<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHECKFREE HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7374 58-2360335
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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4411 EAST JONES BRIDGE ROAD
NORCROSS, GEORGIA 30092
(678) 375-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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PETER F. SINISGALLI
PRESIDENT AND CHIEF OPERATING OFFICER
CHECKFREE HOLDINGS CORPORATION
4411 EAST JONES BRIDGE ROAD
NORCROSS, GEORGIA 30092
(678) 375-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF CORRESPONDENCE TO:
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ROBERT J. TANNOUS, ESQ. DANIEL CLIVNER, ESQ. C. KENT CARLSON, ESQ.
PORTER, WRIGHT, MORRIS & ARTHUR LLP RICHARD CAPELOUTO, ESQ. PRESTON GATES & ELLIS LLP
41 SOUTH HIGH STREET, 28TH FLOOR SIMPSON THACHER & BARTLETT 701 FIFTH AVENUE, SUITE 5000
COLUMBUS, OHIO 43215 3373 HILLVIEW AVENUE, SUITE 250 SEATTLE, WASHINGTON 98104
(614) 227-1953 PALO ALTO, CALIFORNIA 94304 (206) 224-7315
(650) 251-5000
</TABLE>
<TABLE>
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MICHAEL A. GORDON, ESQ. CREIGHTON O'M. CONDON, ESQ.
SIDLEY & AUSTIN SHEARMAN & STERLING
BANK ONE PLAZA 599 LEXINGTON AVENUE
10 SOUTH DEARBORN STREET NEW YORK, NEW YORK 10022
CHICAGO, ILLINOIS 60603 (212) 848-4000
(312) 853-2217
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF
SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED REGISTERED OFFERING PRICE PER UNIT* AGGREGATE OFFERING PRICE* REGISTRATION FEE*
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Common stock, $.01 par value... 17,000,000 $49.65625 $100,000,367 $26,400
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</TABLE>
* Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933. At March 31, 2000, TransPoint had
an acculated capital deficit. Pursuant to section 6(b) and Rule 457(f)(2), the
registration fee was calculated based on one-third of the aggregate par values
of FDC International Partner, Inc. and Citi TransPoint Holdings Inc. and
one-third of the stated value of H&B Finance, Inc., as adjusted for
$100,000,000 of cash held by TransPoint prior to the completion of the
mergers. FDC International Partner, Inc., Citi TransPoint Holdings Inc. and
H&B Finance, Inc. are the holding companies which make up TransPoint and all
of their outstanding stock will be cancelled in the mergers.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
CHECKFREE HOLDINGS CORPORATION
4411 EAST JONES BRIDGE ROAD
NORCROSS, GEORGIA 30092
NOTICE OF SPECIAL MEETING OF CHECKFREE HOLDINGS CORPORATION STOCKHOLDERS
[ ], 2000
[ ] AT [ ]:00 A.M.
To Our Stockholders:
Notice is hereby given that a special meeting of stockholders of CheckFree
Holdings Corporation will be held on [ ], 2000 at [ ]:00 a.m.,
local time, at [ ] for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
17,000,000 shares of CheckFree Holdings common stock pursuant to a
merger agreement whereby the TransPoint business will be acquired by
CheckFree Holdings and, as a result, will become wholly owned by
CheckFree Holdings.
2. To transact any other business which may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
You are not being asked to approve the merger agreement or the merger of
three of our newly formed subsidiaries into the entities that own the TransPoint
business. Our board of directors has approved the merger agreement and these
subsidiary mergers. You are being asked to approve the issuance of an aggregate
of 17,000,000 shares of our common stock in connection with the transactions
contemplated in the merger agreement, which includes the issuance of an
aggregate of 4,000,000 shares of common stock in connection with the execution
by Microsoft Corporation and First Data Corporation of related commercial
agreements with CheckFree Holdings. It is a condition to completion of the
mergers and the effectiveness of the related commercial agreements that our
stockholders approve the share issuance proposal.
Information about the share issuance proposal and the merger agreement,
including the mergers and the related commercial agreements, is contained in the
proxy statement/prospectus. WE URGE YOU TO READ THESE MATERIALS, INCLUDING THE
SECTION DESCRIBING RISK FACTORS RELATING TO THE TRANSACTIONS CONTEMPLATED IN THE
MERGER AGREEMENT THAT BEGINS ON PAGE 12. Only holders of our common stock of
record at the close of business on [ ], 2000, the record date for the
special meeting, are entitled to notice of and to vote at the special meeting
and any adjournments postponements of the special meeting.
You will be most welcome at the special meeting, and we hope you can
attend. Our directors and officers and representatives of our independent public
accountants will be present to answer your questions. In addition, as required
under Delaware law, we will make available at our principal offices at least ten
days before the date of the special meeting a complete list of our stockholders
entitled to vote at the special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented at
the special meeting. To vote your shares, you may complete and return the
enclosed proxy card or you may be able to submit your proxy or voting
instructions by telephone or the Internet. If you are a holder of record, you
may also cast your vote in person at the special meeting. If your shares are
held in an account at a brokerage firm or bank, you must instruct them on how to
vote your shares.
By Order of the Board of Directors,
Curtis A. Loveland
Secretary
Norcross, Georgia
[ ], 2000
PLEASE SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
TO THE STOCKHOLDERS OF CHECKFREE HOLDINGS CORPORATION
SHARE ISSUANCE PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
We are pleased to send you this proxy statement/ prospectus for a special
meeting of our stockholders, which will be held on [ ], at [ ]:00
a.m., local time at [ ].
At the meeting, you will be asked to approve the issuance of 17,000,000 shares
of our common stock to the owners of the TransPoint business pursuant to a
merger agreement. Under the terms of the merger agreement, the transactions will
include the following which will occur simultaneously:
- TransPoint Acquisition Corporation, our wholly owned subsidiary, will merge
with and into H&B Finance, Inc., currently a wholly owned subsidiary of
Microsoft Corporation, which then will become our wholly owned subsidiary;
- Tank Acquisition Corporation, our wholly owned subsidiary, will merge with
and into FDC International Partner, Inc., currently a wholly owned indirect
subsidiary of First Data Corporation, which then will become our wholly
owned subsidiary;
- Chopper Merger Corporation, our wholly owned subsidiary, will merge with and
into Citi TransPoint Holdings Inc., currently a wholly owned indirect
subsidiary of Citibank, N.A., which then will become our wholly owned
subsidiary; and
- Microsoft will enter into a commercial alliance agreement and First Data
will enter into a marketing agreement with us. In the proxy
statement/prospectus we refer to these agreements with us as the related
commercial agreements.
You are not being asked to approve the merger agreement and your approval of
the mergers is not required. Our board of directors has approved the merger
agreement and these subsidiary mergers. You are being asked to approve the
issuance of an aggregate of 17,000,000 shares of our common stock to the owners
of the TransPoint business in connection with the transactions contemplated in
the merger agreement. It is a condition to completion of the mergers and the
effectiveness of the related commercial agreements that our stockholders approve
the share issuance proposal.
We believe that combining our business with TransPoint's business will enable
us to accelerate the growth and adoption of electronic billing and payment
services. We believe that the mergers and related commercial agreements will
benefit our stockholders, and we ask for your support in voting to approve the
share issuance proposal at the special meeting.
When the mergers are completed and the related commercial agreements are
executed, the owners of TransPoint will receive a total of 17,000,000 shares of
our common stock which are being registered by the proxy statement/prospectus
accompanying this letter, or approximately 23% of our outstanding common stock.
TransPoint is a joint venture among Microsoft and its subsidiary H&B Finance,
Inc., First Data and its subsidiary FDC International Partner, Inc., and
Citibank and its subsidiary Citi TransPoint Holdings Inc. consisting of four
limited liability companies formed beginning in July 1997 and one limited
partnership formed in April 1999 to provide electronic billing and payment
services. H&B Finance, Inc., FDC International Partner, Inc. and Citi TransPoint
Holdings Inc. are referred to in the proxy statement/prospectus as the
"TransPoint Holding Subsidiaries."
Our common stock is listed on the Nasdaq National Market under the symbol
"CKFR." On July 7, 2000, the closing price of our common stock on the Nasdaq
National Market was $52.13 per share.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented at
the meeting. To vote your shares, you may complete and return the enclosed proxy
card. If you are a holder of record, you may also cast your vote in person at
the special meeting. If your shares are held in an account at a brokerage firm
or bank, you must instruct your broker or bank how to vote your shares.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
SUBSIDIARY MERGERS AND RELATED COMMERCIAL ARRANGEMENTS AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE SHARE ISSUANCE PROPOSAL. IN ADDITION, EACH OF OUR
DIRECTORS AND EXECUTIVE OFFICERS, IN THEIR CAPACITIES AS INDIVIDUAL
STOCKHOLDERS, HAS AGREED TO VOTE IN FAVOR OF THE SHARE ISSUANCE PROPOSAL. We
appreciate your interest and encourage you to take the time to vote your shares.
Peter J. Kight
Chairman and Chief Executive Officer of
CheckFree Holdings Corporation
This proxy statement/prospectus is dated as of [ ], 2000,
and is first being mailed to stockholders on [ ], 2000.
<PAGE> 4
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT US THAT IS NOT INCLUDED OR DELIVERED WITH THIS
DOCUMENT. THIS INFORMATION IS DESCRIBED IN GREATER DETAIL IN THE SECTION OF THIS
PROXY STATEMENT/PROSPECTUS ENTITLED "WHERE YOU CAN FIND MORE INFORMATION." IN
ADDITION, THE INFORMATION IS AVAILABLE WITHOUT CHARGE TO OUR STOCKHOLDERS UPON A
WRITTEN OR ORAL REQUEST TO CHECKFREE HOLDINGS CORPORATION, 4411 EAST JONES
BRIDGE ROAD, NORCROSS, GEORGIA 30092, ATTENTION: INVESTOR RELATIONS, (678)
375-3000. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY [ ], 2000, WHICH IS FIVE DAYS BEFORE THE DATE OF THE SPECIAL
MEETING OF OUR STOCKHOLDERS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
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PAGE
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Table of Contents..................... 2
Questions and Answers About the Share
Issuance Proposal and the Mergers... 3
Summary............................... 5
Risk Factors.......................... 12
Forward Looking Statements............ 17
Where You Can Find More Information... 17
Comparative Per Share Information..... 20
The Special Meeting................... 22
Proxy Statement/Prospectus.......... 22
Date, Time and Place of Special
Meeting.......................... 22
Purpose of the Special Meeting...... 22
Record Date for the Special
Meeting.......................... 22
Vote Required for Adoption of the
Share Issuance Proposal.......... 22
Proxies............................. 23
Voting Electronically Over the
Internet or by Telephone......... 23
Solicitation of Proxies............. 23
The Mergers and the Share Issuance.... 24
Background of the Mergers........... 24
Recommendation of CheckFree Holdings
Board of Directors for Share
Issuance Proposal; CheckFree
Holdings' Reasons for the
Mergers.......................... 27
Report of CheckFree Holdings'
Financial Advisor................ 29
Completion and Effectiveness of the
Mergers.......................... 31
Structure of the Mergers............ 31
Material United States Federal
Income Tax Consequences of the
Mergers.......................... 32
Accounting Treatment of the
Mergers.......................... 32
Regulatory Matters.................. 32
Restrictions on Sales of Shares by
Affiliates of TransPoint......... 33
Nasdaq National Market Listing of
CheckFree Holdings Common Stock
to be Issued Pursuant to the
Merger Agreement................. 33
Appraisal Rights.................... 33
Selected Historical Consolidated
Financial Data of CheckFree
Holdings............................ 34
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Selected Historical Consolidated
Financial Data of TransPoint........ 36
Selected Historical Consolidated
Financial Data of BlueGill
Technologies, Inc................... 37
Unaudited Pro Forma Combining
Financial Data of CheckFree
Holdings, TransPoint and BlueGill
Technologies, Inc................... 38
Unaudited Pro Forma Combining
Financial Data...................... 39
Unaudited Pro Forma Condensed
Combining Financial Information..... 40
Unaudited Pro Forma Condensed
Combining Balance Sheet, Statements
of Operations and Notes of CheckFree
Holdings, BlueGill Technologies,
Inc. and TransPoint................. 41
Unaudited Pro Forma Condensed
Combining Balance Sheet, Statements
of Operations and Notes of CheckFree
Holdings and TransPoint............. 48
Unaudited Pro Forma Condensed
Combining Balance Sheet, Statements
of Operations and Notes of CheckFree
Holdings and BlueGill Technologies,
Inc................................. 55
Description of the Merger Agreement... 64
Description of Related Agreements..... 73
TransPoint............................ 84
General............................. 84
TransPoint's Reasons for the
Mergers.......................... 84
TransPoint Management's Discussion and
Analysis of Financial Condition and
Results of Operations............... 85
Experts............................... 88
Legal Matters......................... 88
TransPoint Financial Statements....... F-1
Appendices
Appendix A -- Amended and Restated
Agreement and Plan of
Merger.................. A-1
Appendix B -- Opinion of Merrill
Lynch, Pierce, Fenner &
Smith Incorporated and
Letter from Merrill
Lynch, Pierce, Fenner;
Smith Incorporated...... B-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE SHARE ISSUANCE PROPOSAL AND THE MERGERS
Q. WHY ARE CHECKFREE HOLDINGS AND THE OWNERS OF TRANSPOINT PROPOSING THE MERGERS
AND RELATED COMMERCIAL AGREEMENTS?
A. We are proposing the mergers because we believe that by combining the
CheckFree Holdings and TransPoint businesses, we will be able to accelerate
the growth and acceptance of electronic billing and payment services. In
addition, the combination will create the potential for stronger operating
and financial results than either company could achieve on its own. We are
proposing to enter into the related commercial agreements in order to
encourage the adoption of electronic billing and payment services and to
incentivize the parties to use each others technologies and resources.
Q. HOW WILL CHECKFREE HOLDINGS ACQUIRE TRANSPOINT?
A. We have formed three wholly owned subsidiaries to be used as merger vehicles.
TransPoint Acquisition Corporation, which is our subsidiary, will merge with
and into H&B Finance, Inc.; Tank Acquisition Corporation, which is our
subsidiary, will merge with and into FDC International Partner, Inc.; and
Chopper Merger Corporation, which is our subsidiary, will merge with and into
Citi TransPoint Holdings Inc. As a consequence of these three mergers, the
TransPoint Holding Subsidiaries, which together own the TransPoint business,
will become wholly owned subsidiaries of CheckFree Holdings.
Q. WHAT STOCKHOLDER APPROVALS ARE NEEDED?
A. The affirmative vote of the holders of a majority of the shares of our common
stock voting in person or by proxy at the special meeting is required to
approve the issuance of our common stock in connection with the merger
agreement, provided that a quorum, which means a majority of the shares of
our common stock outstanding on the record date, votes in person or by proxy
at the special meeting.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
proxy statement/ prospectus, please respond by:
- completing, signing and dating your proxy card or voting instructions and
returning it in the enclosed postage paid envelope; or
- if available, by submitting your proxy or voting instructions by telephone
or through the Internet, as soon as possible so that your shares may be
represented at the special meeting.
Q. WHAT IF I DO NOT VOTE?
A. If you fail to respond, your shares will not count toward the quorum
necessary to conduct the vote at the special meeting, and will not be counted
as either a vote for or against the share issuance proposal.
If you respond and do not indicate how you want to vote, your proxy will be
counted as a vote in favor of the share issuance proposal.
Q. CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of four ways.
- First, you can revoke your proxy.
- Second, you can submit a new proxy.
If you choose either of these two methods, you must submit your notice of
revocation or your new proxy to the secretary of CheckFree Holdings before
the special meeting. If your shares are held in an account at a brokerage
firm or bank, you should contact your brokerage firm or bank to change your
vote.
- Third, if you are a holder of record, you can attend the special meeting
and vote in person.
- Fourth, if you submit your proxy or voting instructions electronically
through the Internet or by telephone, you can change your vote by
submitting a proxy at a later date, using the same procedures, in which
case your later
3
<PAGE> 6
submitted proxy will be recorded and your earlier proxy revoked.
Q. WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED AND THE COMMERCIAL AGREEMENTS
TO BECOME EFFECTIVE?
A. We are working to complete the mergers as quickly as possible, and expect to
do so shortly after the special meeting of our stockholders. We expect to
complete the mergers during the summer of 2000. The commercial agreements
will become effective on the effective date of the mergers.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have any questions about the mergers or how to submit your proxy, or
if you need additional copies of the proxy statement/ prospectus or the
enclosed proxy card or voting instructions, you should contact [either]:
CheckFree Holdings Corporation
Investor Relations
4411 East Jones Bridge Road
Norcross, Georgia 30092
Telephone: (678) 375-3000
E-mail: [email protected]
[or]
[Name of Proxy Solicitor]
[Address of Proxy Solicitor]
[Telephone: ( ) - ]
4
<PAGE> 7
SUMMARY
This summary highlights selected information in the proxy
statement/prospectus. You should carefully read this entire proxy
statement/prospectus and the other documents we refer to for a more complete
understanding of the merger agreement and related commercial agreements. In
particular, you should read the merger agreement attached as Appendix A.
THE COMPANIES
CHECKFREE HOLDINGS CORPORATION
4411 EAST JONES BRIDGE ROAD
NORCROSS, GEORGIA 30092
(678) 375-3000
www.checkfree.com
The reference to our website address above does not constitute
incorporation by reference of the information contained on that website, so you
should not consider any information on this website to be a part of this proxy
statement/prospectus.
We are the leading provider of electronic billing and payment services. We
operate our business through three independent but inter-related divisions:
- Electronic Commerce;
- Investment Services; and
- Software.
Our Electronic Commerce business provides services that allow consumers to:
- receive electronic bills through the Internet;
- pay bills received electronically or in paper form to anyone; and
- perform ordinary banking transactions, including balance inquiries,
transfers between accounts and on-line statement reconciliations.
Our Investment Services business offers portfolio accounting and
performance measurement services to investment advisors, brokerage firms, banks
and insurance companies and financial planning application software to financial
planners.
Our Software businesses provide electronic commerce and financial
applications software and services for businesses and financial institutions.
We are incorporating by reference important business and financial
information about us into this proxy statement/prospectus that is not included
in or delivered with this proxy statement/prospectus. You may obtain the
information incorporated by reference into this proxy statement/prospectus
without charge by following the instructions in the section entitled "Where You
Can Find More Information" in this proxy statement/prospectus.
TRANSPOINT
ONE MICROSOFT WAY
REDMOND, WA 98052
(425) 882-8080
www.transpoint.com
The reference to TransPoint's website address above does not constitute
incorporation by reference of the information contained on that website, so you
should not consider any information on this website to be a part of this proxy
statement/prospectus.
The TransPoint business is jointly owned by Microsoft, First Data and
Citibank. TransPoint operates an Internet based electronic bill presentment and
payment service. This service allows businesses like utility companies, credit
card issuers and mortgage lenders that have traditionally mailed their customers
paper bills and/or statements, to contract with TransPoint to replace these
paper bills and/or statements with electronic bills and/or statements delivered
via the Internet and allows payment to be made on these electronic bills and/or
statements. The TransPoint business is conducted through four limited liability
companies: MSFDC, LLC; TransPoint, LLC; TransPoint Technology & Services, LLC;
and TransPoint Accounting, LLC; and a limited partnership, MSFDC International,
L.P. These companies collectively do business under the name "TransPoint." In
this proxy statement/prospectus, we refer to these companies collectively as
"TransPoint."
THE STRUCTURE OF THE MERGER (SEE PAGE [ ])
We have included a copy of the merger agreement in this proxy
statement/prospectus as Appendix A. We encourage you to read the merger
agreement because it is the legal document that governs the mergers.
5
<PAGE> 8
Under the terms of the merger agreement, the transaction will include the
following three mergers which will occur simultaneously:
- TransPoint Acquisition Corporation, our wholly owned subsidiary, will
merge with and into H&B Finance, Inc., currently a wholly owned
subsidiary of Microsoft, which then will become our wholly owned
subsidiary;
- Tank Acquisition Corporation, our wholly owned subsidiary, will merge
with and into FDC International Partner, Inc., currently a wholly owned
indirect subsidiary of First Data, which then will become our wholly
owned subsidiary; and
- Chopper Merger Corporation, our wholly owned subsidiary, will merge with
and into Citi TransPoint Holdings Inc., currently a wholly owned indirect
subsidiary of Citibank, which then will become our wholly owned
subsidiary.
In connection with the merger agreement, we will issue 13,000,000 shares of
our common stock to the owners of the TransPoint Holding Subsidiaries, which
include affiliates of each of Microsoft, First Data and Citibank.
The organization and approximate ownership of the companies immediately
before and after the mergers are illustrated in the diagrams located at the end
of this Summary section.
THE RELATED COMMERCIAL AGREEMENTS (SEE PAGE [ ])
Under the terms of the related commercial agreements, which are conditioned
upon the effectiveness of the mergers:
- Microsoft will enter into a commercial alliance agreement with us at the
closing of the merger agreement; and
- First Data will enter into a marketing agreement with us at the closing
of the merger agreement.
In connection with these related commercial agreements, we will issue a
total of 4,000,000 shares of our common stock to Microsoft and First Data. These
related commercial agreements are described in this proxy statement/prospectus
and we encourage you to read the detailed description of them.
RECOMMENDATION OF OUR BOARD OF DIRECTORS AND OPINION OF OUR FINANCIAL ADVISOR
(SEE PAGE [ ])
Our board of directors:
- believes that the mergers and related commercial agreements are fair to
you and in your best interest;
- unanimously voted to approve the merger agreement, the mergers and the
related commercial agreements; and
- UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE SHARE ISSUANCE PROPOSAL.
In deciding to approve the merger agreement, the mergers and related
commercial agreements, our board of directors considered an opinion of our
financial advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as of
February 11, 2000, that the mergers and the consideration to be delivered to the
TransPoint equity holders, taken as a whole, are fair from a financial point of
view to us. Because the merger agreement has been amended since the delivery of
Merrill Lynch's opinion to change the structure of our acquisition of
TransPoint, Merrill Lynch has delivered a letter to our board of directors
confirming that the new acquisition structure would not have changed its opinion
had Merrill Lynch known of the new structure at the time it delivered its
opinion. Neither this opinion nor the related letter, however, are a
recommendation to any of our stockholders as how to vote for the share issuance
proposal.
We have included a copy of the Merrill Lynch opinion and the related letter
in this proxy statement/prospectus as Appendix B. We encourage you to read both
the opinion and the related letter.
STOCKHOLDER APPROVAL AND THE CHECKFREE HOLDINGS SPECIAL MEETING (SEE PAGE [ ])
APPROVAL OF CHECKFREE HOLDINGS' STOCKHOLDERS. The affirmative vote of the
holders of a majority of the shares of our common stock voting in person or by
proxy at the special meeting, provided that a quorum is present, is required to
approve the share issuance proposal.
THE SPECIAL MEETING AND THE RECORD DATE. Our stockholders will vote on the
share issuance proposal at a special meeting that will be held at
6
<PAGE> 9
[ ] on [ ], 2000, starting at [ ]:00 a.m., local
time. Our stockholders may vote at the special meeting if they owned shares of
our common stock at the close of business on [ ], 2000, which is
the record date for the special meeting. Each share will have one vote. On the
record date, approximately [ ] shares of our common stock were
outstanding.
PROCEDURES FOR VOTING YOUR SHARES. Your vote is very important, regardless
of the number of shares you own. Please vote as soon as possible to make sure
that your shares are represented at the special meeting. You may vote your
shares by signing your proxy card and mailing it in the enclosed return
envelope, or you may be able to submit your proxy or voting instructions by
telephone or by the Internet. If you are a holder of record, you may vote in
person at the special meeting. If you do not include instructions on how to vote
your properly executed proxy card, your shares will be voted FOR approval of the
share issuance proposal. If your shares are held in an account at a brokerage
firm or bank, your broker will vote your shares only if you provide instructions
on how to vote by following the information provided to you by your broker.
PROCEDURE FOR CHANGING YOUR VOTE. You can change your vote at any time
before your proxy is voted at a special meeting. You can do this in one of four
ways. First, you can send a written notice stating that you are revoking your
proxy. Second, you can complete and submit a new proxy card. If you choose
either of these two methods, you must submit your notice of revocation of your
new proxy for our common stock to our Corporate Secretary at the address
indicated at the beginning of this "Summary" section of the proxy statement/
prospectus. If your shares are held in an account at a brokerage firm or bank,
you should contact your broker to change your vote. Third, if you are a holder
of record, you can attend the special meeting of stockholders and vote in
person. Fourth, to revoke a proxy previously submitted electronically through
the Internet or by telephone, you may simply submit a proxy at a later date,
using the same procedures, in which case your later submitted proxy will be
recorded and your earlier proxy will be revoked.
APPRAISAL RIGHTS. Under Delaware law, our stockholders are not entitled to
appraisal rights in connection with the share issuance proposal or the mergers.
SHARE OWNERSHIP BY OUR MANAGEMENT. On the record date, our directors and
executive officers were entitled to vote approximately [ ]% of our
outstanding shares of common stock. Each of our directors and executive
officers, solely in his or her capacity as a stockholder of CheckFree Holdings,
has agreed, subject to limited exceptions, to vote all of his or her shares in
favor of the share issuance proposal.
BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGERS (SEE PAGE [ ])
We have agreed that after the mergers are completed our board of directors
will be comprised of eight members, including our six current directors, one
nominee named by Microsoft and one nominee named by First Data. In addition, in
connection with the execution of a strategic agreement with Bank of America, we
agreed to increase the size of our board of directors to nine members and will
allow Bank of America to designate a nominee to the CheckFree Holdings board of
directors. See "Recent Developments." The executive officers of CheckFree
Holdings immediately before the mergers will remain our executive officers after
the mergers are completed.
TAX CONSEQUENCES (SEE PAGE [ ]).
We expect the mergers to qualify as a tax-free reorganization for United
States federal income tax purposes. As a shareholder of CheckFree Holdings, you
will not recognize any gain or loss from the mergers or the other transactions
contemplated by the merger agreement.
ACCOUNTING TREATMENT (SEE PAGE [ ]).
We intend to account for the acquisition of TransPoint under the purchase
method of accounting for business combinations.
PER SHARE MARKET PRICE INFORMATION (SEE PAGE [ ]).
Shares of our common stock are traded on the Nasdaq National Market under
the symbol "CKFR." On February 15, 2000, the last trading day before the public
announcement of the execution of the merger agreement, our common stock closed
at $68.25 per share. On [ ], 2000, the most
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recent practicable date prior to the printing of this proxy
statement/prospectus, our common stock closed at $[ ] per share.
OVERVIEW OF THE MERGER AGREEMENT (SEE PAGE [ ]).
CONDITIONS TO THE COMPLETION OF THE MERGERS AND RELATED COMMERCIAL
AGREEMENTS. Each of our and TransPoint's obligation to complete the mergers and
execution of the related commercial agreements, is subject to the satisfaction
or waiver of specified conditions, including those listed below:
- approval of the share issuance proposal by our stockholders;
- receipt of all other required regulatory approvals and submission of all
required filings with governmental authorities;
- the absence of legal prohibitions to the mergers;
- the effectiveness under the Securities Act of 1933 of the registration
statement, of which this proxy statement/prospectus is a part;
- the authorization for listing on the Nasdaq National Market of our shares
to be issued pursuant to the merger agreement;
- the execution of the ancillary documents, each of which is described
under the section of this proxy statement/prospectus titled "Description
of Related Agreements"; and
- the other party's material compliance with its obligations under the
merger agreement and the truth and accuracy of the representations made
by this party under the merger agreement.
FINANCIAL CONDITION OF TRANSPOINT. Microsoft, First Data and Citibank have
agreed that at the effective time of the merger agreement, the financial
condition of the TransPoint entities, including any entities acquired prior to
the effective time of the merger agreement, will satisfy the following
conditions:
- none of the TransPoint entities will have any indebtedness;
- the TransPoint entities, in the aggregate, will have available $100
million of cash; and
- subject to specific exceptions, the adjusted working capital of the
TransPoint entities will be zero or greater.
TERMINATION OF THE MERGER AGREEMENT. We and the owners of TransPoint may
agree to terminate the merger agreement at any time. In addition, either we or
the owners of TransPoint may terminate the merger agreement under any of the
following circumstances:
- if the effective time of the mergers has not occurred by February 15,
2001, except that this termination right will not be available to any
party whose failure to fulfill any obligation under the merger agreement
has resulted in the failure of the closing to occur on or prior to this
date;
- if any governmental entity has issued a final and nonappealable ruling or
taken any other action restraining or prohibiting the mergers;
- if the other party breaches any of its representations, warranties,
covenants or agreements under the merger agreement so that the closing
conditions cannot be satisfied, subject to a 15-day cure period;
- if the approval of our stockholders of the share issuance proposal is not
obtained at a duly held stockholders meeting; or
- if a governmental entity conditions its approval to the mergers upon a
limitation or restriction on one of the parties which that party is not
required to take under the merger agreement.
The owners of TransPoint also may terminate the merger agreement if our
board of directors withdraws or adversely modifies its recommendation that our
stockholders approve the share issuance proposal.
TERMINATION FEES. We will be obligated to pay termination fees to the
owners of TransPoint in the following amounts under the following circumstances:
- an aggregate amount of $25 million if the merger agreement is terminated
under circumstances related to our stockholders' failure to approve the
share issuance proposal or if our board of directors modifies its
recommendation to our stockholders;
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- an aggregate amount of $12.5 million if we terminate the merger agreement
because a governmental entity has conditioned the mergers upon a
limitation or restriction that we are not required to comply with under
the merger agreement; and
- an aggregate amount equal to 3.5% of the fair market value of the shares
of our common stock to be issued to the owners of TransPoint under the
merger agreement if the merger agreement is terminated under specified
circumstances after a third party makes a proposal to obtain control of
us.
COMPLETION AND EFFECTIVENESS OF THE MERGERS. We will complete the mergers
when all of the conditions to completion of the mergers are satisfied or waived
in accordance with the merger agreement. The mergers will become effective when
we file certificates of mergers with the States of Delaware and Washington. We
expect to complete the mergers during the summer of 2000.
RELATED AGREEMENTS (SEE PAGE [ ])
In connection with the closing of the merger agreement, we will enter into
the following agreements:
- stockholder agreements with each of Microsoft and First Data setting
forth various rights and restrictions associated with their ownership of
our common stock;
- registration rights agreements with each of Microsoft, First Data and
Citibank entitling each of them to require us to register for resale
shares of our common stock that they receive in the mergers in specified
circumstances;
- a commercial alliance agreement with Microsoft that includes, among other
things:
(1) various requirements for our use of Microsoft's products and
Microsoft's use of our services and Microsoft's use of our "pay
anyone" service,
(2) Microsoft's revenue guarantees to us, and
(3) a limited non-competition covenant; and
- a marketing agreement with First Data that includes, among other things:
(1) various requirements for our use of First Data's services and First
Data's use of our "pay anyone" service,
(2) First Data's revenue guarantees to us, and
(3) a limited non-competition covenant.
Furthermore, in connection with the closing of the merger agreement, each
of Microsoft and First Data will make certain modifications to their respective
irrevocable, perpetual licenses of technology and intellectual property to
TransPoint, which licenses will be assignable to us and are exclusive in various
cases.
The commercial alliance agreement with Microsoft and the marketing
agreement with First Data, which are referred to in this proxy statement/
prospectus as the related commercial agreements are each conditioned upon the
effectiveness of the mergers. If the merger agreement is terminated as discussed
above or the mergers are not completed, these related commercial agreements will
not be effective.
REGULATORY MATTERS (SEE PAGE [ ]).
All material regulatory approvals required to permit consummation of the
mergers have already been obtained. The waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act expired on March 31, 2000.
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ORGANIZATION AND APPROXIMATE OWNERSHIP
IMMEDIATELY BEFORE AND AFTER THE MERGERS
[ORGANIZATIONAL FLOWCHART]
[ORGANIZATIONAL FLOWCHART]
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RECENT DEVELOPMENTS
On April 26, 2000, we entered into a strategic agreement with Bank of
America whereby we agreed to obtain Bank of America's electronic billing and
payment assets and will provide electronic billing and payment services for Bank
of America's customers nationwide for a 10-year period. Subject to regulatory
and stockholder approval, Bank of America will receive 10 million restricted
shares of our common stock and 10 million performance-based warrants for our
common stock that will be issued in stages as milestones are met. To earn all of
the warrants, at least 10 million Bank of America customers must be using our
services, and Bank of America must be delivering more than 10 million bills per
month. Bank of America also will receive the right to designate one director to
our board of directors. Taking into consideration the shares to be issued
pursuant to the TransPoint merger agreement and assuming completion of the share
issuance proposal in this proxy statement/prospectus, the 10 million shares
granted to Bank of America equate to 12% percent ownership of our common stock
and the 10 million shares together with the 10 million warrants equates to 21%
percent ownership of our common stock.
Consummation of the mergers and the other transactions contemplated by the
TransPoint merger agreement, including the vote on the share issuance proposal,
are NOT contingent on, or subject to, stockholder approval of the strategic
agreement with Bank of America or our stockholders' approval of the shares to be
issued in connection with the strategic agreement. You will be asked
subsequently in a separate proxy statement to approve issuance of shares in
connection with the Bank of America transaction.
On April 28, 2000, we consummated our acquisition of BlueGill Technologies,
Inc. pursuant to a merger agreement originally executed on December 21, 1999. In
connection with the closing of the BlueGill transaction, we issued 4,713,736
shares of our common stock to the former stockholders of BlueGill and 634,145
CheckFree Holdings options to replace BlueGill options, 286,264 of which are
already vested.
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RISK FACTORS
In addition to the other information contained in or incorporated by
reference into this proxy statement/prospectus, you should carefully consider
the following risk factors in deciding whether to vote for the share issuance
proposal.
WE MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGERS.
The success of the mergers will depend, in part, on our ability to realize
the anticipated growth opportunities and synergies from combining our and
TransPoint businesses. To realize the anticipated benefits of this combination,
our management team must develop strategies and implement a business plan that
will:
- effectively combine TransPoint's electronic billing and payment services
with our services;
- successfully use the anticipated opportunities for cross-promotion and
sales of the products and services of CheckFree Holdings and TransPoint;
- successfully retain and attract key employees of the combined company,
including operating management and key technical personnel, during a
period of transition and in light of the competitive employment market;
and
- while integrating the combined company's operations, maintain adequate
focus on our core businesses in order to take advantage of competitive
opportunities and to respond to competitive challenges.
If our management team is not able to develop strategies and implement a
business plan that achieves these objectives, we may not realize the anticipated
benefits of the mergers. In particular, anticipated growth in revenue, earnings
before interest, taxes, depreciation, and amortization, or "EBITDA," and cash
flow may not be realized, which would have an adverse impact on us and the
market price of our common stock.
OUR COMMON STOCK HAS BEEN VOLATILE SINCE DECEMBER 15, 1999.
Since December 15, 1999, our stock price has been extremely volatile,
trading at a high of $125.63 per share and a low of $28.50 per share for the
period. Our stock price could dramatically decrease between the time that our
stockholders vote on the share issuance proposal and the time the mergers close.
We cannot assure that the price of our common stock at the time you vote on the
share issuance proposal will be the same as the price of our common stock when
we close the mergers. The volatility in our stock price has been caused by:
- actual or anticipated fluctuations in our operating results;
- actual or anticipated fluctuations in our subscriber growth;
- announcements by us, our competitors or our customers;
- announcement of the signing of the merger agreement;
- announcement of the transaction with Bank of America;
- announcements of the introduction of new or enhanced products and
services by us or our competitors;
- announcements of joint development efforts or corporate partnerships in
the electronic commerce market;
- market conditions in the banking, telecommunications, technology and
other emerging growth sectors;
- rumors relating to our competitors or us; and
- general market or economic conditions.
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WE ARE REQUIRED TO AMORTIZE GOODWILL THAT WILL CAUSE OUR EARNINGS PER SHARE TO
DECREASE.
Because we will be accounting for the mergers using the purchase method,
the mergers will result in a charge to our earnings that will decrease our
earnings per share. We will be required to amortize approximately $824,977,763
over a period of five years or approximately $164,996,000 per year.
Additionally, because we will issue shares of our common stock in connection
with the merger agreement, and since historically TransPoint has not been
profitable, the mergers and related commercial transactions may cause our
earnings per share to decrease. A drop in our earnings per share could have a
negative impact on the market price of our common stock. Analysts and investors
carefully review a company's earnings per share and often base investment
decisions on a company's earnings per share.
THE SHARES ISSUED PURSUANT TO THE MERGER AGREEMENT AND RELATED TRANSACTIONS WILL
RESULT IN IMMEDIATE AND SUBSTANTIAL DILUTION IN OUR PER SHARE EARNINGS AND A
SUBSTANTIAL INCREASE IN OUR LOSS FROM OPERATIONS.
The BlueGill merger and the TransPoint mergers, on a pro forma basis, would
result in immediate and substantial dilution of per share earning's from $0.18
to ($5.04), or $5.22 per share, for the year ended June 30, 1999 and earnings
from ($0.23) to ($3.90) per share, or $3.67 per share, for the nine months ended
March 31, 2000. Additionally, the BlueGill merger and the mergers, on a pro
forma basis, would increase our loss from operations from $3,733,000 to
$476,958,000 for the year ended June 30, 1999 and from $18,413,000 to
$349,212,000 for the nine months ended March 31, 2000. The anticipated dilution
and the increase in our loss from operations could have a negative impact on the
market price of our common stock. Analysts and investors carefully review a
company's earnings per share and often base investment decisions on a company's
operating profits and losses and per share earnings.
THE MERGERS MAY RESULT IN DISRUPTION OF OUR EXISTING BUSINESS, DISTRACTION OF
OUR MANAGEMENT AND DIVERSION OF OTHER RESOURCES.
The integration of the TransPoint business may take management time and
resources that will have to be diverted from the main business of the combined
company. This diversion of time and resources could cause the market price of
our common stock to decrease. Our management will need to spend their time
integrating TransPoint into our operations. Management will need to focus some
of its efforts on the integration of TransPoint and away from our main business.
This could cause our business to suffer. Additionally, we will need to devote
resources into the continued development of our business and operations.
THE COMPLETION OF THE MERGERS MAY CAUSE A BREACH UNDER VARIOUS AGREEMENTS TO
WHICH TRANSPOINT IS A PARTY AND POSSIBLY LEAD TO THE TERMINATION OF, OR
NONPERFORMANCE UNDER, THESE AND OTHER TRANSPOINT AGREEMENTS.
The completion of the mergers may violate the terms of various agreements
to which TransPoint is a party. We will attempt to obtain the consent or waiver
of the counterparties to these agreements, but we may be unsuccessful in our
attempts. In addition, various persons with which TransPoint historically has
had business relationships may attempt to be released from, or fail to perform
their obligations under, their contracts as a result of the mergers, even if the
terms of their contract with TransPoint do not allow a release or
nonperformance. If we are not able to obtain consents or waivers from the
counterparties to TransPoint's contracts, or if a sufficient number of
TransPoint's business partners refuse to perform their obligations, our
business, financial condition and results of operations may be adversely
affected.
MICROSOFT, FIRST DATA, CITIBANK AND THE FORMER EMPLOYEES OF THE TRANSPOINT
BUSINESS MAY ENGAGE FREELY IN MANY ACTIVITIES WHICH MAY BE COMPETITIVE WITH OUR
BUSINESS.
In connection with the completion of the mergers, we will enter into a
commercial alliance agreement with Microsoft and a marketing agreement with
First Data. Both of these agreements contain limited covenants of the other
party not to compete with us. These covenants, however, contain exceptions that
could allow the other parties to engage in activities that could be competitive
with our future business. These
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competitive activities, or the perception by investors that activities by
Microsoft and First Data are competitive with our business, could adversely
affect our business and the market price of our common stock. The mergers did
not create any obligation whatsoever on the part of Citibank to refrain from any
business activities which are competitive with, or even hostile to, us. Although
we would like to expand our business relationship with Citibank, nothing in or
about the merger should be interpreted as increasing the likelihood that we will
be successful in winning additional business from Citibank, or in preventing
Citibank from competing against us.
In addition, although the merger agreement allows us to attempt to solicit
employees of Microsoft and First Data that formerly were primarily engaged in
the TransPoint business after the completion of the mergers, we may be unable to
hire any of these employees. If these employees decide not to work for us, they
will be able to work for our competitors or develop a business that competes
with us.
THE MARKETING AGREEMENT WITH FIRST DATA AND THE COMMERCIAL ALLIANCE AGREEMENT
WITH MICROSOFT WILL LIMIT THE FLEXIBILITY OF OUR MANAGEMENT.
The marketing agreement with First Data that we will execute upon
completion of the mergers requires us to purchase payment processing and other
products from First Data under specified circumstances, even if our management
has other reasons for choosing a different supplier. In addition, the commercial
alliance agreement with Microsoft requires the development of our products that
are used with products made by Microsoft to conform to specified standards.
Accordingly, as a result of these agreements with Microsoft and First Data, our
management's flexibility to make business decisions will be limited in various
respects.
OUR OBLIGATION TO SUPPORT THE TRANSPOINT BILLING AND PAYMENT PLATFORM FOR AT
LEAST THREE YEARS MAY DISTRACT OUR MANAGEMENT AND ADVERSELY EFFECT OUR FINANCIAL
RESULTS.
Under the merger agreement, we have agreed to support TransPoint's billing
and payment platform for three years after the closing of the mergers, including
allowing TransPoint's customers to renew contracts during the three year period
on substantially the same terms. In addition, Microsoft and First Data will not
be obligated to assist us with maintaining the TransPoint platform after the one
year anniversary of the closing of the mergers. This support of the TransPoint
platform may result in a significant diversion of our resources and management
from our other business activities and may require us to continue contracts with
TransPoint customers that we would otherwise decide not to continue for economic
or other reasons.
BECAUSE WE WILL BE A NEWLY-INTEGRATED ENTITY AFTER THE COMPLETION OF THE
MERGERS, THE HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS IN THIS PROXY
STATEMENT/PROSPECTUS MAY BE OF LIMITED VALUE IN EVALUATING OUR FUTURE
PERFORMANCE.
The combination of our and TransPoint's businesses will result in a new
enterprise that has not operated before as a single integrated unit. The
financial information in this proxy statement/prospectus concerning the
individual operations of CheckFree Holdings and TransPoint and the pro forma
financial information concerning us, may be of limited value in evaluating our
financial and operating prospects in the future.
THE TRANSPOINT BUSINESS IS A NEW ENTERPRISE.
The domestic TransPoint entities were formed beginning in June 1997, began
limited operations in May 1999 and formally commenced commercial operations of
their services in February 2000. Accordingly, the TransPoint business is a new
enterprise with a limited history of financial information, especially with
respect to results of operations.
AS A RESULT OF THE MERGERS, WE WILL HAVE AN INCREASED INTERNATIONAL PRESENCE IN
WHICH WE HAVE HAD LIMITED BUSINESS EXPERIENCE.
