has been associated with the law firm of Porter,
Wright, Morris & Arthur since 1973 and a partner since 1979.
Officers are elected annually by the Board of Directors and serve at
its discretion. There are no family relationships among directors and executive
officers of the Company.
5
<PAGE> 9
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding beneficial
ownership of the Company's Common Stock by each director, each of the Company's
executive officers named in the Summary Compensation Table, and the directors
and executive officers of the Company as a group as of September 12, 1997:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)(2)(3)
------------------------------------------------------
STOCKHOLDER NUMBER PERCENT
- ------------------------------------------------------------ ---------------------------- -------------------------
<S> <C> <C>
Peter J. Kight (4) 6,667,035 12.0%
Jay N. Whipple, III 1,764,721 3.2%
Mark A. Johnson (5) 1,543,773 2.8%
Kenneth J. Benvenuto 81,529 *
Peter F. Sinisgallli 31,000 *
William P. Boardman 5,000 *
George R. Manser 27,307 *
Eugene F. Quinn 0 *
Jeffrey M. Wilkins 2,000 *
All directors and executive officers as a group 10,706,959 19.3%
(19 persons) (4)(5)
- ----------------------
<FN>
* Represents beneficial ownership of less than 1% of the Company's
outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those shares.
(2) Includes shares purchasable within 60 days after September 12, 1997
pursuant to the exercise of options covering 526,340 shares for Mr. Kight,
97,283 shares for Mr. Johnson, 41,976 shares for Mr. Benvenuto, 30,000
shares for Mr. Sinisgalli, 3,000 shares for Mr. Boardman, 26,307 shares
for Mr. Manser, and 1,002,299 shares for all directors and executive
officers as a group.
(3) The Company's 401(k) match is funded through issuance of common stock of
the Company. As of the date of this report, the Company has not funded the
401(k) match for the year ended June 30, 1997. The outstanding amounts
include $2,000 for Mr. Whipple, $2,000 for Mr. Johnson, $2,000 for Mr.
Sinisgalli, $2,000 for Mr. Benvenuto and $12,000 for all directors and
executive officers as a group. The number of beneficial shares issued
related to the 401(k) match is dependent upon the market value of the
Company's common stock on the date of the funding.
(4) Includes 6,800 shares held by the Peter J. Kight and Teresa J. Kight 1995
Children's Trust. Mr. Kight disclaims ownership of such shares in which he
has no pecuniary interest.
(5) Includes 4,000 shares held by the Mark A. Johnson 1997 Irrevocable
Children's Trust. Mr. Johnson disclaims ownership of such shares in which
he has no pecuniary interest.
</TABLE>
6
<PAGE> 10
OWNERSHIP OF COMMON STOCK BY PRINCIPAL STOCKHOLDERS
The following table sets forth information as of September 12, 1997
(except as noted below), relating to the beneficial ownership of Common Stock by
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
-------------------------------------------------------------
STOCKHOLDER NUMBER PERCENT
- ----------------------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Peter J. Kight (2)(3) 6,667,035 12.0%
4411 East Jones Bridge Road
Norcross, Georgia 30092
Intuit Inc. 10,600,000 19.1%
2535 Garcia Avenue
Mountain View, California 94039
Nationwide Mutual Life 3,705,341 6.7%
Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215
- ----------------------
<FN>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those shares.
(2) Includes 526,340 shares purchasable by Mr. Kight pursuant to the exercise
of options within 60 days after September 12, 1997.
(3) Includes 6,800 shares held by the Peter J. Kight and Teresa J. Kight 1995
Children's Trust. Mr. Kight disclaims ownership of such shares in which he
has no pecuniary interest.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid during the fiscal year ended December 31, 1995, the twelve
months ended June 30, 1996, and the fiscal year ended June 30, 1997 to the
Company's Chief Executive Officer and each of the Company's four other highest
compensated executive officers (collectively, the "Named Executive Officers").
7
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
AWARDS
ANNUAL COMPENSATION -----------------
---------------------------- SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) ($) ($) (#) ($)(2)
- --------------------------------- ----------- ------------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
PETER J. KIGHT 1997 $292,692 $ 256,776 300,000 $108,800
Chairman, President, and Chief 1996 $250,000 $ 33,000 1,000 $ 0
Executive Officer 1995 $248,173 $ 33,000 0 $ 0
JAY N. WHIPPLE, III(3) 1997 $250,000 $ 129,612 0 $ 3,375
Vice Chairman 1996 $ 35,618 $ 0 0 $ 0
MARK A. JOHNSON 1997 $179,711 $ 80,330 30,847 $ 42,574
Vice Chairman, Corporate 1996 $161,538 $ 13,500 1,000 $ 1,820
Development and Marketing 1995 $154,711 $ 38,000 0 $ 1,698
PETER F. SINISGALLI(4) 1997 $165,675 $ 114,757 192,373 $ 0
Chief Operating Officer
KENNETH J. BENVENUTO(5) 1997 $148,316 $ 69,000 180,000 $ 33,500
Executive Vice President, Retail 1996 55,417 $ 90,000 44,743 $ 0
Electronic Commerce
- ----------------------
<FN>
(1) References to 1997 and 1996 are for the period from July 1, 1996 and
1995 to June 30, 1997 and 1996, respectively, while reference to 1995
is for the period from January 1 to December 31, 1995.
(2) Includes matching contribution to the Company's 401(k) Plan of $3,375
for Mr. Whipple, $980 for Mr. Johnson, and $1,000 for Mr. Benvenuto and
relocation allowances of $108,800 for Mr. Kight, $41,594 for Mr.
Johnson, and $32,500 for Mr. Benvenuto.
(3) Mr. Whipple was employed by the Company effective May 9, 1996.
(4) Mr. Sinisgalli was employed by the Company effective November 3, 1996.
(5) Mr. Benvenuto was employed by the Company effective February 21, 1996.
</TABLE>
8
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning the grant
of stock options to the Named Executive Officers under the Company's 1995 Stock
Option Plan:
Individual Grants (1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL POTENTIAL REALIZED VALUE AT
UNDERLYING OPTIONS GRANTED ASSUMED ANNUAL RATES OF
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION STOCK PRICE APPRECIATION FOR
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE OPTION TERMS (2)(3)
---- ----------- ----------- ------------ ---- --------------------
5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Kight 300,000 13.17% $14.75 05/01/07 $2,782,859 $7,052,310
Jay N. Whipple, III 0 -- -- -- -- --
Mark A. Johnson 30,847 1.35% $14.75 05/01/07 $ 286,143 $ 725,142
Peter F. Sinisgalli 150,000 6.59% $18.63 11/01/07 $1,757,446 $4,453,713
42,373 1.86% $14.75 05/01/97 $ 393,060 $ 996,092
Kenneth J. Benvenuto 175,000 7.69% $11.25 08/22/06 $1,238,136 $3,137,680
5,000 0.22% $14.75 05/01/07 $ 46,381 $ 117,539
- ----------------------
<FN>
(1) This table covers the period from July 1, 1996 to June 30, 1997.
(2) The dollar amounts in these columns are the product of (a) the difference
between (1) the product of the per share market price at the date of grant
and the sum of 1 plus the assumed rate of appreciation (5% and 10%)
compounded over the term of the option (ten years) and (2) the per share
exercise price and (b) the number of shares underlying the grant.
(3) The appreciation rates stated are arbitrarily assumed, and may or may not
reflect actual appreciation in the stock price over the life of the option.
Regardless of any theoretical value which may be placed on a stock option,
no increase in its value will occur without an increase in the value of the
underlying shares. Whether such an increase will be realized will depend
not only on the efforts of the recipient of the option, but also upon
conditions in the Company's industry and market area, competition, and
economic conditions, over which the optionee may have little or no control.
</TABLE>
9
<PAGE> 13
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information regarding the number
and value of stock options held by the Company's Named Executive Officers at
June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END (#) YEAR-END ($)(2)
------------------------------ --------------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ---------- ----------- ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Kight 0 $ 0 526,340 300,800 $8,836,521 $ 862,500
Jay N. Whipple, III 0 $ 0 0 0 $ 0 $ 0
Mark A. Johnson 0 $ 0 97,283 55,918 $1,630,509 $ 496,316
Peter F. Sinisgalli 0 $ 0 0 192,373 $ 0 $ 121,822
Kenneth J. Benvenuto 13,818 $122,365 6,974 203,950 $ 31,792 $ 1,193,617
- --------------------
<FN>
(1) Value realized represents the difference between the exercise price of the
option shares and the market price of the option shares on the date the
option was exercised. The value realized was determined without
consideration for any taxes or brokerage expenses which may have been
owed.
(2) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value at year
end ($17.625 on June 30, 1997). An option is in-the-money if the fair
market value of the underlying shares exceeds the exercise price of the
option.
</TABLE>
EMPLOYMENT AGREEMENTS
On May 1, 1997, Mr. Kight entered into an employment agreement with
the Company. Mr. Kight's employment agreement provides for a minimum base salary
and a covenant not to compete. Mr. Kight's minimum base salary was set at
$300,000 until July 1, 1997, when it increased to $375,000. Additionally, Mr.
Kight received a stock option to purchase 200,000 shares of the Company's Common
Stock at $14.75 per share, the price per share on the date of the employment
agreement. The covenant not to compete in Mr. Kight's employment agreement is
for the time of employment, plus a one year period following termination of
employment. If Mr. Kight's employment is terminated as a result of a change in
control of the Company (as defined in his employment agreement), if Mr. Kight
resigns after a change in control upon making a good faith determination that
his employment status or responsibilities have been materially adversely
affected, or if Mr. Kight's employment is terminated by the Company without
cause, he is entitled to receive the greater of two times his average annual
compensation or an amount equal to his basic salary and incentive compensation
until June 30, 2002. The term of Mr. Kight's employment agreement runs through
June 30, 2002, and thereafter it renews for one-year periods.
On February 21, 1996, Messrs. Busing and Benvenuto entered into employment
agreements with the Company. Each of these employment agreements provides for a
minimum base salary and a covenant not to compete. The employment agreements are
substantially identical, except with respect to minimum base salary, which is
$140,000 per year for Mr. Busing and $135,000 per year for Mr. Benvenuto. The
covenant not to compete contained in each employment agreement is for the time
of employment, plus a one year period following termination of employment. If
either Mr. Busing's or Mr. Benvenuto's employment is terminated as a result of a
change in control of the Company (as defined in their employment agreements) or
if either executive resigns after a change in control upon making a good faith
determination that his employment status or responsibilities have been
materially adversely affected, the executive is entitled to receive two times
his average annual compensation. If the Company terminates either executive's
employment without cause, the executive would be entitled to receive his basic
salary for the six month period following his termination date. The employment
agreements are "at will" and, therefore, do not have a stated term.
10
<PAGE> 14
On May 9, 1996, Mr. Whipple entered into an employment agreement with the
Company. Mr. Whipple's employment agreement provides for a minimum base salary
and a covenant not to compete. Mr. Whipple's base salary for the first year of
the employment agreement is $250,000, and thereafter the base salary reduces to
$175,000. The covenant not to compete in Mr. Whipple's employment agreement
provides that Mr. Whipple may not compete with the Company for the time of
employment, plus a one year period following termination of employment. If Mr.
Whipple's employment is terminated as a result of a change in control of the
Company (as defined in his employment agreement) or if Mr. Whipple resigns after
a change in control upon making a good faith determination that his employment
status or responsibilities have been materially adversely affected, he is
entitled to receive two times his average annual compensation. If the Company
terminates Mr. Whipple's employment without cause, he would be entitled to
receive his basic salary to the later of the six month period following his
termination date or the second anniversary of his employment agreement. The
employment agreement is "at will" and, therefore, does not have a stated term.
The following Compensation Committee Report and Performance Graph shall
not be deemed incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any of the Company's filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Stock Option and Compensation Committee has the authority and
responsibility to determine and administer the Company's officer compensation
policies and to establish the salaries of executive officers, the formula for
bonus awards to executive officers, and the grant of stock options to executive
officers and other key employees under the Company's 1995 Stock Option Plan. The
Stock Option and Compensation Committee consists solely of independent
non-employee directors of the Company. In general, the philosophy of the Stock
Option and Compensation Committee is to attract and retain qualified executives,
reward current and past individual performance, provide short-term and long-term
incentives for superior future performance, and relate total compensation to
individual performance and performance of the Company. The preferred
compensation policy of the Stock Option and Compensation Committee is to set
base pay at the lower end of the comparable market ranges, establish performance
based annual cash bonus opportunities, and grant significant option positions to
key employees to provide greater long term incentives.
The determination of executive officer base salaries for Fiscal 1997
was based primarily on subjective factors, such as the Stock Option and
Compensation Committee's perception of individual performance and the executive
officer's contribution to the overall performance of the Company, and not on
specific criteria. No specific weight was given to any of these factors because
each of these factors was considered significant and the relevance of each
varies depending upon an officer's responsibilities. These factors were also
taken into account when the Stock Option and Compensation Committee increased
Mr. Kight's base salary from $250,000 to $300,000 effective October 18, 1996.
In order to motivate management to meet both short-term and long-term
Company objectives, the Stock Option and Compensation Committee approved a 1997
Bonus Program for certain executive officers. The bonuses for senior officers
were based partially on the achievement of revenue targets and partially on the
achievement of pre-tax earnings targets of the Company and, in appropriate
cases, partially on the achievement of revenue targets and partially on the
achievement of pre-tax earnings targets of operating divisions of the Company.
Mr. Kight received a bonus for Fiscal 1997 of $256,776.
In Fiscal 1997, the Company hired an outside consulting firm to perform
an executive compensation survey for the Company. The consulting firm was asked
to prepare a survey reviewing base compensation, bonus programs, and stock
options in relation to similarly situated companies. The survey concluded that
the Company's compensation is mixed when compared to the market, with some
positions below market and others above market. After a complete
11
<PAGE> 15
review and discussion of the survey, the Stock Option and Compensation Committee
agreed that the Company would move all executive officers to a July 1
compensation review and adjustment cycle effective July 1, 1997, to permit a
more uniform review of executive compensation consistent with salary ranges
established for executive positions. Also, based in part on the recommendation
of the consulting firm, the Company approved annual base salaries with target
performance bonus percentages for its executive officers for the 1998 fiscal
year and entered into an employment agreement with Mr. Kight.
Mr. Kight's employment agreement, effective May 1, 1997, provides for
an increase in base salary for fiscal year 1998 to $375,000. In addition, the
employment agreement provides for a one-time stock option grant of 200,000
shares at $14.75 per share, the fair market value of the shares on May 1, 1997.
The option shares become 100% vested on May 1, 2003, provided, however, 20% of
the option shares will vest and become exercisable at the end of each fiscal
year 1998 through 2002 for which the Company attains at least 80% of the
budgeted net income or not more than 120% of the budgeted net loss. The stock
options also will become 100% vested if the Company terminates Mr. Kight's
employment without cause or upon a change in control of the Company, as defined
in the employment agreement. The term of the employment agreement is five years,
with automatic one-year renewals thereafter.
The purposes of the Company's 1995 Stock Option Plan are to provide
long-term incentives to key employees and motivate key employees to improve the
performance of the Company and thereby increase the Company's Common Stock
price. Beginning in Fiscal 1997, stock option awards are considered at the time
of the hiring of key associates and annually for all key associates by the Stock
Option and Compensation Committee. The value of the stock options awarded is
entirely dependent upon the Company's stock performance over a period of time.
The number of shares of Common Stock subject to the options granted
during Fiscal 1997 was determined based on a subjective evaluation of the past
performance of the individual, the total compensation being paid to the
individual, the individual's scope of responsibility, and the anticipated value
of the individual's contribution to the Company's future performance. No
specific weight was given to any of these factors. Options awarded to each
executive officer during previous years were reviewed by the Stock Option and
Compensation Committee in determining the size of an option awarded for Fiscal
1997.
Each stock option awarded during Fiscal 1997 had an exercise price
equal to the fair market value of the underlying Common Stock of the Company on
the date of the grant. Generally, stock options granted to new employees of the
Company vest and become exercisable at the rate of 20% per year if the option
holder remains employed at the time of vesting and terminate ten years from the
date of grant. However, annual stock option grants to key employees typically
vest and become exercisable at the rate of 33-1/3% per year if the option holder
remains employed at the time of vesting and terminate ten years from the date of
grant. Pursuant to the Company's policy of granting stock options to key
employees on an annual basis, on May 1, 1997, Mr. Kight was granted an option to
purchase 100,000 shares at a price of $14.75 per share, the fair market value of
the shares on May 1, 1997, vesting at the rate of 33-1/3% per year based on
continued employment.
The Budget Reconciliation Act of 1993 amended the Internal Revenue Code
to add Section 162(m) ("Section 162(m)") which bars a deduction to any publicly
held corporation for compensation paid to a "covered employee" in excess of
$1,000,000 per year. Generally, the Company intends that compensation paid to
covered employees shall be deductible to the fullest extent permitted by law.
The Amended and Restated 1995 Option Plan, as defined and described in this
Proxy Statement, is intended to qualify under Section 162(m). In addition, the
Incentive Compensation Plan, as described in this Proxy Statement, is intended
to qualify under Section 162(m) for the 1999 fiscal year.
STOCK OPTION AND COMPENSATION COMMITTEE
George R. Manser
Eugene F. Quinn
William P. Boardman
12
<PAGE> 16
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE NASDAQ STOCK MARKET - US INDEX
AND THE S&P COMPUTER SOFTWARE & SERVICES INDEX
The following Performance Graph compares the performance of the Company
with that of the Nasdaq Stock Market - US Index and the S&P Computer Software &
Services Index, which is a published industry index. The comparison of the
cumulative total return to stockholders for each of the periods assumes that
$100 was invested on September 27, 1995 (the effective date the Company's Common
Stock was registered under the Securities Exchange Act of 1934, as amended), in
the Common Stock of the Company, and in the Nasdaq Stock Market - US Index and
the S&P Computer Software & Services Index and that all dividends were
reinvested.
COMARISON OF 21 MONTH CUMULATION TOTAL RETURN*
AMONG CHECKFREE CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S&P COMPUTERS (SOFTWARE & SERVICES) INDEX
<TABLE>
<CAPTION>
9/28/95 12/95 12/96 6/97
------- ----- ----- ----
<S> <C> <C> <C> <C>
CHECKFREE CORPORATION 100 119 95 98
NASDAQ STOCK MARKET (U.S) 100 104 127 143
S&P COMPUTERS (SOFTWARE & SERVICES) 100 102 159 216
* $100 INVESTED ON 9/28/95 IN STOCK OR ON
8/31/96 IN INDEX - INCLUDING REINVESTMENT
OF DIVIDENDS. FISCAL YEAR ENDING JUNE 30.
</TABLE>
13
<PAGE> 17
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, Messrs. Manser, Boardman and Quinn, who are not employees of
the Company, are members of the Stock Option and Compensation Committee. Since
1994, Mr. Kight has served as a member of Metatec Corporation's Board of
Directors, of which Mr. Wilkins is Chairman, President and Chief Executive
Officer.
TRANSACTIONS BETWEEN EXECUTIVE OFFICERS AND THE COMPANY
Jay N. Whipple III, the Company's President of Investment Services is a
minority owner and Vice President of Jay N. Whipple Inc., a consulting firm that
provides services to the Company. Under the current arrangement with Jay N.
Whipple Inc., the Company pays Jay N. Whipple, Inc. $8,500 per month for
consulting services.
TRANSACTIONS BETWEEN INTUIT INC. AND THE COMPANY
In connection with the acquisition of CheckFree Services Corporation
(previously known as Intuit Services Corporation) ("CSC"), the Company, CSC and
Intuit Inc. ("Intuit") entered into a certain Services and License Agreement
(the "License Agreement"). The principal objectives of the License Agreement are
to: (i) establish a continuing cooperative relationship between the parties
whereby users of certain Intuit software products and services will continue to
be able to obtain electronic banking and electronic bill payment services from
CSC or the Company through such Intuit products and services; (ii) provide the
means for an orderly transition in the operation and support of several services
currently offered by Intuit and CSC that are now inter-dependent on certain
technologies, equipment, facilities, personnel and support services of CSC and
Intuit; (iii) set forth the terms on which the Company, CSC and Intuit will
cooperate to develop, market, distribute and support certain of their respective
products and services; and (iv) provide for the grant of certain technology
licenses and mutual support and technical cooperation agreements among the
parties designed to maintain connectivity between certain products and services
offered by the parties. In partial consideration of several of Intuit's
agreements under the License Agreement, CSC agreed to pay Intuit, in addition to
certain other fees, the sum of $10 million in cash upon the closing of the CSC
acquisition and an additional $10 million on or about October 1, 1997 (the
"Connectivity Fee"). Certain fees will be payable by Intuit to CSC and the
Company under the License Agreement. During Fiscal 1997, the Company paid Intuit
$16,000,000 pursuant to the License Agreement.
MR. KIGHT'S GUARANTY
In 1993, the State of Ohio issued State Economic Development Revenue
Bonds in the aggregate principal amount of $7,515,000 pursuant to a certain
trust agreement between the Treasurer of Ohio and The Provident Bank, as trustee
("Provident"). The proceeds of the bonds were applied to the purchase of real
property which is now being leased by the Company from the Director of
Development, State of Ohio for its facilities in Columbus, Ohio. Mr. Kight
guaranteed the obligations evidenced by the bonds in order to induce their
issuance by the State of Ohio pursuant to a guaranty agreement, dated August 1,
1993, made with Provident (the "Guaranty Agreement"). Under the Guaranty
Agreement, Mr. Kight's liability is limited to an amount equal to the product of
his percentage beneficial ownership of the Company multiplied by the outstanding
principal of the bonds; provided, however, that Mr. Kight's liability may not
exceed $2,200,000. The Company has agreed to indemnify and reimburse Mr. Kight
for any amount paid by him under the Guaranty Agreement. Additionally, under the
Guaranty Agreement, with certain limited exceptions, the Director of
Development's consent is required for Mr. Kight to sell or otherwise dispose of
his equity interest in the Company.
MISCELLANEOUS
Curtis A. Loveland, the Company's Secretary, is a partner in the law
firm of Porter, Wright, Morris & Arthur, which firm serves as general counsel to
the Company.