Historically, we have not offered or sold our products and services
internationally. International operations are subject to many risks that are
difficult or impossible to predict or control, including the following:
- unexpected changes in laws and regulatory requirements;
- longer payment cycles;
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- adverse economic or political changes;
- exchange rate risks associated with conversion of foreign currencies to
United States dollars;
- potential trade restrictions;
- problems in collecting accounts receivables; and
- potentially adverse tax consequences.
If we are unable to successfully adapt our business operations to these
additional risks and requirements, it could have a material adverse effect on
our business and financial condition.
ANTI-TAKEOVER PROVISIONS IN THE COMMERCIAL AGREEMENTS MAY MAKE A CHANGE IN
CONTROL OF OUR COMPANY MORE DIFFICULT.
Both the commercial alliance agreement with Microsoft and the marketing
agreement with First Data, each of which we will execute in connection with the
closing of the mergers, allow the termination of the agreement by Microsoft or
First Data, as the case may be, under specific change of control circumstances.
If either Microsoft or First Data terminates under these circumstances, we will
lose a portion of the future revenue guarantees under the applicable agreement.
These potential termination events could discourage third parties from acquiring
us.
THE MEMBERS OF OUR BOARD OF DIRECTORS DESIGNATED BY MICROSOFT AND FIRST DATA
WILL HAVE INTERESTS THAT DIFFER FROM YOUR INTERESTS.
In considering the recommendation of our board of directors to vote for the
proposal to adopt the merger agreement, the mergers and the related issuance of
shares, you should be aware that the members of our board of directors
designated by Microsoft and First Data will have interests in the mergers and
the agreements related to the merger agreement that differ from your interests.
These interests may create potential conflicts of interests for these members of
our board of directors in the future. Our board of directors was aware of each
of these interests when it considered and adopted the merger agreement.
In connection with the completion of the mergers, Microsoft Corporation and
its affiliates will receive 8,567,250 shares of our common stock. In addition,
at that time, Microsoft will also enter into a commercial alliance agreement
with us, which agreement is described in greater detail in this proxy
statement/prospectus in the section titled "Description of Related Agreements."
Lewis Levin, who will be one of our directors immediately after consummation of
the mergers, is a Vice President of Microsoft.
Also, in connection with the completion of the mergers, First Data
Corporation and its affiliates will receive 6,567,250 shares of our common
stock. In addition, at that time, First Data will also enter into a marketing
agreement with us, which agreement is described in greater detail in this proxy
statement/prospectus in the section titled "Description of Related Agreements."
Henry C. Duques, who will be one of our directors immediately after consummation
of the mergers, is the Chairman of the Board and Chief Executive Officer of
First Data.
AVAILABILITY OF SIGNIFICANT AMOUNTS OF OUR COMMON STOCK FOR SALE IN THE FUTURE
COULD ADVERSELY AFFECT OUR STOCK PRICE.
If we complete the TransPoint acquisition, we will issue an aggregate
17,000,000 shares of common stock as follows:
- 8,567,250 shares to Microsoft;
- 6,567,250 shares to First Data; and
- 2,015,500 shares to Citibank.
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We have agreed with Microsoft, First Data and Citibank to file a shelf
registration statement that would allow continuous resales of the shares that
they will receive on the closing date of the acquisition. Although Microsoft and
First Data will be limited in their ability to transfer their shares of common
stock during the next three years pursuant to stockholder agreements with us,
they will be able to transfer significant portions of their common stock in the
future in both registered and unregistered sales. One year after the acquisition
is completed, Microsoft, First Data and Citibank may be able to sell up to the
greater of one percent of our outstanding common stock in reliance on
registration exemptions. In addition, Microsoft and First Data will be permitted
to a limited extent to engage in hedging transactions with respect to our common
stock. Sales of substantial amounts of our common stock by Microsoft, First Data
or Citibank, or the perception that these sales could occur, may adversely
affect prevailing market price for our common stock.
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FORWARD LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This proxy
statement/prospectus contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements may be
made directly in this proxy statement/prospectus referring to us and TransPoint,
and they may also be made as part of this proxy statement/prospectus by
reference to other documents filed with the Securities and Exchange Commission
by us, which is known as "incorporation by reference." These statements may
include statements regarding the period following completion of the mergers.
Words like "anticipate," "estimate," "expects," "projects," "intends,"
"plans," "believes" and words and terms of similar substance used in connection
with any discussion of future operating of financial performance, or the
transactions involving us and TransPoint, identify forward-looking statements.
All forward-looking statements are management's present expectations of future
events and are subject to a number of factors and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements. In addition to the risks related to the businesses of us and
TransPoint, the factors relating to the mergers discussed under "Risk Factors,"
among others, could cause actual results to differ materially from those
described in the forward-looking statements. These factors include: the relative
value of our stock; and the failure to realize the anticipated benefits of the
mergers. Stockholders are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this proxy
statement/prospectus or the date of the document incorporated by reference in
this proxy statement/prospectus. Neither we nor TransPoint is under any
obligation, and each of us expressly disclaims any obligation, to update or
alter any forward-looking statements, whether as a result of new information,
future events or otherwise.
For additional information that could cause actual results to differ
materially from those described in the forward-looking statements, please see
the quarterly reports on Form 10-Q/A and the annual report on Form 10-K/A that
we have filed with the Securities and Exchange Commission.
All subsequent forward-looking statements attributable to us or TransPoint
or any person acting on their behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section.
WHERE YOU CAN FIND MORE INFORMATION
This proxy statement/prospectus incorporates documents by reference which
are not presented in or delivered with this proxy statement/prospectus. You
should rely only on the information contained in this document or to which we
have referred you. We have not authorized anyone to provide you with any
additional information.
The following documents, which have been filed by us with the Securities
and Exchange Commission (SEC file number 0-26802), are incorporated by reference
into, and considered to be a part of, this proxy statement/prospectus:
- Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (filed
September 28, 1999, amended July 10, 2000);
- Proxy Statement for the Annual Meeting of Stockholders held on November
4, 1999 (filed October 8, 1999);
- Quarterly Reports on Form 10-Q for the quarter ended September 30, 1999
(filed November 15, 1999, amended July 10, 2000), for the quarter ended
December 31, 1999 (filed February 10, 2000, amended July 10, 2000), and
for the quarter ended March 31, 2000 (filed May 12, 2000, amended July
10, 2000);
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- Current Reports on Form 8-K dated November 29, 1999 (filed December 2,
1999), dated December 20, 1999 (filed December 23, 1999), dated January
10, 2000 (filed January 10, 2000), dated February 15, 2000 (filed
February 17, 2000), dated March 16, 2000 (filed March 22, 2000, amended
April 27, 2000), dated March 28, 2000 (filed March 28, 2000), dated April
2, 2000 (filed April 3, 2000), dated April 27, 2000 (filed April 27,
2000), dated April 28, 2000 (filed April 28, 2000), dated April 28, 2000
(filed May 15, 2000, amended July 10, 2000), dated May 22, 2000 (filed
May 23, 2000), and dated June 6, 2000 (filed June 7, 2000);
- The description of common stock, contained in the registration statement
on Form 8-A filed with the Commission pursuant to Section 12 of the
Securities Exchange Act of 1934 and all amendments thereto and reports
filed for the purpose of updating this description; and
- All documents filed by us with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this prospectus and before the offering of the notes thereby is
completed, other than portions of these documents described in paragraphs
(i), (k) and (l) of Item 402 of Regulation S-K promulgated by the
Commission.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement/prospectus will be deemed to
be modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained in this proxy statement/prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this proxy statement/prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement/prospectus.
We will provide a copy of any and all of the information that we
incorporate by reference in this proxy statement/prospectus to any person,
without charge, upon written or oral request. If exhibits to the documents
incorporated by reference in this proxy statement/prospectus are not themselves
specifically incorporated by reference in this proxy statement/prospectus, then
the exhibits will not be provided. ANY REQUESTS FOR DOCUMENTS SHOULD BE MADE BY
[ ], 2000 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE
SPECIAL MEETING.
Requests for documents relating to us should be directed to:
CheckFree Holdings Corporation
4411 East Jones Bridge Road
Norcross, Georgia 30092
Attention: Investor Relations
Telephone: (678) 375-300
E-mail: [email protected]
We must comply with the informational requirements of the Securities
Exchange Act of 1934 and its rules and regulations. Under the Securities
Exchange Act of 1934, we must file reports, proxy statements, and other
information with the Commission. Copies of these reports, proxy statements, and
other information can be inspected and copied at:
Public Reference Room
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
or at the public reference facilities of the regional offices of the Commission
at:
<TABLE>
<S> <C> <C>
500 West Madison Street or: 7 World Trade Center
Suite 1400 Suite 1300
Chicago, Illinois 60661-2511 New York, New York 10048-1102
</TABLE>
You may obtain information on the operation of the Public Conference Room
by calling the Commission at 1-800-SEC-0330. You may also obtain copies of our
materials by mail at prescribed rates from the Public
18
<PAGE> 21
Reference Room at the address noted above. Finally, you may obtain these
materials electronically by accessing the Commission's home page on the Internet
at http://www.sec.gov.
Our common stock is listed on the Nasdaq National Market. Accordingly,
reports and other information concerning us should be available for inspection
and copying at the offices of the Nasdaq Stock Market at 1735 K Street, N.W.,
Washington, D.C. 20006-1504.
We have filed a registration statement on Form S-4 under the Securities Act
of 1933 with the Commission with respect to our common stock to be issued in the
mergers. This proxy statement/prospectus constitutes our prospectus filed as
part of the registration statement. This proxy statement/prospectus does not
contain all of the information set forth in the registration statement because
selected parts of the registration statement are omitted in accordance with the
rules and regulations of the Commission. The registration statement and its
exhibits are available for inspection and copying as set forth above.
If you have any questions about the mergers, please call our Investor
Relations at (678) 375-3000.
All information contained in this proxy statement/prospectus regarding us
was supplied by us and all information contained in this proxy
statement/prospectus regarding TransPoint and its current owners was supplied by
TransPoint and its current owners. None of us or TransPoint can warrant the
accuracy or completeness of information relating to the other party.
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<PAGE> 22
COMPARATIVE PER SHARE INFORMATION
The following table presents historical and unaudited pro forma per share
data for CheckFree Holdings, TransPoint and BlueGill Technologies, Inc., which
we acquired on April 28, 2000, on a consolidated basis. This information is
qualified in its entirety by the historical financial statements and
accompanying notes for us and for TransPoint contained in this proxy
statement/prospectus, and the historical financial statements and notes for
CheckFree Holdings incorporated in this proxy statement/prospectus by reference.
You should read this table in conjunction with those statements and notes.
You should also read the following unaudited pro forma financial
information in conjunction with CheckFree Holdings', TransPoint's and BlueGill's
unaudited pro forma financial statements and accompanying notes included in this
proxy statement/prospectus. For more information, please refer to the section of
this proxy statement/prospectus entitled "Unaudited Pro Forma Condensed
Combining Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
CHECKFREE HOLDINGS HISTORICAL
Net Income (Loss)....................................... $0.18 $(0.23)
Cash Dividends Declared................................. -- --
Book Value.............................................. 3.61 4.00
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
TRANSPOINT HISTORICAL(1).................................. N/A N/A
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
BLUEGILL HISTORICAL
Net Income (Loss)....................................... $(1.43) $(0.33)
Cash Dividends Declared................................. -- --
Book Value.............................................. (1.84) (1.69)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
CHECKFREE HOLDINGS/TRANSPOINT/BLUEGILL/PRO FORMA COMBINED
Net Income (Loss)....................................... $(5.04) $(3.90)
Cash Dividends Declared................................. -- --
Book Value.............................................. 23.98
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
CHECKFREE HOLDINGS/TRANSPOINT
PRO FORMA COMBINED
Net Income (Loss)....................................... $(4.58) $(3.59)
Cash Dividends Declared................................. -- --
Book Value.............................................. 22.28
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
CHECKFREE HOLDINGS/BLUEGILL PRO FORMA COMBINED
Net Income (Loss)....................................... $(0.79) $(0.90)
Cash Dividends Declared................................. -- --
Book Value.............................................. 7.81
EQUIVALENT TRANSPOINT PRO FORMA COMBINED.................. N/A N/A
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
EQUIVALENT BLUEGILL PRO FORMA COMBINED(2)
Net Income (Loss)....................................... $(0.11) $(0.13)
Cash Dividends Declared................................. -- --
Book Value.............................................. 1.13
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- -----------------
<S> <C> <C>
EQUIVALENT TRANSPOINT/BLUEGILL PRO FORMA COMBINED(1)........ N/A N/A
</TABLE>
---------------
(1) Each of the TransPoint entities is either a limited liability company or
limited partnership. Under the terms of the limited liability company
agreements and the limited partnership agreement of those entities, there
are no shares outstanding.
(2) Represents the CheckFree Holdings pro forma combined results multiplied by a
share conversion factor of 0.1442 per the merger agreement with BlueGill.
21
<PAGE> 24
THE SPECIAL MEETING
PROXY STATEMENT/PROSPECTUS
We are furnishing this proxy statement/prospectus to you in connection with
the solicitation of proxies by our board of directors in connection with the
share issuance proposal.
We are first sending this proxy statement/prospectus to our stockholders on
or about [ ], 2000.
DATE, TIME AND PLACE OF SPECIAL MEETING
The special meeting is scheduled to be held as follows:
[ ], 2000
[ ]:00 a.m., local time
[ ]
PURPOSE OF THE SPECIAL MEETING
The special meeting is being held so that our stockholders may consider and
vote upon
- a proposal to approve the issuance of 17,000,000 shares of our common
stock pursuant to a merger agreement among CheckFree Holdings,
TransPoint, and various of their affiliates; and
- to transact any other business that properly comes before the special
meeting or any adjournment or postponement of the special meeting.
If our stockholders approve the share issuance proposal, upon the
completion of the mergers the owners of TransPoint will receive 17,000,000
shares of our common stock or approximately 23% of our outstanding common stock.
If our stockholders do not approve the share issuance proposal, the owners
of TransPoint may terminate the merger agreement and require us to pay a
termination fee of at least $25 million. See "Merger Agreement -- Termination"
and " -- Termination Fees."
RECORD DATE FOR THE SPECIAL MEETING
Our board of directors has fixed the close of business on
[ ], 2000 as the record date for determination of our stockholders
entitled to notice of, and to vote at, the special meeting. On the record date,
there were [ ] shares of our common stock outstanding, held by
approximately [ ] holders of record.
VOTE REQUIRED FOR ADOPTION OF THE SHARE ISSUANCE PROPOSAL
A majority of our outstanding shares of common stock must be represented,
either in person or by proxy, to constitute a quorum at the special meeting. The
affirmative vote of the holders of a majority of our common stock voting in
person or by proxy at the special meeting is required to approve the share
issuance proposal.
As of the record date, our directors and executive officers and their
affiliates owned approximately [ ]% of the outstanding shares of our common
stock. In connection with the signing of the merger agreement, each of these
individuals, solely in his or her capacity as a stockholder of CheckFree
Holdings, agreed, subject to limited exceptions, to vote all of his or her
shares in favor of the share issuance proposal. For additional information
regarding these agreements, see the section of this proxy statement/prospectus
titled "Description of Related Agreements -- Stockholder Support Agreements."
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<PAGE> 25
PROXIES
All shares of our common stock represented by properly executed proxies or
voting instructions received before or at the special meeting will, unless the
proxies or voting instructions are revoked, be voted in accordance with the
instructions indicated on those proxies or voting instructions. If no
instructions are indicated on a properly executed proxy card or voting
instructions, the shares will be voted FOR approval of the share issuance
proposal. You are urged to mark the box on the proxy card to indicate how to
vote your shares.
If a properly executed proxy card or voting instruction is returned and the
stockholder has abstained from voting on adoption of the share issuance
proposal, the CheckFree Holdings common stock represented by the proxy or voting
instructions will be considered present at the special meeting for purposes of
determining a quorum, but will not be considered to have been voted in favor of
approval of the share issuance proposal. If your shares are held in an account
at a brokerage firm or bank, you must instruct them on how to vote your shares.
If an executed proxy card is returned by a broker or bank holding shares which
indicates that the broker or bank does not have discretionary authority to vote
on approval of the share issuance proposal, the shares will be considered
present at the meeting for purposes of determining the presence of a quorum, but
will not be considered to have been voted in favor of approval of the share
issuance proposal. Your broker or bank will vote your shares only if you provide
instructions on how to vote by following the information provided to you by your
broker.
We do not expect that any matter other than approval of the share issuance
proposal will be brought before the special meeting. If, however, other matters
are properly presented, the persons named as proxies will vote in accordance
with their judgment with respect to those matters, unless authority to do so is
withheld on the proxy card.
A stockholder may revoke his or her proxy at any time before it is voted
by:
- notifying in writing the Corporate Secretary of CheckFree Holdings at
4411 East Jones Bridge Road, Norcross, Georgia 30092;
- granting a subsequently dated proxy; or
- appearing in person and voting at the special meeting if you are a holder
of record.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
VOTING ELECTRONICALLY OVER THE INTERNET OR BY TELEPHONE
Instead of submitting your vote by mail on the enclosed proxy card or
voting instructions, you may have the option to submit your proxy or voting
instructions electronically through the Internet or by telephone. Please note
that there are separate arrangements for using the Internet and telephone
depending on whether your shares are registered in our stock records in your
name or in the name of a brokerage firm or bank. You should check your proxy
card or voting instructions forwarded by a broker, bank or other holder of
record to see which options are available.
The Internet and telephone procedures for submitting your proxy or voting
instructions are designed to authenticate stockholders identities, to allow
stockholders to have their shares voted and to confirm that their instructions
have been properly recorded. A prior proxy submitted by the Internet or
telephone may be revoked by the submission of a letter proxy using any allowable
method of proxy submission indicated in this proxy statement/prospectus,
including by a subsequent Internet or telephonic proxy.
SOLICITATION OF PROXIES
We will bear the expenses incurred in connection with the printing and
mailing of this proxy statement/prospectus. We have retained [ ], at an
estimated cost of $[ ] plus reimbursement of expenses, to assist in the
solicitation of proxies. We and our proxy solicitors will also request banks,
brokers and other intermediaries holding shares of our common stock beneficially
owned by others to send this proxy statement/prospectus to, and obtain proxies
from, the beneficial owners and will reimburse the holders for their reasonable
expenses in so doing.
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<PAGE> 26
THE MERGERS AND THE SHARE ISSUANCE
BACKGROUND OF THE MERGERS
We develop and provide electronic billing and payment services and related
products for financial institutions, businesses and their customers. Our
services facilitate the electronic distribution and payment of bills as well as
payment of any bill for financial institutions and Internet portals and their
customers. Because electronic billing and payment services are new and evolving,
it has become a regular practice of our board of directors to review
periodically with senior management developments in technology and strategic
alternatives available to us in order for it to remain competitive, accelerate
the adoption of electronic billing and payment services and enhance stockholder
value.
In connection with this ongoing review of its strategic plans, we have
pursued various strategic initiatives, including internal growth, growth through
strategic alliances and partnerships and acquisitions. As part of this process,
we previously have engaged in business combination transactions with Intuit
Services Corporation in January 1997, Advanced Mortgage Technologies, Inc. in
October 1997, Mobius Group, Inc. in March 1999, and BlueGill Technologies, Inc.
in April 2000.
In furtherance of our objectives discussed above, in 1999, we and
TransPoint began discussing an agreement on common standards and protocols for
interoperability of electronic billing and payment services. In parallel to
these discussions, on July 6, 1999, Peter Kight, our Chairman and Chief
Executive Officer, and Henry Duques, First Data's Chairman and Chief Executive
Officer, met in Atlanta, Georgia to discuss how the two companies could work
together and the possibility of our acquisition of TransPoint.
On July 9, 1999, a meeting was held in Atlanta. In attendance were Lewis
Levin, TransPoint's President and Chief Executive Officer and a Vice President
of Microsoft, Darren Remington and Rich Bray of Microsoft and Peter Kight, Peter
Sinisgalli, our President and Chief Operating Officer, Mark Johnson, our Vice
Chairman, and Ravi Ganesan, our Executive Vice President. At this meeting, the
parties discussed interoperability between services described as bill exchange
and lightweight aggregation of bills. In addition, break-out meetings were held
between Messrs. Levin and Kight to further discuss a business alliance or
possible acquisition of TransPoint. No specific details or deal proposals were
discussed.
On July 27, 1999, Peter Kight also discussed the possibility of an
acquisition of TransPoint with Lewis Levin in San Francisco, California.
On September 20, 1999, a meeting of TransPoint management was held in
Atlanta. In attendance were Lewis Levin on behalf of Microsoft and Henry Duques
and Charles Fote on behalf of First Data. At the meeting, in addition to a
general discussion of topics relating to the TransPoint business, the parties
discussed the possibility of a merger of TransPoint with us and the status of
preliminary conversations on that topic.
Based on the outcome of these discussions, on September 26, 1999, Peter
Kight, Matthew Lewis, our Executive Vice President of Electronic Commerce
Product Management and Marketing, and Randal McCoy, our Executive Vice President
of Electronic Commerce Software Development, met in Denver, Colorado with Lewis
Levin, Darren Remington and Sanjay Chheda of Microsoft for more detailed
discussions regarding the possibility of us acquiring TransPoint and entering
into a related strategic alliance with Microsoft.
On October 19, 1999, a meeting was held in San Jose, California. Present at
the meeting were Lewis Levin and Peter Kight. At the meeting, the parties
determined to focus solely on an acquisition by us of TransPoint and related
commercial agreements with Microsoft and First Data. At this meeting, the
parties discussed a potential value for TransPoint, taking into account the
commercial agreements, of 19% to 25% of the combined entity.
On October 28, 1999, a meeting of TransPoint's management and equity
holders was held. In attendance representing Microsoft were Richard Belluzzo and
Lewis Levin. First Data's representatives at this meeting were Henry Duques and
Charles Fote. At the meeting, in addition to a general discussion of topics
relating to the TransPoint business, the parties discussed the possibility of a
merger with us, the status of preliminary
24
<PAGE> 27
conversations, and other options open to TransPoint. The participants concluded
that it would be productive to continue discussions with CheckFree Holdings and
explore whether other alternatives should be considered.
In order to assist us in our evaluation of a possible transaction involving
TransPoint, we retained the investment bank Merrill Lynch, Pierce, Fenner &
Smith Incorporated to provide us with a fairness opinion on the mergers. We also
engaged Simpson Thacher & Bartlett, Palo Alto, California and Porter, Wright,
Morris & Arthur LLP, Columbus, Ohio as our legal counsel in connection with the
negotiation of the potential transaction.
In addition, Transpoint retained the investment bank Morgan Stanley Dean
Witter & Co. to assist in evaluating any potential transaction. To further
assist in evaluating the transaction, TransPoint engaged Preston, Gates & Ellis
LLP, Seattle, Washington, who also represented Microsoft in connection with
evaluating the potential transaction, and Sidley & Austin, Chicago, Illinois,
who also represented First Data in connection with the transaction.
On November 2, 1999, we, Microsoft and TransPoint executed a non-disclosure
agreement covering the exchange of non-public information between the companies
for the purpose of evaluating a potential acquisition transaction. On the same
day, representatives of CheckFree Holdings, TransPoint, Microsoft and First Data
met in Redmond, Washington to present the business plans and financial
projections of CheckFree Holdings and TransPoint. At the same time, the legal
representatives of CheckFree Holdings, Microsoft and First Data began
discussions regarding the appropriate structure for any combination of CheckFree
Holdings and TransPoint.
On November 11, 1999, Mark Johnson and Peter Sinisgalli of CheckFree
Holdings met in Redmond, Washington with Lewis Levin, Darren Remington, Sanjay
Chheda and Kevin Harrang of Microsoft, and Dave Treinen of First Data to discuss
valuation of the proposed transaction. After the meeting, we decided to
temporarily halt discussions of a merger in order to focus on other corporate
initiatives and to allocate our corporate resources to our convertible debt
offering and the BlueGill acquisition.
On November 24, 1999, Peter Kight and Peter Sinisgalli met with Henry
Duques and Lewis Levin to resume discussions and to attempt to begin to narrow
the principal terms and structure under which we might effect the purchase of
TransPoint. This shifted the discussion from a range of ideas to specific
negotiating points. Discussions also included possible long-term commercial
alliances with Microsoft and First Data. Throughout these and subsequent
negotiations, Mr. Kight periodically corresponded with our directors to update
them on the status of the negotiations and key issues and terms of the proposed
acquisition.
On December 10, 1999, Lewis Levin met with representatives of the members
of TransPoint and provided them with an update on the status of the
negotiations. Present at the meeting were Richard Belluzzo, Lewis Levin, and
Beverly Kennedy of Microsoft, Charles Fote, Henry Duques, Jeff Leventhal, and
Kimberly Patmore of First Data, and Ed Horowitz of Citibank. The representatives
of the members of TransPoint delegated authority to TransPoint's officers to
negotiate the merger and contribution agreement and other related agreements
under the structure presented to the representatives.
On December 14, 1999, at a special meeting of our board of directors called
to approve the BlueGill acquisition, the directors reviewed our business plan
and discussed developments in electronic billing and payment services generally.
As part of this discussion, Mr. Kight reviewed with the board the current terms
being negotiated among the parties regarding the potential acquisition of
TransPoint, including proposed revenue guarantees, purchase price and commercial
and non-competition agreements in the commercial and marketing agreements. After
discussing the presentations of Mr. Kight and senior management, the board of
directors instructed our management to continue discussions with TransPoint,
Microsoft and First Data.
On December 30, 1999, a meeting was held in Phoenix, Arizona. In attendance
at the meeting were Lewis Levin and Sanjay Chheda of Microsoft and Peter Kight.
At the meeting, the parties discussed a decrease in the number of our common
shares to be issued in the proposed transaction from 20 million, as then
contemplated by TransPoint, to 17 million as contemplated by us, and further
discussed proposed terms of the commercial agreement between us and Microsoft.
Despite nearing a final price, subject to the parties'
25
<PAGE> 28
respective due diligence reviews which had not yet commenced, there were still
material issues to be negotiated, including governance arrangements, transfer
restrictions and terms of the commercial agreements.
During the period from December 30, 1999 to January 24, 2000, the parties
continued to negotiate outstanding issues and the structure of the transaction.
The parties also consulted with their legal and financial advisers as to the
structure of the transaction and instructed them to begin drafting the
definitive agreements for the transaction.
On January 24, 2000, representatives of CheckFree Holdings and TransPoint
met in Redmond, Washington to initiate a due diligence process. Concurrently,
the management teams and attorneys of CheckFree Holdings, TransPoint and the
owners of TransPoint began negotiation of definitive agreements in Seattle,
Washington. Negotiation of the merger and contribution agreement and the related
agreements, including the commercial alliance agreement between us and Microsoft
and the marketing agreement between us and First Data, continued in Seattle,
Washington and Chicago, Illinois at various times up to and through the signing
of the merger agreement. During this same period, business, accounting and legal
due diligence continued at TransPoint's offices in Redmond, Washington and at
CheckFree Holdings' offices in Atlanta, Georgia.
On February 11, 2000, the CheckFree Holdings board of directors met to
review the terms of the proposed acquisition of TransPoint, including the merger
and contribution agreement and the related agreements, including the commercial
agreement and marketing agreement. At the meeting, Allen Shulman, CheckFree
Holdings' General Counsel, advised the board of directors regarding their
fiduciary duties in connection with the transactions. Peter Sinisgalli then
reviewed the material terms of the proposed merger and contribution agreement
and the related agreements, including the commercial agreement and marketing
agreement. In addition, representatives of Merrill Lynch reviewed in detail with
the board of directors their financial analysis of the TransPoint business and
the terms of the acquisition. Merrill Lynch then rendered an oral opinion, which
was later confirmed in writing, that the proposed terms of the transaction and
the consideration to be delivered to the TransPoint, taken as a whole, were fair
from a financial point of view to CheckFree Holdings. After further discussion
and consideration, our board of directors unanimously determined that the merger
and contribution agreement and the related agreements, including the commercial
agreement and marketing agreement, were fair to, and in the best interests of,
CheckFree Holdings and its stockholders and adopted these agreements and
approved the transaction and the other transactions contemplated by the
agreements.
The merger and contribution agreement was executed after the close of the
markets on February 15, 2000. We and the owners of TransPoint announced the
transaction in a joint press release issued after the execution of the agreement
on February 15, 2000.
On April 17, 2000, Peter Sinisgalli contacted Lewis Levin and indicated
that CheckFree Holdings was concerned about the acquisition structure
contemplated by the merger and contribution agreement and its impact on
CheckFree Holdings' convertible subordinated notes. Mr. Sinisgalli and Mr. Levin
discussed the likelihood that holders of CheckFree Holdings' convertible
subordinated notes would require CheckFree Holdings to purchase their notes upon
consummation of the transactions contemplated by the merger and contribution
agreement given the decline in CheckFree Holdings' stock price and corresponding
trading price for the notes between the date the merger and contribution
agreement was executed on February 15, 2000 and April 17, 2000. Messrs.
Sinisgalli and Levin agreed to discuss this issue with their respective legal
and financial advisors.
Between April 17, 2000 and July 7, 2000, CheckFree Holdings and its counsel
had discussions with TransPoint, Microsoft, First Data, Citicorp and their
respective counsel regarding amending the structure of the merger and
contribution agreement, while maintaining the economics of the transaction and
tax deferred structure. On May 22, 2000, the parties agreed in principal to
modify the transaction structure and we issued a press release announcing the
agreement. On May 31, 2000, the CheckFree Holdings board of directors met to
review the terms of the amended merger agreement. No substantive changes were
proposed to the related agreements other than to reflect the change in structure
from the merger and contribution agreement to the merger agreement. At this
meeting, the board of directors received a letter from Merrill Lynch which
26
<PAGE> 29
indicated that if Merrill Lynch had known of the revised transaction structure
at the time it delivered its original fairness opinion, the opinion would not
have changed. After discussion and consideration of the new structure, the
CheckFree Holdings board of directors unanimously approved the amended and
restated version of the merger agreement, the related agreements and the
transactions contemplated by the amended and restated version of the merger
agreement. On July 7, 2000, the parties executed an amended and restated version
of the merger agreement, which version is described in this proxy
statement/prospectus and is included as Appendix A to this proxy
statement/prospectus.
RECOMMENDATION OF THE CHECKFREE HOLDINGS BOARD OF DIRECTORS; CHECKFREE HOLDINGS'
REASONS FOR THE MERGERS
Our board of directors believes that the transactions contemplated in the
merger agreement are fair to you as a CheckFree Holdings stockholder and in your
best interest, and recommends that you vote FOR the approval of the share
issuance proposal.
In reaching its decision to recommend the approval of the share issuance
proposal to you, our board of directors consulted with our financial and legal
advisors and with our senior management and considered the following material
factors:
- the potential to accelerate the adoption of electronic billing and
payment services as an alternative to paper bills and checks as a result
of:
(1) the increased consumer confidence in electronic billing and payment
that would result from an open technology standard that the
combination of CheckFree Holdings and TransPoint would create, and
(2) the reduction in confusion among consumers regarding various
technological standards for electronically receiving and paying
bills;
- the expectation that, by combining CheckFree Holdings and TransPoint, we
will have greater technology, sales, marketing, distribution and customer
service and resources leading to the possibility of stronger operating
and financial results than either CheckFree Holdings or TransPoint could
achieve while remaining separate;
- the strategic fit of CheckFree Holdings and TransPoint, including the
belief that the combination has the potential to enhance stockholder
value through increased growth opportunities, cost savings achievable by
combining the two businesses and the synergies resulting from the
combination of the two companies' strengths, technologies and other
assets;
- the ability to expand the provision of our services to TransPoint
customers and the prospects of increasing our presence internationally
through TransPoint's relatively greater operations outside the United
States;
- the opportunities, as a result of entering into the commercial alliance
agreement, of a stronger strategic relationship with Microsoft, including
its MSN Internet service, and the exclusive or preferred use of our
products for various Microsoft offerings, both currently and in the
future;
- the opportunities, as a result of entering into the marketing agreement,
of a stronger strategic relationship with First Data and its
relationships with and access to billers throughout the country;
- the benefit of obtaining a stream of minimum revenue guarantees equaling
$180 million during the next five years from Microsoft and First Data
together;
- the potential benefits to:
(1) Our customers, who should benefit from our end-to-end technological
solution for sending, receiving and paying bills being utilized by
more users through the combination of CheckFree Holdings and
TransPoint,
27
<PAGE> 30
(2) Our strategic partners, who will be able to use our services and
technology to reach a greater combined group of consumers, and
(3) Our employees, who will be employed by a more diverse provider of
electronic billing and payment services, leading to greater
opportunities for career development;
- the information and presentations by our management and legal and
financial advisors concerning the results of their business and legal due
diligence, including the business, technology, operations, financial
condition, customer relationships and prospects of both CheckFree
Holdings and TransPoint and the potential synergies resulting from
combining these businesses;
- the terms of the merger agreement and the related commercial agreements,
including the amount of consideration to be received by the owners of
TransPoint, the right of Microsoft and First Data to each designate one
director of CheckFree Holdings, and the restrictions on the ability of
Microsoft and First Data to dispose of their shares of our common stock
for up to three years; and
- the oral presentation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and its oral opinion on February 11, 2000, later confirmed
in writing as attached as Appendix B to this proxy statement/ prospectus,
that, as of the date of the opinion and subject to the assumptions and
limitations described in the opinion, the mergers and the consideration
to be delivered to the owners of TransPoint, taken as a whole, are fair
from a financial point of view to CheckFree Holdings.
Our board of directors also considered the potential adverse effects and
risks associated with the transaction with TransPoint and the combined company,
including those risks set forth in the section titled "Risk Factors" in this
proxy statement/prospectus and concluded that the potential benefits of the
transaction with TransPoint outweighed the potential adverse effects and risks.
The list of potential adverse effects and risks considered by the board
included, but was not limited to, the following:
- the challenges of combining and integrating the businesses, assets and
workforces of two major companies and the risks of not achieving the
expected operating efficiencies or growth;
- the risk of diverting management focus and resources from other strategic
opportunities and from operational matters while working to implement the
transaction contemplated in the merger agreement;
- the risk that the transactions contemplated in the merger agreement will
not be consummated;
- the possibility that the customers of CheckFree Holdings and TransPoint
could suffer during the transition to a combined bill presentment and
payment platform;
- the obligation to maintain a shelf registration statement enabling
Microsoft and First Data to dispose of their shares under specified
circumstances;
- the inclusion in the merger agreement of:
(1) a non-solicitation provision restricting the ability of our
management to seek change of control transactions during the period
prior to the closing of the agreement, and
(2) provisions requiring the payment of termination fees to the owners
of TransPoint under specified circumstances; and
- the accounting treatment of the acquisition of TransPoint as a purchase,
which will result in goodwill that will be recorded initially on our
balance sheet and amortized on a straight-line basis as a charge against
earnings over a five year period.
This discussion of the information and factors considered by our board is
not intended to be exhaustive, but includes the material factors considered. In
view of the variety of material factors considered in connection with the
evaluation of the mergers and the related transactions, our board of directors
did not find it practicable to quantify or otherwise assign relative weights or
rank to the factors it considered in approving the transactions. In considering
the factors described above, individual members of the board may have given
28
<PAGE> 31
different weight to various ones. Instead, our board of directors considered all
these factors as a whole and overall considered them to be favorable and to
support its recommendation.
REPORT OF CHECKFREE HOLDINGS' FINANCIAL ADVISOR
Our board of directors retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated to act as a financial advisor to the directors in connection with
the TransPoint transaction and, in connection with these advisory services, to
render an opinion on the fairness, from a financial point of view, of the terms
of and conditions of the TransPoint transaction which were determined as a
result of negotiations among CheckFree Holdings, TransPoint and the owners of
TransPoint. Merrill Lynch was retained as our financial advisor based on Merrill
Lynch's qualifications, expertise and reputation, as well as its knowledge of
our business.
On February 11, 2000, Merrill Lynch delivered to the board its written
opinion that, based upon several factors and assumptions discussed in the
opinion, the proposed terms of the TransPoint transaction as presented to
Merrill Lynch and the consideration to be delivered to the owners of TransPoint,
taken as a whole, are fair from a financial point of view to CheckFree Holdings.
On May 31, 2000, Merrill Lynch advised the board that the changes in the
proposed structure of the transactions, if they had been known to Merrill Lynch
on February 11, 2000, would not have changed the conclusions in its opinion as
of that date.
The full text of Merrill Lynch's opinion, which sets forth a description of
the assumptions made, general procedures followed, factors considered and
limitations on the review undertaken, and the related letter are attached as
Appendix B to this proxy statement/prospectus and are incorporated by reference.
The opinion and the related letter were provided to our board of directors for
its information and are directed only to the fairness from a financial point of
view of the transaction and the consideration to be delivered to the owners of
TransPoint. They do not constitute a recommendation to you as to how you should
vote on the share issuance proposal. You are urged to read the Merrill Lynch
opinion and the related letter carefully in their entirety, especially with
regard to the assumptions made and the factors considered by Merrill Lynch. The
summary of the Merrill Lynch opinion in this proxy statement/prospectus is
qualified by reference to the full text of the opinion.
In arriving at its opinion, Merrill Lynch, among other things:
- reviewed publicly available business and financial information relating
to CheckFree Holdings that it deemed to be relevant;
- reviewed information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of TransPoint and
CheckFree Holdings, furnished to Merrill Lynch by TransPoint and
CheckFree Holdings;
- conducted discussions with members of senior management of the TransPoint
and CheckFree Holdings concerning their respective businesses and
prospects;
- compared the results of operations of CheckFree Holdings with that of
various companies which Merrill Lynch deemed to be reasonably similar to
CheckFree Holdings;
- conducted discounted cash flow analyses based on the financial forecasts
of TransPoint and CheckFree Holdings;
- reviewed the historical market prices and trading activity for the shares
of common stock of CheckFree Holdings and compared them with that of
publicly traded companies deemed by Merrill Lynch to be reasonably
similar to CheckFree Holdings;
- reviewed a draft of the original merger and contribution agreement and
related agreements dated on or about February 9, 2000; and
- reviewed other financial studies and analyses and performed other
investigations and took into account other matters as Merrill Lynch
deemed necessary, including its assessment of general economic, market
and monetary conditions.
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<PAGE> 32
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
TransPoint and CheckFree Holdings, including the respective management teams'
assessment of the strategic benefits of the transaction. Merrill Lynch did not
independently verify information provided by either company, nor did it
undertake an independent appraisal of the assets of either TransPoint or
CheckFree Holdings. Merrill Lynch did not conduct any physical inspection of the
properties or facilities of TransPoint or CheckFree Holdings. With respect to
the financial forecasts furnished by TransPoint and CheckFree Holdings, Merrill
Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgment of management as to the companies'
expected future financial performance. Merrill Lynch assumed, with the consent
of TransPoint and CheckFree Holdings, that the transaction will be treated as
tax-free reorganizations for federal income tax purposes and that the final form
of the merger and contribution agreement would be substantially similar to the
last draft reviewed by Merrill Lynch.
Merrill Lynch's opinion was necessarily based upon market, economic and
other conditions as they exist and can be evaluated on, and on the information
made available to Merrill Lynch as of, February 11, 2000. Under its engagement
by CheckFree Holdings, Merrill Lynch has no obligation to update the opinion or
to take into account events occurring subsequent to the date that the opinion
was delivered to CheckFree Holdings' board. As a result, circumstances could
develop prior to the completion of the mergers that, if known at the time
Merrill Lynch rendered its opinion, would have altered the opinion. Any
estimates incorporated in the analyses performed by Merrill Lynch are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than these estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future.
Merrill Lynch assumed that in the course of obtaining the necessary
regulatory or other consents or approvals, contractual or otherwise, for the
TransPoint transaction, no requirements of divestiture or separation of business
units or other restrictions on, or amendments or modifications to, material
provisions of the merger and contribution agreement or related agreements, will
be imposed that will have a material adverse effect on the contemplated benefits
of the TransPoint transaction. These material provisions include, without
limitation, the provisions in the merger and contribution agreement and related
agreements concerning non-competition agreements and business relationships
between CheckFree Holdings and each of Microsoft and First Data and concerning
revenue guarantees to CheckFree Holdings by each of Microsoft and First Data.
Merrill Lynch expressed no opinion as to the prices at which our common stock
will trade following the consummation of the TransPoint transaction.
Merrill Lynch will be paid a fee of $1,000,000 upon the closing of the
mergers for its financial advisory services. Merrill Lynch has, in the past,
provided investment banking services to CheckFree Holdings and has received fees
for the rendering of these services. In particular, Merrill Lynch was an initial
purchaser of 6 1/2% convertible subordinated notes due 2006 issued by CheckFree
Holdings on November 29, 1999, and in this capacity received commissions and
discounts of $4.05 million. CheckFree Holdings provides services to Merrill
Lynch and some of its affiliates in the ordinary course of business. Merrill
Lynch paid $670,568 for the fiscal year ended June 30, 1998, $1,152,389 for the
fiscal year ended June 30, 1999 and $1,230,660 for the nine months ended March
31, 2000 for services provided by CheckFree Holdings.
The following is a brief summary of the material analyses discussed by
representatives of Merrill Lynch with the CheckFree Holdings board of directors
in connection with Merrill Lynch's opinion:
Comparative Stock Price Performance. Merrill Lynch reviewed the recent
stock price performance of CheckFree Holdings and compared that performance with
that of the following companies:
- Bottomline Technologies, Inc.;
- Cybercash Inc.;
- Digital Insight Corp.;
- First Data;
- Fiserv Inc.;
- Intercept Group Inc.;
- Online Res & Communications;
- S1 Corporation;
- Sterling Commerce Inc.; and
- Total System Services Inc.
30
<PAGE> 33
The market value of CheckFree Holdings during the 52-week period preceding
the opinion ranged from $1.416 billion to $6.579 billion. Merrill Lynch observed
that, during the calendar year 1999, CheckFree Holdings outperformed these
comparable companies as well as the Nasdaq composite index. Based on analysis of
comparable publicly traded companies, Merrill Lynch estimated that the value of
CheckFree Holdings on a standalone basis based on projected 2000 revenues ranged
from $2.844 billion to $4.261 billion.
Discounted Cash Flow Analyses. Merrill Lynch performed a discounted cash
flow analysis of the present value of the TransPoint business on a standalone
basis using both a multiple of revenue model and a perpetual growth model.
Merrill Lynch estimated that based on revenue estimates for 2000-2005,
illustrative revenue multiples ranging from 3.0x to 5.0x and illustrative
discount rates ranging from 15% to 17%, the present value of the TransPoint
business on a standalone basis ranged from $1.732 billion to $2.869 billion.
Merrill Lynch also observed that based on revenue estimates for 2000-2005,
illustrative perpetuity growth rates ranging from 10% to 13% and illustrative
discount rates ranging from 15% to 17%, the present value of the TransPoint
business on a standalone basis ranged from $1.970 billion to $6.512 billion.