14
<PAGE> 18
AMENDMENTS TO THE COMPANY'S 1995 STOCK OPTION PLAN
Subject to stockholder approval, on September 15, 1997, the Company's
Board of Directors adopted the Amended and Restated 1995 Stock Option Plan (the
"1995 Stock Option Plan"). The changes made to the Company's 1995 Stock Option
Plan: (i) limit the number of options that may be granted to any individual
under the 1995 Stock Option Plan in any calendar year to 500,000 shares; (ii)
provide that an optionee paying for option shares with previously acquired
shares of the Company's Common Stock must have held such shares for at least six
months; (iii) provide a definition of "disability" for purposes of the 1995
Stock Option Plan and enable optionees whose employment is terminated by the
Company by reason of a disability, as defined, up to 12 months to exercise
options; (iv) change the time period for the exercise of options granted after
September 15, 1997 by optionees who terminate their employment by reason of
Retirement, as defined, from 30 days to three years; (v) change the definition
of "change in control" and provide for the vesting of all options outstanding
under the Company's 1995 Stock Option Plan upon a change of control, as defined;
and (vi) conform the Company's 1995 Stock Option Plan to reflect changes in
applicable laws. The following summary does not purport to be complete and is
qualified in its entirety by the terms of the 1995 Stock Option Plan which is
attached hereto as Appendix A. THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS
A VOTE FOR APPROVAL OF THE AMENDED AND RESTATED 1995 STOCK OPTION PLAN.
PURPOSE OF 1995 STOCK OPTION PLAN
The Company's Board of Directors believes that providing selected
persons with an opportunity to invest in the Company will give them additional
incentive to increase their efforts on behalf of the Company and will enable the
Company to attract and retain the best available associates, officers,
directors, consultants and advisers. The 1995 Stock Option Plan is also intended
to motivate executive and key management associates to contribute to the
Company's future growth and probability.
The 1995 Stock Option Plan was originally adopted by the Company's
Board of Directors on August 8, 1995 and approved by the stockholders on August
8, 1995. The amendment increasing the number of shares of the Company's Common
Stock issuable under the 1995 Stock Option Plan was adopted by the Company's
Board of Directors on October 18, 1996 and approved by its stockholders on
January 21, 1997. The amendments reflected in the Amended and Restated 1995
Stock Option Plan were adopted by the Company's Board of Directors on May 1,
1997 and September 15, 1997.
ADMINISTRATION OF THE 1995 STOCK OPTION PLAN
The 1995 Stock Option Plan provides for the grant of options to key
associates, officers, directors, consultants and advisers who render services to
the Company. The options may be either Incentive Options or Non-Statutory
Options. The 1995 Stock Option Plan is administered by the Board of Directors of
the Company, which may, and has, delegated all of its powers under the 1995
Stock Option Plan to the Stock Option and Compensation Committee of the Board of
Directors (the "Committee"), which is authorized to determine to whom and at
what time the stock options may be granted, the designation of the option as
either Incentive Options or Non-Statutory Options, the per share exercise price,
the duration of each option, the number of shares subject to each option, any
restrictions on such shares, the rate and manner of exercise and the timing and
form of payment.
NUMBER OF AUTHORIZED SHARES
The number of shares available for issuance under the 1995 Stock Option
Plan is 5,000,000 shares of Common Stock. The maximum number of stock options
that may be granted to an individual under the 1995 Stock Option Plan in any
calendar year is 500,000 shares. The number and class of shares available under
the 1995 Stock Option Plan and subject to outstanding options may be adjusted by
the Committee to prevent dilution or enlargement of rights in the event of
various changes in the capitalization of the Company. Shares of Common Stock
attributable to unexercised options which expire or are terminated may be
available for reissuance under the 1995 Stock Option Plan.
15
<PAGE> 19
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the 1995 Stock Option Plan extends to all
executive, administrative, operational and managerial employees of the Company
and any current or future subsidiaries or parent thereof. Currently,
approximately 1,480 associates are employed by the Company and its subsidiaries
and are eligible to participate. The Company anticipates that approximately
one-third of those eligible will participate in the 1995 Stock Option Plan.
Participation in the 1995 Stock Option Plan is at the discretion of the
Committee and will be based upon each associate's present and potential
contributions to the success of the Company and its subsidiaries and such other
factors as the Committee deems relevant. No associate may be granted in any
calendar year options covering more than 500,000 shares of Common Stock.
EXERCISE PRICE
Incentive Options may not have an exercise price less than the fair
market value of the Common Stock on the date of grant. Non-Statutory Options may
have an exercise price less than the fair market value of the underlying Common
Stock on the date of grant; however, in practice the Committee has generally
granted Non-Statutory Options at the fair market value of the Common Stock on
the date of grant.
VESTING
The Committee may determine at the time of grant and thereafter the
terms under which options shall vest and become exercisable. Options not
exercisable as of the date of a change in control, as defined, of the Company
will become exercisable immediately as of such date. A change in control of the
Company shall be deemed to have occurred as of the first day than either of the
following has occurred: (i) a person not in control of the Company on the
effective date of the 1995 Stock Option Plan becomes the beneficial owner,
directly or indirectly, of securities representing a majority of the combined
voting power of the Company's then outstanding securities, or (ii) the
stockholders of the Company approve a plan of complete liquidation, a sale of
all or substantially all of the Company's assets, or a merger, consolidation, or
reorganization of the Company with or involving another corporation, other than
a merger, consolidation, or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least a majority of the combined voting
power of the voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation, or reorganization.
SPECIAL LIMITATIONS ON INCENTIVE OPTIONS
No Incentive Options may be granted to an associate who owns, at the
time of the grant, stock representing more than 10% of the total combined voting
power of all classes of stock of the Company, its parent or its subsidiaries (a
"10% Shareholder"), unless the exercise price per share of Common Stock for the
shares subject to such Incentive Options is at least 110% of the fair market
value per share of Common Stock on the date of grant and such Incentive Options
is not exercisable for more than five years after its date of grant. In
addition, the total fair market value of shares of Common Stock subject to
Incentive Options which are exercisable for the first time by an eligible
associate in a given calendar year shall not exceed $100,000, valued as of the
date of the Incentive Options' grant. Incentive Options may not have an exercise
period that exceeds ten years from the date of grant and is subject to certain
other limitations which allow the option holder to qualify for favorable tax
treatment. None of these restrictions applies to the grant of Non-Statutory
Options, which may have an exercise price less than the fair market value of the
underlying Common Stock on the date of grant, may have a total fair market value
of shares subject thereto which are valued in excess of $100,000 in any given
calendar year, and may be exercisable for an indeterminate period of time.
EXERCISE OF OPTIONS
An option may be exercised by written notice to the Company's Chief
Financial Officer or other officer designated by the Committee. The exercise
price of an option may be paid in cash or, with the consent of the Committee,
(i) by delivery of previously acquired shares of Common Stock that have been
held for at least six months, valued at their fair market value on the date they
are tendered, (ii) by delivery of a full recourse promissory note for the
16
<PAGE> 20
portion of the exercise price in excess of the par value of the shares subject
to the option, the terms and conditions of which will be determined by the
Committee, and in cash for the par value of the shares, (iii) by any combination
of the foregoing methods, or (iv) by delivery of written instructions to forward
the notice of exercise to a broker or dealer and to deliver to a specified
account a certificate for the shares purchased upon exercise of the option and a
copy of irrevocable instructions to the broker or dealer to deliver the purchase
price of the shares to the Company.
TRANSFERABILITY
An option is not transferable except by will or by the laws of descent
and distribution and may be exercised, during the lifetime of the optionee, only
by the optionee or by the optionee's guardian or legal representative.
Notwithstanding the foregoing, an optionee may transfer a Non-Statutory Option
to members of his or her immediate family (as defined in Rule 16a-1 promulgated
under the 1934 Act), to one or more trusts for the benefit of such family
members or to partnerships in which such family members are the only partners if
(a) the stock option agreement with respect to such Non-Statutory Option as
approved by the Committee expressly so provides and (b) the optionee does not
receive any consideration for the transfer. Non-Statutory Options held by such
transferees are subject to the same terms and conditions that applied to such
Non-Statutory Options immediately prior to transfer.
EXPIRATION OF OPTIONS
Options will expire at such time as the Committee determines at the
date of grant; provided, however, that no Incentive Options may be exercised
more than ten years from the date of grant, unless Incentive Options are held by
a 10% shareholder, in which case such Incentive Options may not be exercised
more than five years from the date of grant.
TERMINATION OF OPTIONS
Any option granted under the 1995 Stock Option Plan will, subject to
earlier termination by its terms, terminate automatically if not exercised: (i)
within 30 days after the optionee's termination of employment with the Company
(other than by reason of death, disability, retirement, or for cause); (ii)
within one year after the employee's death or termination of employment by the
Company by reason of disability, as defined in the 1995 Stock Option Plan; (iii)
within three years after an employee's retirement, as defined in the 1995 Stock
Option Plan; and (iv) prior to termination by the Company for cause, as defined
in the 1995 Stock Option Plan. The 1995 Stock Option Plan terminates on August
8, 2005, unless earlier terminated by the Board of Directors.
TERM OF 1995 STOCK OPTION PLAN
Unless terminated by the Company's Board of Directors, the 1995 Stock
Option Plan will terminate on August 8, 2005.
AMENDMENT
The Board may terminate, amend or modify the 1995 Stock Option Plan at
any time without further action on the part of the stockholders of the Company;
provided, however, that (a) in no event shall any amendment be made to the 1995
Stock Option Plan which would cause the Incentive Options granted thereunder to
fail to qualify as Incentive Options under the Code; (b) any amendment to the
1995 Stock Option Plan which requires the approval of the stockholders of the
Company under the Code or the regulations promulgated thereunder shall be
subject to approval by the stockholders of the Company in accordance with the
Code or such regulations; and (c) any amendment to the 1995 Stock Option Plan
which requires the approval of the stockholders of the Company under any of the
applicable securities exchanges or regulatory bodies shall be subject to the
approval of the stockholders of the Company in accordance with such rules. No
amendment, modification or termination of the 1995 Stock Option Plan shall in
any manner adversely affect any option previously granted to an optionee under
the 1995 Stock Option Plan without the consent of the optionee or the transferee
of such option.
17
<PAGE> 21
1995 STOCK OPTION PLAN TABLE
As of June 30, 1997, options to purchase an aggregate of 3,227,260
shares of the Company's Common Stock (net of options canceled) had been granted
pursuant to the 1995 Stock Option Plan, options to purchase 350,628 shares had
been exercised, options to purchase 2,770,092 shares remained outstanding, and
1,872,280 shares remained available for future grant. As of June 30, 1997, the
market value of all shares of the Company's Common Stock subject to outstanding
options under the 1995 Stock Option Plan and all of the Company's stock option
plans were approximately $48,822,872 and $78,280,750 respectively (based upon
the closing sale price of the Company's Common Stock as reported on the Nasdaq
National Market on June 30, 1997 of $17.625 per share). During the fiscal year
ended June 30, 1997, options covering 2,282,056 shares of the Company's Common
Stock were granted to employees of the Company under the 1995 Stock Option Plan.
The market value of the 5,000,000 shares of the Company's Common Stock to be
subject to the 1995 Stock Option Plan was approximately $88,125,000 as of June
30, 1997.