Merrill Lynch additionally performed an analysis of the present value of
CheckFree Holdings on a standalone basis using both a multiple of revenue model
and a perpetual growth model. Merrill Lynch observed that based on revenue
estimates for 2000 - 2005, illustrative revenue multiples ranging from 3.0x to
5.0x and illustrative discount rates ranging from 15% to 17%, the present value
of CheckFree Holdings on a standalone basis ranged from $2.767 billion to $4.883
billion. Merrill Lynch also estimated that based on revenue estimates for
2000 - 2005, illustrative perpetuity growth rates ranging from 10% to 13% and
illustrative discount rates ranging from 15% to 17%, the present value of
CheckFree Holdings on a standalone basis ranged from $1.926 billion to $6.811
billion.
COMPLETION AND EFFECTIVENESS OF THE MERGERS
The mergers will be completed when all of the conditions to completion of
the mergers are satisfied or waived, including the approval of the share
issuance proposal by our stockholders. For a summary of the conditions of each
of the parties to the merger agreement to close, see "Description of the Merger
Agreement -- Conditions Precedent to Closing." Each of the mergers will become
effective on the filing of certificates of merger with the Secretaries of State
of Delaware and Washington. The effectiveness of the related commercial
agreements is conditioned upon completion of the mergers.
We are working toward completing the mergers as quickly as possible, and
expect to do so shortly after the special meeting of our stockholders, provided
that we have obtained the necessary regulatory approvals. We expect to complete
the transactions contemplated in the merger agreement during the summer of 2000.
STRUCTURE OF THE MERGERS
At the effective time of the mergers, TransPoint Acquisition Corporation, a
wholly owned subsidiary of CheckFree Holdings, will merge with and into H&B
Finance, Inc. As a result of this merger, Microsoft's shares of stock in H&B
Finance, Inc. will be converted into 5,567,250 shares of common stock of
CheckFree Holdings.
Simultaneously, Tank Acquisition Corporation, a wholly owned subsidiary of
CheckFree Holdings, will merge with and into FDC International Partner, Inc. As
a result of this merger, the shares of stock in FDC International Partner, Inc.
previously held by First Data and/or its affiliates, will be converted into
5,567,250 shares of common stock of CheckFree Holdings.
Simultaneously, Chopper Merger Corporation, a wholly owned subsidiary of
CheckFree Holdings, will merge with and into Citi TransPoint Holdings Inc. As a
result of this merger, the shares of stock in Citi TransPoint Holdings Inc.
previously held by Citibank and/or its affiliates will be converted in 1,865,500
shares of common stock of CheckFree Holdings.
As a consequence of these three simultaneous mergers, H&B Finance, Inc.,
FDC International Partner, Inc. and Citi TransPoint Holdings Inc., which
together own all of TransPoint, will each become a wholly
31
<PAGE> 34
owned subsidiary of CheckFree Holdings. In addition, at the effective time of
the mergers, CheckFree Holdings will issue 3,000,000 shares of our common stock
to Microsoft in consideration of our obligations under the commercial alliance
agreement and will issue 1,000,000 shares of our common stock to First Data in
consideration of our obligations under the marketing agreement.
The number of shares of our common stock issuable pursuant to the merger
agreement will be proportionately adjusted for any stock split, stock dividend
or similar event with respect to our common stock effected between the date of
the merger agreement and the date of completion of the mergers. Each share of
our common stock issued will include an attached stock purchase right pursuant
to our rights agreement.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
The following summary discusses the material United States federal income
tax consequences of the mergers to CheckFree Holdings and the holders of our
common stock. This discussion is based upon the Internal Revenue Code of 1986,
Treasury regulations, administrative rulings and judicial decisions currently in
effect, all of which are subject to change, possibly with retroactive effect.
Furthermore, this discussion does not consider the potential effects of any
state, local or foreign tax laws.
None of CheckFree Holdings, its affiliates or the owners of TransPoint has
requested a ruling from the United States Internal Revenue Service with respect
to any of the United States federal income tax consequences of the mergers and,
as a result, there can be no assurance that the Internal Revenue Service will
not disagree with or challenge any of the conclusions described below.
Based upon, among other things, our representations and those of our
affiliates,
- no gain or loss will be recognized by us, H&B Finance, Inc., FDC
International Partner, Inc., Citicorp Electronic Commerce, Inc. or any of
our affiliates as a result of the mergers; and
- no gain or loss will be recognized by our stockholders.
THE SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS
INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND IS NOT INTENDED TO BE A COMPLETE
ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGERS AND SHARE ISSUANCES. MOREOVER, THE SUMMARY DOES NOT ADDRESS ANY
NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGERS.
THE SUMMARY DOES NOT ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN
THE MERGERS AND SHARE ISSUANCES.
ACCOUNTING TREATMENT OF THE MERGERS
We intend to account for the acquisition of TransPoint under the purchase
method of accounting for business combinations. As a result, we will be required
to account for any excess of the fair market value of the consideration we paid
for the TransPoint business over the fair market value of the assets of this
business as goodwill, which we will amortize over five years. See "Risk
Factors -- We are required to amortize goodwill that will cause our earnings per
share to decrease" and "Unaudited Pro Forma Consolidated Condensed Financial
Statements."
REGULATORY MATTERS
We have summarized below the material regulatory requirements affecting the
mergers. All material regulatory approvals required to permit consummation of
the mergers have already been obtained from the applicable regulation
authorities or the necessary waiting periods have expired.
The mergers and related issuance of shares contemplated in the merger
agreement are subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, which prevents specified transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and specified waiting periods are terminated or expire. On March 3, 2000, we
filed the required information and materials with the Department of Justice and
the Federal Trade Commission. On March 31, 2000, the waiting period under the
Hart-Scott-Rodino Act terminated.
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<PAGE> 35
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may, however, challenge the transactions on antitrust grounds after
termination of the waiting period. Accordingly, at any time before or after the
completion of the mergers, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest, or other
persons, including states, could take action under the antitrust laws, including
seeking to enjoin the mergers. Additionally, at any time before or after the
completion of the mergers, notwithstanding the fact that the applicable waiting
period was terminated, any state could take action under the antitrust laws as
it deems necessary or desirable in the public interest.
Additionally, the parties will seek any and all other regulatory approvals
that may be required or imposed prior to the completion of the mergers.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF TRANSPOINT
The shares of our common stock to be issued in connection with the mergers
will be registered under the Securities Act of 1933 pursuant to a registration
statement of which this proxy statement/prospectus is a part and will be freely
transferable under the Securities Act of 1933, except for shares of our common
stock issued to any person who is deemed to be an "affiliate" of the owners
TransPoint. Persons who may be deemed to be affiliates of the TransPoint owners
include individuals or entities that control, are controlled by, or are under
the common control with an owner of TransPoint and may include a TransPoint
owner's executive officers and directors, as well as a TransPoint owner's
significant stockholders. The owners of TransPoint and their affiliates may not
sell their shares of our common stock acquired in accordance with the merger
agreement except pursuant to:
- an effective registration statement under the Securities Act of 1933,
covering the resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act of
1933; or
- any other applicable exemption under the Securities Act of 1933.
Our registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of shares of our
common stock to be received by affiliates pursuant to the merger agreement. In
connection with the consummation of the mergers, we will execute registration
rights agreements with Microsoft, First Data and Citibank, each of which is or
will be deemed an affiliate of the owners of TransPoint and/or CheckFree
Holdings. Pursuant to these registration rights agreements, we are obligated to
file a registration statement under the Securities Act of 1933 covering the
resale of shares held by Microsoft, First Data and Citibank. Sales of our shares
by Microsoft and First Data, however, will be limited pursuant to the terms of
stockholders agreements between each of them and us, which agreements will be
executed in connection with the consummation of the mergers. See "Description of
Related Agreements -- Registration Rights Agreements" and "-- Stockholder
Agreements."
NASDAQ NATIONAL MARKET LISTING OF CHECKFREE HOLDINGS COMMON STOCK TO BE ISSUED
PURSUANT TO THE MERGER AGREEMENT
We will use our reasonable best efforts to cause the shares of our common
stock that are to be issued pursuant to the merger agreement to be approved for
listing on the Nasdaq National Market, subject to official notice of issuance,
before the completion of the mergers. The approval for listing of the shares to
be issued in connection with the completion of the mergers on the Nasdaq
National Market is a condition to the closing of the mergers. See "Description
of the Merger Agreement -- Conditions Precedent to Closing."
APPRAISAL RIGHTS
Under Delaware law, our stockholders are not entitled to appraisal rights
in connection with the mergers. We are not a party to the mergers; rather a
number of our newly formed subsidiaries are parties to the mergers. You are
being asked to approve the issuance of additional shares of our common stock to
the owners of the TransPoint business pursuant to the terms of the merger
agreement but not to approve the mergers.
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<PAGE> 36
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
CHECKFREE HOLDINGS
Our selected consolidated financial data for the fiscal year ended June 30,
1997 and as of and for the fiscal years ended June 30, 1998 and 1999, have been
derived from our audited consolidated financial statements, incorporated in this
proxy statement/prospectus by reference. Our selected consolidated financial
data as of and for the fiscal year ended December 31, 1994 and 1995, as of and
for the six months ended June 30, 1996, and as of June 30, 1997, have been
derived from our audited consolidated financial statements, which are not
included in this proxy statement/prospectus. The selected and consolidated
financial data as of and for each of the nine month periods ended March 31, 1999
and 2000 are derived from unaudited financial statements incorporated in this
proxy statement/prospectus by reference which, in the opinion of management,
reflect all adjustments necessary for a fair presentation of the results for the
interim periods. The selected consolidated financial data for the twelve months
ended June 30, 1996 are derived from unaudited consolidated financial statements
which, in the opinion of management, reflect all adjustments necessary for a
fair presentation of the results for the respective period. You should read the
selected consolidated financial data provided below in conjunction with the
section of this proxy statement/prospectus entitled, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
Consolidated Financial Statements and the related Notes incorporated by
reference to this document.
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, MARCH 31,
----------------- ---------- ------------------------------------------- -------------------
1994 1995 1996 1996(1) 1997 1998 1999 1999 2000
------- ------- ---------- --------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Processing, servicing and
merchant discount........ $38,282 $49,330 $ 33,305 $ 59,053 $ 104,522 $159,255 $201,059 $145,468 $189,430
License fees............... -- -- 10,970 10,970 33,088 28,952 15,975 10,005 10,295
Maintenance fees........... -- -- 1,978 1,978 22,567 25,848 17,746 13,314 13,571
Other...................... 984 -- 4,787 4,788 16,268 19,809 15,351 10,592 8,399
------- ------- --------- --------- --------- -------- -------- -------- --------
Total revenues....... 39,266 49,330 51,040 76,789 176,445 233,864 250,131 179,379 221,695
Expenses:
Cost of processing,
servicing and support.... 24,212 30,258 35,438 51,236 102,721 129,924 146,704 107,572 133,684
Research and development... 4,724 6,876 9,907 13,765 32,869 36,265 21,085 16,539 24,276
Sales and marketing........ 4,427 7,242 17,167 21,349 32,670 28,839 32,354 21,945 29,522
General and
administrative........... 2,598 4,134 7,338 9,598 18,707 20,677 31,466 21,556 28,837
Depreciation and
amortization............. 1,922 2,485 6,997 8,246 24,919 24,999 24,630 18,001 23,789
In-process research and
development(2)........... -- -- 122,358 122,358 140,000 719 2,201 2,201 --
Charge for stock
warrants(3).............. -- -- -- -- -- 32,827 -- -- --
Exclusivity
amortization(4).......... -- -- -- -- 5,958 2,963 -- -- --
------- ------- --------- --------- --------- -------- -------- -------- --------
Total expenses....... 37,883 50,995 199,205 226,552 357,844 277,213 258,440 187,814 240,108
Net gain on dispositions of
assets(5).................. -- -- -- -- 6,250 36,173 4,576 3,914 --
------- ------- --------- --------- --------- -------- -------- -------- --------
Income (loss) from
operations................. 1,383 (1,665) (148,165) (149,763) (175,149) (7,176) (3,733) (4,521) (18,413)
Interest:
Income..................... 298 2,135 1,659 3,104 2,153 3,464 2,799 2,205 4,490
Expense.................... (795) (645) (325) (484) (834) (632) (618) (507) (4,573)
------- ------- --------- --------- --------- -------- -------- -------- --------
Income (loss) before income
taxes...................... 886 (175) (146,831) (147,143) (173,830) (4,344) (1,552) (2,823) (18,496)
Income tax expense
(benefit)(6)............... 400 40 (8,628) (8,650) (12,017) (641) (12,009) (12,422) (6,718)
------- ------- --------- --------- --------- -------- -------- -------- --------
Income (loss) before
extraordinary item......... 486 (215) (138,203) (138,493) (161,813) (3,703) 10,457 9,599 (11,778)
Extraordinary item........... -- -- (364) (364) -- -- -- -- --
------- ------- --------- --------- --------- -------- -------- -------- --------
Net income (loss).......... $ 486 $ (215) $(138,567) $(138,857) $(161,813) $ (3,703) $ 10,457 $ 9,599 $(11,778)
======= ======= ========= ========= ========= ======== ======== ======== ========
Basic income (loss) per
common share before
extraordinary item(7)...... $ 0.02 $ (0.01) $ (3.69) $ (4.14) $ (3.44) $ (0.07) $ 0.20 $ 0.18 $ (0.23)
Basic income (loss) per
common share(7)............ $ 0.02 $ (0.01) $ (3.70) $ (4.15) $ (3.44) $ (0.07) $ 0.20 $ 0.18 $ (0.23)
Basic equivalent number of
shares outstanding(7)...... 25,232 28,219 37,450 33,435 46,988 55,087 52,424 52,696 52,246
Diluted income (loss) per
common share before
extraordinary item(7)...... $ 0.02 $ (0.01) $ (3.69) $ (4.14) $ (3.44) $ (0.07) $ 0.18 $ 0.17 $ (0.23)
Diluted income (loss) per
common share(7)............ $ 0.02 $ (0.01) $ (3.70) $ (4.15) $ (3.44) $ (0.07) $ 0.18 $ 0.17 $ (0.23)
Diluted equivalent number of
shares outstanding(7)...... 27,103 28,219 37,420 33,435 46,988 55,087 56,529 56,117 52,246
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, JUNE 30, MARCH 31,
------------------- -------------------------------------------- --------------------
1994 1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 2,209 $ 63,840 $ 20,987 $ 32,086 $ 36,535 $ 12,446 $ 16,199 $125,043
Working capital........... 11,399 81,792 45,496 20,002 78,238 24,245 44,473 142,062
Total assets.............. 30,512 115,642 196,230 223,836 250,112 252,761 250,690 476,133
Convertible notes(8)...... -- -- -- -- -- -- -- 172,500
Long-term obligations,
less current portion.... 8,213 7,282 8,324 8,401 6,467 3,882 6,616 820
Total stockholders'
equity.................. 16,372 99,325 137,675 148,644 183,854 186,903 185,217 212,384
</TABLE>
---------------
(1) On April 19, 1996, we elected to change our fiscal year end from December 31
to June 30. To assist in the analysis of the selected consolidated financial
data, unaudited results for the twelve months ended June 30, 1996 are
provided.
(2) In connection with the acquisitions of Intuit Services Corporation in
January 1997, Advanced Mortgage Technologies, Inc. in October 1997 and
Mobius Group, Inc. in March 1999, we recorded charges to expense of $140.0
million, $0.7 million, and $2.2 million, respectively, for acquired
in-process research and development that were determined to have no future
value. See Note 2 to the audited consolidated financial statements
incorporated by reference elsewhere in this proxy statement/prospectus.
(3) The $32.4 million and $0.4 million charges for stock warrants in the fiscal
year ended June 30, 1998 resulted from the vesting of warrants related to a
ten year processing agreement with Integrion and to a consulting agreement
with a third party, respectively. See Note 15 to the audited consolidated
financial statements incorporated by reference in this proxy
statement/prospectus.
(4) In connection with an exclusivity arrangement entered into upon our
acquisition of Intuit Services Corporation in January 1997, we recorded
amortization expense of $6.0 million for the fiscal year ended June 30,
1997, and $3.0 million for the fiscal year ended June 30, 1998.
(5) The $6.3 million net gain on dispositions of assets in the year ended June
30, 1997 resulted from the March 1997 sale of our credit card business. The
$36.2 million net gain in the year ended June 30, 1998 resulted from the
sales of our recovery management business in August 1997, our item
processing business in March 1998 and our electronic banking and wire
businesses in April 1998. The resulting gains from these sales were $28.2
million, $3.2 million, and $14.7 million, respectively. The gains were
offset by losses on the sale of the leasing business, discontinuation of the
web investor business and write-offs of equipment. The resulting losses were
$4.7 million, $1.0 million and $4.2 million, respectively. The $28.4 million
net gain in the nine months ended March 31, 1998 resulted from the $28.2
million gain on the August 1997 sale of our recovery management business,
the $3.2 million gain on the March 1998 sale of our item processing
business, and the $3.0 million write-off of equipment and capitalized costs.
(6) In connection with the creation of a special purpose subsidiary to
administer our employee medical benefits program, we recorded a one-time tax
benefit of approximately $12.2 million during the quarter ended December 31,
1998. See Note 7 to the audited consolidated financial statements
incorporated by reference in this proxy statement/prospectus.
(7) The earnings per share amounts prior to the fiscal year ended June 30, 1998
have been restated to comply with Statement of Financial Accounting
Standards No. 128 "Earnings per Share" as required. For further discussion
of earnings per share and the impact of Statement 128, see Note 1 to the
audited consolidated financial statements incorporated by reference in this
proxy statement/prospectus.
(8) In November 1999, we issued $172.5 million of 6 1/2% convertible
subordinated notes that are due on December 1, 2006. Interest on the notes
is payable on June 1 and December 1 annually, commencing on June 1, 2000.
The notes may be converted, at the holder's option, into 13.6612 shares of
our common stock per note and we may redeem the notes at any time on or
after December 1, 2002.
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<PAGE> 38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF TRANSPOINT
TransPoint's selected consolidated financial data as of and for the period
June 18, 1997 (inception) to July 3, 1998 and as of and for year ended July 2,
1999, have been derived from the audited consolidated financial statements of
MSFDC, L.L.C. and its subsidiaries included elsewhere in this proxy statement/
prospectus. The selected and consolidated financial data for the nine month
period ended March 31, 2000 and as of and for the nine month period ended March
31, 2000 are derived from unaudited financial statements included in this proxy
statement/prospectus which, in the opinion of management, reflect all
adjustments necessary for a fair presentation of the results for the interim
periods. Because MSFDC International, L.P. was formed in April 1999,
TransPoint's selected consolidated financial data and other historical financial
statements included elsewhere in the proxy statement/prospectus do not include
MSFDC International, L.P., other than for the nine month period ended March 31,
2000. You should read the selected consolidated financial data provided below in
conjunction with the "TransPoint Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes contained elsewhere in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 18, 1997) NINE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
JULY 3, JULY 2, ----------------------------
1998 1999 1999 2000
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ -- $ -- $ -- $ 7,350
Operating expenses:
Product development.............. 10,032,522 26,559,520 18,364,993 5,996,849
Selling, general and
administrative................ 5,839,118 18,637,762 12,642,220 32,449,303
------------ ------------ ------------ ------------
Total operating expense....... 15,871,640 45,197,282 31,007,213 38,446,152
Other expense (income)............. (18,118) (463,632) (25,743) (1,053,517)
------------ ------------ ------------ ------------
Loss before minority
interest................. (15,853,522) (44,733,650) (30,981,470) (37,385,285)
Minority interest.................. -- (2,063,542) -- (5,607,793)
------------ ------------ ------------ ------------
Net loss........................... $(15,853,522) $(42,670,108) $(30,981,470) $(31,777,492)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 3, JULY 2, MARCH 31,
1998 1999 2000
--------------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ -- $ 51,113,749 $ 8,018,791
Working capital.................... (6,514,307) 34,232,286 (12,132,063)
Total assets.................. 1,660,852 52,824,291 19,458,397
Minority interest.................. -- 45,936,458 40,328,665
Total members' capital
deficiency.................. (4,853,455) (9,993,630) (41,771,122)
</TABLE>
36
<PAGE> 39
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BLUEGILL TECHNOLOGIES, INC.
The following selected financial data for the years ended December 31,
1997, 1998 and 1999 should be read in conjunction with the consolidated
financial statements and the related notes, which have been audited by Arthur
Andersen LLP, independent public accountants. The data provided below for the
years ended December 31, 1997, 1998 and 1999 are derived from, and are qualified
by reference to, the audited financial statements of BlueGill and should be read
in conjunction with those financial statements and the related notes
incorporated into this document by reference. The selected financial data for
the period ended December 31, 1996 were derived from the unaudited financial
information obtained from BlueGill. The consolidated statements of operations
data for the three months ended March 31, 1999 and 2000, and the consolidated
balance sheet data as of March 31, 2000, are derived from our unaudited
consolidated financial statements. We have prepared this unaudited information
on the same basis as the audited financial statements and have included all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating
results for such periods.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(SEPTEMBER 20, THREE MONTHS ENDED
1996) THROUGH YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------------------- --------------------------
1996 1997 1998 1999 1999 2000
-------------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............. $ -- $ 422,500 $ 1,474,678 $ 5,396,967 $ 1,025,141 $ 3,030,902
Cost of revenues..... -- 74,000 218,095 533,965 188,394 279,918
--------- ---------- ----------- ----------- ----------- -----------
Gross profit..... -- 348,500 1,256,583 4,863,002 836,747 2,750,984
Operating expenses:
Research and
development...... 53,264 479,938 894,944 2,123,192 345,000 859,000
Selling, general
and
administrative... 129,126 845,198 2,416,938 10,290,279 1,518,635 4,349,381
--------- ---------- ----------- ----------- ----------- -----------
Total operating
expenses....... 182,390 1,325,136 3,311,882 12,413,471 1,863,635 5,208,381
--------- ---------- ----------- ----------- ----------- -----------
Loss from
operations... (182,390) (976,636) (2,055,299) (7,550,469) (1,026,888) (2,457,397)
Interest income...... 3,329 11,471 148,167 482,650 31,373 234,005
Interest expense..... (100) (22,177) (36,295) (29,458) (3,862) (12,085)
Provision (benefit)
for income taxes... -- -- -- -- -- --
--------- ---------- ----------- ----------- ----------- -----------
Net loss............. $(179,161) $ (987,342) $(1,943,427) $(7,097,277) $ (999,377) $(2,235,477)
========= ========== =========== =========== =========== ===========
Net loss per share... $ (0.05) $ (0.22) $ (0.41) $ (1.43) $ (0.21) $ (0.33)
Weighted average
common shares...... 3,900,000 4,530,340 4,766,000 4,969,736 4,766,000 6,714,345
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------ MARCH 31,
1996 1997 1998 1999 2000
----------- --------- ----------- ----------- -----------
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................ $251,508 $ 98,528 $ 4,111,200 $17,039,531 $15,044,016
Working capital..................... 200,305 (321,260) 4,079,462 15,561,223 13,513,247
Total assets........................ 274,384 409,267 4,867,052 20,258,540 17,838,979
Redeemable preferred stock.......... -- -- 6,468,387 25,963,387 25,963,387
Total stockholders' equity
(deficit)......................... 223,181 (266,521) (2,141,085) (9,135,145) (11,333,123)
</TABLE>
37
<PAGE> 40
UNAUDITED PRO FORMA COMBINING FINANCIAL DATA OF
CHECKFREE HOLDINGS, TRANSPOINT AND
BLUEGILL TECHNOLOGIES, INC.
The following table summarizes the unaudited pro forma combining financial
data, giving effect to the mergers of TransPoint and the acquisition of
BlueGill, which will be accounted for as purchases, as if they had occurred on
March 31, 2000, for balance sheet presentation purposes and as of July 1, 1998,
for statement of operations presentation purposes, and the pro forma adjustments
described in the Notes to the Unaudited Pro Forma Condensed Combining Financial
Information. The TransPoint and BlueGill financial data included in the pro
forma amounts are for the twelve months ended June 30, 1999, and for the nine
months ended March 31, 2000. You should read this information in conjunction
with:
- the historical financial statements of CheckFree Holdings, TransPoint and
BlueGill, including the respective notes to these statements, which are
included elsewhere in this proxy statement/prospectus or incorporated by
reference, and
- the consolidated historical financial data for CheckFree Holdings,
TransPoint and BlueGill and the other pro forma information, including
the related notes, which are included elsewhere in this proxy
statement/prospectus or incorporated by reference.
For additional information, you should refer to the section of this document
entitled "Unaudited Pro Forma Condensed Combining Financial Information."
The pro forma financial data are not necessarily indicative of the future
financial position or future results of operations of the combined companies, or
the financial position or results of operations of the companies that would have
actually occurred had the mergers been consummated at the dates specified.
38
<PAGE> 41
UNAUDITED PRO FORMA COMBINING FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CHECKFREE HOLDINGS,
CHECKFREE HOLDINGS TRANSPOINT, AND BLUEGILL
HISTORICAL AMOUNTS COMBINING PRO FORMA
----------------------- ------------------------
YEAR NINE MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, MARCH 31, JUNE 30, MARCH 31,
1999 2000 1999 2000
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................... $250,131 $221,695 $ 253,621 $ 227,809
Income (loss) from operations............... (3,733) (18,413) (476,958) (349,212)
Income (loss) before income taxes........... (1,552) (18,496) (474,119) (347,622)
Net income (loss)........................... 10,457 (11,778) (373,700) (288,186)
COMMON SHARE DATA:
Basic income (loss) per common share........ $ 0.20 $ (0.23) $ (5.04) $ (3.90)
Basic equivalent number of shares
outstanding............................... 52,444 52,246 74,158 73,960
Diluted income (loss) per common share...... $ 0.18 $ (0.23) $ (5.04) $ (3.90)
Diluted equivalent number of shares
outstanding............................... 56,529 52,246 74,158 73,960
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, MARCH 31,
1999 2000 2000
-------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............................. $ 82,685 $225,838 $ 350,991
Total assets........................... 252,761 476,133 2,397,688
Current liabilities......................... 58,440 83,776 201,058
Long-term obligations, less current
portion................................... 7,418 179,973 180,310
Total stockholders' equity............. 186,903 212,384 1,794,387
</TABLE>
<TABLE>
<CAPTION>
CHECKFREE HOLDINGS AND CHECKFREE HOLDINGS AND
TRANSPOINT BLUEGILL
COMBINING PRO FORMA COMBINING PRO FORMA
----------------------- -----------------------
YEAR NINE MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, MARCH 31, JUNE 30, MARCH 31,
1999 2000 1999 2000
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................... $250,131 $221,702 $253,621 $227,802
Income (loss) from operations................ (411,726) (307,199) (68,964) (60,426)
Income (loss) before income taxes............ (409,081) (306,228) (66,589) (59,890)
Net income (loss)............................ (317,952) (248,870) (45,290) (51,094)
COMMON SHARE DATA:
Basic income (loss) per common share......... $ (4.58) $ (3.59) $ (0.79) $ (0.90)
Basic equivalent number of shares
outstanding................................ 69,444 69,246 57,158 56,960
Diluted income (loss) per common share....... $ (4.58) $ (3.59) $ (0.79) $ (0.90)
Diluted equivalent number of shares
outstanding................................ 69,444 69,246 57,158 56,960
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 2000
---------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.......................................... $ 334,607 $242,222
Total assets....................................... 2,143,642 730,179
Current liabilities..................................... 187,796 97,038
Long-term obligations, less current portion............. 179,973 180,310
Total stockholders' equity......................... 1,561,792 444,979
</TABLE>
39
<PAGE> 42
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
The following unaudited pro forma condensed combining financial information
for CheckFree Holdings gives effect to:
- the combined proposed acquisition by CheckFree Holdings of both
TransPoint and BlueGill Technologies, Inc. using the purchase method of
accounting, based on preliminary allocations of the total estimated
purchase price. The historical financial information has been derived
from the respective historical financial statements of CheckFree
Holdings, TransPoint and BlueGill, and should be read in conjunction with
the financial statements and the related notes included elsewhere in this
proxy statement/prospectus or incorporated by reference.
- the proposed acquisition by CheckFree Holdings of TransPoint using the
purchase method of accounting, based on preliminary allocations of the
total estimated purchase price. The historical information has been
derived from the respective historical financial statements of CheckFree
Holdings and TransPoint and should be read in conjunction with the
financial statements and the related notes included in this proxy
statement/prospectus or incorporated by reference.
- the acquisition by CheckFree Holdings of BlueGill using the purchase
method of accounting, based on preliminary allocations of the total
purchase price. The historical information has been derived from the
respective historical financial statements of CheckFree Holdings and
BlueGill and should be read in conjunction with the financial statements
and the related notes incorporated by reference.
The unaudited pro forma condensed combining balance sheets have been
prepared assuming the respective acquisitions took place as of March 31, 2000
and allocate the total estimated purchase prices to the fair values of assets
and liabilities of the acquired companies based on preliminary valuations.
The unaudited pro forma condensed combining statements of operations
combine CheckFree Holdings', TransPoint's and BlueGill's historical statements
of operations and give effect to the acquisitions, excluding the immediate
write-off of estimated in-process research and development costs and including
the amortization of goodwill and other intangible assets resulting from the
acquisitions, as if they occurred on July 1, 1998, the beginning of the earliest
period presented.
The total estimated and actual purchase prices of the entities that
comprise the TransPoint business and BlueGill, respectively, have been allocated
on a preliminary basis to assets and liabilities based on management's estimates
of their fair values with the excess costs over the net assets acquired
allocated to goodwill and other intangible assets. These allocations are subject
to change pending a final determination and analysis of the total purchase
prices and the fair values of the assets acquired and liabilities assumed. The
impact of these changes could be material.
The unaudited pro forma condensed combining financial information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial condition that would have actually occurred
if the acquisitions, either individually or combined, had been completed as of
the dates indicated, nor is it necessarily indicative of the future operating
results or financial position of the combined companies. The pro forma
adjustments are based on the information available as of the date of this proxy
statement/prospectus.
40
<PAGE> 43
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL TRANSPOINT ADJUSTMENTS TOTAL
--------- -------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents................... $125,043 $ 15,044 $ 8,019 $ 100,000(1) $ 248,106
Investments................................. 26,292 -- -- -- 26,292
Accounts receivable, net.................... 53,343 1,151 -- -- 54,494
Prepaid expenses and other assets........... 11,716 189 750 -- 12,655
Deferred income taxes....................... 9,444 -- -- -- 9,444
--------- -------- -------- ----------- ----------
Total current assets................. 225,838 16,384 8,769 100,000 350,991
Property and equipment, net................... 84,461 1,453 763 -- 86,677
Capitalized software, net..................... 23,006 -- 9,926 195,673(1) 221,705
(6,900)(2)
Goodwill, net................................. 29,539 -- -- 1,017,985(1) 1,047,524
Other intangible assets, net.................. 12,224 -- -- 577,500(1) 589,724
Investments................................... 52,869 -- -- -- 52,869
Deferred income taxes......................... 34,436 -- -- -- 34,436
Other noncurrent assets....................... 13,760 2 -- -- 13,762
--------- -------- -------- ----------- ----------
Total assets......................... $476,133 $ 17,839 $ 19,458 $ 1,884,258 $2,397,688
========= ======== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable............................ $ 6,573 $ 1,294 $ 11,853 $ -- $ 19,720
Accrued liabilities......................... 41,032 228 4,547 3,925(1) 50,907
1,175(3)
Deferred income taxes....................... -- -- -- 88,410(1) 88,410
Current portion of long-term obligations.... 6,533 159 -- -- 6,692
Deferred revenue............................ 29,638 1,191 4,500 -- 35,329
--------- -------- -------- ----------- ----------
Total current liabilities............ 83,776 2,872 20,900 93,510 201,058
Accrued rent and other........................ 6,653 -- -- -- 6,653
Obligations under capital leases -- less
current portion............................. 820 337 -- -- 1,157
Convertible subordinated notes................ 172,500 -- -- -- 172,500
Minority interest............................. -- -- 40,329 (40,329)(1) --
Deferred income taxes......................... -- -- -- 221,933(1) 221,933
--------- -------- -------- ----------- ----------
Total liabilities.................... 263,749 3,209 61,229 275,114 603,301
Redeemable preferred stock.................... -- 25,963 -- (25,963)(1) --
Stockholders' equity:
Common stock................................ 531 7 -- 210(1) 748
Additional paid-in capital.................. 517,912 1,753 -- 1,588,108(1) 2,106,598
(1,175)(3)
Other....................................... (281) (650) -- 650(1) (281)
Member's capital deficiency................. -- -- (41,771) 41,771(1) --
Accumulated deficit......................... (305,778) (12,443) -- 12,443(1) (312,678)
(6,900)(2)
--------- -------- -------- ----------- ----------
Total stockholders' equity........... 212,384 (11,333) (41,771) 1,635,107 1,794,387
--------- -------- -------- ----------- ----------
Total liabilities and stockholders'
equity............................. $476,133 $ 17,839 $ 19,458 $ 1,884,258 $2,397,688
========= ======== ======== =========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information.
41
<PAGE> 44
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL TRANSPOINT ADJUSTMENTS TOTAL
--------- -------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Processing and servicing................ $201,059 $ -- $ -- $ -- $ 201,059
License fees............................ 15,975 2,517 -- -- 18,492
Maintenance fees........................ 17,746 48 -- -- 17,794
Other................................... 15,351 925 -- -- 16,276
-------- ------- -------- --------- ---------
Total revenues.................. 250,131 3,490 -- -- 253,621
Expenses:
Cost of processing, servicing and
support.............................. 146,704 969 3,062 -- 150,735
Research and development................ 21,085 1,457 26,560 -- 49,102
Sales and marketing..................... 32,354 2,318 11,302 -- 45,974
General and administrative.............. 31,466 2,045 2,404 424,622(4) 460,537
Depreciation and amortization........... 24,630 106 1,870 26,606
In-process research and development..... 2,201 -- -- -- 2,201
-------- ------- -------- --------- ---------
Total expenses.................. 258,440 6,895 45,198 424,622 735,155
Net gain on dispositions of assets...... 4,576 -- -- -- 4,576
-------- ------- -------- --------- ---------
Loss from operations...................... (3,733) (3,405) (45,198) (424,622) (476,958)
Other:
Minority interest....................... -- -- 2,064 (2,064)(5) --
Interest, net........................... 2,181 194 464 -- 2,839
-------- ------- -------- --------- ---------
Loss before income taxes.................. (1,552) (3,211) (42,670) (426,686) (474,119)
Income tax benefit........................ (12,009) -- -- (88,410)(4) (100,419)
-------- ------- -------- --------- ---------
Net income (loss)......................... $ 10,457 $(3,211) $(42,670) $(338,276) $(373,700)
======== ======= ======== ========= =========
Basic earnings (loss) per share:
Net income (loss) per common share...... $ 0.20 $ (5.04)
======== =========
Equivalent number of shares............. 52,444 21,714(1) 74,158
======== ========= =========
Diluted earnings (loss) per share:
Net income (loss) per common share...... $ 0.18 $ (5.04)
======== =========
Equivalent number of shares............. 56,529 17,629(6) 74,158
======== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information.
42
<PAGE> 45
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
FOR THE NINE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL TRANSPOINT ADJUSTMENTS TOTAL
--------- -------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Processing and servicing.......... $189,430 $ -- $ -- $ -- $ 189,430
License fees...................... 10,295 4,578 -- -- 14,873
Maintenance fees.................. 13,571 349 -- -- 13,920
Other............................. 8,399 1,180 7 -- 9,586
-------- ------- -------- ---------- ---------
Total revenues............ 221,695 6,107 7 -- 227,809
Expenses:
Cost of processing, servicing and
support........................ 133,684 1,496 13,856 -- 149,036
Research and development.......... 24,276 2,142 5,997 -- 32,415
Sales and marketing............... 29,522 5,602 13,980 -- 49,104
General and administrative........ 28,837 4,463 1,858 -- 35,158
Depreciation and amortization..... 23,789 272 2,755 284,492(4) 311,308
In-process research and
development.................... -- -- -- -- --
-------- ------- -------- ---------- ---------
Total expenses............ 240,108 13,975 38,446 284,492 577,021
Net gain on dispositions of
assets......................... -- -- -- -- --
-------- ------- -------- ---------- ---------
Loss from operations................ (18,413) (7,868) (38,439) (284,492) (349,212)
Other:
Minority interest................. -- -- 5,608 (5,608)(5) --
Interest, net..................... (83) 619 1,054 -- 1,590
-------- ------- -------- ---------- ---------
Loss before income taxes............ (18,496) (7,249) (31,777) (290,100) (347,622)
Income tax benefit.................. (6,718) -- -- (52,718)(4) (59,436)
-------- ------- -------- ---------- ---------
Net income (loss)................... $(11,778) $(7,249) $(31,777) $ (237,382) $(288,186)
======== ======= ======== ========== =========
Basic earnings (loss) per share:
Net income (loss) per common
share.......................... $ (0.23) $ (3.90)
======== =========
Equivalent number of shares....... 52,246 21,714(1) 73,960
======== ========== =========
Diluted earnings (loss) per share:
Net income (loss) per common
share.......................... $ (0.23) $ (3.90)
======== =========
Equivalent number of shares....... 52,246 21,714(1) 73,960
======== ========== =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
43
<PAGE> 46
CHECKFREE HOLDINGS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
WITH BLUEGILL TECHNOLOGIES, INC. AND TRANSPOINT
1. Adjustment to reflect the issuance of CheckFree Holdings common stock,
options and related direct acquisition expenses as the total purchase price for
the net assets of BlueGill and the TransPoint business, and the elimination of
BlueGill's redeemable preferred stock and stockholders' equity and revaluation
of TransPoint's capitalized software costs and the elimination of TransPoint's
minority interest and member's capital deficiency. The fair market values of
intangible assets are preliminary estimates based on independent appraisals and
current facts and circumstances.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C> <C>
Cash........................................................ $ 100,000
Capitalized software, net................................... 195,673
Goodwill, net............................................... 1,017,985
Other intangible assets, net................................ 577,500
BlueGill redeemable preferred stock......................... 25,963
BlueGill common stock....................................... 7
BlueGill additional paid in capital......................... 1,753
TransPoint minority interest................................ 40,329
CheckFree Holdings common stock........................... $ 217
CheckFree Holdings additional paid in capital............. 1,589,861
BlueGill accumulated deficit.............................. 12,443
BlueGill other equity..................................... 650
TransPoint member's capital deficiency.................... 41,771
Current deferred income tax liability..................... 88,410
Long-term deferred income tax liability................... 221,933
Accrued acquisition expenses.............................. 3,925
---------- ----------
Totals............................................ $1,959,210 $1,959,210
========== ==========
</TABLE>
The following chart indicates the components of the estimated purchase
prices of the acquisitions inherent in the adjusting entry:
<TABLE>
<CAPTION>
BLUEGILL TRANSPOINT COMBINED
ACQUISITION ACQUISITION TOTAL
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CheckFree Holdings common stock................. $221,449 $1,350,083 $1,571,532
Issuance of CheckFree Holdings options.......... 18,546 -- 18,546
TransPoint cash infusion........................ -- (100,000) (100,000)
Estimated direct acquisition costs.............. 600 3,325 3,925
-------- ---------- ----------
Total estimated purchase price........ $240,595 $1,253,408 $1,474,003
======== ========== ==========
</TABLE>
The combined estimated purchase price will be issued in exchange for the
net assets of BlueGill and TransPoint on their respective closing dates.
The purchase price of BlueGill reflects the issuance of 4,713,736 shares of
CheckFree Holdings common stock at $46.98 per share which is the average closing
price of CheckFree Holdings common stock for the three trading days preceding
and the three trading days following the closing of the acquisition. Under the
terms of the BlueGill merger agreement, CheckFree Holdings has also issued
634,145 CheckFree Holdings options to replace BlueGill options, 286,264 of which
are already vested. The value of the assumed CheckFree Holdings option grant is
based on a Black-Scholes valuation model assuming a $46.98 stock price, an
average strike price of $2.18, an average life of 2.9 years, a risk-free
interest rate of 6.47% and volatility of 83.4%.
44
<PAGE> 47
The purchase price of TransPoint and the entering into the related
commercial agreements reflects the assumed issuance of 17,000,000 shares of
CheckFree Holdings common stock at $79.42 per share, which is the average end of
day price of CheckFree Holdings common stock for the three trading days
preceding and the three days following the announcement of the acquisition.
Under the terms of the merger agreement, the TransPoint business is to have $100
million in cash immediately prior to the closing of the Transfers.
The following table provides the preliminary allocation of the purchase
price inherent in the adjusting entry:
<TABLE>
<CAPTION>
BLUEGILL TRANSPOINT
ACQUISITION ACQUISITION COMBINED
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
In process research and development............. $ 6,900 $ -- $ 6,900
Current technologies and products............... 13,700 185,000 198,700
-------- ---------- ----------
Sub-total capitalized software, net........ 20,600 185,000 205,600
Goodwill, net................................... 193,007 824,978 1,017,985
Other intangible assets:
Workforce in place............................ 2,600 -- 2,600
Customer list................................. 10,600 25,000 35,600
Tradename..................................... 15,100 29,000 44,100
Strategic agreements.......................... -- 494,000 494,000
Covenants not to compete...................... 1,200 -- 1,200
-------- ---------- ----------
Sub-total other intangible assets.......... 29,500 548,000 577,500
Deferred income taxes........................... (17,142) (293,200) (310,342)
Net assets of respective company:
Cash and cash equivalents..................... 15,044 8,019 23,063
Property and equipment........................ 1,452 763 2,215
Other, net.................................... (1,866) (20,152) (22,018)
-------- ---------- ----------
Sub-total net assets....................... 14,630 (11,370) 3,260
-------- ---------- ----------
Total purchase price............................ $240,595 $1,253,408 $1,494,003
======== ========== ==========
</TABLE>
Details of specific technologies and the related useful lives of all
intangible assets are described in the Notes to Unaudited Pro Forma Condensed
Combining Financial Information for CheckFree Holdings and TransPoint on page 52
and CheckFree Holdings and BlueGill on page 59.
2. Adjustment to write off the balance of in-process research and
development. As the amounts are non-deductible for federal and state tax
purposes, there is no related income tax benefit resulting from the charge.
Refer to Note B in the Notes to Unaudited Pro Forma Condensed Combining
Financial Information for CheckFree Holdings and TransPoint on page 47 and
CheckFree Holdings and BlueGill on page 54 for a detailed description of
in-process research and development for the respective acquisition. The amount
of in-process research and development is $6.9 million for BlueGill and $0 for
TransPoint.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Accumulated deficit................................ $6,900
Capitalized software, net........................ $6,900
</TABLE>
3. Adjustment to accrue the cost of registering CheckFree Holdings shares
to be issued for BlueGill of $500,000 and registering CheckFree Corporation
shares to be issued for TransPoint of $675,000.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Additional paid-in capital......................... $1,175
Accrued liabilities.............................. $1,175
</TABLE>
45
<PAGE> 48
4. Adjustment to reflect additional amortization expense and the related
income tax benefit associated with the intangible assets acquired.
<TABLE>
<CAPTION>
BLUEGILL TRANSPOINT COMBINED ADJUSTMENT
-------- ---------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1999
Depreciation and amortization............ $61,826 $362,796 $424,622
Current deferred income tax liability.... 9,290 79,120 88,410
Capitalized software, net.............. 3,938 61,667 $ 65,605
Goodwill, net.......................... 38,601 164,996 203,597
Other intangible assets, net........... 19,287 136,133 155,420
Income tax benefit..................... 9,290 79,120 88,410
-------- --------
Total............................... $513,032 $513,032
======== ========
NINE MONTHS ENDED MARCH 31, 2000
Depreciation and amortization............ $34,145 $250,347 $284,492
Current deferred income tax liability.... 2,078 50,640 52,718
Capitalized software, net.............. 2,954 46,250 $ 49,204
Goodwill, net.......................... 28,951 123,747 152,698
Other intangible assets, net........... 2,240 80,350 82,590
Income tax benefit..................... 2,078 50,640 52,718
-------- --------
Total............................... $337,210 $337,210
======== ========
</TABLE>
Goodwill amortization is non-deductible for federal and state income tax
purposes. A blended effective income tax rate of 40% was applied to the
deductible amortization to determine the related income tax benefit in the
entries above.
5. Adjustment to reflect the elimination of minority interest recorded in
the period due to the acquisition of all of the ownership interest in TransPoint
by CheckFree Holdings.
6. When combined with BlueGill's historical loss, TransPoint's historical
loss and the combined pro forma adjustments, the historical CheckFree Holdings
net income for the year ended June 30, 1999 resulted in a combined net loss. As
a result, due to the anti-dilutive effect on earnings per share, the equivalent
number of shares for purposes of determining diluted earnings per share, was
reduced to agree with the equivalent number of shares for basic earnings per
share. The following chart identifies by type of potentially dilutive security,
the number of additional shares that could potentially dilute basic earnings per
share in the future and the number of shares issued for both BlueGill and
TransPoint.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
CheckFree Holdings common shares issued for:
TransPoint............................................ 13,000
BlueGill.............................................. 4,714
Potentially dilutive securities:
Options and warrants.................................. (4,085)
------
Net adjustment to dilutive shares outstanding........... 17,629
======
</TABLE>
46
<PAGE> 49
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Note A: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statement of Operations provide a reasonable basis for
presenting the significant effects of the acquisitions of BlueGill and
TransPoint; that the pro forma adjustments give appropriate effect to those
assumptions; and that the pro forma adjustments are properly applied in the
Unaudited Pro Forma Condensed Combining Balance Sheet and Statement of
Operations.
Note B: The Unaudited Pro Forma Condensed Combining Balance Sheet of
CheckFree Holdings, BlueGill and TransPoint has been prepared as if the
acquisitions were completed as of March 31, 2000 and were accounted for as
purchases.
CheckFree Holdings issued 4,713,736 shares of CheckFree Holdings common
stock in the BlueGill merger with a fair market value of $46.98 per share.
CheckFree Holdings also issued 634,145 CheckFree Holdings options to replace
BlueGill options, 286,264 of which are already vested. The excess of fair value
over the strike price of options issued per the merger agreement carry a value
of $18,546,000. CheckFree Holdings incurred $600,000 of direct acquisition
costs. The total purchase price of $240,595,000 was allocated to the assets
acquired and liabilities assumed based on BlueGill's March 31, 2000 balance
sheet.
CheckFree Holdings will issue 17,000,000 shares of its common stock at an
assumed value of $79.42 for the net assets of TransPoint and the entering into
of the related commercial agreements. Under the merger agreement, TransPoint is
to have $100 million of cash immediately prior to the closing of the mergers.
CheckFree Holdings expects to incur approximately $3,325,000 of direct
acquisition costs. The total purchase price of $1,253,408,000 was allocated to
assets acquired and liabilities assumed based on TransPoint's March 31, 2000
balance sheet.
The allocation of the BlueGill and TransPoint purchase prices among their
related identifiable tangible and intangible assets and purchased in-process
research and development is based on preliminary estimates of the fair market
value of those assets. Final determination of the allocation of the purchase
prices will be based on independent appraisals that CheckFree Holdings expects
to have completed shortly after the respective acquisitions are consummated. For
a detailed description of in-process research and development charges, see Note
B for TransPoint on page 54 and Note B for BlueGill on page 59.
Note C: CheckFree Holdings' statement of operations for the year ended June
30, 1999, has been combined with the BlueGill statement of operations and the
TransPoint statement of operations for the twelve months ended June 30, 1999.
CheckFree Holdings' statement of operations for the nine month period ended
March 31, 2000 has been combined with the BlueGill statement of operations and
the TransPoint statement of operations for the nine months ended March 31, 2000.
Actual statements of operations of CheckFree Holdings and BlueGill, and
CheckFree Holdings and TransPoint will be combined from the effective date of
the respective acquisitions, with no retroactive restatement.
Note D: The unaudited pro forma condensed combining statement of operations
for CheckFree Holdings, BlueGill and TransPoint have been prepared as if the
merger was completed as of July 1, 1998, the beginning of the earliest period
presented. The unaudited pro forma combined net income (loss) per share is based
on the weighted average number of shares of CheckFree Holdings common stock
outstanding during the periods, adjusted to give effect to shares assumed to be
issued had the acquisitions taken place as of July 1, 1998.
Note E: The unaudited pro forma condensed combining statement of operations
do not include a charge for the value of the estimated $6.9 million (no income
tax effect) of purchased research and development arising from the merger with
BlueGill, which will be expensed at acquisition, as this expense will have no
continuing impact.
47
<PAGE> 50
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
WITH TRANSPOINT
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
----------------------
CHECKFREE PRO FORMA
HOLDINGS TRANSPOINT ADJUSTMENTS TOTAL
--------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.................. $ 125,043 $ 8,019 $ 100,000(1) $ 233,062
Investments................................ 26,292 -- -- 26,292
Accounts receivable, net................... 53,343 -- -- 53,343
Prepaid expenses and other assets.......... 11,716 750 -- 12,466
Deferred income taxes...................... 9,444 -- -- 9,444
--------- -------- ---------- ----------
Total current assets............... 225,838 8,769 100,000 334,607
Property and equipment, net.................. 84,461 763 -- 85,224
Capitalized software, net.................... 23,006 9,926 175,073(1) 208,005
Goodwill, net................................ 29,539 -- 824,978(1) 854,517
Other intangible assets, net................. 12,224 -- 548,000(1) 560,224
Investments.................................. 52,869 -- -- 52,869
Deferred income taxes........................ 34,436 -- -- 34,436
Other noncurrent assets...................... 13,760 -- -- 13,760
--------- -------- ---------- ----------
Total assets....................... $ 476,133 $ 19,458 $1,648,051 $2,143,642
========= ======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable........................... $ 6,573 $ 11,853 $ -- $ 18,426
Accrued liabilities........................ 41,032 4,547 3,325(1) 49,579
675(2)
Deferred income taxes...................... -- -- 79,120(1) 79,120
Current portion of long-term obligations... 6,533 -- -- 6,533
Deferred revenue........................... 29,638 4,500 -- 34,138
--------- -------- ---------- ----------
Total current liabilities.......... 83,776 20,900 83,120 187,796
Accrued rent and other....................... 6,653 -- -- 6,653
Obligations under capital leases -- less
current portion............................ 820 -- -- 820
Convertible subordinated notes............... 172,500 -- -- 172,500
Minority interest............................ -- 40,329 (40,329)(1) --
Deferred income taxes........................ -- -- 214,081(1) 214,081
--------- -------- ---------- ----------
Total liabilities.................. 263,749 61,229 256,872 581,850
Stockholders' equity:
Common stock............................... 531 170(1) 701
Additional paid-in capital................. 517,912 -- 1,349,913(1) 1,867,150
(675)(2)
Members' capital deficiency................ -- (41,771) 41,771(1) --
Other...................................... (281) -- -- (281)
Accumulated deficit........................ (305,778) -- -- (305,778)
--------- -------- ---------- ----------
Total stockholder's equity......... 212,384 (41,771) 1,391,179 1,561,792
--------- -------- ---------- ----------
Total liabilities and stockholders'
equity........................... $ 476,133 $ 19,458 $1,648,051 $2,143,642
========= ======== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
48
<PAGE> 51
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH TRANSPOINT
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
-----------------------
CHECKFREE PRO FORMA
HOLDINGS TRANSPOINT ADJUSTMENTS TOTAL
--------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Processing and servicing.................... $201,059 $ -- $ -- $ 201,059
License fees................................ 15,975 -- -- 15,975
Maintenance fees............................ 17,746 -- -- 17,746
Other....................................... 15,351 -- -- 15,351
-------- -------- --------- ---------
Total revenues...................... 250,131 -- -- 250,131
Expenses:
Cost of processing, servicing and support... 146,704 3,062 -- 149,766
Research and development.................... 21,085 26,560 -- 47,645
Sales and marketing......................... 32,354 11,302 -- 43,656
General and administrative.................. 31,466 2,403 -- 33,869
Depreciation and amortization............... 24,630 1,870 362,796(3) 389,296
In-process research and development......... 2,201 -- -- 2,201
-------- -------- --------- ---------
Total expenses...................... 258,440 45,197 362,796 666,433
Net gain on dispositions of assets.......... 4,576 -- -- 4,576
-------- -------- --------- ---------
Loss from operations.......................... (3,733) (45,197) (362,796) (411,726)
Other:
Minority interest........................... -- 2,063 (2,063)(4) --
Interest, net............................... 2,181 464 2,645
-------- -------- --------- ---------
Loss before income taxes...................... (1,552) (42,670) (364,859) (409,081)
Income tax benefit............................ (12,009) -- (79,120)(3) (91,129)
-------- -------- --------- ---------
Net income (loss)............................. $ 10,457 $(42,670) $(285,739) $(317,952)
======== ======== ========= =========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ 0.20 $ (4.58)
======== =========
Equivalent number of shares................. 52,444 17,000(1) 69,444
======== ========= =========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ 0.18 $ (4.58)
======== =========
Equivalent number of shares................. 56,529 12,915(5) 69,444
======== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
49
<PAGE> 52
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH TRANSPOINT
FOR THE NINE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
-----------------------
CHECKFREE PRO FORMA
HOLDINGS TRANSPOINT ADJUSTMENTS TOTAL
--------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Processing and servicing.................... $189,430 $ -- $ -- $ 189,430
License fees................................ 10,295 -- -- 10,295
Maintenance fees............................ 13,571 -- -- 13,571
Other....................................... 8,399 7 -- 8,406
-------- -------- --------- ---------
Total revenues...................... 221,695 7 -- 221,702
Expenses:
Cost of processing, servicing and support... 133,684 13,856 -- 147,540
Research and development.................... 24,276 5,997 -- 30,273
Sales and marketing......................... 29,522 13,980 -- 43,502
General and administrative.................. 28,837 1,858 -- 30,695
Depreciation and amortization............... 23,789 2,755 250,347(3) 276,891
In-process research and development......... -- -- -- --
-------- -------- --------- ---------
Total expenses...................... 240,108 38,446 250,347 528,901
Net gain on dispositions of assets.......... -- -- -- --
-------- -------- --------- ---------
Loss from operations.......................... (18,413) (38,439) (250,347) (307,199)
Other:
Minority interest........................... -- 5,608 (5,608)(4) --
Interest, net............................... (83) 1,054 -- 971
-------- -------- --------- ---------
Loss before income taxes...................... (18,496) (31,777) (255,955) (306,228)
Income tax benefit............................ (6,718) -- (50,640)(3) (57,358)
-------- -------- --------- ---------
Net income (loss)............................. $(11,778) $(31,777) $(205,315) $(248,870)
======== ======== ========= =========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (3.59)
======== =========
Equivalent number of shares................. 52,246 17,000(1) 69,246
======== ========= =========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (3.59)
======== =========
Equivalent number of shares................. 52,246 17,000(1) 69,246
======== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
50
<PAGE> 53
CHECKFREE HOLDINGS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
WITH TRANSPOINT
1. Adjustment to reflect the issuance of CheckFree Holdings common stock
and related acquisition expenses as the total purchase price for the net assets
of TransPoint, and the revaluation of TransPoint's capitalized software costs
and the elimination of TransPoint's minority interest and member's capital
deficiency, net of a contractual infusion of $100 million of cash by TransPoint.
The fair market values of intangible assets are preliminary estimates based on
an independent appraisal, and current facts and circumstances. The final value
of intangible assets will change with any change in the final purchase price and
any resulting change could be material.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 100,000
Capitalized software, net................................... 175,073
Goodwill, net............................................... 824,978
Other intangible assets, net................................ 548,000
TransPoint minority interest................................ 40,329
CheckFree Holdings common stock........................... $ 170
CheckFree Holdings additional paid-in capital............. 1,349,913
TransPoint member's capital deficiency.................... 41,771
Current deferred income tax liability..................... 79,120
Long term deferred income tax liability................... 214,081
Accrued acquisition expenses.............................. 3,325
---------- ----------
Totals............................................ $1,688,380 $1,688,380
========== ==========
</TABLE>
The following chart indicates the components of the estimated purchase
price inherent in the adjusting entry:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
CheckFree Holdings common stock......................... $1,350,083
TransPoint cash infusion................................ (100,000)
Estimated direct acquisition costs...................... 3,325
----------
Total estimated purchase price................ $1,253,408
==========
</TABLE>
The estimated purchase price will be issued in exchange for the net assets
of TransPoint on the closing date.
The purchase price reflects the assumed issuance of 17,000,000 shares of
CheckFree Holdings common stock at $79.42 per share, which is the average end of
day price of CheckFree Holdings common stock for the three trading days
preceding and the three days following the announcement of the acquisition of
TransPoint. Under the terms of the merger and contribution agreement, TransPoint
will have $100 million in cash at the effective time of the closing of the
mergers.
51
<PAGE> 54
The following table provides the allocation of the purchase price inherent
in the adjusting entry:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
In-process research and development (Note B)................................... $ 0
Current technology and products:
BIS/communications (estimated life of 3 years)....... 26,000
Service center (estimated life of 3 years)....... 85,000
Delivery applications (estimated life of 3 years)....... 50,000
Payments/interface (estimated life of 3 years)....... 24,000
----------
Sub-total IPRD and current technology and products........................ 185,000
Goodwill (estimated life of 5 years)....... 824,978
Other intangible assets:
Customer list (estimated life of 3 years)....... 25,000
Tradename (estimated life of 1 year )....... 29,000
Strategic agreements (estimated life of 5 years)....... 494,000
----------
Sub-total other intangible assets.................................... 548,000
Deferred income taxes.......................................................... (293,200)
Net assets of TransPoint:
Cash and cash equivalents.................................................... 8,019
Property and equipment....................................................... 763
Liabilities assumed.......................................................... (20,901)
Other, net................................................................... 749
----------
Sub-total net assets................................................. (11,370)
----------
Total Purchase Price................................................. $1,253,408
==========
</TABLE>
The useful lives of the various intangible assets identified are based on
management's preliminary estimates. Under the caption of current technology and
products, lives are based on assumptions regarding the time expected for the
indicated technology or product to become obsolete, which are driven primarily
by planed future development work designed to replace the existing technology or
product. The useful life assigned to goodwill is based upon currently acceptable
lives for these assets. The useful life CheckFree Holdings assigned to the
customer list is based on the estimate of the future revenue base from the
existing customers. The useful life CheckFree Holdings assigned to tradename is
based on the estimated time that will pass before CheckFree Holdings
discontinues the use of the related name. CheckFree Holdings assigned a
five-year life to the strategic agreements to coincide with the contractual life
of the related agreements. CheckFree Holdings will amortize these intangible
assets on a straight-line basis over their estimated useful lives.
2. Adjustment to accrue the cost of registering CheckFree Holdings shares
of its common stock to be issued for TransPoint.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Additional paid-in capital............................ $675
Accrued liabilities................................. $675
</TABLE>
52
<PAGE> 55
3. Adjustment to reflect additional amortization expense and the related
income tax benefit associated with the intangible assets acquired from
TransPoint.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDED JUNE 30, 1999
Depreciation and amortization............................... $362,796
Current deferred income tax liability....................... 79,120
Capitalized software, net................................. $ 61,667
Goodwill, net............................................. 164,996
Other intangible assets, net.............................. 136,133
Income tax benefit........................................ 79,120
-------- --------
Total.................................................. $441,916 $441,916
======== ========
NINE MONTHS ENDED MARCH 31, 2000
Depreciation and amortization............................... $250,347
Current deferred income tax liability....................... 50,640
Capitalized software, net................................. $ 46,250
Goodwill, net............................................. 123,747
Other intangible assets, net.............................. 80,350
Income tax benefit........................................ 50,640
-------- --------
Total.................................................. $300,987 $300,987
======== ========
</TABLE>
Goodwill amortization is non-deductible for federal and state income tax
purposes. A blended effective income tax rate of 40% was applied to the
deductible amortization to determine the related income tax benefit in the
entries above.
4. Adjustment to reflect the elimination of minority interest recorded in
the period due to the acquisition of all of the ownership interest in TransPoint
by CheckFree Corporation.
5. When combined with TransPoint's historical loss and the pro forma
adjustments, the historical CheckFree Holdings' net income for the year ended
June 30, 1999 resulted in a combined net loss. As a result, due to the
anti-dilutive effect on earnings per share, the equivalent number of shares for
purposes of determining diluted earnings per share, was reduced to agree with
the equivalent number of shares for basic earnings per share. The following
chart identifies by type of potentially dilutive security, the number of
additional shares that could potentially dilute basic earnings per share in the
future and the number of shares issued for TransPoint.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
CheckFree Corporation common shares issued for
TransPoint.......................................... 17,000
Potentially dilutive securities:
Options and warrants................................ (4,085)
------
Net adjustment to dilutive shares outstanding......... 12,915
======
</TABLE>
53
<PAGE> 56
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Note A: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statement of Operations provide a reasonable basis for
presenting the significant effects of the acquisition of TransPoint; that the
pro forma adjustments give appropriate effect to those assumptions; and that the
pro forma adjustments are properly applied in the Unaudited Pro Forma Condensed
Combining Balance Sheet and Statement of Operations.
Note B: The Unaudited Pro Forma Condensed Combining Balance Sheet of
CheckFree Holdings and TransPoint has been prepared as if the mergers were
completed as of March 31, 2000, and was accounted for as a purchase. CheckFree
Holdings will issue 17,000,000 shares of CheckFree Holdings common stock valued
at $79.42 for the net assets of TransPoint. Under the terms of the merger
agreement, TransPoint will have $100 million of cash immediately prior to the
closing of the mergers. CheckFree Holdings expects to incur approximately $3.3
million of direct acquisition costs. The total purchase price of $1,253,408,000
was allocated to assets acquired and liabilities assumed based on TransPoint's
March 31, 2000 balance sheet.
The allocation of the TransPoint purchase price among the identifiable
tangible and intangible assets is based on preliminary estimates of the fair
market value of those assets. Final determination of the allocation of the
purchase price will be based on independent appraisals that CheckFree Holdings
expects to have completed shortly after the mergers are consummated.
TransPoint released the latest version of their electronic billing and
payment processing system just one week prior to the announcement of the merger
and contribution agreement. As a result, at this time, the value of in-process
research and development is nominal and therefore not reflected. However,
CheckFree Holdings will reassess the fair market value of the assets and
liabilities assumed from TransPoint at the time of closing and CheckFree
Holdings expects a portion of the purchase price to be allocated to in-process
research and development at that time. Due to uncertainties regarding the
specific products or technology enhancements that will be included in the next
release and the specific date of the closing, CheckFree Holdings cannot
currently provide a reasonable estimate of the expected value of in-process
research and development.
Note C: CheckFree Holdings' statement of operations for the year ended June
30, 1999, has been combined with the TransPoint statement of operations for the
twelve months ended June 30, 1999. CheckFree Holdings' statement of operations
for the nine month period ended March 31, 2000 has been combined with the
TransPoint statement of operations for the nine months ended March 31, 2000.
Actual income statements of CheckFree Holdings and TransPoint will be combined
from the effective date of the mergers, with no retroactive restatement.
Note D: The unaudited pro forma condensed combining statements of
operations for CheckFree Holdings and TransPoint have been prepared as if the
mergers were completed as of July 1, 1998, the beginning of the earliest period
presented. The unaudited pro forma combined net income (loss) per share is based
on the weighted average number of shares of CheckFree Holdings common stock
outstanding during the periods, adjusted to give effect to shares assumed to be
issued had the mergers taken place as of July 1, 1998.
54
<PAGE> 57
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
WITH BLUEGILL TECHNOLOGIES, INC.
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL ADJUSTMENTS TOTAL
--------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.................... $125,043 $15,044 $ -- $140,087
Investments.................................. 26,292 -- -- 26,292
Accounts receivable, net..................... 53,343 1,151 -- 54,494
Prepaid expenses and other assets............ 11,716 189 -- 11,905
Deferred income taxes........................ 9,444 -- -- 9,444
-------- ------- -------- --------
Total current assets................. 225,838 16,384 -- 242,222
Property and equipment, net.................... 84,461 1,453 -- 85,914
Capitalized software, net...................... 23,006 -- 20,600(1) 36,706
(6,900)(2)
Goodwill, net.................................. 29,539 -- 193,007(1) 222,546
Other intangible assets, net................... 12,224 -- 29,500(1) 41,724
Investments.................................... 52,869 -- -- 52,869
Deferred income taxes.......................... 34,436 -- -- 34,436
Other noncurrent assets........................ 13,760 2 -- 13,762
-------- ------- -------- --------
Total assets......................... $476,133 $17,839 $236,207 $730,179
======== ======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accounts payable............................. $ 6,573 $ 1,294 $ -- $ 7,867
Accrued liabilities.......................... 41,032 228 600(1) 42,360
500(3)
Deferred income taxes........................ -- -- 9,290(1) 9,290
Current portion of long-term obligations..... 6,533 159 -- 6,692
Deferred revenue............................. 29,638 1,191 -- 30,829
-------- ------- -------- --------
Total current liabilities............ 83,776 2,872 10,390 97,038
Accrued rent and other......................... 6,653 -- -- 6,653
Obligations under capital leases -- less
current portion.............................. 820 337 -- 1,157
Convertible subordinated notes................. 172,500 -- -- 172,500
Deferred income taxes.......................... -- -- 7,852(1) 7,852
-------- ------- -------- --------
Total liabilities.................... 263,749 3,209 18,242 285,200
Redeemable preferred stock..................... -- 25,963 (25,963)(1) --
Stockholders' equity:
Common stock................................. 531 7 40(1) 578
Additional paid-in capital................... 517,912 1,753 238,195(1) 757,360
(500)(3)
Other........................................ (281) (650) 650(1) (281)
Accumulated deficit.......................... (305,778) (12,443) 12,443(1) (312,678)
(6,900)(2)
-------- ------- -------- --------
Total stockholder's equity........... 212,384 (11,333) 243,928 444,979
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $476,133 $17,839 $236,207 $730,179
======== ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
55
<PAGE> 58
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC.
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL ADJUSTMENTS TOTAL
--------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Processing and servicing.................... $201,059 $ -- $ -- $201,059
License fees................................ 15,975 2,517 -- 18,492
Maintenance fees............................ 17,746 48 -- 17,794
Other....................................... 15,351 925 -- 16,276
-------- ------- -------- --------
Total revenues...................... 250,131 3,490 -- 253,621
Expenses:
Cost of processing, servicing and support... 146,704 969 -- 147,673
Research and development.................... 21,085 1,457 -- 22,542
Sales and marketing......................... 32,354 2,318 -- 34,672
General and administrative.................. 31,466 2,045 -- 33,511
Depreciation and amortization............... 24,630 106 61,826(4) 86,562
In-process research and development......... 2,201 -- -- 2,201
-------- ------- -------- --------
Total expenses...................... 258,440 6,895 61,826 327,161
Net gain on dispositions of assets.......... 4,576 -- -- 4,576
-------- ------- -------- --------
Loss from operations.......................... (3,733) (3,405) (61,826) (68,964)
Other:
Interest, net............................... 2,181 194 -- 2,375
-------- ------- -------- --------
Loss before income taxes...................... (1,552) (3,211) (61,826) (66,589)
Income tax benefit............................ (12,009) -- (9,290)(4) (21,299)
-------- ------- -------- --------
Net income (loss)............................. $ 10,457 $(3,211) $(52,536) $(45,290)
======== ======= ======== ========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ 0.20 $ (0.79)
======== ========
Equivalent number of shares................. 52,444 4,714(1) 57,158
======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ 0.18 $ (0.79)
======== ========
Equivalent number of shares................. 56,529 629(5) 57,158
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
56
<PAGE> 59
CHECKFREE HOLDINGS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
WITH BLUEGILL TECHNOLOGIES, INC.
FOR THE NINE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL AMOUNTS
---------------------
CHECKFREE PRO FORMA
HOLDINGS BLUEGILL ADJUSTMENTS TOTAL
--------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES:
Processing and servicing.................... $189,430 $ -- $ -- $189,430
License fees................................ 10,295 4,578 -- 14,873
Maintenance fees............................ 13,571 349 -- 13,920
Other....................................... 8,399 1,180 -- 9,579
-------- ------- -------- --------
Total revenues...................... 221,695 6,107 -- 227,802
Expenses:
Cost of processing, servicing and support... 133,684 1,496 -- 135,180
Research and development.................... 24,276 2,142 -- 26,418
Sales and marketing......................... 29,522 5,602 -- 35,124
General and administrative.................. 28,837 4,463 -- 33,300
Depreciation and amortization............... 23,789 272 34,145(4) 58,206
In-process research and development......... -- -- -- --
-------- ------- -------- --------
Total expenses...................... 240,108 13,975 34,145 288,228
Net gain on dispositions of assets.......... -- -- -- --
-------- ------- -------- --------
Loss from operations.......................... (18,413) (7,868) (34,145) (60,426)
Other:
Interest, net............................... (83) 619 -- 536
-------- ------- -------- --------
Loss before income taxes...................... (18,496) (7,249) (34,145) (59,890)
Income tax benefit............................ (6,718) -- (2,078)(4) (8,796)
-------- ------- -------- --------
Net income (loss)............................. $(11,778) $(7,249) $(32,067) $(51,094)
======== ======= ======== ========
Basic earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (0.90)
======== ========
Equivalent number of shares................. 52,246 4,714(1) 56,960
======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) per common share.......... $ (0.23) $ (0.90)
======== ========
Equivalent number of shares................. 52,246 4,714(1) 56,960
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combining Financial Information
57
<PAGE> 60
CHECKFREE HOLDINGS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
WITH BLUEGILL TECHNOLOGIES, INC.
1. Adjustment to reflect the issuance of CheckFree Holdings common stock,
CheckFree Holdings options and related acquisition expenses as the total
purchase price for the net assets of BlueGill, and the elimination of BlueGill's
redeemable preferred stock and shareholders' equity. The fair market values of
intangible assets are preliminary estimates based on an independent appraisal,
and current facts and circumstances. The final value of intangible assets will
change with any change in the final purchase price and any resulting change
could be material.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Capitalized software, net.............................. $ 20,600
Goodwill, net.......................................... 193,007
Other intangible assets, net........................... 29,500
BlueGill redeemable preferred stock.................... 25,963
BlueGill common stock.................................. 7
BlueGill additional paid-in capital.................... 1,753
CheckFree Holdings common stock...................... $ 47
CheckFree Holdings additional paid-in capital........ 239,948
BlueGill accumulated deficit......................... 12,443
BlueGill other equity................................ 650
Current deferred income tax liability................ 9,290
Long term deferred income tax liability.............. 7,852
Accrued acquisition expenses......................... 600
-------- --------
Totals............................................ $270,830 $270,830
======== ========
</TABLE>
The following chart indicates the components of the purchase price inherent
in the adjusting entry:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
CheckFree Holdings common stock......................... $221,449
Issuance of CheckFree Holdings options.................. 18,546
Direct acquisition costs................................ 600
--------
Total estimated purchase price................ $240,595
========
</TABLE>
The purchase price reflects the issuance of 4,713,736 shares of CheckFree
Holdings common stock at $46.98 per share which is the average end of day price
of CheckFree Holdings stock for the three trading days preceding and the three
days following the closing of the acquisition of BlueGill. Under the terms of
the merger agreement, CheckFree Holdings also issued 634,145 CheckFree Holdings
options to replace BlueGill options, of which 286,264 are already vested. The
value of the CheckFree Holdings option grant is based on a Black-Scholes
valuation model assuming a $46.98 stock price, an average strike price of $2.18,
an average life of 2.9 years, a risk-free interest rate of 6.47% and volatility
of 83.4%.
58
<PAGE> 61
The following table provides the allocation of the purchase price inherent
in the adjusting entry:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
In-process research and development (Note B).................................. $ 6,900
Current technology and products:
Print/extraction (estimated life of 3 years)....... 4,600
Data management engine (estimated life of 4 years)....... 5,700
API or application protocol interfaces (estimated life of 2 years)....... 1,000
Web applications (estimated life of 5 years)....... 2,400
--------
Sub-total IPR&D and current technology and products...................... 20,600
Goodwill (estimated life of 5 years)....... 193,007
Other intangible assets:
Workforce in place (estimated life of 3 years)....... 2,600
Customer list (estimated life of 5 years)....... 10,600
Tradename (estimated life of 1 year)........ 15,100
Covenants not to compete (estimated life of 1 year)........ 1,200
--------
Sub-total other intangible assets........................................ 29,500
Deferred income taxes......................................................... (17,142)
Net assets of BlueGill:
Cash and cash equivalents................................................... 15,044
Property and equipment...................................................... 1,452
Other, net.................................................................. (1,866)
--------
Sub-total net assets..................................................... 14,630
--------
Total Purchase Price..................................................... $240,595
========
</TABLE>
The useful lives of the various intangible assets identified are based on
management's estimates. Under the caption of current technology and products,
lives are based on assumptions regarding the time expected for the indicated
technology or product to become obsolete, which are driven primarily by planned
future development work designed to replace the existing technology or product.
The useful life assigned to goodwill is based upon currently acceptable lives
for these assets. The useful life on workforce in place is based on CheckFree
Holdings' estimate of the average tenure expected from the BlueGill employee
base. The useful life CheckFree Holdings assigned to the customer base is based
on CheckFree Holdings' estimate of the future revenue base from the existing
customers. Although the BlueGill tradename is widely known at this time,
CheckFree Holdings currently has no plans to continue to utilize the name once
the technologies of BlueGill and CheckFree Holdings are consolidated in to a
single product offering, which CheckFree Holdings expects to take place within
one year of the merger. CheckFree Holdings assigned a one-year life to the
covenants not to compete to coincide with the contractual life of the related
agreements. CheckFree Holdings will amortize these intangible assets on a
straight-line basis over their estimated useful lives.
2. Adjustment to write off the balance of in-process research and
development. As the amount is not deductible for federal or state income tax
purposes, there is no related income tax benefit resulting from the charge.
Refer to Note B for an explanation of in process research and development.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Accumulated deficit................................ $6,900
Capitalized software, net........................ $6,900
</TABLE>
3. Adjustment to accrue the cost of registering CheckFree Holdings shares
to be issued for BlueGill.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Additional paid-in capital............................ $500
Accrued liabilities................................. $500
</TABLE>
59
<PAGE> 62
4. Adjustment to reflect additional amortization expense and the related
income tax benefit associated with the intangible assets acquired from BlueGill.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDED JUNE 30, 1999
Depreciation and amortization............................... $61,826
Current deferred income tax liability....................... 9,290
Capitalized software, net................................. $ 3,938
Goodwill, net............................................. 38,601
Other intangible assets, net.............................. 19,287
Income tax benefit........................................ 9,290
------- -------
Total.................................................. $71,116 $71,116
======= =======
NINE MONTHS ENDED MARCH 31, 2000
Depreciation and amortization............................... $34,145
Current deferred income tax liability....................... 2,078
Capitalized software, net................................. $ 2,954
Goodwill, net............................................. 28,951
Other intangible assets, net.............................. 2,240
Income tax benefit........................................ 2,078
------- -------
Total.................................................. $36,223 $36,223
======= =======
</TABLE>
Goodwill amortization is non-deductible for federal and state income tax
purposes. A blended effective income tax rate of 40% was applied to the
deductible amortization to determine the related income tax benefit in the
entries above.
5. When combined with BlueGill's historical loss and the pro forma
adjustments, the historical CheckFree Holdings' net income for the year ended
June 30, 1999 resulted in a combined net loss. As a result, due to the
anti-dilutive effect on earnings per share, the equivalent number of shares for
purposes of determining diluted earnings per share, was reduced to agree with
the equivalent number of shares for basic earnings per share. The following
chart identifies by type of potentially dilutive security, the number of
additional shares that could potentially dilute basic earnings per share in the
future and the number of shares issued for BlueGill.
<TABLE>
<S> <C>
CheckFree Holdings common shares issued for BlueGill........ 4,714
Potentially dilutive securities:
Options and warrants...................................... (4,085)
Other..................................................... --
------
Total potentially dilutive securities.................. (4,085)
------
Net adjustment to dilutive shares outstanding............... 629
======
</TABLE>
60
<PAGE> 63
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Note A: Management believes that the assumptions used in preparing the
Unaudited Pro Forma Condensed Combining Balance Sheet and the Unaudited Pro
Forma Condensed Combining Statement of Operations provide a reasonable basis for
presenting the significant effects of the acquisition of BlueGill; that the pro
forma adjustments give appropriate effect to those assumptions; and that the pro
forma adjustments are properly applied in the Unaudited Pro Forma Condensed
Combining Balance Sheet and Statement of Operations.
Note B: The unaudited pro forma condensed balance sheet of CheckFree
Holdings and BlueGill has been prepared as if the merger was completed as of
March 31, 2000, and was accounted for as a purchase. CheckFree Holdings issued
4,713,736 shares of its common stock with a fair market value of $46.98 per
share and 634,145 options, 286,264 of which are already vested. The total
purchase price of $240,595,000 was allocated to assets acquired and liabilities
assumed based on BlueGill's March 31, 2000 balance sheet.
The allocation of the BlueGill purchase price among the identifiable
tangible and intangible assets and purchased in process research and development
is based on preliminary estimates of the fair market value of those assets.
Final determination of the allocation of the purchase price will be based on
independent appraisals that CheckFree Holdings expects to have completed shortly
after the merger is consummated.
BlueGill currently has five general technologies and application suites
under development that meet the specific requirements of SFAS No. 2 for
qualification as in-process research and development or IPRD. Critical elements
of SFAS No. 2's definition of IPRD are that:
- the product has not yet demonstrated its technological feasibility; and
- the product does not have an alternative future use.
These in-process technologies and applications include print and extraction
technology, the Data Management Engine technology, API technology, web
applications and OFX payment technology. Their descriptions are found below.
Print and extraction technology. Print and extraction technology allows for
the extraction and print parsing of a biller's legacy billing information
through to BlueGill's products. The following features of the print/extraction
technology are under development:
- SmartXpress 3.0.0 that comprises updates to accommodate core changes to
BlueGill's DME 2.2.0;
- Record Data Loader, which is an input module that allows for Record Data
Type management by converting flat file data into XML-s for storage in
the DME; and
- Internationalization Language, which allows for the management of Asian
languages (e.g. Japan, China, Korea, Hong Kong, and Taiwan) through
Double Byte Character Set (DBCS) and Unicode development.
Data Management Engine technology. The DME technology allows for archiving
of transactions and linkage of data to the necessary environment within the
BlueGill network. The DME is the main translator of input data to output data.
The following features are under development:
- Xerox Metacode Support, which is Xerox print support on the AIX, Solaris
and HP-UX platforms;
- AFP to PDF performance, which provides three times improvement in
throughput of data through the DME; and
- MVS Port (OS/390), which ports the source code to the MVS platform.
APIs. The API technology encompasses knowledge engineering procedures and
expert system analysis, design and development. The API technology works in
between the print/extraction and parsing modules and
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<PAGE> 64
the web applications or templates. The API "surrounds" the DME as its interface
to these other technologies. The following features are under development:
- BlueGill Engine 3.0.0. -- Pure JAVA Front End Interface, which provides a
pure JAVA version of the public API set;
- BlueGill Engine 4.0.0 -- Pure JAVA Back End Interface, which provides a
pure JAVA version of the data base engine; and
- CheckFree Holdings E-Bill 3.1 Format Support, which provides batch mode
support for the CheckFree Holdings E-Bill 3.1 format.
Web Applications. The web application technologies help in the design of
industry specific templates for electronic billing and statement presentation.
The following features are under development:
- i-Insurance Template for the insurance industry billing statement
templates; and
- Market Direct 2.0, which provides one-to-one marketing capabilities with
end users.
Payments or OFX. The payments or OFX technology will allow for bill
publishing services to be integrated with the i-Series products and bill
consolidators. The following features are under development:
- OFX Bill Publisher Server, which is the core OFX engine integrated with
the i-Series engine support and Bill Publisher component to link to
consolidators;
- Payment Infrastructure, which is the underpinnings for interfacing with
various payment solutions (e.g. ACH, PaymenTech, Cybercash); and
- International CSP Model, which is an international version of the
domestic CSP model.
There are risks and uncertainties associated with the completion of these
in-process technologies. These risks include:
- Not Technologically Feasible.
The acquired IPRD had not demonstrated technological or commercial
feasibility as of the transaction date for BlueGill. Significant risks
exist because BlueGill is unsure of the obstacles it will encounter in the
form of market acceptance, time and cost necessary to produce a
technologically feasible product. SFAS No. 2 does not specifically require
an analysis of the development effort expended relative to an acquisition
date. It is reasonable to assume, however, that an IPRD project would
require a significant amount of time and cost in order to modify for
CheckFree Holdings' use in the marketplace. Should the proposed technology
fail to become viable, it is unlikely that CheckFree Holdings would be able
to realize any value from the sale of the technology to another party.
- No Alternative Future Use.
The acquired IPRD consists of BlueGill's work to date on its products.
The products are very specific to the tasks and markets for which it is
intended. As is typically the case with software, there are no alternative
uses for the in-process work in the event that the product does not become
feasible for CheckFree Holdings. The development effort for the acquired
IPRD does not possess an alternative future use for CheckFree Holdings
under the terms of SFAS No. 2.
- If the BlueGill project underway fails, there will be a very limited life
to the existing product because the continuing pace of technological
developments in the marketplace will have rendered them non-competitive.
In the event of a failure, the technology acquired, as embodied in either
current or in-process products, will have no alternative use and would be
written off as a loss by CheckFree Holdings.
- As of the valuation date, all of the IPRD technologies were subject to
numerous technological, timing, cost and market risks. In addition to
these risks already mentioned, another major risk associated with the
technologies pertains to the language it's written in. According to
BlueGill's management, all of
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<PAGE> 65
the base code may go to the JAVA computer language, causing large
sections of the codes to be re-written.
The following table represents information regarding the status of the
various in-process research and development projects acquired:
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
STAGE OF ESTIMATED COST TO
COMPLETION COMPLETION DATE COMPLETE VALUATION
---------- ----------------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Print/Extraction................... 38% December 2000 $ 748 $1,900
Data Management Engine............. 19% November 2000 110 1,300
APIs............................... 46% November 2000 703 2,300
Web Applications................... 50% July 2000 183 1,400
Payments/OFX....................... 10% December 2000 333 0
------ ------
Total.................... $2,077 $6,900
====== ======
</TABLE>
The method used to allocate the purchase consideration to IPRD was the
modified income approach. Under the income approach, fair value reflects the
present value of the projected free cash flows that will be generated by the
IPRD projects and that is attributable to the acquired technology, if
successfully completed. The modified income approach takes the income approach,
modified to include the following factors:
- analysis of the stage of completion of each project;
- exclusion of value related to research and development yet-to-be
completed as part of the on-going IPRD projects; and
- the contribution of existing technologies and applications.
The projected revenue used in the income approach are based upon the
incremental revenues associated with a portion of the project related to
BlueGill's technology likely to be generated upon completion of the project and
the beginning of commercial sales, as estimated by management. The projections
assume that the projects will be successful and the project's development and
commercialization are as set forth by management. The discount rate used in this
analysis is an after tax rate of 25%.
Note C: CheckFree Holdings' statement of operations for the year ended June
30, 1999, has been combined with the BlueGill statement of operations for the
twelve months ended June 30, 1999. CheckFree Holdings' statement of operations
for the nine-month period ended March 31, 2000 has been combined with the
BlueGill statement of operations for the nine-month period ended March 31, 2000.
Actual income statements of CheckFree Holdings and BlueGill will be combined
from the effective date of the merger, with no retroactive restatement.
Note D: The unaudited pro forma condensed combining statement of operations
for CheckFree Holdings and BlueGill have been prepared as if the merger was
completed as of July 1, 1998, the beginning of the earliest period presented.
The unaudited pro forma combined net income (loss) per share is based on the
weighted average number of shares of CheckFree Holdings common stock outstanding
during the periods, adjusted to give effect to shares assumed to be issued had
the merger taken place as of July 1, 1998.
Note E: The unaudited pro forma condensed combining statement of operations
do not include a charge for the value of the estimated $6.9 million (no income
tax effect) of purchased research and development arising from the merger, which
will be expensed at acquisition, as this expense will not have a continuing
impact.
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<PAGE> 66
DESCRIPTION OF THE MERGER AGREEMENT
GENERAL
The following summary of the merger agreement is qualified in its entirety
by reference to the complete merger agreement, which is incorporated by
reference and attached as Appendix A to this proxy statement/prospectus. We
encourage you to read the merger agreement because it is the legal document that
governs the issuance of our common stock you are being asked to approve. The
parties to the merger agreement are CheckFree Holdings, TransPoint Acquisition
Corporation, Tank Acquisition Corporation, CheckFree Corporation, Chopper Merger
Corporation, Microsoft, First Data, Citibank, and various affiliates of
Microsoft, First Data and Citibank, including H&B Finance, Inc., FDC
International Partner, Inc. and Citi TransPoint Holdings Inc., which together
hold the TransPoint entities, and which affiliates we refer to as the "Holding
Subsidiaries."
Under the merger agreement, we will acquire and hold all of the combined
businesses of TransPoint. Microsoft, First Data and Citibank, through Holding
Subsidiaries, are the sole beneficial owners of TransPoint, and pursuant to the
merger agreement, newly-created acquisition subsidiaries of CheckFree Holdings
will be merged with and into the Holding Subsidiaries, as a consequence of which
the Holding Subsidiaries and TransPoint will become wholly owned subsidiaries of
CheckFree Holdings.
CLOSING DATE
The closing of the mergers will take place on the first business day
following the day on which the last of the conditions to the merger agreement
has been fulfilled or waived or on any subsequent date as the parties agree.
CONSIDERATION TO BE RECEIVED IN THE MERGERS
At the time of the mergers, shares of our common stock will be issued in
the following amounts to the following entities:
- in consideration of the mergers described above, 13,000,000 shares of our
common stock will be issued in the aggregate to Microsoft and affiliates
of First Data and Citibank;
- in consideration of the commercial alliance agreement with Microsoft,
which is described in the section titled "Description of Related
Agreements -- Microsoft Commercial Alliance Agreement," 3,000,000 shares
of our common stock will be issued to Microsoft; and
- in consideration of the marketing agreement with First Data, which is
described in the section titled "Description of Related Agreements
-- Marketing Agreement with First Data Corporation," 1,000,000 shares of
our common stock will be issued to First Data.