As of June 30, 1997, the following current directors and executive
officers had been granted options under the 1995 Stock Option Plan as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS AVERAGE EXERCISE
NAME GRANTED PRICE PER SHARE
- ------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Peter J. Kight 301,000 $16.29
Mark A. Johnson 31,847 $16.29
Eugene F. Quinn 8,000 $14.75
Jay N. Whipple, III 0 --
Peter F. Sinisgalli 192,273 $17.33
Kenneth J. Benvenuto 224,742 $13.24
</TABLE>
Since adoption of the 1995 Stock Option Plan: (i) all current executive
officers, as a group, have been granted options under the 1995 Stock Option Plan
covering 1,205,880 shares of the Company's Common Stock which represents
approximately 37.3% of the total number of options granted pursuant to the 1995
Stock Option Plan; (ii) all directors who are not executive officers, as a
group, have been granted options under the 1995 Stock Option Plan covering
47,000 shares of the Company's Common Stock which represents approximately 1.5%
of the total number of options granted pursuant to the 1995 Stock Option Plan;
and (iii) all current employees, excluding executive officers, as a group, have
been granted options under the 1995 Stock Option Plan covering 1,974,380 shares
of the Company's Common Stock which represents approximately 61.2% of the total
number of options granted pursuant to the 1995 Stock Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The 1995 Stock Option Plan permits the granting of Incentive Options as
well as Non-Statutory Options. Generally, no income is recognized when either
type of option is granted to the option holder, but the subsequent tax treatment
differs widely.
Non-Statutory Options. Upon the exercise of a Non-Statutory Option, the
excess of the fair market value of the shares on the date of exercise over the
option price is compensation to the option holder at the time of the exercise.
The tax basis for the shares purchased is their fair market value on the date of
exercise. Any gain or loss realized upon a later sale of the shares for an
amount in excess of or less than their tax basis will be taxed as capital gain
or loss, respectively, with the character of the gain or loss (short-term or
long-term) depending upon how long the shares were held since exercise.
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Incentive Options. Generally, no regular taxable income is recognized
upon the exercise of Incentive Options. The tax basis of the shares acquired
will be the exercise price. In order to receive this favorable treatment, shares
acquired pursuant to the exercise of Incentive Options may not be disposed of
within two years after the date the option was granted, nor within one year
after the exercise date (the "Holding Periods"). If the shares are sold before
the end of the Holding Periods, the amount of that gain which equals the lesser
of the difference between the fair market value on the exercise date and the
option price or the difference between the sale price and the option price is
taxed as ordinary income and the balance, if any, as short-term or long-term
capital gain, depending upon how long the shares were held. If the Holding
Periods are met, all gain or loss realized upon a later sale of the shares for
an amount in excess of or less than their tax basis will be taxed as a long-term
capital gain or loss, respectively, which will be taxed at rates which depend on
how long such shares were held.
Alternative Minimum Tax. For purposes of determining the option
holder's alternative minimum taxable income subject to the alternative minimum
tax, the exercise of Incentive Options by an option holder will result in the
recognition of taxable income at the time of the exercise of the option in an
amount equal to the excess of the fair market value of the shares on the
exercise date over the option price. The alternative minimum tax is paid only to
the extent it exceeds an individual's regular tax. It is imposed at a rate of
26% on the first $175,000 of alternative minimum taxable income in excess of the
applicable exemption amount and at a rate of 28% for any alternative minimum
taxable income over that amount. The exemption amount is phased out for higher
income taxpayers.
Exercise with Previously-Owned Shares. All options granted under the
1995 Stock Option Plan may be exercised with payment either in cash or, if
authorized in advance by the Company's Board of Directors, in previously-owned
shares of the Company Common Stock at their then fair market value, or in a
combination of both. When previously-owned shares ("Old Shares") are used to
purchase shares ("New Shares") upon the exercise of Incentive Options or
Non-Statutory Options, no gain or loss is recognized by the option holder to the
extent that the total value of the Old Shares surrendered does not exceed the
total value of all of the New Shares received. If, as would almost always be the
case, the value of the New Shares exceeds the value of the Old Shares, the
excess amount is not regular taxable income to the option holder, if the option
exercised is an Incentive Option and the Holding Periods discussed above are met
for the Old Shares at the time of exercise. The New Shares would also be subject
to the Holding Periods discussed above. On the other hand, if the option
exercised is Non-Statutory Options, the excess amount is taxable as ordinary
income.
The Company Deduction. No tax deduction is available to the Company in
connection with the exercise of Incentive Options if the Holding Periods
discussed above are met. The Company, however, is entitled to a tax deduction in
connection with the exercise of Incentive Options if the Holding Periods
discussed above are not met, in an amount equal to the ordinary income
recognized by the option holder (conditioned upon proper reporting and tax
withholding and subject to possible deduction limitations). The Company is
entitled to a tax deduction in connection with a Non-statutory Stock Option
equal to the compensation income recognized by the option holder upon the grant
date or the exercise date (conditioned upon proper reporting and tax withholding
and subject to possible deduction limitations).
1997 Tax Act. Under recently enacted legislation, capital gains
recognized by option holders generally will be subject to a maximum federal
income tax rate of 20%, provided the shares sold or exchanged are held for more
than eighteen months. If the shares are held for more than one year but less
than eighteen months, then the capital gains recognized by option holders will
be taxed at a maximum federal income tax rate of 28%.
Section 162(m). Section 162(m) of the Code does not permit the Company
to deduct non-performance-based compensation in excess of $1,000,000 per year
paid to certain covered officers. The Company believes that compensation paid
pursuant to the 1995 Stock Option Plan should qualify as performance-based
compensation and, therefore, Section 162(m) should not cause the Company to be
denied a deduction for compensation paid to certain covered officers pursuant to
the 1995 Stock Option Plan.
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ADOPTION OF THE COMPANY'S INCENTIVE COMPENSATION PLAN
As part of the Company's overall effort to optimize growth and
profitability of the Company, on September 15, 1997, the Company's Board of
Directors adopted, subject to approval of the Company's stockholders, the
CheckFree Corporation Incentive Compensation Plan (the "Incentive Plan"). The
Incentive Plan is intended to satisfy the applicable provisions of, and is being
submitted to stockholders pursuant to, Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). Approval of the Incentive Plan by the
Company's stockholders is required under applicable law in order for
compensation paid pursuant to the Incentive Plan to qualify as performance-based
for purposes of Section 162(m) of the Code. Unless the Incentive Plan is
approved by an affirmative vote of the holders of a majority of the shares of
the Company's Common Stock at the Annual Meeting, no annual incentive
compensation opportunities will be awarded under the Incentive Plan. The Board
of Directors has adopted a cash performance bonus program for fiscal 1998 that
is not intended to satisfy the provisions of Section 162(m) of the Code, and the
fiscal 1998 bonus program has not and will not be submitted for prior
stockholder approval. The following summary of the material terms of the
Incentive Plan, a copy of which is attached hereto as Appendix B, does not
purport to be complete and is qualified in its entirety by the terms of the
Incentive Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
INCENTIVE PLAN.
ADMINISTRATION
The Incentive Plan will be administered by the Stock Option and
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee will be composed of two or more outside directors
within the meaning of Section 162(m) of the Code. The Committee will have the
authority to select participants, determine the size, terms and conditions of
awards, adopt administrative rules, regulations and procedures, and make
conclusive and binding decisions and interpretations under the Incentive Plan.
ELIGIBILITY
Under the Incentive Plan, key executive officers of the Company are
eligible to be granted awards to earn annual cash incentive bonus payments for
the fiscal year under the Incentive Plan. Those key executive officers selected
to participate in the Incentive Plan and who, as determined by the Committee,
are likely to be "Covered Employees" within the meaning of Section 162(m) of the
Code in respect of the relevant fiscal year, will be separately identified as
"Covered Officers" by the Committee not later than 90 days after the beginning
of the fiscal year.
PERFORMANCE MEASURES
Under the Incentive Plan, performance goals will be established by the
Committee for each fiscal year based on any one or more of the following:
revenues, market share, income or loss from operations, income or loss before
taxes, income or loss before extraordinary items, income or loss before taxes
and extraordinary items, net income or loss, net income or loss per common
share, cash flow, price of the Company's Common Stock, shareholder return,
return on equity, return on investment, return on capital, economic profit, or
economic value added. Each of these performance goals may be defined on a
corporate, affiliate, business unit or individual basis. Each performance goal
shall have a minimum performance standard below which no payments will be made.
The performance goals may be based on an analysis of historical performance and
growth expectations, financial results of other comparable businesses, and
progress toward achieving the Company's long-range strategic plan. The
performance goals and determination of results shall be based entirely on
objective measures for all Covered Officers. After performance goals are
established, discretion may not be used to modify award results except as
permitted under Section 162(m) of the Code. The maximum annual award payable to
any individual participant under the Incentive Plan is $2 million.
Performance goals based on the performance measures and the potential
awards that will be payable upon attainment of those performance goals,
expressed as a percentage of base salary as of July 1 of each fiscal year, will
be established in writing by the Committee not later than 90 days after the
commencement of the fiscal year. The target
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incentive compensation percentage for each participant will be based on the
level and functional responsibility of his or her position, size of the business
for which the participant is responsible, and competitive practices. Awards may
be granted based on more than one performance measure.
The awards will be payable in cash annually after the Company's audited
financial statements have been certified by the Company's auditor for the fiscal
year of computation. Awards will only be paid to participants who remain
employed by the Company on the last day of the fiscal year to which the award
relates, except in the event of termination of employment by reason of death or
disability, in which case the award will be pro rated for the time employed, and
in the event of a change in control, in which case the award will be paid in
full at the 100% target level pro rated for the time elapsed within the fiscal
year to the change in control.
ADJUSTMENTS
The Committee may make adjustments in the terms and conditions of, and
the criteria included in, individual awards in recognition of unusual or
non-recurring events affecting the Company, whenever the Committee determines
that such adjustments are necessary in order to prevent dilution or enlargement
of the benefits or potential benefits available under the Incentive Plan;
provided, however, the Committee may not use any discretion to modify award
results for Covered Officers except as permitted under Section 162(m) of the
Code.
AMENDMENTS
The Incentive Plan may be amended by action of the Board of Directors
or the Committee without stockholder approval unless such approval is required
under Section 162(m) of the Code or other relevant laws. The Company and the
Committee may make such amendments to the Incentive Plan as are necessary to
comply with Section 162(m) and the regulations thereunder. No amendment shall be
made to the Incentive Plan that materially and adversely affects the rights of a
participant under a previously granted award.
NON-TRANSFERABILITY
Any award granted under the Incentive Plan may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
DURATION
The Incentive Plan shall remain in effect for a period of ten years
from the date of stockholder approval, subject to the right of the Board of
Directors of the Company to terminate or amend the Incentive Plan.
FEDERAL INCOME TAX CONSEQUENCES
Under Section 162(m) of the Code, compensation paid by a company in
excess of $1 million for any taxable year to a Covered Employee generally is
deductible by the company or its affiliates for federal income tax purposes if
it is based on the attainment of performance goals determined by a compensation
committee of the board of directors of the company which is comprised solely of
two or more outside directors, the material terms under which the remuneration
is to be paid, including the performance goals, are disclosed to stockholders
and approved by a majority of the vote thereof prior to payment of such
remuneration, and prior to payment the compensation committee certifies that the
performance goals and any other material terms were in fact satisfied. "Covered
Employee" means an employee who at the close of the company's taxable year, is
the chief executive officer of the company or among the four highest compensated
officers for the taxable year and required to be reported to stockholders under
the Securities Exchange Act of 1934, as amended. The Company has taken Section
162(m) into consideration in structuring the Incentive Plan, and intends that
awards payable thereunder will satisfy the requirements for deductibility.
However, if the Board of Directors determines that compliance with the
requirements of Section 162(m) is not desired with respect to any award under
the Incentive Plan, then compliance with Section 162(m) will not be required.
Awards are treated as ordinary income to each participant and are subject to
income and other payroll tax withholding by the Company.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and greater than 10% stockholders, to file
reports of ownership and changes in ownership of the Company's securities with
the Securities and Exchange Commission ("SEC"). Copies of the reports are
required by SEC regulation to be furnished to the Company. Based on its review
of such reports and written representations from reporting persons, the Company
believes that all reporting persons complied with all filing requirements during
the year ended June 30, 1997, except for one late filing made by Mr. Kenneth J.
Benvenuto.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP, independent
public accountants, as auditors for the Company for fiscal 1998. Deloitte &
Touche LLP has served as the independent public accountants for the Company
since 1981. The Board of Directors believes that the reappointment of Deloitte &
Touche LLP for fiscal 1998, is appropriate because of the firm's reputation,
qualifications, and experience. Representatives of Deloitte & Touche LLP will be
present at the meeting and will have an opportunity to make a statement if they
desire to do so. Such representatives will be available to respond to
appropriate questions.
PROPOSALS BY STOCKHOLDERS FOR 1998 ANNUAL MEETING
If any stockholder of the Company wishes to submit a proposal to be
included in next year's Proxy Statement and acted upon at the annual meeting of
the Company to be held in 1998, the proposal must be received by the Secretary
of the Company at the principal executive offices of the Company, 4411 East
Jones Bridge Road, Norcross, Georgia 30092 prior to the close of business on
June 30, 1998. Any proposal submitted after that date may be omitted by the
Company from the Proxy Statement and form of proxy relating to that meeting.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no other
business that will come before the meeting. Should any other matter requiring a
vote of the stockholders arise, the proxy in the enclosed form confers upon the
persons designated to vote the shares discretionary authority to vote with
respect to such matter in accordance with their best judgment.
The Company's 1997 Annual Report to Stockholders, including financial
statements, was furnished to stockholders prior to or concurrently with the
mailing of this proxy material.
By Order of the Board of Directors,
Curtis A. Loveland
Secretary
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APPENDIX A
CHECKFREE CORPORATION
1995 STOCK OPTION PLAN
-----------------------
AS AMENDED AND RESTATED
-----------------------
1. PURPOSE. This plan (the "Plan") is intended as an incentive and to
encourage stock ownership by certain Key Associates, officers, directors,
consultants and advisers who render services to CHECKFREE CORPORATION, a
Delaware corporation (the "Company"), and any current or future Subsidiary or
Parent thereof (together the "Company Group"), by the granting of stock options
(the "Options") as provided herein. By encouraging such stock ownership, the
Company seeks to attract, retain and motivate employees, officers, directors,
consultants and advisers of training, experience and ability. The Options
granted under the Plan may be either incentive stock options ("ISOs") which meet
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or options which do not meet such requirements ("Non-statutory
Options").
2. EFFECTIVE DATE. The Plan shall become effective on August 8, 1995,
the date the Plan was adopted by the Board of Directors of the Company and
approved by a majority of the shares of common stock of the Company entitled to
vote thereon (the "Effective Date").
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors
of the Company (the "Board"), which may, to the full extent permitted by law,
delegate all or any of its powers under the Plan to a committee (the
"Committee") which consists of not fewer than two members of the Board. If the
Committee is so appointed and to the extent such powers are delegated, all
references to the Board in the Plan shall mean and relate to the Committee. If
any class of equity securities of the Company is registered under section 12 of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), all members of
the Committee will be "non-employee directors" as defined in Rule 16b-3(b)(2)(i)
promulgated under the 1934 Act (or any successor rule of like tenor and effect)
and "outside directors" as defined in section 162(m) of the Code and the
regulations promulgated thereunder.
(b) Subject to the provisions of the Plan, the Board is
authorized to establish, amend and rescind such rules and regulations as it may
deem appropriate for its conduct and for the proper administration of the Plan,
to make all determinations under and interpretations of, and to take such
actions in connection with, the Plan or the Options granted thereunder as it may
deem necessary or advisable. All actions taken by the Board under the Plan shall
be final and binding on all persons. No member of the Board shall be liable for
any action taken or determination made relating to the Plan, except for gross
negligence or willful misconduct.
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(c) Each member of the Board shall be indemnified by the
Company against costs, expenses and liabilities (other than amounts paid in
settlements to which the Company does not consent, which consent shall not be
unreasonably withheld) reasonably incurred by such member in connection with any
action taken in relation to the Plan to which he or she may be a party by reason
of service as a member of the Board, except in relation to matters as to which
he or she shall be adjudged in such action to be personally guilty of gross
negligence or willful misconduct in the performance of his or her duties. The
foregoing right to indemnification shall be in addition to such other rights as
the Board member may enjoy as a matter of law, by reason of insurance coverage
of any kind, or otherwise.
4. ELIGIBILITY.
(a) ISOs and Non-statutory Options may be granted to such Key
Associates of the Company Group, and Non-statutory Options only may be granted
to directors who are not employees of and to consultants and advisers who render
services to the Company Group, as the Board shall select from time to time (the
"Optionees"). More than one Option may be granted to an individual under the
Plan.
(b) No ISO may be granted to an individual who, at the time an
ISO is granted, is considered under Section 422(b)(6) of the Code to own stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of its Parent or any Subsidiary corporation;
PROVIDED, HOWEVER, this restriction shall not apply if at the time such ISO is
granted the option price per Share of such ISO shall be at least 110% of the
Fair Market Value of such Share, and such ISO by its terms is not exercisable
after the expiration of five years from the date it is granted. This
subparagraph 4(b) has no application to Options granted under the Plan as
Non-statutory Options.
(c) The aggregate Fair Market Value (determined as of the date
the ISO is granted) of Shares with respect to which ISOs are exercisable for the
first time by any Optionee during any calendar year under the Plan or any other
ISO plan of the Company or the Company Group may not exceed $100,000. If an ISO
which exceeds the $100,000 limitation of this subparagraph 4(c) is granted, the
portion of such Option which is exercisable for Shares in excess of the $100,000
limitation shall be treated as a Non-statutory Option pursuant to Section 422(d)
of the Code. Except as otherwise expressly provided in the immediately preceding
sentence, this subparagraph 4(c) has no application to Options granted under the
Plan as Non-statutory Options.
5. STOCK SUBJECT TO PLAN. The stock subject to Options under the Plan
shall be shares of the common stock, $.01 par value, of CheckFree Corporation
("Shares"). The Shares issued pursuant to Options granted under the Plan may be
authorized and unissued Shares, Shares purchased on the open market or in a
private transaction, or Shares held as treasury stock. The aggregate number of
Shares for which Options may be granted under the Plan shall not exceed
5,000,000 Shares, subject to adjustment in accordance with the terms of
paragraph 12 hereof. The maximum number of shares for which Options may be
granted under the Plan during any calendar
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year to any one Key Associate may not exceed 500,000 shares, subject to
adjustment in accordance with the terms of paragraph 12 hereof. Any Shares
subject to an Option which for any reason expires or is terminated unexercised
as to such Shares and any Shares reacquired by the Company pursuant to any
forfeiture hereunder may again be the subject of an Option under the Plan. The
Board, in its sole discretion, may permit the exercise of any Option as to full
Shares or fractional Shares. Proceeds from the sale of Shares under Options
shall constitute general funds of the Company.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) At the time of grant, the Board shall determine whether
the Options granted are to be ISOs or Non-statutory Options and shall enter into
stock option agreements with the recipients accordingly. All Options granted
shall be authorized by the Board and, within a reasonable time after the date of
grant, shall be evidenced by stock option agreements in writing ("Stock Option
Agreements"), in such form and containing such terms and conditions not
inconsistent with the provisions of this Plan as the Board shall from time to
time determine. Any action under paragraph 12 may be reflected in an amendment
to or restatement of such Stock Option Agreements.
(b) The Board may grant Options having terms and provisions
which vary from those specified in the Plan if such Options are granted in
substitution for, or in connection with the assumption of, existing options
granted by another corporation and assumed or otherwise agreed to be provided
for by the Company pursuant to or by reason of a transaction involving a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to which the Company is a party.
7. PRICE. The option price per Share (the "Option Price") of each
Option granted under the Plan shall be determined by the Board; PROVIDED,
HOWEVER, the Option Price of each ISO granted under the Plan shall not be less
than the Fair Market Value (determined without regard to any restrictions other
than a restriction which, by its terms, will never lapse) of a Share on the date
of grant of such Option. An Option shall be considered granted on the date the
Board acts to grant the Option or such later date as the Board shall specify.
8. OPTION PERIOD. The period during which the Option may be exercised
(the "Option Period") shall be determined by the Board; PROVIDED, HOWEVER, any
ISO granted under the Plan shall have an Option Period which does not exceed 10
years from the date the ISO is granted.
9. NON-TRANSFERABILITY OF OPTIONS. An Option shall not be transferable
by the Optionee otherwise than by will or the laws of descent and distribution
and may be exercised, during the lifetime of the Optionee, only by him or by his
guardian or legal representative. Notwithstanding the foregoing, an Optionee may
transfer a Non-Statutory Option to members of his or her immediate family (as
defined in Rule 16a-1 promulgated under the 1934 Act), to one or more trusts for
the benefit of such family members or to partnerships in which such family
members are the only
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partners if (a) the stock option agreement with respect to such Non-Statutory
Option as approved by the Committee expressly so provides and (b) the Optionee
does not receive any consideration for the transfer. Non-Statutory Options held
by such transferees are subject to the same terms and conditions that applied to
such Non-Statutory Options immediately prior to transfer.
10. EXERCISE OF OPTIONS.
(a) Options granted hereunder will be exercisable upon the
terms and conditions and in accordance with the vesting percentages determined
by the Board in its sole discretion. Notwithstanding the foregoing or the terms
and conditions of any Stock Option Agreement to the contrary, (i) in the event
of the Optionee's termination of employment as specified in subparagraph 11(a),
the Options shall be exercisable to the extent and for the period specified in
subparagraph 11(a); (ii) in the event of the Optionee's termination of
employment by reason death or by the Company by reason of Disability as
specified in subparagraph 11(b), the Options shall be exercisable to the extent
and for the period specified in subparagraph 11(b); (iii) in the event of the
Optionee's termination of employment by reason of Retirement, the Options shall
be exercisable to the extent and for the period specified in subparagraph 11(d);
and (iv) in the event of a Change in Control, the Options shall become
exercisable as specified in subparagraph 12(c).
(b) An Option shall be exercisable only upon delivery of a
written notice to the Company's Chief Financial Officer or any other officer of
the Company designated by the Board to accept such notices on its behalf,
specifying the number of Shares for which it is exercised.