ADDITIONAL DIRECTORS OF CHECKFREE HOLDINGS
The merger agreement provides that we shall cause our board of directors at
the effective time of the mergers to be comprised of our current six directors
and one director designated by Microsoft and one director designated by First
Data. Microsoft has indicated that it intends to designate Lewis Levin as a
director and First Data has indicated that it intends to designate Henry C.
Duques as a director. The following is biographical information about each of
such designees:
Lewis Levin is Vice President of Microsoft's Consumer and Commerce Group
and President & Chief Executive Officer of TransPoint. Upon completion of the
mergers, Mr. Levin will become a member of our board of directors. Mr. Levin
joined Microsoft in 1986. Since 1986, Mr. Levin has held a variety of positions
within Microsoft. Most recently, he was Vice President of the Desktop Finance
Division with responsibility for Microsoft Money, Investor and Money Central.
Previously, he was General Manager of the Excel Group. He also has been the
Director of Applications Marketing, Group Product Manager for the Graphics
Business Unit and has held a variety of product marketing positions. Mr. Levin
holds a bachelors degree in business
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<PAGE> 67
administration, quantitative analysis and finance from the University of
Cincinnati, as well as a masters degree from the Sloan School of Management,
M.I.T.
Henry C. Duques has served as Chairman and Chief Executive Officer of First
Data Corporation since April 1989. Upon completion of the mergers, Mr. Duques
will become a member of our board of directors. Mr. Duques joined American
Express in September 1987 as President and Chief Executive Officer of the Data
Based Services Group of American Express Travel Related Services Company, Inc.,
the predecessor of First Data, and served in that capacity until April 1989. Mr.
Duques was Group President Financial Services and member of the board of
directors of Automatic Data Processing, Inc. from 1984 to 1987. Mr. Duques is a
director of theglobe.com and Unisys Corporation, both publicly-held
corporations.
In addition to the rights to designate directors granted to Microsoft and
First Data under the merger agreement, in connection with the proposed
acquisition of assets from Bank of America, we have agreed to allow Bank of
America to designate one director to our board.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
Microsoft, First Data and Citibank concerning themselves, the Holding
Subsidiaries, TransPoint and the TransPoint business, as well as customary
representations and warranties by CheckFree Holdings and its wholly owned
acquisition subsidiaries, including customary representations and warranties
relating to, among other things:
- the corporate organization and similar corporate matters concerning
Microsoft, First Data and Citibank, the TransPoint Holding Subsidiaries,
TransPoint and us and our subsidiaries;
- the authorization, execution, delivery, performance and enforceability of
the merger and contribution agreement and related agreements by each of
Microsoft, First Data, Citibank, the TransPoint Holding Subsidiaries and
us and our subsidiaries, and the required stockholder vote by CheckFree
Holdings;
- the conflicts and violations created by, and required consents, approvals
and authorizations of governmental authorities relating to, the
execution, delivery and performance of the merger and contribution
agreement and related agreements with respect to each of Microsoft, First
Data and Citibank, the TransPoint Holding Subsidiaries, TransPoint and us
and our subsidiaries;
- the absence of legal proceedings relating to Microsoft, First Data and
Citibank, the TransPoint Holding Subsidiaries, TransPoint and us that
could adversely affect the consummation of the merger;
- the engagement and payment of fees of brokers, investment bankers and
financial advisors by each of Microsoft, First Data and Citibank, the
TransPoint Holding Subsidiaries, TransPoint and us;
- the absence of actions by each of Microsoft, First Data and Citibank, the
TransPoint Holding Subsidiaries, TransPoint and us and our subsidiaries
to adversely affect the tax-free qualification of the merger;
- the accuracy of the information provided by each of Microsoft, First Data
and Citibank, the TransPoint Holding Subsidiaries, TransPoint and us for
use in this proxy statement/prospectus and the related registration
statement;
- the intellectual property licensed by Microsoft, First Data and Citibank
to TransPoint and the intellectual property of CheckFree Holdings;
- the contracts of TransPoint and CheckFree Holdings, and the validity,
enforcement and absence of defaults under these contracts;
- the capital structure and subsidiaries of each of the TransPoint Holding
Subsidiaries, TransPoint and CheckFree Holdings;
- the absence of material changes or events concerning TransPoint and us;
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- the compliance with applicable laws by each of TransPoint and us,
including compliance with export control laws by TransPoint;
- the absence of business activities, operations and liabilities of the
TransPoint Holding Subsidiaries, other than the holding of equity
interests in TransPoint;
- the filing of tax returns and payment of taxes by each of the TransPoint
Holding Subsidiaries, TransPoint and us;
- the financial information of TransPoint being presented fairly;
- the absence of indebtedness and undisclosed liabilities of TransPoint;
- title to and leases of the properties and assets of TransPoint;
- employee matters for TransPoint, and the absence of labor controversies
or violations of employment practices laws;
- the compliance with environmental laws and absence of environmental
violations and other environmental concerns by TransPoint;
- the insurance policies of TransPoint;
- the accounts receivable of TransPoint, and the absence of disputes with,
or cancellation by, any of TransPoint's customers or suppliers;
- the ability to terminate all affiliate transactions by TransPoint prior
to the effective time of the mergers;
- the compliance with the Securities Act of 1933 or the Securities Exchange
Act of 1934 of documents publicly-filed by us, the accuracy of
information contained in those documents and the absence of other
liabilities or obligations;
- the inapplicability of state anti-takeover laws and our stockholder
rights agreement to the mergers; and
- receipt by us of the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Except for the representations and warranties regarding the payment of
taxes and the authority to enter into the merger agreement and the related
agreements, the representations and warranties generally will survive the
closing date of the merger agreement for one year. Except for certain
representations and warranties related to the TransPoint Holding Subsidiaries
and the CheckFree Holdings acquisition subsidiaries and except for
representations and warranties relating to the authority of each party to enter
into the transactions contemplated by the merger agreement, each representation
and warranty in the merger agreement is deemed to be made as of February 15,
2000.
INDEMNIFICATION
By Microsoft, First Data and Citibank. Microsoft, First Data and Citibank,
severally but not jointly, have agreed after the effective time of the merger,
to indemnify us, and our affiliates and representatives against any losses
resulting from the indemnified parties as a result of the following:
- any breach of any representation or warranty made by Microsoft, First
Data and Citibank with respect to themselves, the TransPoint Holding
Subsidiary in which it owns beneficial interest or TransPoint;
- any breach of any covenant of Microsoft, First Data and Citibank; or
- any taxes of TransPoint for periods or portions of periods ending on or
before the closing date.
Regarding Microsoft, First Data and Citibank's indemnification obligations
for the first bullet point listed above, Microsoft, First Data and Citibank will
not be liable until the aggregate losses incurred by the indemnified parties
exceed $7.5 million on a cumulative basis, and then the liabilities will only
apply to the
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excess of this amount. In addition, the aggregate liability from these three
companies to the indemnified parties is limited to the lesser of the following:
- 40% of the fair market value, measured at the effective time of the
mergers, of the 13,000,000 shares of stock received by Microsoft, First
Data and Citibank as consideration for the mergers, and
- the fair market value, measured at the time indemnification is due, of
the 13,000,000 shares of stock received by Microsoft, First Data and
Citibank as consideration for the mergers.
By CheckFree Holdings. We have agreed after the effective time to indemnify
Microsoft, First Data and Citibank and their affiliates and representatives
against any losses resulting from the indemnified parties as a result of the
following:
- any breach of any representation or warranty made by us with respect to
ourselves, or
- any breach of any covenant of ours.
Regarding our indemnification obligations for the first bullet point listed
above, we will not be liable until the aggregate losses incurred by the
indemnified parties exceed $7.5 million on a cumulative basis, and then the
liabilities will only apply to the excess of this amount. In addition, our
aggregate liability to the indemnified parties is limited to 40% of the fair
market value, measured at the effective time of the mergers, of the 13,000,000
shares of stock received by Microsoft, First Data and Citibank as consideration
for the mergers.
CONDUCT BETWEEN SIGNING AND CLOSING
Conduct of the TransPoint Business
The merger agreement requires Microsoft, First Data and Citibank to cause
the TransPoint Holding Subsidiaries to comply, from February 15, 2000 until the
effective time of the mergers, with the following restrictions regarding the
conduct of the TransPoint business, except as permitted by the merger agreement
or as consented to by us:
(1) each of the TransPoint entities must:
- maintain its existence in good standing;
- maintain the general character of its business and properties and
conduct its business in the ordinary course;
- maintain business and book of account and records and practices
consistent with past practices; and
- use reasonable best efforts to preserve its business intact and the
goodwill of its suppliers, customers and others having business
relationships with the TransPoint entities.
(2) subject to exceptions contained in the merger agreement or approved by
us, none of the TransPoint Holding Subsidiaries or TransPoint entities
may:
- amend its organizational documents;
- issue, sell, pledge or otherwise dispose of any of its capital stock
or any other of its securities, make other agreements with respect to
any of its capital stock or reclassify, combine, split, subdivide or
redeem, purchase or otherwise acquire any of its capital stock;
- acquire any other business organization or division; authorize any
capital commitment; or enter into, amend or otherwise modify any
contract, agreement, commitment or arrangement relating to an
acquisition or capital commitment that would result in the TransPoint
entities having indebtedness or material undisclosed liabilities at
the effective time of the mergers;
- sell, lease, license, mortgage or otherwise dispose of or encumber any
of its assets, properties or intellectual property rights, except for
various customary permitted liens;
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- materially change any of its equipment, software or technology, except
for upgrades, improvements or replacements;
- enter into or modify any material contract, except in the ordinary
course of business or with our prior written consent, or permit or
perform any act that would cause a material breach of any material
contract;
- terminate, modify, assign, waive, release or relinquish any rights
under a material contract or amend any materials rights or claims,
except in the ordinary course of business or as otherwise permitted by
the merger agreement;
- materially alter the present employment relationships of TransPoint
except as consistent with past practices;
- change any of its accounting policies or procedures;
- make any material tax election or settle any material federal, state,
local or foreign income tax liability;
- settle any pending or threatened suit, action or claim that is
material or which relates to any of the transactions contemplated by
the merger agreement or the related agreements;
- make any loans, advances or capital contributions to or investments in
any other entity, except as may be required under agreements in effect
as of the date of the merger agreement;
- violate applicable laws, orders or decrees, governmental rules or
regulations;
- sell, assign, transfer, license, sublicense, pledge or otherwise
encumber any of the intellectual property rights, except in connection
with the sale or licensing of any of the TransPoint products in the
ordinary course of business;
- enter into any contract to do as of the foregoing;
- terminate, modify, amend, assign, waive, release or relinquish any
rights under any agreement or arrangement with any affiliate in a
manner adverse to us.
In addition, each of Microsoft, First Data and Citibank is obligated under the
merger agreement to:
- use reasonable best efforts to keep available the services of their
respective employees dedicated to the TransPoint business as currently
conducted; and
- continue to provide not less than the same level of support and
assistance to TransPoint that they are currently providing.
CONDUCT OF CHECKFREE HOLDINGS' BUSINESS
The merger agreement requires that we comply, from February 15, 2000 until
the effective time of the mergers, with the following restrictions relating to
the conduct of our business:
(1) we must maintain our existence in good standing and conduct our
business in the ordinary course and consistent with past practices.
(2) except under specific exceptions, we may not take specified actions,
including the following:
- issue or sell any shares of our capital stock or any securities
convertible to shares of our capital stock, or any options or other
rights to acquire its capital stock, if the approval of our
stockholders would be required;
- declare or pay any dividend or other distribution with respect to any
of our common stock;
- reclassify, combine, split or subdivide any of our common stock;
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- enter into any transaction with a third party that would require
approval of our stockholders, unless the transaction is approved by
Microsoft, First Data or Citibank or is a change of control
transaction that includes the approval of the merger agreement by the
third party;
- for a period of six months after February 15, 2000, enter into an
agreement relating to a merger or acquisition transaction that would
reasonably be expected to materially delay obtaining approval of any
governmental entity to the transactions contemplated by the merger
agreement or significantly increase the risk of a governmental entity
prohibiting those transactions or the ability to remove any order on
appeal; or
- enter into any contract to do any of the foregoing.
NO SOLICITATION
We have agreed not to, and not to permit our representatives to, initiate,
solicit, encourage or facilitate any material transaction proposal or, in the
event of an unsolicited material transaction proposal, negotiate with any buyer
in connection therewith, except that:
- our board of directors may, prior to obtaining the necessary approval of
our stockholders of the merger agreement, may engage in discussions or
negotiations with any person who, without being solicited, has made a
bona fide material transaction proposal, if it determines in the exercise
of its fiduciary duties based on the advice of outside counsel that this
action is required to comply with its fiduciary duties, we notify
Microsoft, First Data and Citibank of the discussions and the proposing
person signs a confidentiality agreement, and
- we may comply with Rule 14e-2(a) under the Exchange Act with regard to a
tender or exchange offer.
In addition, we must notify Microsoft, First Data and Citibank of a
material transaction proposal, including the terms and conditions of any
material transaction proposal and the identity of the person making it, within
24 hours of its receipt.
The term "material transaction proposal" means:
- any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving CheckFree Holdings, or
- any proposal or offer to acquire in any manner, directly or indirectly,
at least 50% of the equity interests in our company, or at least 50% of
our consolidated assets.
As of the date of this proxy statement/prospectus, we have not received a
material transaction proposal.
OTHER AGREEMENTS
Solicitation of the Employees of Microsoft, First Data and Citibank Primarily
Engaged in the TransPoint Business
For three months after the effective time of the merger agreement, we will
be entitled to solicit and hire key personnel of Microsoft, First Data and
Citibank primarily engaged in the TransPoint business. All costs of the hiring
by of these personnel will be our responsibility, including any replacement of
stock options held by these personnel.
Non-Disparagement
Prior to the effective time of the merger agreement:
- each of Microsoft, First Data and Citibank has agreed not to make
comments publicly or to current or prospective customers or otherwise
take actions that disparage us or our business, and
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- we have agreed not to make comments publicly or to current or prospective
customers or otherwise take actions that disparage TransPoint, including
by using the existence of the merger agreement as a reason not to use the
products or services of TransPoint.
Support of TransPoint Platform
We have agreed to support the TransPoint bill presentment and bill payment
services platform for TransPoint's customers, including licensees, for the
longer of (1) the term of a customer's contract and (2) three years from the
effective time of the merger agreement. During this period, if a customer's
contract expires and the customer would like to enter into a new contract on
substantially the same terms, the customer may continue to use the TransPoint
platform until the third anniversary of the closing date of the merger
agreement.
Financial Condition of TransPoint
Microsoft, First Data and Citibank have agreed that at the effective time
of the merger agreement, the financial condition of the TransPoint entities,
including any entities acquired prior to the effective time of the merger
agreement, will satisfy the following conditions:
- none of the TransPoint entities will have any indebtedness;
- the TransPoint entities, in the aggregate, will have available $100
million of cash; and
- subject to specified exceptions, the adjusted working capital of the
TransPoint entities will be zero or greater.
Fees and Expenses
Subject to the provisions set forth in the section titled "-- Termination
Fees," whether or not the mergers are consummated, each of the parties to the
merger agreement has agreed to pay all of its own costs and expenses incurred in
connection with the merger agreement and the related agreements, except that, in
the event that the mergers are consummated, if the fees and expenses incurred by
TransPoint for its investment bankers exceeds the fees and expenses incurred by
us for our investment bankers, then Microsoft, First Data and Citibank will be
jointly and severally obligated to pay the excess.
CONDITIONS PRECEDENT TO CLOSING
The merger agreement contains customary conditions with respect to each
party's obligation to close that relate to, among other things:
- obtaining the required CheckFree Holdings stockholder approval of the
share issuance proposal;
- termination of any waiting period under the Hart-Scott-Rodino Act and
obtaining all other required regulatory approvals and making all required
filings with governmental authorities;
- the absence of pending or threatened governmental action seeking to
prevent the mergers and absence of other legal restraints in effect
prohibiting the mergers;
- the effectiveness under the Securities Act of 1933 of the registration
statement, of which this proxy statement/prospectus is a part;
- the authorization for listing on the Nasdaq National Market of shares of
our common stock to be issued pursuant to the merger agreement;
- execution of the ancillary documents, some of which are described under
the section titled "Description of Related Agreements;"
- the representations and warranties of the other parties in the merger
agreement, (1) that are qualified as to material adverse effect or
materiality, being true and correct as of the closing date, and (2) that
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are not qualified as to material adverse effect or materiality, being
true and correct in all material respects as of the closing date, except
in each case to the extent they speak as of a specified date; and
- each party performing and complying in all material respects with all
agreements and conditions contained in the merger agreement that are
required to be performed or complied with by it prior to or at the
closing of the merger agreement.
TERMINATION
The merger agreement can be terminated at any time prior to the closing
date:
- by mutual written consent of CheckFree Holdings and each of Microsoft,
First Data and Citibank;
- by either CheckFree Holdings or Microsoft, First Data and Citibank,
acting as a group, if the effective time of the mergers has not occurred
by February 15, 2001, except that the termination right will not be
available to any party whose failure to fulfill any obligation under the
merger agreement has been a cause of, or resulted in, the failure of the
effectiveness of one of the mergers to occur on or prior to this date;
- by either CheckFree Holdings or Microsoft, First Data and Citibank,
acting as a group, if any governmental entity has issued a final and
nonappealable order, decree, ruling or taken any other action
restraining, enjoining or prohibiting the mergers;
- by either CheckFree Holdings or Microsoft, First Data and Citibank,
acting as a group, if the other breaches any of its representations,
warranties, covenants or agreements under the merger agreement so that
the closing conditions cannot be satisfied, subject to a 15-day cure
period;
- by CheckFree Holdings or Microsoft, First Data and Citibank, acting as a
group, if the approval of CheckFree Holdings' stockholders of the share
issuance proposal is not obtained at a duly held stockholders meeting;
- by CheckFree Holdings or Microsoft, First Data and Citibank, if, as a
condition or requirement of approval of a governmental entity to the
mergers, the governmental entity would impose a limitation or restriction
on the party which it is not required to take; or
- by Microsoft, First Data and Citibank, if CheckFree Holdings' board of
directors withdraws or adversely modifies its recommendation to their
stockholders that they approve the share issuance proposal.
TERMINATION FEES
We will be obligated to pay termination fees to Microsoft, First Data and
Citibank in amounts indicated below if the merger agreement is terminated under
the circumstances indicated below:
- an aggregate amount of $25 million, if the merger agreement is terminated
by (1) either CheckFree Holdings or any of Microsoft, First Data or
Citibank as a result of CheckFree Holdings' stockholders not approving
the share issuance proposal at a duly held stockholders meeting or (2) by
any of Microsoft, First Data or Citibank as a result of the withdrawal or
amendment of CheckFree Holdings' board of directors recommendation to its
stockholders that they approve the share issuance proposal;
- an aggregate amount of $12,500,000, if the merger agreement is terminated
by CheckFree Holdings because a governmental entity has conditioned the
mergers upon a limitation or restriction on CheckFree Holdings that it is
not required to comply with under the merger agreement; or
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- an aggregate amount equal to 3.5% of the fair market value of the
17,000,000 shares of our common stock to be issued to Microsoft, First
Data and Citibank under the merger agreement, if:
(1) the merger agreement is terminated by:
(a) either CheckFree Holdings or any of Microsoft, First Data or
Citibank, due to the failure of the stockholders of CheckFree
Holdings to approve the share issuance proposal, and prior to the
vote of the stockholders, the board of directors of CheckFree
Holdings modified or withdrew its recommendation to the CheckFree
Holdings stockholders to approve the share issuance proposal, or
(b) any of Microsoft, First Data or Citibank, due to our board of
directors' withdrawal or adverse modification of its
recommendation to our stockholders to approve the share issuance
proposal; and
(2) We are a party to any material transaction proposal in which (a) a
definitive agreement has been entered into or where a third person
has publicly announced an intention to commence a tender offer or
exchange offer, each of the above not later than 26 weeks, or as few
as 20 weeks under limited circumstances, after the termination of
the merger agreement, and (b) the material transaction proposal with
the third party is consummated by us within 18 months after the
termination of the merger agreement.
AMENDMENT
The merger agreement may be amended by the parties to the merger agreement,
but no amendment that by law requires approval by our stockholders may be made
without the approval of the stockholders. In any event, the merger agreement may
not be amended except in a writing signed on behalf of each of the parties.
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DESCRIPTION OF RELATED AGREEMENTS
Concurrent with the closing of the merger agreement, we and the various
parties indicated below will execute the agreements related to the merger
agreement that are described below, except for the stockholder support
agreements, which were executed at the same time as the merger agreement.
STOCKHOLDER AGREEMENTS
Pursuant to the merger agreement, on the closing date, both Microsoft and
First Data will execute a stockholders agreement with us that contains the
following provisions:
Governance
Pursuant to the stockholder agreements, each of Microsoft and First Data
will be entitled to appoint one individual designated by it to our board of
directors. Each of the directors designated by Microsoft and First Data must be
approved by a majority of the members of our board of directors.
For so long as either Microsoft or First Data is entitled to designate a
director, we will be obligated to include that designee as part of the
management slate in our proxy statement relating to the election of directors
and use commercially reasonable efforts to support each designee consistent with
our current and historical support of other persons standing for election as
part of the management slate.
As long as each of Microsoft and First Data can designate a nominee for
election as a director, each will agree to vote all of its voting stock in each
stockholder vote for the election of directors in the following manner:
- if there is no bona fide proxy contest for the election of directors, in
favor of the management slate; or
- if there is a bona fide proxy contest for the election of directors,
either (1) in favor of the management slate or (2) in the same proportion
as all votes cast by disinterested stockholders.
The director designation right of each of Microsoft and First Data will
terminate upon the earlier of:
- the first date on which the stockholder and its controlled affiliates own
less than 75% of the shares acquired at the closing of the merger
agreement, and
- the occurrence of a change of control of our company in which the
stockholder and its controlled affiliates no longer own at least 5% of
the voting shares of the surviving company.
For purposes of the stockholder agreements, a "change of control" will
include any of the following:
- any merger, consolidation or other business combination transaction in
which our stockholders immediately prior to the transaction no longer own
at least 50% of the total voting stock of the surviving entity or its
parent after the transaction;
- an acquisition by any person, other than Microsoft and its controlled
affiliates or First Data and its controlled affiliates, as the case may
be, of at least 30% of our total voting stock;
- a sale of our assets to any person, other than Microsoft and its
controlled affiliates or First Data and its controlled affiliates, as the
case may be, for a total price in excess of 30% of the market value of
our outstanding common stock at that time; or
- our liquidation or dissolution.
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Standstill
During the standstill period, neither Microsoft, First Data nor any of
their respective controlled affiliates will be able to do, announce an intention
to do or facilitate or encourage another person to do, any of the following:
- offer or seek to acquire ownership of any of our assets or businesses for
a total price in excess of 30% of the market value of our outstanding
common stock;
- acquire beneficial ownership of any of our voting stock or any of our
subsidiaries, or any options or other rights to acquire the voting stock,
except for acquisitions to maintain their percentage ownership of our
common stock;
- make or participate in any solicitation of proxies with respect to the
voting of any of our securities or any of our subsidiaries;
- deposit any securities of our or our subsidiaries in a voting trust or
arrangement with any person;
- become a member of a "group," as defined in Section 13(d) of the
Securities Exchange Act of 1934 with respect to any of our voting
securities or any of our subsidiaries;
- arrange any financing for the purchase of any of our or our subsidiaries
voting securities, or securities convertible into similar securities;
- propose or participate in any proposal of a tender offer, exchange offer,
merger, business combination, restructuring, liquidation,
recapitalization or similar transaction involving us or any of our
subsidiaries;
- nominate any person as a director who is not nominated by the incumbent
directors, or propose any matter to be voted upon by our stockholders,
except that they may nominate directors in accordance with the
"Governance" provision described above; or
- solicit, initiate, encourage or knowingly or intentionally facilitate any
of its affiliates undertaking any of the acts described in the bullet
points immediately above.
The "standstill period" will be defined in the stockholder agreements as
the period beginning at the closing of the merger agreement and ending upon the
earliest to occur of the following:
- the 3rd anniversary of the closing of the merger agreement;
- the date of execution of an agreement that will result in a change of
control in our company, which is defined above, or the actual occurrence
of a change of control;
- the commencement of a bona fide third party public offer to acquire at
least 25% of our voting stock; or
- a reduction in beneficial ownership of our voting stock by Microsoft or
First Data, as the case may be, to less than 5% of our total voting
stock.
If the standstill period terminates due to a change of control in our
company or the execution of an agreement that would result in a change of
control in our company, and the change of control transaction is later
terminated and neither Microsoft nor First Data has acquired control of us
before the termination, then the standstill will be reinstated. Also, if the
standstill period terminates due to a third party public offer for our common
stock, the public offer is withdrawn or terminated prior to its consummation and
no tender offer of Microsoft or First Data for our common stock is pending, then
the standstill period will be reinstated.
If, at any time during the standstill period,
- any third party has made any proposal or offer relating to a takeover
transaction or other change of control of us, which has not been rejected
by our board of directors,
- our board of directors has determined to pursue, and is pursuing, a
takeover transaction or other change of control of us, or
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- our board of directors or officers have engaged in any discussions or
negotiations with, or provided any information to, any third person with
respect to a potential takeover transaction or change of control of us
and have not resolved to terminate the discussions, negotiations or
provision of information,
then, for so long as any one of these conditions apply, Microsoft, First Data or
their controlled affiliates will be able to make an offer or proposal directed
privately to us relating to a takeover transaction or other change of control.
If, during the standstill period, we disclose non-public information to
another party, then Microsoft and First Data each will have the option to be
subject to the terms of any less restrictive standstill provision that is
negotiated by us with the party for the same duration as the less restrictive
standstill applies to this third party. In addition, if, during the standstill
period, we provide non-public information to another party without a signed
confidentiality agreement with the third party, then the standstill restrictions
will no longer apply to Microsoft, First Data or their controlled affiliates.
Transfer Restrictions
Microsoft and First Data will not be able to transfer any shares of our
common stock they beneficially own during the period ending on the one-year
anniversary of the closing of the merger agreement, except for transfers:
- to any controlled affiliate who agrees to be bound by the stockholder
agreement;
- which have been consented to in writing by us;
- pursuant to a third-party tender offer that is recommended by our board
of directors or a merger transaction in which we are a party; or
- subject to the following paragraph, pursuant to bona fide hedging
transactions with, or arranged by, a nationally recognized investment
banking firm.
With respect to hedging during the one year period after the closing of the
merger agreement:
- the total number of shares underlying hedging transactions entered into
or renewed during the first-year period may not be greater than 50% of
the volume limitations under Rule 144 of the Securities Act of 1933
during any applicable Rule 144 period, assuming the hedges were treated
as transfers subject to Rule 144;
- Microsoft and First Data may renew or amend any hedge in place as long as
they do not exceed the number of shares underlying the prior hedging
transaction; and
- Microsoft and First Data may not enter into, renew or amend more than one
hedge transaction during any calendar quarter if it would require the
filing of an amendment to any Schedule 13D under the rules and
regulations promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934.
Unless Microsoft or First Data beneficially own less than 5% of our
outstanding common stock, during the period beginning on the one year
anniversary of the closing of the merger agreement and ending on the three year
anniversary of the closing of the merger agreement, Microsoft and First Data
will not be able to transfer any shares of our common stock they beneficially
own, except for transfers:
- pursuant to each of the bullet points set forth in the first paragraph of
this "Transfer Restrictions" section, except that the shares underlying
hedging transactions, together with transfers pursuant to the third
bullet point of this paragraph, may be equal to up to 100% of the volume
limitations of Rule 144 during any applicable Rule 144 period;
- in a bona fide public distribution or underwritten public offering,
including pursuant to the registration rights granted to Microsoft and
First Data described in the "Registration Rights Agreements" section
below; or
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- of shares in amounts that could be sold under the volume limitations of
Rule 144 during any applicable Rule 144 period, assuming during any
period that all shares underlying hedging transactions are considered to
be transfers subject to the Rule 144 limitations.
With respect to the second and third bullet points immediately above,
however, except as permitted by the following paragraph, these transfers may not
be made if they would result, to the knowledge of Microsoft or First Data, as
the case may be, in the transferee holding more than 5% of our outstanding
shares of common stock.
Microsoft or First Data will only be able to transfer a 5% block of our
common stock or knowingly transfer shares to a third party so that after the
transfer that third party would own more than 5% of our common stock, if the
transfer is to a person that is qualified to file a Schedule 13G pursuant to
Rule 13d-1(b) of the Securities Exchange Act of 1934. Prior to these transfers,
however, Microsoft or First Data must offer to sell those shares to us at least
two days prior to making the transfer. For this two-day period, we will have the
option to purchase all of the shares at the same price and upon the same terms
as the proposed transfer. If we decide not to exercise our right of first offer,
Microsoft or First Data, as the case may be, will be able to sell the 5% block
for a set period at no less than 95% of the price offered to us.
CheckFree Holdings Rights Agreement
We have agreed that, for so long as Microsoft and First Data beneficially
own at least 5% of our outstanding common stock:
- we will not amend our stockholder rights agreement in a manner adverse to
Microsoft and First Data; and
- if we waive application of the stockholder rights agreement to any other
person, we will also waive application of the rights agreement to
Microsoft and First Data.
This agreement regarding our stockholder rights agreement, however, will not
apply to an amendment or waiver pursuant to the consummation of a transaction
approved by our board of directors.
Amendment
The stockholder agreements may be amended or modified in whole or in part
at any time by an agreement in writing between the parties to the agreements.
REGISTRATION RIGHTS AGREEMENTS
Pursuant to the merger agreement, on the closing date, Microsoft, First
Data and Citibank will each execute a registration rights agreement with us that
contains the following provisions:
Shelf Registration Statement
Pursuant to the registration rights agreements, as promptly as practicable
after the closing of the merger agreement, we have agreed to file, at our
expense, a registration statement allowing the offering for sale on a continuous
basis of the shares of our common stock received by Microsoft, First Data and
Citibank in the closing of the merger agreement. We have agreed to use our
commercially reasonable best efforts to cause the registration statement to be
declared effective by the Commission by the 30th day after the effective time of
the mergers, and to keep the shelf registration statement effective until
Microsoft, First Data and Citibank have either sold all of the shares they
received at the closing or they are able to sell all of these shares under Rule
144.
We will be able to suspend the effectiveness of the shelf registration
statement in the following circumstances:
- if the negotiation or consummation of a transaction by us is pending or
an event has occurred, and in each case we have has a bona fide business
purpose for keeping this negotiation, consummation or
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event confidential, and the nondisclosure would cause the registration
statement to fail to comply with applicable disclosure requirements; or
- if an underwritten public offering of our common stock pursuant to the
shelf registration statement would adversely affect a pending or proposed
offering of our common stock by us.
Underwritten Offerings
In the registration rights agreements between us and Microsoft and First
Data, each of Microsoft and First Data will have the right to request us to
undertake, at our expense, an underwritten public offering of our shares of
common stock they received in the closing of the merger agreement. Each of
Microsoft and First Data will be limited to one of these requests during any
six-month period. If we are allowed to choose the lead managing underwriter for
any particular underwritten offering, then our management will participate in a
customary road show in connection with the offering.
We will only be obligated to undertake an underwritten offering for
Microsoft or First Data if either of the following minimums is satisfied:
- the aggregate gross proceeds to the participants in the offering equal or
exceed $100 million, or
- the total number shares of our common stock to be registered in the
offering equals or exceeds 1,000,000.
Piggyback Registrations
In the registration rights agreements among us, Microsoft and First Data,
we will grant customary piggyback registration rights to Microsoft and First
Data so that if, at any time while the shelf registration statement is
effective, we propose to register any of our common stock, whether or not for
our own account, each of Microsoft and First Data will be able to request that
we include its shares in the registration unless the registration is related to
shares issued in connection with a merger or an exchange offer or pursuant to an
employee benefit plan.
Underwriter Limitations on Underwritten Public Offerings
If the lead managing underwriter of an underwritten public offering of our
common stock advises us, or Microsoft or First Data, if applicable, that the
number of shares proposed to be offered should be limited due to market
conditions, then the amount of shares offered, including pursuant to any
over-allotment options exercised by the underwriters, will be allocated in the
following manner:
- if the offering is initiated by us,
(1) first, to the full extent of shares we desire to sell, and
(2) second, if any shares remain, to Microsoft and First Data and to any
other persons possessing similar registration rights pro rata in
accordance with each request.
- if the offering is initiated by Microsoft or First Data,
(1) first, to the full extent of shares the stockholder initiating the
offering desires to sell, and
(2) second, if any shares remain, to each other holder of our common
stock possessing similar registration rights pro rata in accordance
with each request.
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STOCKHOLDER SUPPORT AGREEMENTS
Concurrently with the execution of the merger agreement, each of our
directors and executive officers, solely in their capacities as stockholders of
CheckFree Holdings, entered into stockholder support agreements for the benefit
of Microsoft, First Data and Citibank that contain the following provisions:
Voting of Shares
Each stockholder that is party to the stockholder support agreements is
obligated to vote, or cause to be voted, all of the shares of CheckFree Holdings
common stock then owned, or acquired in the future, by the stockholder in the
following manner:
- in favor of approval of the share issuance proposal and any other matters
necessary to consummate the mergers, and
- against any of the following:
(1) any other merger or merger agreement, consolidation, sale of
substantial assets, reorganization, recapitalization, liquidation or
winding up of CheckFree Holdings or any other extraordinary
transaction involving CheckFree Holdings, except for a material
transaction proposal, as defined in the section titled "Description
of the Merger Agreement -- No Solicitation", that would not
reasonably be expected to materially delay, or significantly
increase the risk of obtaining, approval of the merger by any
governmental entity, if the vote to approve this material
transaction proposal occurs:
(A) after the meeting of our stockholder to approve the share
issuance proposal, or
(B) before the meeting of our stockholders to approve the share
issuance proposal and the other party to the material transaction
proposal agrees in writing with Microsoft, First Data and
Citibank to approve the share issuance proposal;
(2) any corporate action which would frustrate the purposes or impede,
prevent, nullify or delay the mergers contemplated by the merger
agreement; and
(3) any amendment to CheckFree Holdings certificate of incorporation or
bylaws or any other action or agreement that would result in a
breach of a representation, warranty, covenant or other obligation
of CheckFree Holdings under the merger agreement or which could
result in any of the conditions to CheckFree Holdings' obligations
under the merger agreement not being fulfilled, unless the condition
has been waived previously by Microsoft, First Data and Citibank.
Upon request, each of the stockholders subject to the stockholder support
agreements must deliver to Microsoft, First Data and Citibank an irrevocable
proxy to vote the stockholder's shares. The proxies granted pursuant to the
stockholder support agreements shall be automatically revoked without further
action on the part of the stockholder or Microsoft, First Data and Citibank upon
termination of these agreements.
Limitations on Transfers of Shares
Each stockholder has agreed not to, without our consent:
- sell, assign, transfer or otherwise dispose of, by any means, any
securities of CheckFree Holdings;
- deposit any securities of CheckFree Holdings in a voting trust or
arrangement with any person; or
- enter a contract or other arrangement with respect to the sale, transfer
or other disposition of the securities of CheckFree Holdings.
An exception under the stockholder support agreement signed by Peter J.
Kight and Mark A. Johnson allows each of them to transfer up to 10% of the
CheckFree Holdings securities held by them as of
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February 15, 2000. The other stockholder support agreement also provides
exceptions for two types of transfers by the other stockholders:
- the sale of up to 5,000 shares or 10% of the shares beneficially owned by
the stockholder as of February 15, 2000; or
- the sale of securities to pay taxes related to a cashless exercise of
options.
As long as the stockholder support agreements are in effect, the
stockholders, solely in their capacities as stockholders, may not, without the
prior approval of Microsoft, First Data and Citibank, directly or indirectly,
initiate, solicit, encourage or have any discussion or negotiate with any person
concerning any material transaction proposal, or enter any agreement regarding a
material transaction proposal. The stockholders subject to the stockholder
support agreements are obligated, solely in their capacity as stockholders, to
notify Microsoft, First Data and Citibank if inquiries into a material
transaction proposal are received.
The stockholder support agreements will terminate upon the earliest to
occur of the effective time of the merger or the termination of the merger
agreement.
MICROSOFT COMMERCIAL ALLIANCE AGREEMENT
Pursuant to the merger agreement, on the closing date, we and Microsoft
will execute a commercial alliance agreement that contains the following
provisions:
Microsoft's Exclusive Use of CheckFree Holding's Platform and Services
Pursuant to the commercial alliance agreement, Microsoft will agree to use
us exclusively for all pay anyone and bill presentment and payment services
offered by Microsoft, subject to various exceptions for types of services not
available from us and the provision of technology in various circumstances
related to Microsoft's current business and product lines.
As part of this exclusivity obligation, Microsoft will create and implement
a web-based service targeted at individual consumers that will be offered in the
MoneyCentral area of Microsoft's MSN Internet offering. This service will
exclusively utilize our current platform for pay anyone and bill presentment and
payment services, which service we refer to as the "MSN Payment Service." In
addition, Microsoft will agree to use its commercially reasonable efforts to
promote the use of the MSN Payment Service as a benefit that MSN users will be
able to receive if they provide the additional authentication information to
Microsoft that would be needed to access payment applications and services on
MSN. Microsoft will agree that the MSN Payment Service will be displayed equally
or more prominently on any area of MSN that includes choices among various
providers of pay anyone and bill presentment and payment services.
Microsoft will also agree that the MSN Payment Service will be the
exclusive pay anyone and bill presentment and payment service that it promotes
as a feature of its Hotmail email service.
Preferred Supplier Status of CheckFree Holdings
Microsoft will agree to grant us a 90-day exclusive negotiation period for
the provision of CheckFree Holdings pay anyone and/or bill presentment and
payment services targeted at businesses that may be offered by Microsoft.
In addition, Microsoft will agree to grant to us a 90-day exclusive
negotiation period for the provision of any future back end "DDA to DDA" (demand
deposit accounts with financial institutions) payment services that we then
offer. With respect to back end services other than for DDA to DDA payments, we
and Microsoft will agree to cooperate jointly developing new payment
capabilities.
Integration of CheckFree Holdings Services
To the extent that Microsoft provides payment, invoicing or bill
presentment functionality in any generally available Microsoft Internet and
electronic commerce platforms and tools, similar to Microsoft's
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BizTalk Server, and that functionality, incorporates, any third party's pay
anyone and bill presentment and payment services, then Microsoft will integrate
our "pay anyone" and bill presentment and payment services to this platform or
tool or provide interoperability.
CheckFree Holdings Support of Microsoft Platforms
We will agree that the version of our biller premises software that is
offered for Microsoft's Windows NT and SQL Server will be the most favorable
version of this software in terms of price, functionality and performance,
taking into account the functionality and performance characteristics of these
Microsoft platforms, and will be commercially released at least 90 days prior to
the commercial release of this software for any other platform. We will also
agree to grant a 90-day exclusive negotiation period to Microsoft regarding our
use of Microsoft's enhanced user authentication credential services, like
Passport, as a single sign-on authentication to access our services.
Fees and Revenue Guarantees
Beginning no later than 120 days after the closing of the merger agreement,
Microsoft will begin to pay a quarterly fee to us for the services then provided
by us to Microsoft, which will be based upon agreed upon pricing terms set forth
in the agreement. We will agree that the pricing and other material terms, in
the aggregate, that it will offer Microsoft will be at least as favorable as
these terms offered by us to any third party.
Microsoft will guarantee over the five year term of the agreement that it
will make payments for our services of at least $120 million in the aggregate.
In addition, until this $120 million amount has been paid, the following monthly
guarantee amounts will apply:
<TABLE>
<S> <C>
Year 1......................................... $1.0 million per month
Year 2......................................... $1.5 million per month
Year 3......................................... $2.0 million per month
Year 4......................................... $2.5 million per month
Year 5......................................... $3.0 million per month
</TABLE>
Microsoft will be entitled to receive a credit per bill for bill presentment
services performed for billers for bills received by Microsoft customers using
our services.
If during any month the amount actually paid by Microsoft is less than the
applicable minimum monthly guarantee indicated above for the month, then
Microsoft will owe the difference to us, less any credits earned by Microsoft
during this monthly period.
In various circumstances, to the extent Microsoft pays more to us than the
monthly minimums, Microsoft will be entitled to carry-forward and carry-back
these excess amounts to other monthly periods to offset amounts otherwise owed
to us pursuant to the minimum guarantees.
Non-Competition
During the five year term of the agreement, Microsoft will generally agree
that it will not engage in, license TransPoint intellectual property to anyone
who engages in, or acquire or invest in, anyone who engages in the type of pay
anyone and bill presentment and payment in which we currently engage, with the
following general types of exceptions:
- procuring or offering the types of products that are not offered by us;
- continuing specified existing contractual arrangements that have been
disclosed to us, with the obligation to switch to CheckFree Holdings when
possible under these contracts;
- licensing Microsoft technology that generally is of the type not
specifically directed towards pay anyone or bill presentment and payment
services;
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- (1) owning up to twenty percent (20%) of any company, provided that not
more than twenty-five percent (25%) of that company's revenues come from
bill payment services, up to a limit of $25 million; or (2) owning up to
ten percent (10%) of any company, provided that not more than twenty-five
percent (25%) of that company's revenues come from bill payment services
(without dollar amount limit); or
- acquiring a company providing otherwise prohibited services if these
services are not more than 25% of the company's consolidated revenues at
the time of acquisition and Microsoft divests the prohibited services
within 12 months of the acquisition.
The agreement will also contain a limited exception for activities that
would otherwise violate the non-competition agreement if the activities are
terminated within a specified period or the damages to us from these activities
do not exceed a specified threshold. In addition, in no event will Microsoft be
required to pay damages in excess of $150 million for breach of the
non-competition provisions in the commercial alliance agreement.
Term and Termination
The agreement will generally have a term of five years, but may be
terminated earlier by Microsoft in the event of a change of control. A change of
control is defined to have occurred if any person acquires more than 30%, or 20%
if this person is a competitor to Microsoft, of our voting stock or our
stockholders own less than 70%, or 80% if this person is a competitor to
Microsoft, of our voting stock after a transaction.
Geographic Scope
Except for our obligation to support the Microsoft platform and the
non-compete provision, which are world-wide obligations, all other provisions in
the agreement apply only to the provision of services primarily targeted as
users in the United States, Canada, Australia and New Zealand. The
non-competition provision does not apply to the provision of pay anyone services
in Canada and New Zealand.
MARKETING AGREEMENT WITH FIRST DATA CORPORATION
Pursuant to the merger agreement, on the closing date, CheckFree Holdings
and First Data will execute a marketing agreement that contains the following
provisions:
CheckFree Holdings' Use of First Data Payment Processing Services and
Products.
During the term of the marketing agreement, we will agree to use First
Data's payment processing services and services if, in each case in our
reasonable business judgment, substantially similar services are not then
obtainable from a third party at an overall economic cost to us that is less
than the overall economic cost to us of First Data's services. If we are able to
find substantially similar payment processing services at a lower overall
economic cost from a third party, we will be required to give First Data the
chance to meet these terms for provision of the services.