(c) Within five business days following the date of exercise
of an Option, the Optionee or other person exercising the Option shall make full
payment of the Option Price (i) in cash; (ii) with the consent of the Board, by
tendering previously acquired Shares which have been held by the Optionee for at
least six months (valued at their Fair Market Value as of the date of tender);
(iii) with the consent of the Board, and to the extent permitted by applicable
law, with a full recourse promissory note of the Optionee for the portion of the
Option Price in excess of the par value of Shares subject to the Option, under
terms and conditions determined by the Board and in cash for the par value of
the Shares; (iv) with the consent of the Board, any combination of (i), (ii), or
(iii); or (v) with the consent of the Board, if the Shares subject to the Option
have been registered under the Securities Act of 1933, as amended (the "1933
Act"), and there is a regular public market for the Shares, by delivering to the
Company on the date of exercise of the Option written notice of exercise
together with:
(A) written instructions to forward a copy of such
notice of exercise to a broker or dealer as defined in Section
3(a)(4) and 3(a)(5) of the 1934 Act, and designated in such
notice ("Broker"), and to deliver to the specified account
maintained with the Broker by the person exercising the Option
a certificate for the Shares purchased upon the exercise of
the Option, and
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(B) a copy of irrevocable instructions to the Broker
to deliver promptly to the Company a sum equal to the purchase
price of the Shares purchased upon exercise of the Option.
If previously acquired Shares are to be used to pay the exercise price
of an ISO, the Company prior to such payment must be furnished with evidence
satisfactory to it that the acquisition of such Shares and their transfer in
payment of the exercise price satisfy the requirements of Section 422 of the
Code and other applicable laws.
11. TERMINATION OF EMPLOYMENT.
(a) Upon termination of an Optionee's employment with the
Company Group, other than by reason of death or Retirement or termination by the
Company by reason of Disability or For Cause, the Optionee shall have 30 days
after the date of termination of employment (but not later than the expiration
date of the Stock Option Agreement) to exercise all Options held by him to the
extent the same were exercisable on the date of termination. The Board may
cancel an Option during the 30-day period after termination of employment
referred to in this paragraph if the Optionee engages in employment or
activities contrary, in the sole opinion of the Board, to the best interests of
the Company.
(b) Upon termination of an Optionee's employment by death or
by the Company by reason of Disability ("Disability Related Termination"), the
Optionee or the Optionee's personal representative, or the person or persons to
whom his rights under the Options pass by will or the laws of descent or
distribution, shall have one year after the date of death or the date of the
Disability Related Termination (but not later than the expiration date of the
Stock Option Agreement) to exercise all Options held by the Optionee to the
extent the same were exercisable on the date of the Optionee's termination of
employment, except that the time elapsed from the date of death or a Disability
Related Termination to the date of exercise of such Option shall accrue toward
any vesting requirements in the Stock Option Agreement evidencing such Option as
if the Optionee had remained employed by the Company.
(c) Upon termination of an Optionee's employment For Cause,
all Options held by such Optionee shall terminate effective on the date of
termination of employment.
(d) With respect only to options granted after September 15,
1997, upon termination of an Optionee's employment by reason of Retirement, the
Optionee shall have three years after the date of Retirement (but not later than
the expiration of the Stock Option Agreement) to exercise any Option held by
Optionee at the time of Retirement to the extent the same was exercisable on the
date of the Optionee's exercise of the Option, except that the time elapsed from
the date of Retirement to the date of exercise of such Option shall accrue
toward any vesting requirements in the Stock Option Agreement evidencing such
Option as if the Optionee had remained employed by the Company; PROVIDED,
HOWEVER, notwithstanding the foregoing, in the event of the Optionee's death
after Retirement, the Optionee or the Optionee's personal
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representative, or the person or persons to whom his rights under the Options
pass by will or the laws of descent or distribution, shall have one year after
the date of death (but not later than the expiration date of the Stock Option
Agreement) to exercise all Options held by the Optionee to the extent the same
were exercisable on the date of the Optionee's death and the elapsed time from
the date of death to the exercise of the Option shall not accrue toward any
vesting requirements in the Stock Option Agreement evidencing such Option;
PROVIDED FURTHER, at the time of the exercise of an Option by an Optionee
following termination of employment by reason of Retirement, the Optionee shall
represent and warrant to the Company that he has been in material compliance
with all terms and conditions of the Retirement Agreement with the Company (as
defined in Section 27(f) hereof); and PROVIDED FURTHER, that in the event that
the Optionee violates the Retirement Agreement, all of the Optionee's
unexercised Options shall immediately terminate and the Optionee shall return to
the Company the economic value of any Option which was realized or obtained
(measured at the date of exercise) by the Optionee after the violation of the
Retirement Agreement.
12. STOCK SPLITS; MERGERS; REORGANIZATIONS; CHANGE IN CONTROL.
(a) In the event of a stock split, stock dividend, combination
or exchange of shares, exchange for other securities, reclassification,
reorganization, redesignation or other change in the Company's capitalization,
the aggregate number of Shares for which Options may be granted under this Plan,
the number of Shares subject to outstanding Options and the Option Price of the
Shares subject to outstanding Options shall be proportionately adjusted or
substituted to reflect the same. The Board shall make such other adjustments to
the Options, the provisions of the Plan and the Stock Option Agreements as may
be appropriate and equitable, which adjustments may provide for the elimination
of fractional Shares.
(b) In the event of a change of the Common Stock resulting
from a merger or similar reorganization as to which the Company is the surviving
corporation, the number and kind of Shares which thereafter may be purchased
pursuant to an Option under the Plan and the number and kind of Shares then
subject to Options granted hereunder and the price per Share thereof shall be
appropriately adjusted in such manner as the Board may deem equitable to prevent
dilution or enlargement of the rights available or granted hereunder.
(c) In the event of a Change in Control, all outstanding
options granted under this Plan shall then be immediately exercisable to the
extent of 100% of the Shares subject thereto notwithstanding any contrary
waiting or vesting periods specified in this Plan or in any applicable Stock
Option Agreement.
13. SALE OF OPTION SHARES. If any class of equity securities of the
Company is registered pursuant to Section 12 of the 1934 Act, any Optionee or
other person exercising the Option who is subject to Section 16 of the 1934 Act
by virtue of his or her relationship to the Company shall not sell or otherwise
dispose of the Shares subject to Option unless at least six months have elapsed
from the date of grant of the Option.
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14. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any Shares covered by an Option until the date of
issuance of a stock certificate to the Optionee for such Shares.
15. NO CONTRACT OF EMPLOYMENT. Nothing in the Plan or in any Option or
Stock Option Agreement shall confer on any Optionee any right to continue in the
employ or service of the Company or any Parent or Subsidiary of the Company or
interfere with the right of the Company to terminate such Optionee's employment
or other services at any time. The establishment of the Plan shall in no way,
now or hereafter, reduce, enlarge or modify the employment relationship between
the Company or any Parent or Subsidiary of the Company and the Optionee. Options
granted under the Plan shall not be affected by any change of duties or position
of the Optionee with the Company.
16. AGREEMENTS AND REPRESENTATIONS OF OPTIONEES. As a condition to the
exercise of an Option, the Board may, in its sole determination, require the
Optionee to represent in writing that the Shares being purchased are being
purchased only for investment and without any present intent at the time of the
acquisition of such Shares to sell or otherwise dispose of the same.
17. WITHHOLDING TAXES. The Company's obligation to deliver Shares upon
exercise of an Option shall be subject to the Optionee's satisfaction of all
applicable federal, state or local tax withholding obligations. The Company
shall have the right to withhold from any salary, wages, or other compensation
for services payable by the Company to or with respect to an Optionee, amounts
sufficient to satisfy any federal, state or local withholding tax liability
attributable to such Optionee's (or any beneficiary's or personal
representative's) receipt or disposition of Shares purchased under any Option or
to take any such other action as it deems necessary to enable it to satisfy any
such tax withholding obligations. The Board, in its sole discretion, may permit
Optionees to elect to have Shares that would be acquired upon exercise of
Options (valued at their Fair Market Value as of the date of exercise) withheld
by the Company in satisfaction of such Optionees' withholding tax liabilities.
18. EXCHANGES. The Board may permit the voluntary surrender of all or a
portion of any Option granted under the Plan to be conditioned upon the granting
to the Optionee of a new Option for the same or a different number of Shares as
the Option surrendered, or may require such voluntary surrender as a condition
precedent to a grant of a new Option to such Optionee. Subject to the provisions
of the Plan, such new Option shall be exercisable at such price, during such
period and on such other terms and conditions as are specified by the Board at
the time the new Option is granted. Upon surrender, the Options surrendered
shall be cancelled and the Shares previously subject to them shall be available
for the grant of other Options.
19. REPURCHASE OF SHARES BY THE COMPANY. Any Shares purchased or
acquired upon exercise of an Option may, in the sole discretion of the Board, be
subject to repurchase by or forfeiture to the Company if and to the extent and
at the repurchase price, if any, specifically set forth in the Stock Option
Agreement pursuant to which the Shares were purchased or acquired.
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Certificates representing Shares subject to such repurchase or forfeiture may be
subject to such escrow and stock legend provisions as may be set forth in the
Stock Option Agreement pursuant to which the Shares were purchased or acquired.
20. CONFIDENTIALITY AGREEMENTS. Upon the Company's request, each
Optionee shall execute, prior to or contemporaneously with the grant of any
Option hereunder, the Company's then standard form of agreement relating to
nondisclosure of confidential information, noncompetition and/or assignment of
inventions and related matters.
21. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Company to sell and
deliver the Shares under such Options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required. Options issued under the
Plan shall not be exercisable prior to (i) the date upon which the Company shall
have registered the Shares for which Options may be issued hereunder under the
1933 Act, and (ii) the completion of any registration or qualification of such
Shares under state law, or any ruling or regulation of any governmental body
which the Company shall, in its sole discretion, determine to be necessary or
advisable in connection therewith, or alternatively, unless the Company shall
have received an opinion from counsel to the Company stating that the exercise
of such Options may be effected without registering the Shares subject to such
Options under the 1933 Act, or under state or other law.
22. ASSUMPTION. The Plan may be assumed by the successors and assigns
of the Company.
23. EXPENSES. All expenses and costs in connection with administration
of the Plan shall be borne by the Company.
24. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board may
terminate, amend or modify the Plan at any time without further action on the
part of the shareholders of the Company; PROVIDED, HOWEVER, that (a) in no event
shall any amendment be made to the Plan which would cause the ISOs granted
hereunder to fail to qualify as incentive stock options under the Code; (b) any
amendment to the Plan which requires the approval of the shareholders of the
Company under the Code or the regulations promulgated thereunder shall be
subject to approval by the shareholders of the Company in accordance with the
Code or such regulations; and (c) any amendment to the Plan which requires the
approval of the shareholders of the Company under any rules promulgated under
the 1934 Act shall be subject to the approval of the shareholders of the Company
in accordance with such rules. No amendment, modification or termination of the
Plan shall in any manner adversely affect any Option previously granted to an
Optionee under the Plan without the consent of the Optionee or the transferee of
such Option.
With the consent of the Optionee affected, the Board may amend
outstanding Options or related agreements in a manner not inconsistent with the
Plan. The Board shall have the right to
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amend or modify the terms and provisions of the Plan and of any outstanding
ISO's granted under the Plan to the extent necessary to qualify any or all such
Options for such favorable federal income tax treatment (including deferral of
taxation upon exercise) as may be afforded incentive stock options under Section
422 of the Code.
25. TERM OF PLAN. The Plan shall become effective on the Effective
Date, subject to the approval of the Plan by the holders of a majority of the
shares of common stock of the Company entitled to vote on, or within twelve
months of, the date of the Plan's adoption by the Board, and all Options granted
prior to such approval shall be subject to such approval. The Plan shall
terminate on the tenth anniversary of the Effective Date, or such earlier date
as may be determined by the Board. Termination of the Plan, however, shall not
affect the rights of Optionees under Options previously granted to them, and all
unexpired Options shall continue in force and operation after termination of the
Plan except as they may lapse or be terminated by their own terms and
conditions.