When using our reasonable business judgment regarding the use of First
Data's payment processing services or products we will be able to take into
consideration the following:
- the fact that First Data or its affiliates offers a directly competing
product or service offered by us or our affiliates; and
- the use of First Data's or its affiliates' product or service by us or
our affiliates would either:
(1) allow First Data or its affiliates to achieve substantial
competitive benefits due to increased volume, or
(2) provide First Data or its affiliates with our and our affiliates
proprietary technology and that provides First Data or its
affiliates with a substantial competitive advantage.
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Minimum Revenue Guarantees
If (1) the fees received by us from First Data and various billers for
which First Data has played a role in obtaining for us and (2) the expense
savings received by us from using First Data's services, do not exceed the
annual minimum for the first year of the agreement, or the monthly minimums for
the subsequent periods, each so indicated below, then First Data will pay the
difference to us after the first year or each monthly period, as applicable. The
minimums for the five-year term of the agreement will be the following:
<TABLE>
<S> <C>
Year 1..................................... $6,000,000 in the aggregate
Year 2..................................... $750,000 per month
Year 3..................................... $1,000,000 per month
Year 4..................................... $1,250,000 per month
Year 5..................................... $1,500,000 per month
</TABLE>
Use of CheckFree Holdings' Pay Anyone Services
If First Data chooses to offer pay anyone services, First Data will agree
to use our "pay anyone" services if in First Data's reasonable business judgment
substantially similar services could not be obtained at an equal or lesser
overall economic cost from a third party.
Reseller Agreement with First Data
Contemporaneously with the signing of the marketing agreement, First Data
will enter into a non-exclusive reseller agreement relating to the resale by
First Data of our payment processing services.
Non-Competition
Subject to numerous exceptions that allow First Data to continue to conduct
various types of payment processing activities that it currently conducts and
expects to conduct in some form during the term of the agreement, First Data
generally has agreed that it will not offer or provide an integrated interactive
bill payment system for the delivery or payment of more than a specified ratio
of household bills to an aggregation service company by means of any interactive
service anywhere in the world.
To the extent that First Data engages in an activity that would violate the
general non-compete agreement indicated above, First Data may pursue these
activities if:
- First Data and it affiliates limit the gross revenues received by First
Data and its affiliates from these activities to $50,000,000 per year,
with some exceptions;
- except in some circumstances, 25% of all gross revenues derived solely
from these activities will be paid to us, with these payments being
counted against the minimum revenue guarantees owed by First Data to us;
and
- we are notified as soon as practicable after First Data signs an
agreement to engage in these activities.
The non-compete provision also contains customary exceptions for providing
an integrated interactive bill payment system and for investments in persons
that engage in activities that would otherwise violate the non-compete
provision. In addition, in no event will First Data be required to pay damages
in excess of $100 million for breaches of the non-competition provisions in the
marketing agreement.
Term and Termination
The agreement will generally have a term of 5 years, but may be terminated
earlier by First Data in the event of our change of control involving specified
competitors to First Data. A change of control is generally defined to have
occurred if any First Data competitor acquires more than 30% of our voting stock
or our stockholders own less than 70% of our voting stock after a transaction
involving any specified First Data competitor.
CITIBANK
We now have a number of agreements and business relationships with business
units of Citibank, none of which is affected by the mergers. The mergers did not
create any obligation whatsoever on the part of
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Citibank to refrain from any business activities which are competitive with, or
even hostile to, us. Although we would like to expand our business relationship
with Citibank, nothing in or about the merger should be interpreted as
increasing the likelihood that we will be successful in winning additional
business from Citibank, or in preventing Citibank from competing against us.
LICENSE AGREEMENTS
In connection with the formation of the TransPoint entities other than
MSFDC International, L.P. in 1997 and MSFDC International in 1999, each of
Microsoft and First Data entered into license agreements with the TransPoint
entities. Under these agreements, Microsoft and First Data licensed to the
TransPoint entities various existing software and intellectual property
regarding bill presentment and bill payment services, as well as the same types
of technology and intellectual property developed in connection with their
involvement with TransPoint's business.
Pursuant to the merger agreement, on the closing date, Microsoft and First
Data will execute amended and restated versions of these license agreements with
TransPoint. As a result of these licenses, we, through our ownership of
TransPoint, will be granted a perpetual, irrevocable, exclusive license to use
and sublicense the current TransPoint technology and intellectual property
rights, other than patents, in the field of bill presentment and bill payment
services, which license will be substantially equivalent to ownership in this
sphere of use. With respect to patents, we will have a similar license, except
that the license will be non-exclusive.
TRANSITION SERVICES
In connection with the initiation of the TransPoint business in 1997,
Microsoft, First Data and Citibank agreed to perform various types of services
for TransPoint during their existence, including data center operations,
customer service, payment processing services, biller systems integration, and
various administrative services. Each of these services currently is provided to
TransPoint for payment of either fixed rates or ratios related to compensation
paid by Microsoft, First Data, or Citibank, as the case may be, to its employees
that performed the functions for TransPoint. The fixed payments or fixed ratios
with respect to the services provided to us after the mergers will be the same
as the payments and ratios currently charged by Microsoft and First Data to
TransPoint.
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TRANSPOINT
GENERAL
TransPoint is a joint activity of Microsoft Corporation, First Data
Corporation and Citibank, N.A. The TransPoint Entities operate an Internet based
electronic bill presentment and payment service. This service allows businesses,
like utility companies, credit card issuers, and mortgage banks, that have
traditionally mailed their customers paper bills and/or statements, to contract
with TransPoint to replace these paper bills and/or statements with electronic
bills and/or statements delivered via the Internet.
TransPoint contracts with biller processors who aggregate TransPoint
electronic billing and payment information for multiple billers, providing
economies of scale and efficiencies and making the TransPoint service available
to smaller billers.
TransPoint aggregates all of the TransPoint electronic bills and statements
presented to a customer on a single website, and allows the customer to pay
their electronic bills through electronic fund transfers from the customer's
designated bank account. TransPoint's additional "pay anyone service" allows a
customer to make payments from their designated bank account to anyone, without
need for the payee to have presented a bill via the TransPoint internet service.
Thus, the TransPoint service allows customers to replace the traditional mailing
of paper checks with convenient, efficient web based payments.
Customers may register to access their bills and statements and make
payments either at TransPoint's own website at http://www.transpoint.com, or
through a number of TransPoint consumer service providers, or CSPs, with whom
TransPoint has contracted for the provision of the TransPoint service. CSPs are
other websites, typically an Internet portal site or a bank or other financial
institution's website, who provide the TransPoint service to their own
customers, often under their own brand.
TransPoint's principal executive offices are located in Redmond, Washington
with its legal place of business in Englewood, Colorado.
TRANSPOINT'S REASONS FOR THE MERGERS
The owners of TransPoint have agreed to approve the mergers because they
believe that the combination of TransPoint and CheckFree Holdings is necessary
to achieve their original objective of creating a successful, end-to-end
electronic bill presentment and payment business. Billers need access to their
geographically dispersed customers. Consumers benefit from more billers enabled
to send electronic bills so that the consumers are able to receive a higher
percentage of their bills electronically. The number of bills available
electronically influences a consumer's choice of whether to use an EBPP service
to pay bills. Access to wide distribution to consumers influences a biller's
decision whether to send bills via an EBPP service. Both consumers and billers
needs must be satisfied simultaneously to expand usage of EBPP services. More
specifically, the combination of TransPoint's services and customers together
with those of CheckFree Holdings will give the combined entity the greatest
chance of reaching the critical mass of customers and billers necessary to
accelerate adoption of electronic bill presentment and payment. If successful,
the combined entity will be able to realize scale and efficiencies that
TransPoint could not achieve in the near term as an independent entity. First
Data and Microsoft will provide support for the future growth of the combined
entity by applying the core competencies of each organization applicable to the
business, which are transaction processing and consumer web site development and
marketing, respectively.
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TRANSPOINT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
TRANSPOINT'S FINANCIAL STATEMENTS AND NOTES THAT ARE INCLUDED ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS.
OVERVIEW
Since its formation, TransPoint has been in the development stage with its
principal activities consisting of developing and marketing an electronic,
Internet based, bill statement presentment, payment and remittance service. In
the fiscal year ended July 2, 1999 and the fiscal period from June 18, 1997 to
July 3, 1998 TransPoint generated no revenues and incurred substantial losses.
As an independent entity, TransPoint expects to continue to incur significant
losses in the fiscal years 2000 and 2001.
TransPoint's business has two focuses:
- attracting financial institutions, consumer websites or portals and
billers (utilities, insurance companies, mortgage companies, etc. and
their service providers) to participate in their "e-biller" program,
enabling payments to be initiated electronically at financial
institutions or other consumer websites and to send payments and
remittances electronically to billers via the TransPoint service
- attracting subscribers to its Internet bill payment service and charging
them on a monthly basis per series of transactions processed
In fiscal 2000, TransPoint expects its revenues to be derived from
international licensing activities and from consumer subscriptions to its
Internet bill payment service. Since TransPoint is currently offering its
services without charge for a three or six month trial period depending on the
consumer's choice of service option, it does not expect to have any significant
revenues until fiscal year 2001 at the earliest. Revenues are expected to be
generated through fees paid by individual subscribers to its Internet bill
payment service and from billers who send e-bills and receive payment and
remittance from TransPoint. As an independent entity, the portion of revenue
received from e-bills would grow as more of a consumer's bills were received
electronically. This growth would occur slowly depending on participating
consumers' account relationships with participating billers.
During fiscal 2000, as an independent entity, TransPoint has plans to
continue to expend substantial amounts in the development and marketing of its
bill presentment and payment service.
TransPoint was established in September 1998 based on an arrangement
whereby the electronic bill presentment and payment business in the United
States previously under development by MSFDC, L.L.C., a joint venture founded in
June 1997 by Microsoft and First Data, was contributed to a newly formed entity,
TransPoint L.L.C. The members of TransPoint, L.L.C. are MSFDC, L.L.C. and
Citicorp Electronic Commerce Inc. The Citicorp member of TransPoint is a wholly
owned subsidiary of Citibank, N.A. In connection with this arrangement, two
additional entities were formed: TransPoint Technologies and Services L.L.C. and
TransPoint Accounting LLC. These were formed to establish a structure that would
enable equity stakes to be subsequently sold to additional investors. The
Citicorp Member interest in TransPoint Technologies and Services L.L.C. and
TransPoint L.L.C. is 25% and 5%, respectively, with MSFDC, L.L.C. holding the
remaining interests. TransPoint Technologies and Services and TransPoint L.L.C.
each hold 50% capital interests in TransPoint Accounting. These entities are
collectively referred to as the TransPoint Entities. The TransPoint Entities
have been in the development stage and began limited operation of "biller"
services in May 1999, but formally commenced commercial operations in February
2000 with the aforementioned consumer service.
RESULTS OF OPERATIONS
TransPoint had no revenues in either fiscal year 1999 or the fiscal period
1998. Revenue during the nine month period ended March 31, 2000 was $7.4
thousand and represents biller revenue only as the consumer offering was not
live as of March 31, 2000.
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No costs of revenues were incurred in either fiscal year 1999 or fiscal
period 1998.
Product development expenses since inception have consisted primarily of
payments of salaries and fringe benefits to employees and contractors of
TransPoint and to Microsoft and First Data. Product development in fiscal year
1999 was $26.6 million compared to $10.0 million in fiscal period 1998. Of such
amounts, $23.2 million in 1999 and $9.7 million in 1998, were incurred by and
reimbursed to Microsoft and First Data. The increase in product development
expenses is attributable to substantial expenditures by TransPoint as it
expanded research and development of its core technology during fiscal year
1999.
Our Product Development costs were $6.0 million for the fiscal nine months
ending March 31, 2000. During the comparable period ending March 31, 1999,
product development costs were $18.4 million. This represents a 67.4% decrease
in total development costs due to TransPoint adopting SOP 98-1 in fiscal 2000.
SOP 98-1, Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use, resulted in the capitalization of approximately $10.9 million in
product development costs. [insert Note 1 here]
Effective February 15, 2000, TransPoint implemented a retention plan for
its employees that resulted in additional compensation payable upon either the
closing or termination of the transaction with CheckFree. TransPoint recorded
$2.5 million related to this plan in the quarter ended March 31, 2000. Of this
amount, approximately $1.1 million and $1.4 million were classified as product
development and selling general and administrative expense, respectively.
TransPoint expects that comparable amounts will be recorded through the closing
or termination of the transaction.
Operating as an independent entity, TransPoint expects that product
development expenses will remain steady (excluding the impact of the bonus plan)
to continue rapid innovation in its services to be competitive as new modes of
internet payments gain popularity.
SALES, MARKETING, GENERAL AND ADMINISTRATIVE
Sales, marketing, general and administrative expenses include payroll and
related costs for TransPoint's administrative and executive personnel, including
those personnel employed by Microsoft and First Data that are dedicated to the
TransPoint business, costs related to TransPoint's marketing and promotion
efforts, other overhead costs, and legal and accounting costs and fees of
consultants and professionals. Sales, marketing, general and administrative
expenses for fiscal year 1999 were $18.6 million compared with $5.8 million in
fiscal period 1998, reflecting primarily increased sales and marketing expense
incurred in the roll-out of the TransPoint service. Of such amounts, $13.8
million in 1999 and $4.8 million in 1998, were incurred by and reimbursed to
Microsoft and First Data.
Sales, marketing, general and administrative expenses were $32.4 million
for the fiscal nine months ending March 31, 2000 and $12.6 million during the
comparable period ending March 31, 1999. This represents a 157% increase over
the prior year due, in part, to a 38% increase in operations headcount necessary
to manage and operate the data centers, including creation of a "disaster
recovery" site with synchronized data and the ability to resume operations with
minimal delay in the event of interruption of service in the primary data
center. Implementation and Sales headcount grew 20% and 23% respectively as we
continue to sign and prepare for additional TransPoint billers. Third party
expenses relating to biller and consumer marketing campaigns also contributed to
the year over year increase in order to place advertising on the internet, in
newspapers, and on the radio.
As an independent entity, TransPoint expects marketing expenses to increase
substantially in future periods as it invests further in marketing activities to
promote its services. As consumer volume of transactions increases, operating
expenses for transaction processing and customer service expenses will increase.
Other Expense (Income) was ($464) thousand for the fiscal year ending July
2, 1999 and ($18) thousand during the comparable period ending July 3, 1998.
Other Expense (Income) was ($1,054) thousand for the 9 months ending March 31,
2000 and ($26) thousand during the comparable period ending March 31, 1999. The
increase in other income stems from interest income earned on cash and cash
equivalents during the periods.
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Minority interest of $2.1 million for the fiscal year ending July 2, 1999
and $5.6 million for the fiscal nine months ending March 31, 2000 was due to the
Citibank investment in MSFDC subsidiaries TransPoint L.L.C. and TransPoint
Technologies and Services L.L.C. beginning April 15, 1999.
BALANCE SHEET DATA
Cash and cash equivalents were $51.1 million at fiscal year end July 2,
1999 and $0 at the comparable period ending July 3, 1998. The increase is due to
capital contributions from the members less operating cash flows. Cash and cash
equivalents were $8.0 million at the fiscal nine months ended March 31, 2000 due
to cash outflows associated with related party reimbursements and normal
operating cash expenses.
Capitalized software net, was $9.9 million at the fiscal period end March
31, 2000 resulting from the adoption of SOP 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use.
Unearned revenue was $4.5 million at the fiscal nine month period ending
March 31, 2000 and $0 for the fiscal year ending July 2, 1999 and the fiscal
period ended July 3, 1998. This $4.5 million in unearned revenue represents
payments in connection with an international license agreements. These proceeds
net of direct incremental costs of marketing, will apply against the capitalized
software costs as proceeds are earned.
Minority interest was $45.9 million at fiscal year ending July 2, 1999 and
$0 at the comparable period ending July 3, 1998. This increase represents the
Citicorp member interest in TransPoint beginning April 15, 1999. Minority
interest was $40.3 million at the nine month period ending March 31, 2000. The
decrease represents Citibank's minority interest of the operating losses during
such period totaling $5.6 million.
NET LOSS
Net cumulative loss through July 2, 1999 was approximately $58.5 million.
Net loss for the fiscal year 1999 was $42.7 million and net loss for the fiscal
period 1998 was $15.9 million. Net cumulative loss thorough March 31, 2000 was
$90.3 million.
LIQUIDITY AND CAPITAL RESOURCES
To date, TransPoint has financed its operations through the capital
contributions from its members, Microsoft, First Data and Citicorp Electronic
Commerce Inc., a wholly owned subsidiary of Citicorp. At July 2, 1999,
TransPoint had a member's capital deficiency of $10.0 million. TransPoint had
cash and cash equivalents of $51.1 million at July 2, 1999. At March 31, 2000
its cash and cash equivalents had decreased to $8.0 million.
If and when higher volume sales of TransPoint's services occur and higher
transaction volumes occur, working capital needs will also increase.
As an independent entity, TransPoint's future expenditures and capital
requirements will depend on numerous factors, including the progress of its
product development, sales and marketing programs and sales growth. As an
independent entity, TransPoint expects its cash requirements to increase
significantly each year as it expands its activities and operations to finance
increased personnel costs, and sales and marketing expenses. As an independent
entity, TransPoint anticipates considerable increase in consumer usage of
internet payments and increased motivation of billing companies to move billing
to the internet. New internet-based payment services will be developed as the
internet is exploited to do more than replace paper bills and checks, but also
take better advantage of the immediacy of electronic communication, take
advantage of long-term improvements in payment systems, and add capabilities to
enhance the use of information generated by electronic transactions. In
addition, the consumer to business billing capabilities can be extended to meet
the needs for electronic invoicing payment in the rapidly increasing volume of
business to business purchasing occurring on the internet. Management
anticipates that taking advantage of these opportunities will result in needing
to raise additional capital and expects that such additional capital would come
primarily from additional contributions from existing or new members.
87
<PAGE> 90
CASH POSITION AT CLOSING
In connection with, and subject to the closing of, the merger agreement,
the owners of TransPoint have agreed that at the closing of the mergers
TransPoint will have available $100 million of cash.
EXPERTS
The consolidated financial statements of TransPoint, a development stage
company, included in this proxy statement/prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedule of CheckFree Holdings incorporated in this proxy statement/prospectus
by reference from the CheckFree Holdings' Annual Report on Form 10-K for the
year ended June 30, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of BlueGill incorporated by reference
in this proxy statement/ prospectus from the CheckFree Holdings' Current Report
on Form 8-K dated March 16, 2000 and amended on April 27, 2000 have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
LEGAL MATTERS
We have engaged Porter, Wright, Morris & Arthur LLP, Columbus, Ohio and
Simpson Thacher & Bartlett, Palo Alto, California to assist us with legal
matters concerning the merger agreement and the related agreements. Porter,
Wright, Morris & Arthur LLP will pass on the validity of our common stock to be
issued in the merger agreement and the related agreements. Partners of Porter,
Wright, Morris & Arthur LLP who participated in the preparation of this proxy
statement/prospectus beneficially own an aggregate of 26,507 shares of our
common stock consisting of a combination of stock and options exercisable within
60 days after the date of this proxy statement/prospectus.
88
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
MSFDC, L.L.C.
Redmond, Washington
We have audited the accompanying consolidated balance sheets of MSFDC,
L.L.C. and subsidiaries, a development stage company (the Company), as of July
2, 1999, and July 3, 1998, and the related consolidated statements of
operations, members' capital deficiency, and cash flows for the year ended July
2, 1999, and the periods from June 18, 1997 (inception) to July 3, 1998, and
from June 18, 1997 (inception) to July 2, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of July 2, 1999,
and July 3, 1998, and the results of its operations and its cash flows for the
year ended July 2, 1999, and for the periods from June 18, 1997 (inception) to
July 3, 1998, and from June 18, 1997 (inception) to July 2, 1999, in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
--------------------------------------
Deloitte & Touche LLP
Seattle, Washington
October 22, 1999 (February 15, 2000, as to Note 4)
F-1
<PAGE> 92
MSFDC, L.L.C. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JULY 2, JULY 3,
2000 1999 1998
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents............................ $ 8,018,791 $51,113,749 $ --
Prepaid Expenses..................................... 750,000
Property and Equipment:
Equipment.......................................... 4,757,196 3,924,418 2,004,261
Accumulated depreciation........................... (3,994,563) (2,213,876) (343,409)
----------- ----------- ----------
Total property and equipment............... 762,633 1,710,542 1,660,852
Capitalized Software................................. 9,926,973
----------- ----------- ----------
Total...................................... $19,458,397 $52,824,291 $1,660,852
=========== =========== ==========
LIABILITIES AND MEMBERS' CAPITAL DEFICIENCY
Liabilities:
Checks drawn in excess of bank balances............ $ -- $ -- $ 57,830
Accounts payable (See Note 3)...................... 11,853,496 16,289,271 6,095,216
Accrued liabilities................................ 4,547,358 592,192 361,261
Unearned revenue................................... 4,500,000
----------- ----------- ----------
Commitments (See Note 4)........................... 20,900,854 16,881,463 6,514,307
Minority Interest.................................... 40,328,665 45,936,458
Members' Capital Deficiency:
Membership interest -- MS member................... (20,885,561) (4,996,815) (2,426,694)
Membership interest -- FDC member.................. (20,885,561) (4,996,815) (2,426,761)
----------- ----------- ----------
Total members' capital deficiency.......... (41,771,122) (9,993,630) (4,853,455)
----------- ----------- ----------
Total...................................... $19,458,397 $52,824,291 $1,660,852
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 93
MSFDC, L.L.C. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
INCEPTION TO INCEPTION TO ENDED ENDED ENDED ENDED
YEAR ENDED JULY 3, JULY 2, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
JULY 2, 1999 1998 1999 2000 1999 2000 1999
------------ ------------ ------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES.................... $ -- $ -- $ -- $ 4,290 $ -- $ 7,350 $ --
OPERATING EXPENSES:
Product development (See
Note 3).................. 26,559,520 10,032,522 36,592,042 4,475,873 6,463,850 5,996,849 18,364,993
Selling, general, and
administrative (See Note
3)....................... 18,637,762 5,839,118 24,476,880 14,156,818 5,359,342 32,449,303 12,642,220
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 45,197,282 15,871,640 61,068,922 18,632,691 11,823,192 38,446,152 31,007,213
OTHER EXPENSE (INCOME)...... (463,632) (18,118) (481,750) (142,068) (2,911) (1,053,517) (25,743)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before minority
interest............. 44,733,650 15,853,522 60,587,172 18,486,333 11,820,281 37,385,285 30,981,470
MINORITY INTEREST........... (2,063,542) (2,063,542) (2,732,287) (5,607,793)
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET LOSS.................... $42,670,108 $15,853,522 $58,523,630 $15,754,046 $11,820,281 $31,777,492 $30,981,470
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
INCEPTION TO
MARCH 31,
2000
------------
(UNAUDITED)
<S> <C>
REVENUES.................... $ 7,350
OPERATING EXPENSES:
Product development (See
Note 3).................. 42,588,891
Selling, general, and
administrative (See Note
3)....................... 56,926,183
-----------
Total operating
expenses............ 99,515,074
OTHER EXPENSE (INCOME)...... (1,535,267)
-----------
Loss before minority
interest............. 97,972,457
MINORITY INTEREST........... (7,671,335)
-----------
NET LOSS.................... $90,301,122
===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 94
MSFDC, L.L.C. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
MS MEMBER FDC MEMBER TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Capital contributions............................. $ 5,500,067 $ 5,500,000 $ 11,000,067
Net loss.......................................... (7,926,761) (7,926,761) (15,853,522)
------------ ------------ ------------
Balance, July 3, 1998............................. (2,426,694) (2,426,761) (4,853,455)
Capital contributions............................. 18,764,933 18,765,000 37,529,933
Net loss.......................................... (21,335,054) (21,335,054) (42,670,108)
------------ ------------ ------------
Balance, July 2, 1999............................. (4,996,815) (4,996,815) (9,993,630)
Capital contributions (unaudited)
Net loss (unaudited).............................. (15,888,746) (15,888,746) (31,777,492)
------------ ------------ ------------
Balance, March 31, 1999 (unaudited)............... $(20,885,561) $(20,885,561) $(41,771,122)
============ ============ ============
INCEPTION TO JULY 2, 1999
Capital contributions............................. $ 24,265,000 $ 24,265,000 $ 48,530,000
Net loss.......................................... (29,261,815) (29,261,815) (58,523,630)
------------ ------------ ------------
Balance, July 2, 1999............................. $ (4,996,815) $ (4,996,815) $ (9,993,630)
============ ============ ============
INCEPTION TO MARCH 31, 2000
Capital contributions (unaudited)................. $ 24,265,000 $ 24,265,000 $ 48,530,000
Net loss (unaudited).............................. (45,150,561) (45,150,561) (90,301,122)
------------ ------------ ------------
Balance, March 31, 2000 (unaudited)............... $(20,885,561) $(20,885,561) $(41,771,122)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 95
MSFDC, L.L.C. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS INCEPTION
YEAR ENDED INCEPTION TO INCEPTION TO ENDED ENDED TO
JULY 2, JULY 3, JULY 2, MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................ $(42,670,108) $(15,853,522) $(58,523,630) $(31,777,492) $(30,981,470) $(90,301,122)
Adjustments to reconcile
net loss to net cash
used by operating
activities:
Depreciation.......... 1,870,467 343,409 2,213,876 2,755,054 1,366,022 4,968,930
Minority interest
share of loss....... (2,063,542) (2,063,542) (5,607,793) (7,671,335)
Cash provided (used)
by changes in
operating assets and
liabilities:
Checks drawn in
excess of bank
balance.......... (57,830) 57,830
Prepaid Expenses...... (750,000) (750,000)
Accounts payable and
accrued
liabilities...... 10,424,986 6,456,477 16,881,463 (480,609) 1,519,858 16,400,854
Unearned revenue.... 4,500,000 4,500,000
------------ ------------ ------------ ------------ ------------ ------------
Net cash used by
operating
activities..... (32,496,027) (8,995,806) (41,491,833) (31,360,840) (28,095,590) (72,852,673)
INVESTING ACTIVITIES:
Acquisition of
equipment............. (1,920,157) (2,004,261) (3,924,418) (832,778) (4,757,196)
Capitalized software.... (10,901,340) (10,901,340)
------------ ------------ ------------ ------------ ------------ ------------
Net cash used by
investing
activities............ (1,920,157) (2,004,261) (3,924,418) (11,734,118) 0 (15,658,536)
FINANCING ACTIVITIES:
Member capital
contributions......... 37,529,933 11,000,067 48,530,000 28,579,933 48,530,000
Capital contribution
from minority
interest.............. 48,000,000 48,000,000 48,000,000
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by
financing
activities............ 85,529,933 11,000,067 96,530,000 28,579,933 96,530,000
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............. 51,113,749 51,113,749 (43,094,958) 484,343 8,018,791
CASH AND CASH EQUIVALENTS:
Beginning of period..... 51,113,749
------------ ------------ ------------ ------------ ------------ ------------
End of period........... $ 51,113,749 $ -- $ 51,113,749 $ 8,018,791 $ 484,343 $ 8,018,791
============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 96
MSFDC, L.L.C. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
Description of Business -- The purpose of the business is to provide
electronic statement presentment and electronic remittance services to consumers
and businesses using the Internet. The business has been in the development
stage and commenced commercial operations in July 1999.
Organization -- MSFDC, L.L.C. is a Delaware limited liability company and
was formed pursuant to the Limited Liability Company Agreement of MSFDC, L.L.C.
dated as of June 18, 1997 (inception) (the LLC Agreement). The members of MSFDC,
L.L.C. are MS II, L.L.C., a Delaware limited liability company (the MS member),
and First Data L.L.C., a Delaware limited liability company (the FDC member).
The MS member is a wholly owned subsidiary of Microsoft Corporation (MS). The
FDC member is a wholly owned subsidiary of First Data Corporation (FDC).
In September 1998, MSFDC, L.L.C. entered into an arrangement whereby the
electronic bill presentment and payment service business in the United States
previously under development by MSFDC, L.L.C. was contributed to a newly formed
entity, Newco L.L.C. (TransPoint). The members of TransPoint are MSFDC, L.L.C.
and Citicorp Electronic Commerce Inc. (the Citicorp member). The Citicorp member
of TransPoint is a wholly owned subsidiary of Citicorp. In connection with this
new arrangement, two additional entities were formed: New MSFDC, L.L.C.
(TransPoint Technologies and Services) and Jointco L.L.C. (TransPoint
Accounting). The Citicorp member interest in TransPoint Technologies and
Services and TransPoint is 25% and 5%, respectively, with MSFDC, L.L.C. holding
the remaining interests. TransPoint Technologies and Services and TransPoint
each hold 50% capital interests in TransPoint Accounting. These three new
entities are collectively referred to as the TransPoint limited liability
companies.
The TransPoint limited liability companies collectively have rights to all
future domestic revenues generated by the electronic bill presentment and
payment service previously under development by MSFDC, L.L.C. The MS and FDC
members have established a new limited partnership, MSFDC International L.P., to
account for the future international revenues and related costs.
Contributions -- Upon formation of MSFDC, L.L.C. in 1997, the MS member
contributed $50,000 in cash. First Data Resources, Inc. contributed $40,000 in
cash, and Integrated Payment Systems Inc. contributed $10,000 as initial capital
contributions. Immediately following the initial capital contribution,
Integrated Payment Systems Inc. transferred its membership interest to First
Data Resources Inc. These interests were then transferred to First Data L.L.C.
In connection with the formation of the new TransPoint limited liability
companies, Citicorp contributed $48,000,000 in cash as its initial contribution
and MSFDC, L.L.C. contributed $37,529,933. MSFDC, L.L.C. and the Citicorp member
also made nonmonetary contributions to the TransPoint limited liability
companies with a stated value of $446,250,000 and $30,750,000, respectively. The
MSFDC, L.L.C. nonmonetary contribution was in the form of software development,
goodwill, and tangible and intangible assets. The Citicorp member nonmonetary
contribution represented an option to obtain a license of software and
intangible assets and no value has been ascribed to this contribution in the
accompanying consolidated financial statements.
Loss and Cash Flow Allocations -- The allocation of profit and loss and
cash flow of MSFDC, L.L.C. and the TransPoint limited liability companies is
defined in the respective limited liability company agreements. These agreements
generally result in a sharing of ongoing capital contribution requirements and
profit and loss based on initial membership interests. Cash distributions are to
be made annually in an amount equal to the assumed tax liability of the
entities, or if greater, excess cash flow. For financial reporting purposes,
losses from the TransPoint limited liability companies have been allocated to
MSFDC, L.L.C. and the Citicorp member based on their respective capital account
interests of 85% and 15%, respectively. Citicorp loss allocations commenced upon
the date of their capital contribution in April 1999.
F-6
<PAGE> 97
MSFDC, L.L.C. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Interim Financial Statements -- The interim financial information
contained herein is unaudited but, in the opinion of management, reflects all
adjustments which are necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented. All
such adjustments are of a normal, recurring nature. Results of operations for
interim periods presented herein are not necessarily indicative of results of
operations for the entire year.
The unaudited interim financial statements of MSFDC L.L.C. include the
accounts of MSFDC International, L.P., which was formed in April 1999. The
accounts of MSFDC International, L.P. have been combined with those of the MSFDC
L.L.C. due to common ownership, and because the entity is being acquired under
the same transaction as MSFDC L.L.C. (see note 4).
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The financial statements include all majority and wholly
owned subsidiaries (collectively, the Company). Intercompany balances and
transactions have been eliminated in consolidation.
Minority Interest -- Citicorp's capital contributions and share of losses
in the TransPoint limited liability companies has been recorded as a minority
interest.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and related
disclosures. Actual results could differ from those estimates.
Property and Equipment -- Property and equipment is carried at cost, less
accumulated depreciation, and consists primarily of computers and related
technical equipment. Depreciation is provided utilizing the straight-line method
over the estimated useful lives of the assets, which range from one year to 3
years.
The carrying value of equipment is reviewed periodically for impairment. If
the carrying amount of the asset is not recoverable, the asset is considered to
be impaired and the value is adjusted to the estimated fair value.
Income Taxes -- As a limited liability company, the Company is treated as a
partnership for federal and state income tax purposes and its income or loss is
taxable directly to its members. Accordingly, the accompanying financial
statements do not include any income tax provisions.
Product Development -- Product development costs are expensed as incurred.
Statement of Financial Accounting Standards (SFAS) No. 86. Accounting for the
Costs of Computer Software to be Sold, Licensed or Otherwise Marketed, does not
materially affect the Company.
Recent Accounting Pronouncement -- In March 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 requires capitalization and amortization of costs relating to
internal-use software, and was adopted by the Company beginning July 3, 1999.
The adoption of SOP 98-1 resulted in the capitalization of approximately $10.9
million in costs through March 31, 2000 (unaudited). Capitalized costs include
payroll and payroll-related costs for software developed by the Company and the
cost of software purchased from third parties.
As of January 31, the Company began amortizing its capitalized software
costs, using the straight-line method over 36 months, as the software is ready
for its intended use. Quarterly, the Company reviews and measures any impairment
in accordance with the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Subsequently, the Company licensed the software to third-parties. As of
March 31, 2000, the Company had received $4.5 million (unaudited) in proceeds
from the licensing of the software, and will apply the
F-7
<PAGE> 98
MSFDC, L.L.C. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceeds, net of direct incremental costs of marketing, against the capitalized
software costs as the proceeds are earned.
NOTE 3: RELATED PARTY TRANSACTIONS AND COMMITMENTS
Operating Costs and Reimbursements -- The MS member and the FDC member
provide certain operational services, some of which are reimbursed by the
Company. Selling, general, and administrative expenses related to these services
provided by the MS member and the FDC member for the year ended July 2, 1999,
totaled $2,248,000 and $11,601,000, respectively, and $836,000 and $3,925,000,
respectively, for the period from June 18, 1997 (inception) to July 3, 1998.
Services related to selling, general, and administrative expenses for the
nine-month periods ended March 31, 2000 and 1999 (unaudited) totaled $16,856,000
and $1,433,000, respectively, for the MS member and $3,341,000 and $8,330,000,
respectively, for the FDC member.
Research and Development Costs and Reimbursements -- The MS member and the
FDC member perform certain research and development activities, some of which
are reimbursed by the Company. Research and development expenses related to
these activities performed by the MS member and the FDC member for the year
ended July 2, 1999, and the period from June 18, 1997 (inception) to July 3,
1998, totaled $18,886,000 and $4,279,000, respectively, and $6,502,000 and
$3,155,000, respectively.
Research and development costs for the nine-month periods ended March 31,
2000 and 1999 (unaudited) totaled $15,094,000 and $13,133,000, respectively, for
the MS member and $-0- and $3,327,000, respectively, for the FDC member. Of
research and development costs incurred during the nine-month period ended March
31, 2000, $10,901,000 (unaudited) was capitalized under SOP 98-1 as software
developed for internal use.
Accounts Payable -- Accounts payable includes $11,722,000 and $4,407,000 to
the MS member and the FDC member, respectively, as of July 2, 1999, and
$2,569,000 and $2,582,000 to the MS member and the FDC member, respectively, as
of July 3, 1998.
Accounts payable as of March 31, 2000 (unaudited) includes $11,178,000 and
$543,000 for the MS member and FDC member, respectively.
NOTE 4: SUBSEQUENT EVENTS
On September 24, 1999, the Company entered into a three year sales and
marketing agreement with a third-party whereby the Company guaranteed that the
third-party would realize minimum revenues of $12 million over the term of the
agreement. In the event of a revenue shortfall, the Company is obligated to pay
the difference directly to the third-party.
On February 15, 2000, the Company entered into an agreement to be acquired.
Under the terms of the agreement, the members have agreed that at the closing of
the mergers TransPoint will have available $100 million in cash.
F-8
<PAGE> 99
APPENDIX A
------------------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMONG
MICROSOFT CORPORATION, FIRST DATA CORPORATION, FIRST DATA RESOURCES, INC.,
CITIBANK, N.A.,
H&B FINANCE, INC.,
FDC INTERNATIONAL PARTNER, INC., MSFDC INTERNATIONAL, INC.,
CITI TRANSPOINT HOLDINGS INC.,
CHECKFREE HOLDINGS CORPORATION,
TRANSPOINT ACQUISITION CORPORATION,
TANK ACQUISITION CORPORATION,
CHOPPER MERGER CORPORATION,
CHECKFREE CORPORATION, MICROSOFT II, LLC, AND FIRST DATA, L.L.C.
------------------------
Dated as of July 7, 2000
A-1
<PAGE> 100
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Actions................................. 9
Adjusted Working Capital................ 36
Affiliate............................... 43
Agreement............................... 4
Alternative Agreement Period............ 40
Ancillary Agreements.................... 5
Antitrust Laws.......................... 33
Authorizations.......................... 16
Balance Sheet........................... 13
Capital Stock........................... 44
Certificates of Merger.................. 6
CheckFree............................... 4
CheckFree Common Stock.................. 6
CheckFree Disclosure Schedule........... 21
CheckFree Filed SEC Documents........... 24
CheckFree Registration Statement........ 30
CheckFree Rights Agreement.............. 6
CheckFree SEC Documents................. 24
CheckFree Stockholders Meeting.......... 31
Citi Holdings........................... 4
Citibank................................ 4
Citibank Registration Rights
Agreement............................. 5
Closing................................. 7
Closing Date............................ 7
Commercial Alliance Agreement........... 5
Control................................. 43
Designated Group(s)..................... 44
DGCL.................................... 5
Disclosing Party........................ 46
DoJ..................................... 32
Effective Time.......................... 6
Environmental Laws...................... 19
Environmental Permits................... 19
Environmental Report.................... 19
Exchange Act............................ 44
Executory Period........................ 29
Fair Market Value....................... 44
FDC..................................... 4
FDC International....................... 4
Fee Properties.......................... 14
Financial Statements.................... 13
FTC..................................... 32
Governmental Entity..................... 44
H&B..................................... 4
Holding Subsidiaries.................... 4
HSR Act................................. 9
Indebtedness............................ 13
indemnified party....................... 42
Infringement............................ 16
Intellectual Property Agreements........ 15
Intellectual Property Rights............ 16
International GP........................ 4
Knowledge............................... 44
Laws.................................... 16
Leased Properties....................... 14
License Agreements...................... 5
Liens................................... 44
Losses.................................. 41
Marketing Agreement..................... 5
Material Adverse Effect................. 44
Material Contracts...................... 14
Material Customers...................... 20
Material Transaction Proposal........... 44
Materials of Environmental Concern...... 19
Merger A................................ 5
Merger A Consideration.................. 7
Merger B................................ 5
Merger B Consideration.................. 7
Merger C................................ 5
Merger C Consideration.................. 7
Merger Sub A............................ 4
Merger Sub B............................ 4
Merger Sub C............................ 4
Merger Subsidiaries..................... 4
Mergers................................. 4
Microsoft............................... 4
MSFDC................................... 4
MSFDC International..................... 4
Non-Disclosure Agreement................ 34
OCC..................................... 9
Order................................... 33
Original Agreement...................... 5
Other Services.......................... 29
Outstanding CheckFree Common Stock...... 22
Parent Consideration.................... 8
Parent Disclosure Schedules............. 8
Parent Indemnified Parties.............. 43
Parent IPR.............................. 17
Parents................................. 4
Parents' Agent.......................... 43
Permitted Liens......................... 44
Person.................................. 44
Proxy Statement/Prospectus.............. 30
Registration Rights Agreement........... 5
Representatives......................... 31
Required CheckFree Vote................. 37
SEC..................................... 44
Securities Act.......................... 44
Stockholder Agreement................... 5
Subsidiary.............................. 44
Superior Proposal....................... 45
Supplemental Financial Information...... 34
</TABLE>
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<TABLE>
<S> <C>
Surviving Citi Holdings................. 5
Surviving Corporations.................. 5
Surviving FDC International............. 5
Surviving H&B........................... 5
Tax Return.............................. 45
Tax, Taxes, Taxable..................... 45
Third Party Claim....................... 42
Third Party IPR......................... 17
Transition Services Agreement........... 5
TransPoint.............................. 4
TransPoint Accounting................... 4
TransPoint Business..................... 4
TransPoint Disclosure Schedule.......... 11
TransPoint Entities..................... 4
TransPoint Indemnified Persons.......... 36
TransPoint Technology................... 4
Unaudited Balance Sheet................. 13
WCBA.................................... 6
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of
July 7, 2000 by and among CheckFree Holdings Corporation, a Delaware corporation
("CheckFree"); Microsoft Corporation, a Washington corporation ("Microsoft");
First Data Corporation, a Delaware corporation ("FDC"); Citibank, N.A., a
Delaware corporation ("Citibank", and, together with Microsoft and FDC, the
"Parents"); H&B Finance, Inc., a Washington corporation and a wholly-owned
subsidiary of Microsoft ("H&B"); FDC International Partner, Inc., a Delaware
corporation and a wholly-owned subsidiary of FDR Subsidiary Corp., which is a
Delaware corporation and a wholly-owned subsidiary of First Data Resources,
Inc., which is a Delaware corporation and a wholly-owned subsidiary of FDC ("FDC
International"); MSFDC International, Inc., a Delaware corporation
("International GP"); Citi TransPoint Holdings Inc., a Delaware corporation and
a wholly-owned subsidiary of Citicorp Electronic Commerce, Inc., which is a
Delaware corporation and a wholly-owned subsidiary of Citibank ("Citi Holdings"
and, together with H&B and FDC International, the "Holding Subsidiaries");
TransPoint Acquisition Corporation, a Washington corporation and a wholly-owned
direct subsidiary of CheckFree ("Merger Sub A"); Tank Acquisition Corporation, a
Delaware corporation and a wholly-owned direct subsidiary of CheckFree ("Merger
Sub B"); Chopper Merger Corporation, a Delaware corporation and a wholly-owned
direct subsidiary of CheckFree ("Merger Sub C" and, together with Merger Sub A
and Merger Sub B, the "Merger Subsidiaries"); CheckFree Corporation, a Delaware
corporation and a wholly-owned subsidiary of CheckFree; Microsoft II, LLC, a
Delaware limited liability company all of the equity interests in which are
owned by Microsoft; and First Data, L.L.C., a Delaware limited liability company
all of the equity interests in which are owned by FDR.
BACKGROUND
WHEREAS, CheckFree is a provider of electronic billing and payment
services;
WHEREAS, the Parents are, in the aggregate, the direct or indirect sole
beneficial owners of the Holding Subsidiaries, which in turn own, in the
aggregate, all of the limited liability company interests of each of MSFDC,
L.L.C., a Delaware limited liability company ("MSFDC"), TransPoint Technology &
Services, L.L.C., a Delaware limited liability company ("TransPoint
Technology"), and TransPoint, L.L.C., a Delaware limited liability company
("TransPoint") (and TransPoint Technology and TransPoint hold all of the equity
interests in TransPoint Accounting, L.L.C., a Delaware limited liability company
("TransPoint Accounting")), and all of the partnership interests of MSFDC
International, L.P., a Delaware limited partnership ("MSFDC International", and,
together with MSFDC, TransPoint Technology, TransPoint and TransPoint
Accounting, the "TransPoint Entities");
WHEREAS, the sole activity of the TransPoint Entities (and their
predecessors-in-interest) is to develop and conduct a business relating to the
provision of electronic billing and payment services (the "TransPoint Business")
and the sole activity of the Holding Subsidiaries is to hold the equity
interests in the TransPoint Entities;
WHEREAS, each of the respective Boards of Directors of CheckFree, each of
the Holding Subsidiaries and each of the Parents (i) has determined that a
combination of the businesses of CheckFree and the Holding Subsidiaries is
advisable and fair to, and in the best interests of, such party and its
stockholders and (ii) has approved this Agreement;
WHEREAS, the parties to this Agreement intend to effect the combination of
the businesses of CheckFree and the Holding Subsidiaries upon the terms and
subject to the conditions set forth in this Agreement, which terms include (i)
the merger of Merger Sub A with and into H&B, (ii) the merger of Merger Sub B
with and into FDC International, and (iii) the merger of Merger Sub C with and
into Citi Holdings (together, the "Mergers");
WHEREAS, concurrently with the execution and delivery of this Agreement as
an inducement to the willingness of each of the Parents to enter into this
Agreement, certain holders of shares of CheckFree Common Stock (as defined
herein) have each entered into Stockholder Support Agreements dated as of the
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date hereof pursuant to which such holders have agreed to vote their shares of
CheckFree Common Stock in the manner set forth therein;
WHEREAS, for federal income tax purposes, it is intended that each of the
Mergers will qualify as a reorganization within the meaning of Section 368(a) of
the Code;
WHEREAS, upon the terms and subject to the conditions of this Agreement, at
the time of the Closing, (i) each of Microsoft and FDC intend to enter with
CheckFree into (A) a Stockholder Agreement in the form set forth as Exhibit B to
this Agreement (the "Stockholder Agreement"), and (B) a Registration Rights
Agreement as set forth as Exhibit C to this Agreement (the "Registration Rights
Agreement"), which agreements will set forth certain rights and obligations of
each such Parent as stockholders of CheckFree subsequent to the Mergers, (ii)
Citibank intends to enter with CheckFree into a Registration Rights Agreement as
set forth in Exhibit D to this Agreement (the "Citibank Registration Rights
Agreement"), (iii) CheckFree and Microsoft intend to enter into a Commercial
Alliance Agreement in the form set forth as Exhibit E to this Agreement (the
"Commercial Alliance Agreement"), (iv) CheckFree and FDC intend to enter into a
Marketing Agreement in the form set forth as Exhibit F to this Agreement (the
"Marketing Agreement"), (v) each of Microsoft and FDC will confirm the existence
of and make certain modifications to the intellectual property license
agreements between such Parents and one or more of the TransPoint Entities, in
the form set forth as Exhibits G(1) and G(2), respectively, to this Agreement
(the "License Agreements"), and (vi) CheckFree, Microsoft and FDC intend to
enter into a Transition Services Agreement in the form set forth as Exhibit H to
this Agreement (the "Transition Services Agreement" and, collectively with the
agreements set forth in (i) through (v), the "Ancillary Agreements"); and
WHEREAS, the principal parties to this Agreement previously entered into an
Agreement and Plan of Reorganization and Contribution Agreement dated February
15, 2000 (the "Original Agreement"), and this Agreement constitutes an amendment
and restatement of such agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE 1 [RESERVED]
ARTICLE 2
THE MERGERS; CLOSING
SECTION 2.1 The Mergers.
(a) Merger A. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 2.2), Merger Sub A shall
be merged with and into H&B ("Merger A") in accordance with the applicable
provisions of the Washington Business Corporations Act ("WBCA"). H&B shall be
the surviving corporation ("Surviving H&B") in Merger A and shall continue its
corporate existence under the laws of the State of Washington as a wholly-owned
direct subsidiary of CheckFree.
(b) Merger B. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time, Merger Sub B shall be merged with and into FDC
International ("Merger B") in accordance with the applicable provisions of the
Delaware General Corporation Law ("DGCL"). FDC International shall be the
surviving corporation ("Surviving FDC International") in Merger B and shall
continue its corporate existence under the laws of the State of Delaware as a
wholly-owned direct subsidiary of CheckFree.
(c) Merger C. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time, Merger Sub C shall be merged with and into
Citi Holdings ("Merger C") in accordance with the applicable provisions of the
DGCL. Citi Holdings shall be the surviving corporation ("Surviving Citi
Holdings" and, together with Surviving H&B and Surviving FDC International, the
"Surviving Corporations") in Merger C
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and shall continue its corporate existence under the laws of the State of
Delaware as a wholly-owned direct subsidiary of CheckFree.
SECTION 2.2 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article 9, the parties
shall file such certificates of merger, articles of merger or other appropriate
documents (in any such case, the "Certificates of Merger") executed in
accordance with the relevant provisions of the WCBA or the DGCL, as applicable,
and shall make all other filings, recordings or publications required by the
WCBA or the DGCL, as applicable, in connection with the Mergers. The Mergers
shall become effective simultaneously at the time specified in the Certificates
of Merger (the "Effective Time").
SECTION 2.3 Effects of the Mergers. At the Effective Time, the effects of
the Mergers shall be as provided in the applicable provisions of the WCBA or
DGCL, whichever is applicable.
SECTION 2.4 Certificate/Articles of Incorporation and Bylaws. (a) The
Articles of Incorporation and Bylaws of H&B as in effect immediately prior to
the Effective Time shall be the Articles of Incorporation and Bylaws of
Surviving H&B until thereafter changed or amended as provided therein or by
applicable law. The Certificate of Incorporation and Bylaws of FDC International
as in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws of Surviving FDC International until thereafter changed
or amended as provided therein or by applicable law. The Certificate of
Incorporation and Bylaws of Citi Holdings as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and Bylaws of Surviving
Citi Holdings until thereafter changed or amended as provided therein or by
applicable law. Following the Mergers, CheckFree shall cause the names of the
Surviving Corporations to be changed to names that do not include any reference
to the Parents or any Affiliates thereof (excluding CheckFree and its
Subsidiaries).
(b) The current limited liability company operating agreements and limited
partnership agreement of the TransPoint Entities shall be terminated as of the
Effective Time and the form of the revised limited liability company
certificates of formation and limited partnership agreement of each of the
respective TransPoint Entities upon contribution at the Effective Time shall be
as set forth in Exhibit J.
SECTION 2.5 CheckFree Rights Agreement. All references in this Agreement to
the common stock, par value $.01 per share ("CheckFree Common Stock"), of
CheckFree to be issued pursuant to the transactions contemplated in this
Agreement shall be deemed to include the corresponding rights to purchase shares
of CheckFree stock pursuant to the terms and subject to the conditions of the
Rights Agreement, dated as of December 16, 1997, as amended through the date
hereof (the "CheckFree Rights Agreement"), except where the context otherwise
requires.
SECTION 2.6 Directors and Officers. (a) CheckFree shall cause the Board of
Directors of CheckFree at the Effective Time to be comprised entirely of six (6)
directors designated by CheckFree, one (1) director designated by Microsoft and
one (1) director designated by FDR which Microsoft and FDR directors shall each
be in the class of directors that will stand for election on the furthest
possible date from the Effective Time among the first three consecutive classes
to be elected after the Effective Time, and the directors in such class shall
have a term of three (3) years from election pursuant to the CheckFree
Certificate of Incorporation. Such directors will continue to serve in such
capacities until the earlier of their resignation or removal or until their
respective successors are duly elected or appointed and qualified in accordance
with the Certificate of Incorporation and the Bylaws of CheckFree.
(b) From and after the Effective Time, (i) the directors and officers of
Merger Sub A at the Effective Time shall be the initial directors and officers
of Surviving H&B, (ii) the directors and officers of Merger Sub B at the
Effective Time shall be the initial directors and officers of Surviving FDC
International, and (iii) the directors and officers of Merger Sub C at the
Effective Time shall be the initial directors and officers of Surviving Citi
Holdings, in each case, until the earlier of their resignation or removal or
their respective successors are duly elected or appointed and qualified.
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(c) At the Effective Time, the officers of MSFDC, TransPoint Technology,
TransPoint and TransPoint Accounting shall deliver their resignations as
officers of the respective TransPoint Entities, and International GP shall
deliver its resignation as general partner of MSFDC International.
SECTION 2.7 The Closing. (a) Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place (i) at the offices of Simpson Thacher & Bartlett,
3330 Hillview Avenue, Palo Alto, California, at 10:00 a.m., local time, on the
first business day following the day on which the last to be fulfilled or waived
of the conditions set forth in Article 9 shall be fulfilled or waived in
accordance herewith or (ii) at such other time, date or place as CheckFree and
the Parents may agree. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
(b) At the Closing, (i) the Parents will deliver unconditional and
irrevocable releases to CheckFree of all claims against the TransPoint Entities
and the Surviving Corporations and the TransPoint Entities and the Surviving
Corporations will deliver irrevocable releases to the Parents of all liabilities
under the limited liability company operating agreements and the limited
partnership agreement and the formation documents of the TransPoint Entities and
the Surviving Corporations, in the form set forth as Exhibits K(1) and K(2) to
this Agreement; (ii) CheckFree shall deliver to each direct owner of a Holding
Subsidiary certificates representing the CheckFree Common Stock issued pursuant
to the Mergers; (iii) CheckFree shall deliver to Microsoft and FDC certificates
representing the CheckFree Common Stock issued pursuant to Section 3.2 in
consideration of the Commercial Alliance Agreement and Marketing Agreement,
respectively; (iv) each party shall execute and deliver such of the Ancillary
Agreements as it is required under this Agreement to execute and deliver; and
(v) the parties shall take any and all other lawful actions and do any and all
other lawful things necessary to cause the Mergers to become effective as of the
Effective Time.
ARTICLE 3
PARENT CONSIDERATION
SECTION 3.1 Conversion of Shares.
(a) At the Effective Time, (i) all of the shares of common stock of H&B
issued and outstanding immediately prior to the Effective Time shall, by virtue
of Merger A and without any action on the part of Merger Sub A, H&B or
Microsoft, be converted into and shall become 5,567,250 fully paid and
nonassessable shares of CheckFree Common Stock (the "Merger A Consideration");
(ii) all of the shares of common stock of FDC International issued and
outstanding immediately prior to the Effective Time shall, by virtue of Merger B
and without any action on the part of Merger Sub B, FDC International, FDC or
FDR, be converted into and shall become 5,567,250 fully paid and nonassessable
shares of CheckFree Common Stock (the "Merger B Consideration"); and (iii) all
of the shares of common stock of Citi Holdings issued and outstanding
immediately prior to the Effective Time shall, by virtue of Merger C and without
any action on the part of Merger Sub C, Citi Holdings, Citicorp Electronic or
Citibank, be converted into and shall become 1,865,500 fully paid and
nonassessable shares of CheckFree Common Stock (the "Merger C Consideration").
(b) At the Effective Time, (i) each outstanding share of the common stock
of Merger Sub A shall, by virtue of Merger A and without any action on the part
of the Merger Sub A or CheckFree, be converted into one fully paid and
nonassessable share of common stock, without par value, of Surviving H&B; (ii)
each outstanding share of the common stock of Merger Sub B shall, by virtue of
Merger B and without any action on the part of Merger Sub B or CheckFree, be
converted into one fully paid and nonassessable share of common stock, without
par value, of Surviving FDC International; and (iii) each outstanding share of
the common stock of Merger Sub C shall, by virtue of Merger C and without any
action on the part of Merger Sub C or CheckFree, be converted into one fully
paid and nonassessable share of common stock, without par value, of Surviving
Citi Holdings.
SECTION 3.2 Other Consideration. At the Effective Time, CheckFree shall
issue, in consideration of the obligations of Microsoft and FDC pursuant to the
Commercial Alliance Agreement and Marketing Agreement, respectively, 3,000,000
and 1,000,000 fully paid and nonassessable shares of CheckFree Common
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Stock to Microsoft and FDC, respectively (such shares, together with the Merger
A Consideration, Merger B Consideration and Merger C Consideration, the "Parent
Consideration").
SECTION 3.3 Delivery of Certificates. Certificates representing the shares
of CheckFree Common Stock issuable pursuant to Sections 3.1 and 3.2 shall be
available for inspection at the Closing and shall be delivered as of the
Effective Time. Upon delivery of such certificates, each of the Parents shall
have no further interests in the Holding Subsidiaries or the TransPoint Entities
other than an indirect interest as holders of CheckFree Common Stock.
SECTION 3.4 Adjustment of Parent Consideration. Prior to the Effective
Time, in the event of any: (A) reclassification, stock split, combination or
stock dividend with respect to the CheckFree Common Stock, (B) any change or
conversion of CheckFree Common Stock into other securities or any other dividend
or (C) distribution with respect to the CheckFree Common Stock, appropriate and
proportionate adjustments, if any, shall be made to the Parent Consideration,
and all references to the Parent Consideration in this Agreement shall be deemed
to be the Parent Consideration so adjusted.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PARENTS WITH RESPECT TO THEMSELVES
Except as disclosed in the applicable disclosure schedule of even date
herewith with respect to each Parent, referring specifically to the
representations and warranties in this Agreement and identifying the section
number of this Agreement to which each disclosure relates (the "Parent
Disclosure Schedules"), each of the Parents, severally but not jointly, on
behalf of itself and the Holding Subsidiary in which it beneficially owns
Capital Stock, represents and warrants to CheckFree as follows, with respect to
itself and such Holding Subsidiary:
SECTION 4.1 Organization. (a) Such Parent is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as it is now being conducted. Such Parent is duly qualified or
licensed as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of its business or the ownership, leasing or
operation of its properties requires such qualification or licensing, except
where the failure to be so qualified or licensed and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on such Parent,
such Holding Subsidiary, CheckFree, or the TransPoint Entities.
(b) Such Holding Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to carry on its business
as it is now being conducted. Such Holding Subsidiary is duly qualified or
licensed to do business and is in good standing in each jurisdiction where the
nature of its business or the ownership, leasing or operation of its properties
requires such qualification or licensing, except where the failure to be so
qualified or licensed and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on such Holding Subsidiary, CheckFree,
or the TransPoint Entities.
SECTION 4.2 Authority. Each of such Parent and such Holding Subsidiary has
full power and authority to execute, deliver and perform this Agreement and the
Ancillary Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by such
Parent and such Holding Subsidiary of this Agreement and the Ancillary
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by all
necessary corporate or equivalent action of such Parent, such Holding Subsidiary
and any other applicable Subsidiaries of such Parent and no other corporate or
equivalent proceedings on the part of such Parent, such Holding Subsidiary or
any other applicable Subsidiaries of such Parent are necessary to authorize this
Agreement and the Ancillary Agreements to which it is a party and the
transactions contemplated hereby and thereby. This Agreement has been, and on
the Closing Date each Ancillary Agreement to which such Parent or such Holding
Subsidiary is a party will be, duly authorized, executed and
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delivered by such Parent and such Holding Subsidiary and this Agreement
constitutes, and on the Closing Date each Ancillary Agreement to which such
Parent or such Holding Subsidiary is a party will constitute, the legal, valid
and binding obligation of such Parent or such Holding Subsidiary, enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
SECTION 4.3 No Conflicts. (a) The execution, delivery and performance by
each of such Parent and such Holding Subsidiary of this Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby, including without limitation the
consummation of the Mergers, do not, and will not, (i) violate or conflict with
any provision of the Certificate of Incorporation, Articles of Incorporation or
Bylaws of such Parent or such Holding Subsidiary, (ii) violate any law, rule,
regulation, order, writ, injunction, judgment or decree of any Governmental
Entity applicable to such Parent or such Holding Subsidiary, or (iii) result in
a violation or breach of, constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, require the payment of any additional compensation
(whether as a penalty, liquidated damages or otherwise) to any party with
respect thereto, or result in the creation of or imposition of any Lien in favor
of any Person upon any of the assets of such Parent or such Holding Subsidiary
under, any note, bond, indenture, lien, mortgage, lease, permit, guaranty or
other agreement, instrument or obligation to which such Parent or such Holding
Subsidiary is a party or by which any of its assets or other rights may be
bound, except in the case of clauses (ii) and (iii) (A) as set forth in Section
4.3(a) of the applicable Parent Disclosure Schedule, and (B) for such matters
which, individually or in the aggregate, would not have a Material Adverse
Effect on such Parent, such Holding Subsidiary, CheckFree, or the TransPoint
Entities.
(b) The execution, delivery and performance by such Parent and such Holding
Subsidiaries of this Agreement and the Ancillary Agreements to which it is a
party and the consummation of the transactions contemplated hereby and thereby
will not require any consent, approval, authorization or permission of, or
filing with or notification to any Governmental Entity, or any other Person
except for (i) such filings as may be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and any
applicable foreign antitrust laws, (ii) such consents or approvals from the
Office of the Controller of the Currency ("OCC") with respect to Citibank as may
be required under applicable laws, and (iii) any such consent, approval,
authorization, permission, notice or filing which if not obtained or made would
not, individually or in the aggregate, have a Material Adverse Effect on such
Parent, such Holding Subsidiary, CheckFree, or the TransPoint Entities.
SECTION 4.4 Litigation. There are no claims, actions, suits, arbitrations,
legal or administrative proceedings or investigations ("Actions") pending or, to
the Knowledge of such Parent, threatened against or affecting such Parent or any
such Holding Subsidiary that would have a Material Adverse Effect on CheckFree
or the TransPoint Entities or have a material adverse effect on the ability of
such Parent or such Holding Subsidiary to perform its obligations hereunder or
under any of the Ancillary Agreements to which it is a party. Neither such
Parent nor such Holding Subsidiary, nor the assets, rights or business of such
Parent or such Holding Subsidiary, is subject to any judgment, order, writ,
injunction, decree, settlement or stipulation of or under any court,
governmental agency or arbitration tribunal which would have a Material Adverse
Effect on such Holding Subsidiary, CheckFree or the TransPoint Entities or have
a material adverse effect on the ability of such Parent or such Holding
Subsidiary to perform its obligations hereunder or under any of the Ancillary
Agreements to which it is a party.
SECTION 4.5 Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or
similar fee or commission, in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of such Parent or
such Holding Subsidiary.
SECTION 4.6 Reserved.
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SECTION 4.7 Information in the Proxy Statement/Registration Statement. None
of the written information with respect to such Parent and its Holding
Subsidiary supplied or to be supplied by such Parent or such Holding Subsidiary
in writing specifically for inclusion or incorporation by reference in (i) the
CheckFree Registration Statement (as defined in Section 8.1) will, at the time
the CheckFree Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the Proxy
Statement/Prospectus (as defined in Section 8.1) will, at the dates mailed to
stockholders of CheckFree and at the times of the meeting of stockholders of
CheckFree to be held in connection with the issuance of CheckFree Common Stock
in connection with this Agreement, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. No representation or warranty is made
by such Parent or such Holding Subsidiary pursuant to this Section 4.7 with
respect to statements made in or information incorporated by reference in the
CheckFree Registration Statement or the Proxy Statement/ Prospectus other than
statements based on information supplied by such Parent or such Holding
Subsidiary in writing specifically for inclusion or incorporation by reference
in the CheckFree Registration Statement or the Proxy/Statement Prospectus.
SECTION 4.8 Parent Licenses. Microsoft and FDC have licensed certain
intellectual property to the TransPoint Entities, and Citibank has given the
TransPoint Entities an option to license certain intellectual property, all as
described in the License Agreements, each as amended and restated as of the date
hereof, which licenses are in full force and effect, and are valid and binding
against the respective licensors. The Parents acknowledge that the rights of the
licensees pursuant to such respective licenses may be transferred to CheckFree
or its Subsidiaries following the Effective Time.
SECTION 4.9 Parent Conflicting Contracts. Section 4.9 of the Microsoft
Disclosure Schedule lists those contracts or agreements of Microsoft which, to
the Knowledge of Microsoft, conflict with or are exceptions to the exclusivity
and non-competition provisions of the proposed Commercial Alliance Agreement to
which Microsoft will be a party. All such contracts will expire or may be
terminated by Microsoft within one year of the Effective Time.
SECTION 4.10 Capitalization of the Holding Subsidiaries.
(a) Section 4.10(a) of each respective Parent Disclosure Schedule sets
forth (i) the total number of authorized shares of each class of Capital Stock
of the Holding Subsidiary that is a wholly-owned subsidiary of such Parent and
the number of shares thereof owned by such Parent and (ii) a complete list of
the directors and officers of such Holding Subsidiary. All of the issued and
outstanding shares of Capital Stock of such Holding Subsidiary have been duly
and validly authorized and issued and are fully paid in accordance with such
Holding Subsidiary's organizational documents, and are free of preemptive
rights. None of the outstanding shares of Capital Stock of such Holding
Subsidiary has been issued in violation of the preemptive rights of any
stockholder of such Holding Subsidiary. The Capital Stock of such Holding
Subsidiary was issued in compliance with all applicable federal and state
securities laws and regulations, and is owned free and clear of all Liens.
(b) There are neither (i) any existing agreements, subscriptions, options,
warrants, calls, commitments, trusts (voting or otherwise), or rights of any
kind whatsoever granting to any Person any interest in or the right to purchase
or otherwise acquire, at any time, or upon the occurrence of any stated event,
any Capital Stock in such Holding Subsidiary, whether or not presently issued or
outstanding, nor (ii) any outstanding Capital Stock in such Holding Subsidiary
or any other Person which is convertible into or exchangeable for other shares
of Capital Stock in such Holding Subsidiary, nor (iii) any agreements,
subscriptions, options, warrants, calls, commitments or rights of any kind
granting to any Person any interest in or the right to purchase or otherwise
acquire from any Person any shares of Capital Stock so convertible or
exchangeable, nor (iv) any proxies, agreements or understandings with respect to
the voting of the Capital Stock of such Holding Subsidiary.
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SECTION 4.11 Operations of the Holding Subsidiaries. Each such Holding
Subsidiary (a) has not engaged in any business activities or conducted any
operations other than the holding of equity interests in the TransPoint Entities
and (b) has not been responsible for any liabilities or obligations other than
those related to the TransPoint Business or the transactions contemplated by
this Agreement.
SECTION 4.12 Tax Matters. (a) (i) Each such Holding Subsidiary has filed
all material Tax Returns required to be filed; (ii) all such Tax Returns are
complete and accurate in all material respects and all Taxes shown to be due on
such Tax Returns have been timely paid, except where failure to timely pay would
not, individually or in the aggregate, have a Material Adverse Effect on such
Holding Subsidiary; (iii) all Taxes (whether or not shown on any Tax Return)
owed by such Holding Subsidiary have been timely paid or such Holding Subsidiary
has established adequate reserves therefor, except, where failure to timely pay
or establish adequate reserves would not, individually or in the aggregate, have
a Material Adverse Effect on such Holding Subsidiary; (iv) there is no action,
suit, investigation, audit, claim or assessment pending or, to the Knowledge of
the applicable Parent, proposed or threatened in writing with respect to Taxes
of such Holding Subsidiary; (v) all material deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) have been paid in full; (vi) Tax indemnity arrangements, if any,
will terminate prior to Closing and such Holding Subsidiary will not have any
liability thereunder on or after Closing; (vii) there are no Liens for Taxes
upon the assets of such Holding Subsidiary except Liens relating to current
Taxes not yet due; (viii) Taxes which such Holding Subsidiary are required by
law to withhold or to collect for payment have been duly withheld and collected,
and have been paid or accrued, reserved against and entered on the books of the
such Holding Subsidiary in accordance with GAAP; and (ix) such Holding
Subsidiary is not and has not been a member of any affiliated group of
corporations within the meaning of Section 1504(a) of the Code, other than the
affiliated group of which such Parent is the common parent corporation.
(b) Each such Holding Subsidiary does not own an interest in any (i)
domestic international sales corporation, (ii) foreign sales corporation, (iii)
controlled foreign corporation or (iv) passive foreign investment company.
(c) Each such Holding Subsidiary has never been and is not a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF THE PARENTS WITH RESPECT TO THE TRANSPOINT ENTITIES
Except as disclosed in a disclosure schedule of even date herewith,
referring specifically to the representations and warranties in this Agreement
with respect to the TransPoint Entities and identifying the section number of
this Agreement to which each disclosure relates (the "TransPoint Disclosure
Schedule"), each of the Parents, severally but not jointly, represents and
warrants to CheckFree as follows; provided, however, that Citibank is not
representing or warranting as to MSFDC or MSFDC International:
SECTION 5.1 Organization. Each of the TransPoint Entities is duly
organized, validly existing and in good standing under the laws of the state or
jurisdiction of its incorporation or formation and has all requisite corporate
power and authority to carry on its business as it is now being conducted. The
Parents have delivered to CheckFree complete and correct copies of the
certificate of incorporation and bylaws or equivalent organizational documents,
in each case, as amended to February 15, 2000, of each TransPoint Entity. Each
TransPoint Entity is duly qualified or licensed as a foreign corporation or
other organization to do business and is in good standing in each jurisdiction
where the nature of its business or the ownership, leasing or operation of its
properties requires such qualification or licensing, except where the failure to
be so qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on such Person.
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SECTION 5.2 Capitalization; Options and Other Rights.
(a) Section 5.2(a) of the TransPoint Disclosure Schedule sets forth (i) the
name and jurisdiction of incorporation or organization of each of the TransPoint
Entities, (ii) the total number of authorized shares or equity interests of each
class of Capital Stock of each of the TransPoint Entities, the number of shares
outstanding (if applicable) and the number of shares (or percentage equity
interests) owned by any other TransPoint Entity or any other Person and (iii) a
complete list of the directors and officers (or equivalent positions) of each
TransPoint Entity. All the issued and outstanding shares or equity interests of
Capital Stock of each TransPoint Entity have been duly and validly authorized
and issued and are fully paid in accordance with such TransPoint Entity's
organizational documents, and are free of pre-emptive rights. None of the
outstanding shares or equity interests of Capital Stock of any TransPoint Entity
has been issued in violation of the preemptive rights of any equityholder of
such TransPoint Entity. The Capital Stock of each TransPoint Entity was issued
in compliance with all applicable federal and state securities laws and
regulations, and is owned free and clear of all Liens.
(b) There are neither (i) any existing agreements, subscriptions, options,
warrants, calls, commitments, trusts (voting or otherwise), or rights of any
kind whatsoever granting to any Person any interest in or the right to purchase
or otherwise acquire from any TransPoint Entity, at any time, or upon the
occurrence of any stated event, any Capital Stock in any TransPoint Entity,
whether or not presently issued or outstanding, nor (ii) is there any
outstanding Capital Stock in any TransPoint Entity or any other Person which is
convertible into or exchangeable for other shares of Capital Stock of or equity
interests in any TransPoint Entity, nor (iii) are there any agreements,
subscriptions, options, warrants, calls, commitments or rights of any kind
granting to any Person any interest in or the right to purchase or otherwise
acquire from any TransPoint Entity or any other Person any shares of Capital
Stock or equity interests so convertible or exchangeable, nor (iv) are there any
proxies, agreements or understandings with respect to the voting of the Capital
Stock of any TransPoint Entity. No TransPoint Entity, directly or indirectly,
has any ownership or other interest in, or control of, any Person. No TransPoint
Entity is controlled by or under common control with any Person other than the
Parents, their Affiliates and other TransPoint Entities.
SECTION 5.3 No Conflicts; Consents. (a) The execution and delivery and the
performance of this Agreement and the consummation of the transactions
contemplated hereunder including, without limitation, the consummation of the
Mergers, do not, and will not, (i) violate or conflict with any provision of the
certificate of incorporation, bylaws, limited liability company agreement,
partnership agreement or equivalent organizational documents of any TransPoint
Entity, (ii) violate any law, rule, regulation, order, writ, injunction,
judgment or decree of any court or Governmental Entity applicable to any
TransPoint Entity or (iii) result in a violation or breach of, constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, require the payment
of any additional compensation (whether as a penalty, liquidated damages or
otherwise) to any party with respect thereto, or result in the creation of or
imposition of any Lien in favor of any Person upon any of the assets of any
TransPoint Entity under any Material Contract (as defined in Section 5.8) to
which any TransPoint Entity is a party or by which any of its assets or other
rights may be bound, except in the case of clause (ii) for matters which
individually or in the aggregate, would not have a Material Adverse Effect on
the TransPoint Entities.
(b) The execution and delivery of this Agreement does not, and the
performance of this Agreement and the consummation of the transactions
contemplated hereby will not, as to any TransPoint Entity, require any consent,
approval, authorization or permission of, or filing with or notification to any
Governmental Entity or any other Person except for (i) the filing and
recordation of appropriate merger documents as required by the WBCA and DGCL,
(ii) such filings as may be required under the HSR Act, and any applicable
foreign antitrust laws and such consents or approval of the OCC as may be
required by applicable law and (iii) any such consent, approval, authorization,
permission, notice or filing which if not obtained or made would not have,
individually or in the aggregate, a Material Adverse Effect on the TransPoint
Entities.
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SECTION 5.4 Financial Statements. Attached hereto in Section 5.4 of the
TransPoint Disclosure Schedule are true and complete copies of the following
financial statements of the TransPoint Business (the "Financial Statements"):
(a) audited balance sheets of the TransPoint Business as of June 30, 1999
(the "Balance Sheet"), audited and with a report by Deloitte & Touche LLP;
(b) audited statements of operations, member interests and cash flows of
the TransPoint Business for the fiscal year ended June 30, 1999, audited and
with a report by Deloitte & Touche LLP;
(c) the unaudited balance sheet of the TransPoint Business as of December
31, 1999 (the "Unaudited Balance Sheet");
(d) an unaudited statement of operations of the TransPoint Business for the
six months ended December 31, 1999.
The Financial Statements were prepared in accordance with GAAP consistently
applied except as indicated in the reports thereto of Deloitte & Touche LLP. The
Financial Statements were prepared on the basis of the books and records of the
TransPoint Business (in each case, as of the date of such Financial Statements)
and present fairly, in all material respects, the financial position of the
TransPoint Business as of the dates thereof and the results of its operations
and changes in stockholders' equity and cash flows for each of the periods then
ended in conformity with GAAP. Each of the Financial Statements (including any
related schedules and/or notes, if any) has been prepared in a consistent manner
with the periods set forth in the other Financial Statements.
SECTION 5.5 Absence of Undisclosed Liabilities; Indebtedness. (a) Except as
set forth in the Balance Sheet or the notes thereto, no TransPoint Entity has
any liability or obligation of any nature (whether absolute, accrued or
contingent or otherwise or whether known or unknown) other than (i) liabilities
or obligations incurred in the ordinary course of business and not required to
be set forth in the Balance Sheet or the notes thereto under GAAP applied on a
basis consistent with the Financial Statements, (ii) liabilities or obligations
incurred after the date of the Balance Sheet in the ordinary course of business
and consistent with past practice, and (iii) liabilities which, individually or
in the aggregate, would not have a Material Adverse Effect on the TransPoint
Entities.
(b) No TransPoint Entity has any Indebtedness. "Indebtedness" shall mean
each of the following: (i) obligations created, issued or incurred for borrowed
money, including all fees and obligations thereunder (including, without
limitation, any prepayment or termination fees arising or which will arise out
of the prepayment of such Indebtedness prior to its maturity and termination),
(ii) obligations to pay the deferred purchase price or acquisition price of
property or services, other than trade or accounts payable arising, and accrued
expenses incurred, in the ordinary course of business consistent with past
practice, (iii) the face amount of all letters of credit issued for the account
of any TransPoint Entity and all drafts thereunder, (iv) capital lease
obligations, if any, and (v) any obligation guaranteeing any Indebtedness or
other financial obligations of any other Person (including any obligations under
any keep well or support agreements).
SECTION 5.6 Operations and Obligations. Except as reflected on the Balance
Sheet, since June 30, 1999:
(a) There have been no events or conditions resulting, individually or in
the aggregate, in a Material Adverse Effect on the TransPoint Entities other
than as a result of (i) general economic conditions, (ii) business and economic
conditions generally affecting the electronic billing and payment industry,
(iii) liabilities incurred in connection with this Agreement or the transactions
contemplated hereby (including litigation brought or, to the Knowledge of the
Parents, threatened against any TransPoint Entity or any member of their Boards
of Directors or equivalent governing bodies in respect of this Agreement) or
(iv) the public announcement of this Agreement and the transactions contemplated
hereby.
(b) There has been no impairment, damage, destruction, loss or claim,
whether or not covered by insurance, or condemnation of any material property or
other assets of any of the TransPoint Entities.
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(c) Since December 31, 1999, each TransPoint Entity has conducted its
business only in the ordinary course and consistent with the TransPoint Business
strategy, except for actions (i) required to be taken in connection with the
transactions contemplated hereunder or (ii) approved in advance thereof by
CheckFree in writing. Without limiting the generality of the foregoing, since
December 31, 1999, no TransPoint Entity has sold, leased (as lessor),
transferred or otherwise disposed of, mortgaged or pledged, or imposed or
suffered to be imposed any Lien on, any of the assets reflected on the Balance
Sheet or any assets acquired by such TransPoint Entity after December 31, 1999,
except for (1) equipment sold or disposed of and replaced in the ordinary course
of its business and (2) Permitted Liens.
(d) There has been no material change in the accounting principles or
practices used by the TransPoint Entities, in each case, from those applied in
the preparation of the Financial Statements.
SECTION 5.7 Properties and Assets. (a) Each TransPoint Entity has good and
valid title to the properties, assets and other rights reflected on the Balance
Sheet or acquired since the date of the Balance Sheet, other than nonmaterial
properties, assets and other rights disposed of in the ordinary course of
business consistent with past practice since the date of such Balance Sheet, and
one or more of the TransPoint Entities has good and valid title to all such
properties, assets and other rights free and clear of Liens, except for
Permitted Liens.
(b) Section 5.7 of the TransPoint Disclosure Schedule sets forth a complete
and accurate list of (i) the real properties owned by any TransPoint Entity (the
"Fee Properties") and (ii) the real properties leased by any TransPoint Entity
(the "Leased Properties"). Each TransPoint Entity has good and marketable fee
simple title to the Fee Properties and good and marketable leasehold title to
the Leased Properties, in each case free and clear of all Liens, tenants and
occupants except for Permitted Liens. Complete and accurate copies of all leases
or other agreements relating to the Leased Properties have been delivered to
CheckFree and there have been no material changes or amendments to such leases
or agreements since such delivery. Each TransPoint Entity is the lawful owner of
all improvements and fixtures located on the Fee Properties and all moveable
fixtures located at the Leased Properties, free and clear of all Liens except
for Permitted Liens. Each lease or other agreement relating to the Leased
Properties is a valid and subsisting agreement, without any material default of
any TransPoint Entity thereunder and, to the Knowledge of the Parents, without
any material default thereunder of the other party thereto, and such leases and
agreements give the TransPoint Entities the right to use or occupy, as the case
may be, all real properties as are sufficient and adequate to operate the
TransPoint Business as it is currently being conducted. The TransPoint Entities'
possession of such property has not been disturbed nor has any claim relating to
the TransPoint Entities' title to or possession of such property been asserted
against the TransPoint Entities.
(c) The Parents have provided CheckFree lists of (i) all of the tangible
personal property used by the TransPoint Entities in the TransPoint Business
having an original acquisition cost of $50,000 or more, and (ii) all leases of
personal property binding upon any TransPoint Entity. All of such tangible
personal property is presently utilized by the TransPoint Entities in the
ordinary course of its business and is in good working order, ordinary wear and
tear excepted.
SECTION 5.8 Contracts. (a) Section 5.8 of the TransPoint Disclosure
Schedule lists any of the following contracts or arrangements (whether written
or oral) to which any TransPoint Entity is a party or by which it is obligated
otherwise as of February 15, 2000 (the "Material Contracts"):
(i) any contract or arrangement with a sales representative,
distributor, dealer, broker, sales agency, advertising agency or other
person engaged in sales, distribution or promotional activities, or any
contract to act as one of the foregoing on behalf of any person, which is
not terminable without the payment of any termination fee or the incurring
of any penalty by the applicable TransPoint Entity on 60 or fewer days
notice;
(ii) any contract or arrangement of any nature which involves the
payment or receipt of cash or other property, an unperformed commitment or
goods or services, having a value in excess of $50,000;
(iii) any contract or arrangement pursuant to which any TransPoint
Entity has made or will make loans or advances in excess of $50,000;
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(iv) any contract or arrangement for bill presentment and/or bill
payment services which is not terminable, without the payment of any
termination fee or the payment of any penalty, by the applicable TransPoint
Entity on 30 days notice;
(v) any contract or arrangement involving a partnership, a limited
liability company, a joint venture or other cooperative undertaking
requiring a sharing of assets or technology of any TransPoint Entity;
(vi) any contract or arrangement involving any restrictions with
respect to the geographical area of operations or scope or type of business
of any TransPoint Entity;
(vii) any power of attorney or agency agreement or arrangement with
any Person pursuant to which such Person is granted the authority to act
for or on behalf of any TransPoint Entity, or any TransPoint Entity is
granted the authority to act for or on behalf of any Person;
(viii) any contract not fully performed and relating to any
acquisition or disposition of any TransPoint Entity or any predecessor in
interest of any TransPoint Entity, or any acquisition or disposition of any
subsidiary, division, line of business, or real property of any TransPoint
Entity;
(ix) all contracts and arrangements between any TransPoint Entity and
the equityholders or Affiliates of any TransPoint Entity; and
(x) any material agreement (including software licenses) involving the
licensing, use or ownership of the TransPoint Entities' Intellectual
Property Rights (as defined in Section 5.12) ("Intellectual Property
Agreements"); and
(xi) any contract not specified above, the cancellation, breach, or
nonperformance of which would reasonably be expected to have a Material
Adverse Effect on the TransPoint Entities.
(b) The Parents have made available to CheckFree complete and accurate
copies of each of the written contracts and agreements and written summaries of
the material terms of any oral contract or agreement, set forth on Section 5.8
of the TransPoint Disclosure Schedule.
SECTION 5.9 Absence of Default. (a) Except as would not, individually or in
the aggregate have a Material Adverse Effect on the TransPoint Entities, each of
the agreements to which any of the TransPoint Entities is a party constitutes a
valid and binding obligation of the TransPoint Entities, and is in full force
and effect.
(b) Except with respect to circumstances that would not reasonably be
expected to have a Material Adverse Effect on the TransPoint Entities, (i) each
TransPoint Entity has fulfilled and performed in all respects its obligations
under each such agreement to which it is a party to the extent such obligations
are required by the terms thereof to have been fulfilled or performed through
February 15, 2000; (ii) no TransPoint Entity is or is alleged in writing to be,
and each other party to any such agreement is not, to the Knowledge of the
Parents, in breach of or default under, nor is there alleged in writing to be
any basis for termination of, any such agreement; (iii) no event has occurred
and no condition or state of facts exists which, with the passage of time or the
giving of notice or both, would constitute such a default or breach by any
TransPoint Entity or, to the Knowledge of the Parents, by any such other party;
and (iv) no TransPoint Entity is currently renegotiating any such agreement in
respect of which such TransPoint Entity is alleged to be in default or paying
liquidated damages in lieu of performance thereunder.
SECTION 5.10 Litigation. (a) There are no actions, suits, arbitrations,
legal or administrative proceedings or investigations pending against any
TransPoint Entity. To the Knowledge of the Parents, there are no actions, suits,
arbitrations, legal or administrative proceedings or investigations threatened
against or affecting any TransPoint Entity which would reasonably be expected to
have a Material Adverse Effect on the TransPoint Entities. Neither any
TransPoint Entity, nor the assets, properties or business of any TransPoint
Entity, is subject to any judgment, order, writ, injunction or decree of any
court, governmental agency or
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arbitration tribunal. No TransPoint Entity is the plaintiff in any such
proceeding nor is any TransPoint Entity contemplating commencing legal action
against any other Person.
SECTION 5.11 Compliance with Law. (a) Except as would not, individually or
in the aggregate, have a Material Adverse Effect upon the TransPoint Entities,
each TransPoint Entity is not in breach or default under any order or decree of
any court, Governmental Entity, arbitrator or arbitration board or tribunal and
has complied in all material respects with, and is not in violation of, in any
material respect, any law, ordinance or governmental rule or regulation
(collectively, "Laws").
(b) Each TransPoint Entity has obtained all licenses, permits,
certificates, authorizations, approvals, registrations or other governmental
authorizations (collectively "Authorizations") necessary for the ownership or
use of its assets, properties and rights or the conduct of its business other
than Authorizations, the failure of such TransPoint Entity to possess, would
not, individually or in the aggregate, have a Material Adverse Effect on the
TransPoint Entities.
(c) Except as would not, individually or in the aggregate, have a Material
Adverse Effect upon the TransPoint Entities, each Authorization is in full force
and effect and no proceeding is pending or, to the Knowledge of the Parents,
threatened to modify, suspend, revoke or otherwise limit any of such
Authorization and no administrative or governmental actions have been taken or,
to the Knowledge of the Parents, threatened in connection with the expiration or
renewal of any such Permits.
(d) Except as would not, individually or in the aggregate, have a Material
Adverse Effect upon the TransPoint Entities, no TransPoint Entity has received
written notice of violation by any TransPoint Entity of any Laws or
Authorization.
SECTION 5.12 TransPoint Intellectual Property. (a) Each TransPoint Entity
owns, or is validly licensed or otherwise has the valid right to use, on and
before the Effective Time, all trade secrets, copyrights, and U.S. trademarks
and service marks (the "Intellectual Property Rights") that any TransPoint
Entity has used in commerce on or before the Effective Time in the conduct of
its business. To the Knowledge of the Parents, such Intellectual Property Rights
used by any TransPoint Entity in the conduct of its business as currently
conducted consistent with past practices are free of all Liens. Section 5.12 of
the TransPoint Disclosure Schedule contains a list of all patent registrations
and applications, trademark registrations and applications, domain name
registrations and applications and copyright registrations and applications
owned by a TransPoint Entity. The execution, delivery and performance of this
Agreement and the transactions contemplated thereby will not constitute a breach
or default, or otherwise jeopardize or impair the validity or enforceability of
any Intellectual Property Rights of the TransPoint Entities that are material to
the conduct of the TransPoint Business.
(b) No TransPoint Entity has received any written charge, complaint, claim,
demand or notice (excluding email, other than email addressed to the officer of
a TransPoint Entity or Parent) alleging any interference, infringement, conflict
with, misappropriation or violation ("Infringement") of any Intellectual
Property Rights or patents (including any claim that any TransPoint Entity must
license or refrain from using any Intellectual Property Rights of any other
Person) that has not been settled or otherwise fully resolved in a manner that
is not adverse to the TransPoint Entities. There are no pending or outstanding
Actions or Orders that seek to limit or challenge the use, validity, ownership,
value or enforceability of any Intellectual Property Right or patent of the
TransPoint Entities, nor to any Parent's Knowledge, are any threatened.
(c) To Knowledge of the Parents, CheckFree's use after the Mergers of the
TransPoint Entities' Intellectual Property Rights which are material to the
conduct of the TransPoint Business will not Infringe the Intellectual Property
Rights of any other Person.