26. LIMITATION OF LIABILITY. The liability of the Company Group under
this Plan or in connection with any exercise of an Option is limited to the
obligations expressly set forth in the Plan and in any Stock Option Agreements,
and no term or provision of this Plan or of any Stock Option Agreements shall be
construed to impose any further or additional duties, obligations or costs on
the Company Group not expressly set forth in the Plan or the Stock Option
Agreements.
27. DEFINITIONS.
As used in this Plan, the following terms have the meanings
indicated.
(a) CHANGE IN CONTROL. "Change in Control" of the Company
shall be deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(i) Any Person (other than a Person in control of the
Company as of the Effective Date of the Plan, or other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or a
company owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of voting securities of
the Company) becomes the Beneficial Owner, directly or indirectly, of securities
of the Company representing a majority of the combined voting power of the
Company's then outstanding securities; or
(ii) The stockholders of the Company approve: (x) a
plan of complete liquidation of the Company; or (y) an agreement for the sale or
disposition of all or substantially all the Company's assets; or (z) a merger,
consolidation, or reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, or reorganization that would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least a majority of
the combined voting power of the voting securities of the
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<PAGE> 35
Company (or such surviving entity) outstanding immediately after such merger,
consolidation, or reorganization.
However, in no event shall a "Change in Control" be deemed to
have occurred, with respect to an Optionee, if the Optionee is part of a
purchasing group which consummates the Change in Control transaction. An
Optionee shall be deemed "part of a purchasing group" for purposes of the
preceding sentence if the Optionee is an equity participant or has been
identified as a potential equity participant in the purchasing company or group
except for: (i) passive ownership of less than three percent (3%) of the stock
of the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not significant, as determined
prior to the Change in Control by a majority of the nonemployee continuing
directors.
For purposes of this definition of Change in Control, "Person"
shall have the meaning ascribed to such term in Section 3(a)(9) of the 1934 Act,
and used in Section 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) thereof, and "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and Regulations under the 1934 Act.
(b) DISABILITY. "Disability" means any injury of the body or
any disorder of the body or mind which renders the Optionee unable to perform
the material and substantial duties of his regular employment by the Company
Group at the time of the Optionee's termination of employment by the Company
Group. The Company's determination that a termination of employment was not a
Disability Related Termination may be disputed by the Optionee for purposes of
any Option held by the Optionee under this Plan upon written notice to the
Company's Chief Financial Officer within 30 days after termination of
employment. If so disputed, the Company will promptly select a physician, the
Optionee will promptly select a physician, and the physicians so selected will
select a third physician ("Independent Physician") who will make a binding
determination of Disability for purposes of this Plan. The Optionee will make
himself available for and submit to examinations by such physicians as may be
directed by the Company. Failure of the Optionee to submit to any examination or
failure of the Independent Physician to make his determination within 90 days
after the date of the notice that the Optionee disputed the Company's
determination shall constitute acceptance of the Company's determination as to
Disability. If the decision of the Independent Physician upholds the Company's
determination, any outstanding Option held by the Optionee shall be exercisable
for 30 days from the date of such decision (but not later than the expiration of
the date of the Stock Option Agreement) to the extent that the Option was
exercisable on the date of the Optionee's termination of employment and
thereafter the Option shall terminate.
(c) FAIR MARKET VALUE. If the Shares are publicly traded, the
term "Fair Market Value," as used in this Plan, shall mean (i) the closing price
quoted in the NASDAQ National Market System, if the Shares are so quoted, (ii)
the last quote reported by NASDAQ for small-cap issues, if the Shares are so
quoted, (iii) the mean between the bid and asked prices as reported by NASDAQ,
if the Shares are so quoted, or (iv) if the Shares are listed on a securities
exchange, the closing price
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at which the Shares are quoted on such exchange, in each case at the close of
the date immediately before the Option is granted or, if there be no quotation
or sale on that date, the next previous date on which the Shares were quoted or
traded. In all other cases, Fair Market Value of the Shares shall be determined
by and in accordance with procedures established in good faith by the Board and
with respect to ISOs, conforming to regulations issued by the Internal Revenue
Service regarding incentive stock options.
(d) KEY ASSOCIATES. "Key Associates" means all executive,
administrative, operational and managerial employees of the Company Group who
are determined by the Board to be eligible for Options under the Plan.
(e) PARENT AND SUBSIDIARY. The terms "Parent" and
"Subsidiary"shall have the respective meanings set forth in sections 424(e) and
(f) of the Code.
(f) RETIREMENT. "Retirement" means the termination of
employment by an Optionee who has attained the age of at least 59 1/2, who has
been continuously employed by the Company Group for at least five years, and who
has entered into a written confidentiality and non-competition agreement with
the Company ("Retirement Agreement") in a form acceptable to the Board at the
time of such termination of employment.
(g) TERMINATION OF EMPLOYMENT FOR CAUSE. Termination of
employment "For Cause" means termination of employment for (i) the commission of
an act of dishonesty, including but not limited to misappropriation of funds or
property of the Company; (ii) the engagement in activities or conduct injurious
to the reputation of the Company; (iii) the conviction or entry of a guilty or
no contest plea to a misdemeanor involving an act of moral turpitude or a
felony; (iv) the violation of any of the terms and conditions of any written
agreement the Optionee may have from time to time with the Company (following 30
days' written notice from the Company specifying the violation and the
employee's failure to cure such violation within such 30-day period); or (v) any
refusal to comply with the written directives, policies or regulations
established from time to time by the Board.
CHECKFREE CORPORATION
By: /s/ Peter J. Kight
---------------------------------------
Peter J. Kight
President and Chief Executive Officer
Adopted: August 8, 1995
Amended and Restated: September 15, 1997
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APPENDIX B
CHECKFREE CORPORATION
INCENTIVE COMPENSATION PLAN
ESTABLISHMENT OF PLAN
---------------------
1.1 PLAN ADOPTION. CheckFree Corporation, a Delaware Corporation
("Corporation"), hereby adopts the CheckFree Incentive Compensation Plan
("Plan"), subject to the approval of the Corporation's stockholders. The Plan
shall become effective upon the approval of the stockholders of the Corporation
(the "Effective Date") and shall remain in effect for a period of 10 years from
such approval, subject to the right of the Board of Directors to amend or
terminate the Plan.
1.2 PURPOSE. The purpose of the Plan is to optimize the growth and
profitability of the Corporation by providing to key executive officers
incentives that encourage, recognize, and reward exceptional levels of
corporate, business unit, or individual performance. The Plan's intent is to use
award dollars as a clear communication vehicle linking the interests of eligible
key executive officers with the interests of the Corporation by establishing a
direct link between performance and incentive payments.
DEFINITIONS
-----------
The following terms used in the Plan shall have the meanings set forth
below.
2.1 "Associate" means any full-time, active employee of the
Corporation.
2.2 "Award" means, individually or collectively, a grant under this
Plan of an opportunity to earn a cash bonus payment upon the terms and
conditions set forth in the action of the Committee granting the Award.
2.3 "Change in Control" of the Corporation shall be deemed to have
occurred as of the first day that any one or more of the following conditions
shall have been satisfied:
(a) Any Person (other than a Person in control of the
Corporation as of the Effective Date of the Plan, or other than a trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation, or a corporation owned directly or indirectly by the stockholders
of the Corporation in substantially the same proportions as their ownership of
voting
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securities of the Corporation) becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation representing a majority of the
combined voting power of the Corporation's then outstanding securities; or
(b) The stockholders of the Corporation approve: (i)
a plan of complete liquidation of the Corporation; or (ii) an agreement for the
sale or disposition of all or substantially all the Corporation's assets; or
(iii) a merger, consolidation, or reorganization of the Corporation with or
involving any other corporation, other than a merger, consolidation, or
reorganization that would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least a majority of the combined voting power of the voting
securities of the Corporation (or such surviving entity) outstanding immediately
after such merger, consolidation, or reorganization.
However, in no event shall a "Change in Control" be deemed to
have occurred, with respect to a Participant, if the Participant is part of a
purchasing group which consummates the Change in Control transaction. A
Participant shall be deemed "part of a purchasing group" for purposes of the
preceding sentence if the Participant is an equity participant or has been
identified as a potential equity participant in the purchasing company or group
(except for: (i) passive ownership of less than three percent (3%) of the stock
of the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not significant, as determined
prior to the Change in Control by a majority of the nonemployee continuing
directors).
For purposes of this definition of Change in Control, "Person"
shall have the meaning ascribed to such term in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d)
thereof, and "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" has the meaning set forth in Section 3.1 herein.
2.6 "Corporation" means CheckFree Corporation, a Delaware corporation,
together with any parent, subsidiary or successor thereto.
2.7 "Covered Employee" means a Participant who, as of the date of an
Award is earned or paid, as applicable, is one of the group of "covered
employees," as defined in the regulations under Code Section 162(m), or any
successor statute.
2.8 "Director" means any individual who is a member of the Board of
Directors of the Corporation.
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<PAGE> 39
2.9 "Disability" means any injury of the body or any disorder of the
body or mind which renders the Participant unable to perform the material and
substantial duties of his regular employment by the Corporation at the time of
his termination of employment with the Corporation. The Corporation's
determination that a termination of employment was not due to Disability may be
disputed by a Participant for purposes of determining any Award payable under
Section 5.4 of this Plan upon written notice to the Corporation's Chief
Financial Officer within 30 days after the Participant's termination of
employment. If so disputed, the Corporation will promptly select a physician,
the Participant will promptly select a physician, and the physicians so selected
will select a third physician ("Independent Physician") who will make a binding
determination of Disability. The Participant will make himself available for and
submit to examinations by such physicians as may be directed by the Corporation.
Failure of the Participant to submit to any examination or failure of the
Independent Physician to render his determination within 90 days of the date of
the notice that the Participant disputed the Corporation's determination shall
constitute acceptance of the Corporation's determination as to Disability.
2.10 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.11 "Officer" means any Associate elected as an officer of the
Corporation by the Board of Directors.
2.12 "Participant" means any Associate who has outstanding an Award
granted under the Plan.
2.13 "Performance-based Exception" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.14 "Parent" means any corporation, partnership, joint venture or
other entity which has a majority voting interest in the Corporation.
2.15 "Subsidiary" means any corporation, partnership, joint venture or
other entity in which the Corporation has a majority voting interest.
ADMINISTRATION
--------------
3.1 THE COMMITTEE. The Plan will be administered by the Stock Option
and Compensation Committee ("Committee") of the Board of Directors of the
Corporation composed of two or more "outside directors" within the meaning of
Code Section 162(m).
3.2 AUTHORITY. The Committee shall have the full power to select
Officers who shall participate in the Plan; determine the size, terms and
conditions of Awards in a manner consistent with the Plan; interpret and
construe the Plan; and adopt such rules, regulations, and procedures for the
administration of the Plan as the Committee deems necessary or advisable.
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3.3 DECISIONS BINDING. The Committee's interpretations of the Plan, and
all decisions and determinations made by the Committee, shall be conclusive and
binding on all parties, including the Corporation and any Participant or other
person claiming a right to payment with respect to an Award under the Plan.
ELIGIBILITY
-----------
4.1 OFFICERS; COVERED OFFICERS. All persons deemed by the Committee to
be key executive Officers are eligible to be granted Awards under the Plan. Not
later than 90 days after the beginning of each fiscal year of the Corporation,
the Committee will identify those Officers, referred to herein as "Covered
Officers," whose compensation for that year is anticipated to be affected by the
Code Section 162(m) limitation on the deductibility of compensation and assign
each such Covered Officer to a separate Participant group for the purposes of
defining their Awards under the Plan.
4.2 PARTIAL YEAR PARTICIPATION. Persons who become key executive
Officers of the Corporation after the date of the Committee's initial grant of
Awards but prior to the end of the fiscal year, whether due to promotion,
transfer or initial commencement of employment with the Corporation, may be
granted Awards by the Committee on a partial year basis. In each such case, the
Committee shall specify the terms and conditions of such Award, including any
pro rata allocations of the performance measures to such partial year
Participants.
AWARDS
------
5.1 PERFORMANCE MEASURES. For each fiscal year, the Committee shall
first establish written annual performance goals based on any one or more of the
following objective performance measures: revenues, market share, income or loss
from operations, income or loss before taxes, income or loss before
extraordinary items, income or loss before taxes and extraordinary items, net
income or loss, net income or loss per common share, cash flow, price of the
Corporation's common stock, shareholder return, return on equity, return on
investment, return on capital, economic profit, or economic value added. Subject
to the terms of the Plan, each of the performance goals may be defined by the
Committee on a corporate, affiliate, business unit or individual basis, and may
include or exclude specified extraordinary or non-recurring items and may be
measured before or after applicable taxes. Each performance goal shall have a
minimum performance standard below which no payments will be made. The
performance goals may be based on an analysis of historical performance and
growth expectations, financial results of other comparable businesses, and
progress towards achieving the Corporation's long-range strategic plan for the
business. The performance goals and determination of results shall be based
entirely on objective measures for all Covered Officers.
5.2 GRANT OF PERFORMANCE AWARDS. Performance goals based on the
preestablished performance measures and the potential Awards that will be
payable upon attainment of those
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<PAGE> 41
performance goals, expressed as a percentage of base salary as of July 1 of each
fiscal year, will be established in writing by the Committee not later than 90
days after the commencement of the fiscal year to which the goals relate. The
target incentive compensation percentage for each selected Participant will be
based on the level and functional responsibility of his or her position, size of
the business for which the Participant is responsible, and competitive
practices. Performance goals may differ for Awards granted to any one
Participant or to different Participants. The Committee may determine that any
Award shall be based on more than one performance measure. The Committee may
increase individual awards based upon extraordinary circumstances; provided,
however, the Committee may not use any discretion to modify award results for
Covered Officers except as permitted under Code Section 162(m).
5.3 AWARD AGREEMENTS. The Committee may require that any Award be
evidenced by a written agreement which may contain such terms and conditions as
the Committee may require. In the event of any conflict between such Award
agreements and the Plan, however, the terms of the Plan shall control.
5.4 PAYMENT OF AWARDS. Unless payment is deferred as provided in
Section 5.6, Awards will be payable in cash annually after the date the
Corporation's audited financial statements have been certified by the
Corporation's auditor for the relevant fiscal year of computation; provided that
awards will be paid to Covered Officers only after the Committee has certified
in writing in the minutes of a committee meeting or otherwise that the
performance goals applicable to Covered Officers have been satisfied. No Award
will be paid to any Participant who is not employed by the Corporation on the
last day of the fiscal year to which the Award relates; provided, however, the
Participant shall be paid in accordance with Sections 6.1 and 6.2 in the event
that a Change in Control of the Corporation has occurred during the fiscal year;
provided further, in the event of a Participant's death or a termination of a
Participant's employment by the Corporation prior to the last day of the fiscal
year by reason of Disability, the Participant or his estate shall be paid, at
the same time that other Awards are paid, an amount based upon the actual
achievement of the relevant performance objectives for that fiscal year, pro
rated for the number of days that elapsed within the fiscal year prior to such
termination of employment. Awards are subject to income and other payroll tax
withholding by the Corporation.
5.5 MAXIMUM AWARD. The annual Award payable to any Participant under
the Plan will not exceed $2 million.
5.6 DEFERRALS. The Committee may permit a Participant to defer such
Participant's receipt of payment of an Award that would otherwise be due to the
Participant. In any such case, the Committee shall, in its sole discretion,
determine the rules and procedures for such deferral.
5.7 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NON-RECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
non-recurring events (including, without limitation, acquisitions or
dispositions of assets or businesses) affecting the Corporation or the financial
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<PAGE> 42
statements of the Corporation or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided,
however, the Committee may not use any discretion to modify award results for
Covered Officers except as permitted under Code Section 162(m).
CHANGE IN CONTROL
-----------------
6.1 PRO RATA AWARDS. In the event of a Change in Control of the
Corporation, there shall be paid out to Participants an amount based upon an
assumed achievement of the relevant performance objectives at the 100% target
level for the fiscal year, pro rated for the number of days that elapsed within
the fiscal year prior to the Change in Control.
6.2 PAYMENT. Not later than 30 days following the effective date of the
Change in Control, the pro rata payments provided in Section 6.1 hereof shall be
paid to all Participants of the Plan who are employed by the Corporation on the
day immediately preceding the day when the Change in Control becomes effective,
and following such payment, the Corporation or any successor thereto shall have
no further obligations under this Plan.
6.3 POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other
provision of the Plan to the contrary, in the event that the consummation of a
Change in Control is contingent on using pooling of interests accounting
methodology, the Board may take any action reasonably necessary to preserve the
use of pooling of interests accounting.
MISCELLANEOUS
-------------
7.1 GUIDELINES. From time to time the Committee may adopt written
guidelines for implementation and administration of the Plan.
7.2 NO RIGHT TO AWARDS. No Officer or other person shall have the right
to be selected to receive an Award under the Plan or, if so selected, to be
selected to receive a future Award.
7.3 NON-FUNDED PLAN. The Corporation will not be required to establish
any special or separate fund or make any other segregation of assets to assure
the payment of any award under the Plan, and all Participants shall be general
creditors with respect to any Awards payable to them.
7.4 NON-TRANSFERABILITY OF AWARDS. No Award granted under the Plan may
be sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution.
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7.5 EXPENSES OF PLAN. The costs and expenses of administering the Plan
will be borne by the Corporation.
7.6 LIMITATION ON RIGHTS CONFERRED. Nothing in the Plan, in any Award,
or in any action taken under the Plan shall confer on any Participant the right
to become or continue to be an employee of the Corporation or interfere in any
way with the right of the Corporation to terminate such Participant's employment
at any time.
7.7 GOVERNING LAW. The validity, construction and effect of the Plan,
any rules and regulations under the Plan, and any awards made under the Plan
shall be determined in accordance with the laws of the state of Delaware without
giving effect to principles of conflicts of laws, and any applicable federal
law.
7.8 SUCCESSORS. All obligations under the Plan shall be binding upon
and inure to the benefit of any successor of the Corporation, whether such
successor is the result of a direct or indirect purchase of all or substantially
all of the business and assets of the Corporation or a merger, consolidation, or
reorganization, or otherwise.
7.9 SEVERABILITY. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
EFFECTIVE DATE; AMENDMENT; TERMINATION
--------------------------------------
8.1 EFFECTIVE DATE. The Plan will become effective upon approval by a
majority of the votes cast by the stockholders of the Corporation, and will
relate to performance beginning with the first fiscal year of the Corporation
commencing after stockholder approval.
8.2 AMENDMENT; TERMINATION. The Corporation may at any time terminate
or, from time to time, amend the Plan by action of the Board of Directors or by
action of the Committee without stockholder approval unless such approval is
required to satisfy the applicable provisions of Code Section 162(m) or other
relevant laws. The Corporation and the Committee may amend the Plan and take
such other action as they may deem necessary or appropriate to comply with Code
Section 162(m) and regulations issued thereunder. No amendment or termination of
the Plan shall, without the written consent of the Participant, materially and
adversely affect the rights of the Participant under any previously granted and
outstanding Award.
8.3 CODE SECTION 162(M) COMPLIANCE. In the event that changes are made
to Code Section 162(m) to permit greater flexibility with respect to any Award
available under the Plan, the Committee may, subject to Section 8.2, make any
adjustments it deems appropriate. If the applicable tax or securities laws
change to permit the Committee discretion to alter the governing performance
goal measures set forth in Section 5.1 without obtaining stockholder approval of
such
B-7
<PAGE> 44
change, the Committee shall have sole discretion to make such changes without
obtaining stockholder approval. At all times when Code Section 162(m) is
applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Board of Directors of the Corporation determines that such compliance is not
desired with respect to any Award available for grant under the Plan, then
compliance with Code Section 162(m) will not be required.
CHECKFREE CORPORATION
By: /s/ Peter J. Kight
----------------------------------------
Peter J. Kight
President and Chief Executive Officer
Adopted: September 15, 1997
B-8
<PAGE> 45
CHECKFREE CORPORATION
4411 EAST JONES BRIDGE ROAD, NORCROSS, GEORGIA 30092
--------------------------------------------------------------
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- OCTOBER 30, 1997
The undersigned stockholder of CheckFree Corporation (the "Company")
hereby appoints Peter J. Kight, Mark A. Johnson and Peter F. Sinisgalli, or any
one of them, as attorneys and proxies with full power of substitution to each,
to vote all shares of Common Stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
at the Company's headquarters located at 4411 East Jones Bridge Road, Norcross,
Georgia, on Thursday, October 30, 1997, at 12:00 p.m. local time, and at any
adjournment or adjournments thereof, with all of the powers such undersigned
stockholder would have if personally present, for the following purposes:
1. ELECTION OF MARK A. JOHNSON AND EUGENE F. QUINN AS CLASS II DIRECTORS.
[ ] FOR
[ ] WITHHOLD AUTHORITY FOR EACH NOMINEE
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR A SPECIFIC NOMINEE, WRITE THAT
NOMINEE'S NAME HERE:_________________________________________________.
2. APPROVE AND ADOPT THE COMPANY'S AMENDED AND RESTATED 1995 STOCK OPTION
PLAN, AS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
[ ] FOR
[ ] AGAINST
3. ADOPT THE COMPANY'S INCENTIVE COMPENSATION PLAN, AS DESCRIBED IN THE
COMPANY'S PROXY STATEMENT.
[ ] FOR
[ ] AGAINST
4. IN THEIR DISCRETION TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING.
(Continued and to be signed on other side.)
(Continued from other side.)
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, AND 4.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders, dated September 29, 1997, the Proxy Statement and the
Annual Report of the Company furnished therewith. Any proxy heretofore given to
vote said shares is hereby revoked.
PLEASE SIGN AND DATE THIS PROXY BELOW AND RETURN IN THE ENCLOSED
ENVELOPE.
Dated: , 1997
------------------------------
-------------------------------------------
(Signature)
-------------------------------------------
(Signature)
SIGNATURE(S) SHALL AGREE WITH THE NAME(S)
PRINTED ON THIS PROXY. IF SHARES ARE
REGISTERED IN TWO NAMES, BOTH STOCKHOLDERS
SHOULD SIGN THIS PROXY. IF SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS
SUCH.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