(d) Each employee, agent, consultant, officer, director or contractor who
has materially contributed to or participated in the creation or development of
any Intellectual Property Rights other than Parent IPR or Third Party IPR (as
defined herein) on behalf of any TransPoint Entity or any predecessor in
interest thereto either: (i) is a party to a "work-for-hire" agreement under
which any TransPoint Entity is deemed to be the sole original owner/author of
all Intellectual Property Rights therein; or (ii) has executed an assignment or
an agreement to assign solely in favor of any TransPoint Entity or such
predecessor in interest, as applicable, all
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right, title and interest and all Intellectual Property Rights in such material.
To the Knowledge of the Parents, no Parent or employee of any TransPoint Entity
has any interest in any Intellectual Property Rights other than Parent IPR or
Third Party IPR licensed by Microsoft that are material to the business or
operations of the TransPoint Entities (other than as an equityholder in a
Parent). For purposes of this Section 5.12, "Parent IPR" means all trademarks,
trade secrets, and/or copyrights licensed by Microsoft, FDC or Citibank to a
TransPoint Entity pursuant to the License Agreements, and "Third Party IPR"
means any patents, trademarks, trade secrets and/or copyrights licensed to a
TransPoint Entity by (i) Microsoft pursuant to a standard license for
commercially available software products, or (ii) any Person other than a
TransPoint Entity, Microsoft, FDC or Citibank. Notwithstanding the foregoing, to
the Knowledge of the Parents, the parties licensing the Third Party IPR own all
rights therein.
(e) To the Knowledge of the Parents, none of the activities of any employee
of any TransPoint Entity on behalf thereof violates any obligations of such
employee to third parties, including, without limitation, confidentiality or
noncompetition obligations under agreements with a former employer. No Parent is
aware of any unauthorized use by a third party of any Intellectual Property
Rights of the TransPoint Entities. The TransPoint Entities have taken and are
taking reasonable precautions (i) to keep confidential all material trade
secrets and other confidential information included in the Intellectual Property
Rights, and (ii) otherwise to protect and maintain the validity of their
material Intellectual Property Rights.
(f) No TransPoint Entity (i) has sold, assigned, transferred, licensed or
sublicensed, or entered into any contract to sell, assign, transfer or
sublicense its Intellectual Property Rights other than customary licenses
entered into in the ordinary course of business that permit its end-users and
customers to use any Intellectual Property Rights embedded in its products and
(ii) has entered into any contract (oral or written) or other arrangement
pursuant to which any TransPoint Entity has agreed or is obligated to license,
transfer or place in escrow the source code for any of its products (prior or
current).
(g) Except as set forth in Section 5.12(g) of the TransPoint Disclosure
Schedule, to the Knowledge of the Parents, the change to the year 2000 has not
caused, and is not expected to cause any material (i) disruption or impairment
to the operation of the business of the TransPoint Entities or their provision
of any products or services, (ii) liabilities or payments to any other Person,
or (iii) additional expenses other than those reflected in the latest public
filings.
(h) Except as set forth in Section 5.12(h) of the TransPoint Disclosure
Schedule, in operating their businesses, the TransPoint Entities take all
commercially reasonable actions to prevent any Person from unauthorized or
improper use of, or access or modifications to, its software, systems or
services or the personal information of any Person contained therein.
SECTION 5.13 Tax Matters. (a) (i) Each TransPoint Entity has filed all
material Tax Returns required to be filed; (ii) all such Tax Returns are
complete and accurate in all material respects and all Taxes shown to be due on
such Tax Returns have been timely paid, except where failure to timely pay would
not, individually or in the aggregate, have a Material Adverse Effect on the
TransPoint Entities; (iii) all Taxes (whether or not shown on any Tax Return)
owed by the TransPoint Entities have been timely paid or the TransPoint Entities
have established adequate reserves therefor, except, where failure to timely pay
or establish adequate reserves would not, individually or in the aggregate, have
a Material Adverse Effect on the TransPoint Entities; (iv) there is no action,
suit, investigation, audit, claim or assessment pending or, to the Knowledge of
the Parents, proposed or threatened in writing with respect to Taxes of the
TransPoint Entities; (v) all material deficiencies asserted or assessments made
as a result of any examination of the Tax Returns referred to in clause (i) have
been paid in full; (vi) Tax indemnity arrangements, if any, will terminate prior
to Closing and the TransPoint Entities will not have any liability thereunder on
or after Closing; (vii) there are no Liens for Taxes upon the assets of the
TransPoint Entities except Liens relating to current Taxes not yet due; (viii)
Taxes which the TransPoint Entities are required by law to withhold or to
collect for payment have been duly withheld and collected, and have been paid or
accrued, reserved against and entered on the books of the TransPoint Entities in
accordance with GAAP; and (ix) no TransPoint Entity is or has been a member of
any affiliated group of corporations within the meaning of Section 1504(a) of
the Code.
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(b) No TransPoint Entity owns an interest in any (i) domestic international
sales corporation, (ii) foreign sales corporation, (iii) controlled foreign
corporation or (iv) passive foreign investment company.
(c) Each TransPoint Entity has never been and is not a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
SECTION 5.14 Employees. No TransPoint Entity currently has any employees,
and no TransPoint Entity has any continuing liabilities or obligations with
respect to any former employees of such TransPoint Entity. No TransPoint Entity
has any employment agreement with, or maintains any employee benefit plan
(within the meaning of Section 3(3) of ERISA) with respect to, any Person. There
are no agreements with respect to any Person that would obligate the TransPoint
Entities to make any payment or provide any benefit the deduction of which is
limited by Section 280G of the Code or that could be subject to tax under
Section 4999 of the Code.
SECTION 5.15 Employment Practices; Labor Relations. (a) Each TransPoint
Entity has complied in all material respects with all applicable laws, rules and
regulations or contractual requirements respecting employment and employment
practices, terms and conditions of employment, of employees, former employees or
other labor related matters, including, without limitation, those relating to
wages, hours, the payment of social security and similar taxes, equal employment
opportunity, employment discrimination, fair labor standards and occupational
health and safety, wrongful discharge or violation of the personal rights of
employees, former employees or prospective employees, and is not liable for any
arrears of wages or any taxes or penalties for failure to comply with any such
Laws, rules or regulations.
(b) There are no material controversies relating to the TransPoint Business
pending or, to the Knowledge of the Parents, threatened between any TransPoint
Entity and any of the employees of any TransPoint Entity or between any Parent
and any employee of such Parent who is primarily engaged in the TransPoint
Business.
(c) No TransPoint Entity is a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by any TransPoint
Entity, nor is any Parent a party to any collective bargaining agreement or
other labor union contract applicable to employees of such Parent who are
primarily engaged in the TransPoint Business nor, to the Knowledge of the
Parents, are there any activities or proceedings of any labor union to organize
any such employees.
(d) There are no (i) unfair labor practice complaints pending against any
TransPoint Entity before the National Labor Relations Board or any current union
representation questions involving employees of any TransPoint Entity or
employees of a Parent primarily engaged in the TransPoint Business; (ii)
strikes, slowdowns, work stoppages or lockouts existing, or, to the Knowledge of
the Parents, threatened, by or with respect to any employees of any TransPoint
Entity or to employees of a Parent primarily engaged in the TransPoint Business;
(iii) charges pending before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
employment practices with respect to any TransPoint Entity or to any Parent in
respect of employees primarily engaged in the TransPoint Business; or (iv)
claims pending against any TransPoint Entity or against any Parent with respect
to employees primarily engaged in the TransPoint Business before any workers'
compensation board.
(e) No TransPoint Entity has received written notice that any federal,
state, local or foreign agency responsible for the enforcement of labor or
employment laws intends to conduct an investigation of or relating to any
TransPoint Entity and, to the Knowledge of the Parents, no such investigation is
in progress.
(f) There are no contracts, commitments or arrangements between any
TransPoint Entity and any employee which require the payment of any compensation
by any TransPoint Entity upon the occurrence of the Mergers or any other
transaction contemplated by this Agreement.
SECTION 5.16 Environmental Matters. (a) (i) Each TransPoint Entity complies
and has complied with all applicable Environmental Laws, and possesses and
complies with and has possessed and complied with all Environmental Permits;
(ii) there are and have been no Materials of Environmental Concern or other
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conditions, at any property owned, leased or occupied by a TransPoint Entity
that could give rise to any liability under any Environmental Law or result in
costs arising out of any Environmental Law; (iii) no judicial, administrative,
or arbitral proceeding (including any notice of violation or alleged violation)
under any Environmental Law to which any TransPoint Entity is or will be named
as a party is pending or, to the Knowledge of the Parents, threatened, nor is
any TransPoint Entity the subject of any investigation in connection with any
such proceeding or, to the Knowledge of the Parents, potential proceeding; (iv)
there are no past or present conditions, circumstances, practices, plans, or
legal requirements that would be expected to prevent, or materially increase the
burden on the TransPoint Entities of complying with applicable Environmental
Laws or of obtaining, renewing, or complying with all Environmental Permits
required under such laws; and (v) the Parents have provided to CheckFree true
and complete copies of all Environmental Reports relating to the TransPoint
Business or the TransPoint Entities.
(b) For purposes of this Agreement:
(i) "Environmental Laws" shall mean any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other
legally enforceable requirement (including, without limitation, common law)
of the United States, or any state, local, municipal or other governmental
authority, regulating, relating to or imposing liability or standards of
conduct concerning protection of the environment or of human health, or
employee health and safety.
(ii) "Environmental Permits" shall mean any and all permits, licenses,
registrations, notifications, exemptions and any other authorization
required under any Environmental Law.
(iii) "Environmental Report" shall mean any report, study, assessment,
audit, or other similar document that addresses any issue of actual or
potential noncompliance with, or actual or potential liability under or
cost arising out of, any Environmental Law that may in any way affect any
TransPoint Entity or the TransPoint Business.
(iv) "Materials of Environmental Concern" shall mean any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, urea-formaldehyde insulation,
asbestos, pollutants, contaminants and radioactivity, and any other
substances of any kind that are regulated pursuant to or could give rise to
liability under any Environmental Law.
SECTION 5.17 Insurance. Section 5.17 of the TransPoint Disclosure Schedule
sets forth a list of all policies of insurance maintained, owned or held by, or
on behalf of, any TransPoint Entity as of February 15, 2000 and a brief
description of any outstanding claims under any of such insurance policies. Such
policies provide insurance in such amounts and against such risks customary for
companies engaged in similar businesses to the TransPoint Business to protect
the employees, properties, assets, businesses and operations of the TransPoint
Entities. Each TransPoint Entity has complied in all material respects with each
such insurance policy to which it is a party and has not failed to give any
notice or present any claim thereunder in a due and timely manner. The full
policy limits (subject to deductibles provided in such policies) are available
and unimpaired under each such policy and no insurer under any of such policies
has a basis to void such policy on grounds of non-disclosure on the part of a
TransPoint Entity thereunder. Each such policy is in full force and effect and
will not in any way be affected by or terminate or lapse by reason of the
transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 5.18 Accounts Receivable. All accounts receivable of the TransPoint
Entities (i) have arisen from bona fide transactions by the TransPoint Entities
in the ordinary course of their businesses and represent bona fide claims
against debtors for sales and other charges and (ii) are not subject to discount
except for cash and immaterial trade discount consistent with past practice. The
amount carried for doubtful accounts and allowances accrued on the books of the
TransPoint Entities, based on past loss experience, is sufficient to provide for
any losses that may be sustained on realization of the accounts receivable of
the TransPoint Entities.
SECTION 5.19 Customers and Suppliers. As of February 15, 2000 and, to the
Knowledge of the Parents, during the 12-month period ended on February 15, 2000
(i) none of the customers of the TransPoint Entities which individually account
for more than 5% of the consolidated gross revenues of the TransPoint
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Entities during the 12-month period ended December 31, 1999 (the "Material
Customers") has terminated or communicated that it intends to terminate any
agreement with, or reduce its purchases from, the TransPoint Entities, (ii) no
material supplier of any TransPoint Entity has communicated that it will stop,
or decrease the rate of, supplying materials, products or services to any
TransPoint Entity and (iii) there has not been any material dispute between any
TransPoint Entity and any of the Material Customers or any of its material
suppliers.
SECTION 5.20 Affiliate Transactions. All agreements, arrangements,
undertakings or other transactions between any TransPoint Entity and any Parent
or any Affiliate of any Parent, excluding any other TransPoint Entities as of
February 15, 2000, are described in Section 5.20 of the TransPoint Disclosure
Schedule and, other than the Transition Services Agreement (as described in
Section 8.7 hereof) and those agreements specifically so identified in Section
5.20 of the TransPoint Disclosure Schedule, none of the above shall be binding
on any TransPoint Entity, or any Parent or any Affiliate of any Parent as of the
Effective Time.
SECTION 5.21 Export Control Laws. Each TransPoint Entity has conducted its
export transactions in accordance with applicable provisions of United States
export control laws and regulations, including but not limited to the Export
Administration Act and implementing Export Administration Regulations. Without
limiting the foregoing:
(a) The TransPoint Entities have obtained all export licenses and other
approvals required for their current export (including transmissions) of
products, software and technologies from the United States;
(b) The TransPoint Entities are in compliance whereas by 5.11 with the
terms of all applicable export licenses or other approvals;
(c) There are no pending or, to the Knowledge of the Parents, threatened
material claims against any TransPoint Entity with respect to such export
licenses or other approvals;
(d) To the Knowledge of the Parents, there are no actions, conditions or
circumstances pertaining to the export transactions (or transmissions) of any
TransPoint Entity that are likely to give rise to any future Actions; and
(e) No consents or approvals for the transfer of export licenses to
CheckFree and its Subsidiaries are required, or such consents and approvals can
be obtained expeditiously without material cost to CheckFree or its
Subsidiaries.
SECTION 5.22 Reserved.
SECTION 5.23 Brokers. Except for the engagement of Morgan Stanley Dean
Witter no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or similar fee or
commission, in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the TransPoint Entities.
SECTION 5.24 Entire Business. The assets and other rights of the TransPoint
Entities, together with the rights to be made available to CheckFree and its
Subsidiaries pursuant to the License Agreements and the services provided and
the assets made available by the Parents under the Transition Services Agreement
constitute all of the assets, properties and other rights used by the TransPoint
Entities to conduct the TransPoint Business, as currently conducted (including
provision of services and assets by the Parents), other than third-party
intellectual property which is generally commercially available where the cost
to license such intellectual property is less than $100,000 per annum; provided,
however, that nothing in this Section 5.24 shall be read as making any
representation as to the rights of the TransPoint Entities to use any
intellectual property currently used in the conduct of the TransPoint Business.
No TransPoint Entity has engaged in any activity other than the operation of, or
has any liabilities or obligations other than those arising from, the TransPoint
Business.
SECTION 5.25 Information in the CheckFree Registration Statement and Proxy
Statement/Prospectus. None of the written information supplied or to be supplied
by any of the Parents on behalf of the TransPoint Entities, or by any of the
TransPoint Entities themselves, specifically for inclusion or incorporation by
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reference in (i) the CheckFree Registration Statement will, at the time the
CheckFree Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the Proxy
Statement/Prospectus will, at the dates mailed to stockholders of CheckFree and
at the times of the meeting of stockholders of CheckFree to be held in
connection with the issuance of CheckFree Common Stock pursuant to this
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. No representation or warranty is made pursuant to this Section 5.25
with respect to (i) any written information subject to the representations and
warranties provided in Section 4.7 and (ii) statements made in or information
incorporated by reference in the CheckFree Registration Statement or the Proxy
Statement/Prospectus other than statements based on information supplied by any
Parent or any TransPoint Entity in writing specifically for inclusion or
incorporation by reference in the CheckFree Registration Statement or the Proxy
Statement/Prospectus.
SECTION 5.26 Minute Books. All minute books of each of the TransPoint
Entities have been made available to CheckFree.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
OF CHECKFREE AND THE MERGER SUBSIDIARIES
Except as disclosed in a disclosure schedule of even date herewith,
referring specifically to the representations and warranties in this Agreement
and identifying the section number of this Agreement to which each disclosure
relates (the "CheckFree Disclosure Schedule"), each of CheckFree and the Merger
Subsidiaries represents and warrants to each of the Parents as follows:
SECTION 6.1 Organization. Each of CheckFree, Merger Sub B and Merger Sub C
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Merger Sub A is a corporation duly organized,
validly existing and in good standing under the laws of the State of Washington.
Each of CheckFree and the Merger Subsidiaries has all requisite corporate power
and authority to enter into and perform this Agreement and the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. CheckFree is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect on CheckFree. Each of the
Merger Subsidiaries was organized solely for the purposes of effecting the
Mergers and has engaged in no activity other than in connection therewith.
SECTION 6.2 Subsidiaries. Section 6.2 of the CheckFree Disclosure Schedule
includes a complete and accurate list of each Subsidiary of CheckFree,
indicating the jurisdiction of incorporation and the nature and level of
ownership in such Subsidiary by CheckFree, any Subsidiary of CheckFree and any
other Person. Complete and correct copies of the Certificate of Incorporation
and Bylaws of CheckFree and of each Subsidiary of CheckFree have previously been
delivered to the Parents. Neither CheckFree nor any of its Subsidiaries owns of
record or beneficially, directly or indirectly, any outstanding Capital Stock or
securities convertible into Capital Stock of any other corporation, partnership,
joint venture or other noncorporate business enterprise. Each Subsidiary of
CheckFree is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to own or lease and operate its properties and
assets and to carry on its business as it is now being conducted. Each
Subsidiary of CheckFree is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on CheckFree. All the outstanding Capital Stock
of CheckFree's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and is owned by CheckFree or by a wholly owned
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Subsidiary of CheckFree free and clear of any Liens, and there are no proxies or
voting or transfer agreements or understandings outstanding with respect to any
such shares. Complete and correct copies of the Certificate of Incorporation and
Bylaws of each of CheckFree and the Merger Subsidiaries have been delivered to
the Parents.
SECTION 6.3 Capitalization; Options and Other Rights. (a) The authorized
Capital Stock of CheckFree consists of 150,000,000 shares of CheckFree Common
Stock and 15,000,000 shares of CheckFree Preferred Stock, and, as of December
31, 1999, 57,305,659 shares of CheckFree Common Stock were issued and 51,756,278
shares of CheckFree Common Stock were outstanding (the "Outstanding CheckFree
Common Stock"), all of which were duly authorized and validly issued and are
fully paid and nonassessable, and no shares of CheckFree Preferred Stock were
issued and outstanding. As of December 31, 1999, there were CheckFree Options to
purchase up to a total of 5,824,608 shares of CheckFree Common Stock and
outstanding CheckFree Warrants to purchase up to a total of 11,400,000 shares of
CheckFree Common Stock. All the Outstanding CheckFree Common Stock has been duly
and validly authorized and issued and is fully paid and nonassessable. None of
the Outstanding CheckFree Common Stock has been issued in violation of the
preemptive rights of any stockholder of CheckFree. The Outstanding CheckFree
Common Stock has been issued, and the shares of CheckFree Common Stock to be
issued upon the exercise of CheckFree Options will be issued, in compliance in
all material respects with all applicable federal and state securities laws and
regulations.
(b) The authorized Capital Stock of Merger Sub A consists of 1,000 shares
of Merger Sub A Common Stock, of which 100 shares are issued and outstanding and
owned by CheckFree. The authorized Capital Stock of Merger Sub B consists of
1,000 shares of Merger Sub B Common Stock, of which 100 shares are issued and
outstanding and owned by CheckFree. The authorized Capital Stock of Merger Sub C
consists of 1,000 shares of Merger Sub C Common Stock, of which 100 shares are
issued and outstanding and owned by CheckFree. All of the outstanding stock of
the Merger Subsidiaries have been duly and validly authorized and issued and are
fully-paid and nonassessable.
(c) There are neither (i) any existing agreements, subscriptions, options,
warrants, calls, commitments, trusts (voting or otherwise), or rights of any
kind granting to any Person any interest in or the right to purchase or
otherwise acquire from CheckFree or the Merger Subsidiaries or granting to
CheckFree or the Merger Subsidiaries any interest in or the right to purchase or
otherwise acquire from any Person, at any time, or upon the occurrence of any
stated event, any securities of CheckFree or the Merger Subsidiaries, whether or
not presently issued or outstanding, other than the purchase rights to receive
shares of CheckFree stock under the CheckFree Rights Agreement, nor (ii) any
outstanding securities of CheckFree or any other Person which are convertible
into or exchangeable for other securities of CheckFree, nor (iii) any
agreements, subscriptions, options, warrants, calls, commitments or rights of
any kind granting to any Person any interest in or the right to purchase or
otherwise acquire from CheckFree or the Merger Subsidiaries or any other Person
any securities so convertible or exchangeable, nor, (iv) to the Knowledge of
CheckFree, any proxies, agreements or understandings with respect to the voting
of the Outstanding CheckFree Common Stock, except as contemplated by this
Agreement.
SECTION 6.4 Authority. (a) Each of CheckFree and the Merger Subsidiaries
has full power and authority to execute, deliver and perform this Agreement and
the Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby. The execution, delivery and
performance by each of CheckFree and the Merger Subsidiaries of this Agreement
and the Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized and
approved by all necessary corporate action by such party except, in the case of
CheckFree, for the approval of CheckFree's stockholders as set forth in Section
6.6 and, except for the filing of appropriate merger documents as required by
the WBCA or DGCL, no other corporate proceedings other than actions previously
taken on the part of CheckFree and the Merger Subsidiaries are necessary to
authorize this Agreement and the Ancillary Agreements to which it is a party and
the consummation of the transactions contemplated hereby and thereby. This
Agreement has been duly authorized, executed and delivered by each of CheckFree
and the Merger Subsidiaries and constitutes the legal, valid and binding
obligation of CheckFree and the Merger Subsidiaries enforceable in accordance
with its terms, except as enforceability may
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be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by the
effect of general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law). On the Closing Date, each
Ancillary Agreement to which CheckFree is a party will be duly authorized,
executed and delivered by CheckFree, and on the Closing Date each Ancillary
Agreement to which CheckFree is a party will constitute the legal, valid and
binding obligation of CheckFree, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law.) The filing of the CheckFree Registration Statement and all other aspects
of the registration of the CheckFree Common Stock to be issued pursuant to the
CheckFree Merger under the Securities Act have been duly authorized by
CheckFree.
(b) The Board of Directors of CheckFree (i) has approved this Agreement and
the transactions contemplated hereby, (ii) has determined that the terms of the
Mergers are in the best interests of its stockholders and (iii) has resolved to
recommend the approval of the Mergers, the adoption of this Agreement and the
consummation of the transactions contemplated hereby to its stockholders.
SECTION 6.5 No Conflicts; Consents. (a) The execution, delivery and
performance by CheckFree and the Merger Subsidiaries of this Agreement and the
Ancillary Agreements to which it is a party and the transactions contemplated
hereby and thereby, including without limitation the consummation of the
Mergers, do not, and will not, (i) violate or conflict with any provision of the
Certificate (or Articles) of Incorporation or Bylaws of CheckFree or the Merger
Subsidiaries, (ii) violate any law, rule, regulation, order, writ, injunction,
judgment or decree of any Governmental Entity applicable to CheckFree or the
Merger Subsidiaries or (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, require the
payment of any additional compensation (whether as a penalty, liquidated damages
or otherwise) to any party with respect thereto, or result in the creation of or
imposition of any Lien in favor of any Person upon any of the assets of
CheckFree or the Merger Subsidiaries under, any note, bond, indenture, lien,
mortgage, lease, permit, guaranty or other agreement, instrument or obligation,
oral or written, to which CheckFree or the Merger Subsidiaries or CheckFree's
Subsidiaries is a party or by which any of its assets or other rights may be
bound, except for such matters which, individually or in the aggregate, would
not have a Material Adverse Effect on CheckFree.
(b) The execution, delivery and performance by CheckFree of this Agreement
and each Ancillary Agreement to which it is a party and the consummation of the
transactions contemplated hereby and thereby does not require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity or any other Person except for (i) the filing and
recordation of appropriate merger documents as required by the WBCA or DGCL;
(ii) any such consent, approval, authorization, permission, notice or filing
which is required under the Securities Act, the Exchange Act and applicable
state securities laws; (iii) such filings as may be required under the HSR Act
and any applicable foreign antitrust laws; and (iv) any such consent, approval,
authorization, permission, notice or filing which, if not obtained or made,
would not have a Material Adverse Effect on CheckFree.
SECTION 6.6 Stockholder Vote; State Anti-takeover Laws. (a) Pursuant to the
provisions of the DGCL, the Certificate of Incorporation of CheckFree, the
Bylaws of CheckFree and any other applicable law or stock exchange rules, the
only approval of holders of CheckFree Common Stock required to approve the
Mergers and to approve and adopt this Agreement and the transactions
contemplated hereby is the approval, assuming a quorum is present, of a majority
of the shares of CheckFree Common Stock voting in person or by proxy at the
CheckFree Stockholders Meeting.
(b) Prior to the execution of this Agreement, the Board of Directors of
CheckFree has taken all necessary action to cause this Agreement and the
transactions contemplated hereby and thereby to be exempt from the provisions of
Section 203 of the DGCL.
SECTION 6.7 Litigation. CheckFree is not a party to any suit, action,
arbitration or legal, administrative, governmental or other proceeding or
investigation pending or, to its Knowledge threatened,
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which in any manner challenges the Mergers, seeks to prevent, enjoin, alter or
delay the Mergers or otherwise reasonably could adversely affect or restrict its
ability to consummate the transactions contemplated by this Agreement or to
perform its obligations hereunder.
SECTION 6.8 SEC Filings; CheckFree Financial Statements. (a) Since December
31, 1998, CheckFree has filed with the SEC all required reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) required under the Securities Act and the
Exchange Act (the "CheckFree SEC Documents"). As of their respective dates, the
CheckFree SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such CheckFree SEC
Documents and none of the CheckFree SEC Documents at the time they were filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of CheckFree included in the CheckFree SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of
CheckFree as of the dates thereof and the consolidated results of CheckFree's
operations, stockholders' equity and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal recurring year-end
audit adjustments) and are consistent in all material respects with the books
and records of CheckFree. Since June 30, 1999, there has been no change in any
of the significant accounting (including tax accounting) policies, practices or
procedures of CheckFree or any of its Subsidiaries. Except for liabilities or
obligations that are accrued or reserved against in CheckFree's financial
statements included in the CheckFree SEC Documents, neither CheckFree nor any of
its Subsidiaries has any liabilities or obligations (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) that would be
required by GAAP to be reflected on a consolidated balance sheet, or the notes
thereto, or which would have a Material Adverse Effect on CheckFree.
(b) Except for liabilities or obligations (i) reflected in the financial
statements or in the notes thereto included in the CheckFree SEC Documents filed
and publicly available prior to the date of this Agreement (the "CheckFree Filed
SEC Documents"), (ii) incurred in the ordinary course of business consistent
with past practice since the date of the most recent audited financial
statements of CheckFree contained in the CheckFree Filed SEC Documents or (iii)
incurred in connection with this Agreement or the transactions contemplated
hereby, neither CheckFree nor any of its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
which, individually or in the aggregate, would have a Material Adverse Effect on
CheckFree.
SECTION 6.9 CheckFree Registration Statement; Proxy
Statement/Prospectus. Subject to the last sentence of this Section 6.9, the
CheckFree Registration Statement, at the time it becomes effective under the
Securities Act and at the Effective Time, will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. Subject to
the last sentence of this Section 6.9, the Proxy Statement/Prospectus, at the
dates mailed to stockholders of CheckFree and at the times of the meeting of
stockholders of CheckFree to be held in connection with the Mergers, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. Each of the CheckFree Registration Statement and the Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations thereunder. No representation or warranty is made by CheckFree with
respect to statements made in the CheckFree Registration Statement or
incorporated by reference therein or in the Proxy Statement/Prospectus or
incorporated by reference therein based on information supplied by the Parents
or any of the TransPoint Entities in writing specifically for
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inclusion or incorporation by reference in the CheckFree Registration Statement
or the Proxy Statement/ Prospectus.
SECTION 6.10 Operations and Obligations. Except as described in the
CheckFree SEC Documents, since the date of the most recent audited balance sheet
of CheckFree contained in the CheckFree Filed SEC Documents, there has been no
event or condition resulting in a Material Adverse Effect on CheckFree, other
than as a result of (a) general economic conditions, (b) business and economic
conditions generally affecting the electronic billing and payment industry, or
(c) liabilities incurred in connection with this Agreement or the transactions
contemplated hereby (including litigation brought or, to the Knowledge of
CheckFree, threatened against CheckFree or any member of CheckFree's Board of
Directors in respect of this Agreement).
SECTION 6.11 Reorganization. Neither CheckFree nor any of the Merger
Subsidiaries has taken any action or failed to take any action, which action or
failure would jeopardize the treatment of any of the Mergers as a reorganization
within the meaning of Section 368(a) of the Code.
SECTION 6.12 Brokers. Except for the engagement of Merrill Lynch & Co., no
broker, investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or similar fee or commission, in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of CheckFree.
SECTION 6.13 CheckFree Rights Agreement. CheckFree and the Board of
Directors of CheckFree have taken all necessary action so that none of the
execution of this Agreement and the consummation of the transactions
contemplated hereby will (i) cause any CheckFree Rights issued pursuant to the
CheckFree Rights Agreement to become exercisable, (ii) cause any of the Parents
or any of their Affiliates (as defined in the CheckFree Rights Agreement) to be
a 15% Stockholder (as defined in the CheckFree Rights Agreement) or give rise to
a Distribution Date, Section 11(a)(ii) Event or a Section 13(a) Event (as each
such term is defined in the CheckFree Rights Agreement).
SECTION 6.14 Opinion of Financial Advisor. CheckFree has received the
opinion of Merrill Lynch & Co. to the effect that, as of the date of such
opinion, the transactions contemplated hereunder taken as a whole are fair to
CheckFree from a financial point of view.
SECTION 6.15 CheckFree Intellectual Property. (a) To the Knowledge of
CheckFree, CheckFree owns, or is validly licensed or otherwise has the valid
right to use, on and before the Effective Time, all trade secrets, copyrights,
and U.S. trademarks and service marks (the "Intellectual Property Rights") that
CheckFree has used in commerce on or before the Effective Time in the conduct of
its business. The execution, delivery and performance of this Agreement and the
transactions contemplated thereby will not constitute a breach or default, or
otherwise jeopardize or impair the validity or enforceability, of any
Intellectual Property Rights of CheckFree that are material to the conduct of
CheckFree's business.
(b) CheckFree has not received any written charge, complaint, claim, demand
or notice (excluding email, other than email addressed to the officer of
CheckFree) alleging any interference, infringement, conflict with,
misappropriation or violation ("Infringement") of any Intellectual Property
Rights or patents (including any claim that CheckFree must license or refrain
from using any Intellectual Property Rights of any other Person) that has not
been settled, otherwise fully resolved in a manner that is not adverse to
CheckFree or determined to be baseless with the advice of counsel. There are no
pending or outstanding Actions or Orders that seek to limit or challenge the
use, validity, ownership, value or enforceability of any Intellectual Property
Right of CheckFree, nor to CheckFree's Knowledge, are any threatened.
(c) CheckFree has taken and is taking reasonable precautions (i) to keep
confidential all material trade secrets and other confidential included in its
Intellectual Property Rights, and (ii) otherwise to protect and maintain the
validity of its material Intellectual Property Rights.
(d) CheckFree has not sold, assigned, transferred, licensed or sublicensed,
or entered into any contract to sell, assign, transfer or sublicense its
Intellectual Property Rights other than customary licenses entered into in
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the ordinary course of business that permit its end-users and customers to use
any Intellectual Property Rights embedded in its products.
(e) Except as set forth in Section 6.15(e) of the CheckFree Disclosure
Schedule, to the Knowledge of CheckFree, the change to the year 2000 has not
caused, and is not expected to cause any material (i) disruption or impairment
to the operation of the business of CheckFree or their provision of any products
or services, (ii) liabilities or payments to any other Person, or (iii)
additional expenses other than those reflected in the latest public filings.
(f) Except as set forth in Section 6.15(f) of the CheckFree Disclosure
Schedule, in operating its business, CheckFree takes all commercially reasonable
actions to prevent any Person from unauthorized or improper use of, or access or
modifications to, its Software, systems or services or the personal information
of any Person contained therein.
SECTION 6.16 Major Contracts. CheckFree has made available to the Parents
the material terms of all material contracts or arrangements for bill
presentment and/or bill payment services. Section 6.16 of the CheckFree
Disclosure Schedule lists any of the following contracts or arrangements to
which CheckFree is a party or by which CheckFree is or will be obligated
otherwise as of February 15, 2000:
(a) any contract or arrangement involving any restrictions with respect to
the geographical area of operations or scope or type of business of CheckFree;
and
(b) any contract or arrangement involving a partnership, a limited
liability company, a joint venture or other cooperative undertaking requiring a
sharing of technology of CheckFree.
SECTION 6.17 Compliance with Law. (a) Except as would not, individually or
in the aggregate, have a Material Adverse Effect upon CheckFree, CheckFree is
not in breach or default under any order or decree of any Governmental Entity,
arbitrator or arbitration board or tribunal and has complied in all material
respects with, and is not in violation of, in any material respect, any Laws.
(b) CheckFree has obtained all Authorizations necessary for the ownership
or use of its assets, properties and rights or the conduct of its business other
than Authorizations, the failure of CheckFree to possess, would not,
individually or in the aggregate, have a Material Adverse Effect on CheckFree.
(c) Except as would not, individually or in the aggregate, have a Material
Adverse Effect upon CheckFree, each Authorization is in full force and effect
and no proceeding is pending or, to the Knowledge of CheckFree, threatened to
modify, suspend, revoke or otherwise limit any of such Authorization and no
administrative or governmental actions have been taken or, to the Knowledge of
CheckFree, threatened in connection with the expiration or renewal of any such
Permits.
(d) Except as would not, individually or in the aggregate, have a Material
Adverse Effect upon CheckFree, neither CheckFree has received written notice of
any violation of Laws or Authorization.
SECTION 6.18 Absence of Default. (a) Except as would not, individually or
in the aggregate, have a Material Adverse Effect on CheckFree, each of the
material agreements to which CheckFree is a party constitutes a valid and
binding obligation of CheckFree, and is in full force and effect.
(b) Except with respect to circumstances that would not reasonably be
expected to have a Material Adverse Effect on CheckFree, (i) CheckFree has
fulfilled and performed in all respects its obligations under each such
agreement referenced in Section 6.18(a) to which it is a party to the extent
such obligations are required by the terms thereof to have been fulfilled or
performed through February 15, 2000; (ii) CheckFree is not and is not alleged in
writing to be, in breach or default under, nor is there alleged in writing to be
any basis for termination of, any such agreement of any such agreement
referenced in Section 6.18(a); (iii) no event has occurred and no condition or
state of facts exists which, with the passage of time or the giving of notice or
both, would constitute such a default or breach by CheckFree referenced in
Section 6.18(a); and (iv) CheckFree is not currently renegotiating any such
agreement referenced in Section 6.18(a) in respect of which CheckFree is alleged
to be in default or paying liquidated damages in lieu of performance thereunder.
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SECTION 6.19 Taxes. Except as would not, individually or in the aggregate,
have a Material Adverse Effect upon CheckFree:
(a) (i) CheckFree has filed all material Tax Returns required to be filed;
(ii) all such Tax Returns are complete and accurate in all material respects and
all Taxes shown to be due on such Tax Returns have been timely paid; (iii) all
Taxes (whether or not shown on any Tax Return) owed by CheckFree have been
timely paid or CheckFree has established adequate reserves therefor; (iv) there
is no action, suit, investigation, audit, claim or assessment pending or, to the
Knowledge of CheckFree, proposed or threatened in writing with respect to Taxes
of CheckFree; (v) all material deficiencies asserted or assessments made as a
result of any examination of the Tax Returns referred to in clause (i) have been
paid in full; (vi) there are no Liens for Taxes upon the assets of CheckFree
except Liens relating to current Taxes not yet due; (vii) Taxes which CheckFree
is required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid or accrued, reserved against and entered on
CheckFree's books in accordance with GAAP; and (viii) CheckFree has not been a
member of any affiliated group of corporations within the meaning of Section
1504 of the Code, other than an affiliated group of which CheckFree is the
common parent.
(b) CheckFree does not own any interest in any (i) domestic international
sales corporation, (ii) foreign sales corporation, (iii) controlled foreign
corporation or (iv) passive foreign investment company.
ARTICLE 7
CONDUCT OF THE BUSINESSES PENDING THE MERGERS
SECTION 7.1 Conduct of the TransPoint Business Pending Closing. (a) From
February 15, 2000 until the Effective Time, Microsoft and FDC will cause each
TransPoint Entity and each Holding Subsidiary in which they own equity, and
Citibank will cause each TransPoint Entity (other than MSFDC and MSFDC
International) and the Holding Subsidiary in which it owns equity, to do each of
the following, and the Parents and Holding Subsidiaries will cause their
respective employees engaged in the TransPoint Business to do each of the
following unless expressly contemplated by this Agreement or CheckFree shall
otherwise consent in writing:
(i) maintain its existence in good standing;
(ii) maintain the general character of its business and properties and
conduct its business in the ordinary course consistent with the current
TransPoint Business strategy;
(iii) maintain business and book of account and records and practices
consistent with past practices; and
(iv) use its reasonable best efforts (A) to preserve its business
intact and (B) to preserve the goodwill of its suppliers, customers and
others having business relationships with the TransPoint Entities.
(b) Except as (1) otherwise expressly provided for herein or (2) approved
by CheckFree in writing, from February 15, 2000 until the Effective Time, each
TransPoint Entity and Holding Subsidiary shall not (and the Parents shall not
permit any TransPoint Entity or Holding Subsidiary to):
(i) amend or otherwise change its Certificate of Incorporation,
Bylaws, limited liability company agreement or partnership agreement (or
equivalent organizational documents);
(ii) issue, sell, pledge or otherwise dispose of, or authorize for
issuance, sale, pledge or disposal of any of its Capital Stock or any other
of its securities, or make other agreements with respect to, any of its
Capital Stock or any other of its securities (other than issuance or sale
of Capital Stock to the Parents or the Holding Subsidiaries);
(iii) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its Capital Stock;
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(iv) (A) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof ; (B)
authorize any capital commitment; or (C) enter into, amend or otherwise
modify any contract, agreement, commitment or arrangement with respect to
any matter set forth in this Section 7.1(b)(iv) if as a result of any such
action under classes (A), (B) or (C) of this subsection the TransPoint
Entities would have any Indebtedness at the Effective Time or have any
undisclosed liabilities which would be a breach of the representations in
Section 5.5, considering the TransPoint Entities together with any such
acquisition on a consolidated basis whether or not consolidated for GAAP
purposes;
(v) sell, lease, license, mortgage, pledge, subject to Lien or
otherwise dispose of or encumber, in whole or in part, any of its assets or
properties (including Intellectual Property Rights), or agree to do so,
except for (A) Permitted Liens and (B) obsolete or worn out equipment no
longer used in the TransPoint Business;
(vi) materially change any of its equipment, software or technology,
except for upgrades, improvements or replacements;
(vii) enter into or modify any Material Contract, except (A) in the
ordinary course of business as consistent with the current TransPoint
Business strategy or (B) with the prior written consent of CheckFree (which
shall not be unreasonably withheld or delayed), or permit or perform any
act that would cause a material breach of any such Material Contract;
(viii) terminate, modify, assign, waive, release or relinquish any
rights under a Material Contract or amend any material rights or claims
except (A) in the ordinary course of business as consistent with the
current TransPoint Business strategy or (B) as otherwise permitted by this
Section 7.1;
(ix) materially alter the present employment relationships of the
TransPoint Entities except as consistent with past practices;
(x) change any of its accounting policies or procedures;
(xi) make any material Tax election or settle or compromise any
material federal, state, local or foreign income Tax liability;
(xii) except as set forth on Schedule 7.1 of the TransPoint Disclosure
Schedule, settle or compromise any pending or threatened suit, action or
claim that is material or which relates to any of the transactions
contemplated by this Agreement or the Ancillary Agreements;
(xiii) make any loans, advances or capital contributions to or
investments in, any other Person, except as may be required under
agreements in effect as of February 15, 2000 and identified on Section 7.1
of the TransPoint Disclosure Schedule;
(xiv) violate or fail to perform, in any material respect, any
obligation imposed upon a TransPoint Entity by any applicable laws, orders
or decrees, ordinances, governmental rules or regulations or otherwise as a
result of legal or regulatory process;
(xv) except in connection with the sale or licensing of any of the
TransPoint Entities' products in the ordinary course of business consistent
with past practice, sell, assign, transfer, license, sublicense, pledge or
otherwise encumber any of the Intellectual Property Rights in whole or in
part;
(xvi) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing, or announce an intention, commit or
agree to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing; or
(xvii) terminate, modify, amend, assign, waive, release or relinquish
any rights under any agreement or arrangement with any Affiliate in a
manner adverse to CheckFree other than the releases between the TransPoint
Entities and Parents attached as Exhibits K(1) and K(2).
(c) From February 15, 2000 until the Effective Time, each of the Parents
will (i) use reasonable best efforts to keep available the services of their
respective employees (or qualified replacements) dedicated to the
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TransPoint Business as currently conducted and (ii) continue to provide not less
than the level of support and assistance to the TransPoint Entities that they
are currently providing and are expected to provide consistent with the current
TransPoint Business strategy.
(d)(i) During the period beginning on February 15, 2000 and ending at the
Effective Time (the "Executory Period"), neither Microsoft nor its Subsidiaries
other than any existing Subsidiary which is registered under the Exchange Act as
of February 15, 2000 or new Subsidiary which becomes so registered during the
Executory Period (other than MSN) will enter into any agreement with a third
party (other than the TransPoint Entities) for the provision of back end
services for Pay Anyone (as defined in the form of the Commercial Alliance
Agreement attached hereto as Exhibit E) or Bill Payment and Presentment (as
defined in the form of the Commercial Alliance Agreement attached hereto as
Exhibit E) on MSN, which services are available from CheckFree as of the signing
of this Agreement (the "Exclusive Services"), unless such agreement will expire
or may be terminated by Microsoft or such Subsidiaries within one year or less
from Closing.
(ii) During the Executory Period, if Microsoft or its Subsidiaries other
than any existing Subsidiary which is registered under the Exchange Act as of
February 15, 2000 or new Subsidiary which becomes so registered during the
Executory Period (other than MSN) desires to implement features or functionality
on MSN that require back end DDA (as defined in the form of Commercial Alliance
Agreement attached hereto as Exhibit E) to DDA payment processing services other
than the Exclusive Services ("Other Services"), Microsoft shall notify CheckFree
of its requirements, and CheckFree shall promptly respond as to whether such
services are available from CheckFree. If they are, then the parties shall have
a 45-day exclusive negotiating period in which to come to a written service
level agreement therefor, during which period Microsoft or such Subsidiaries
shall not procure Other Services from a third party. Microsoft or such
Subsidiaries shall have the ultimate discretion as to whether to select
CheckFree or a third party supplier of Other Services. If Microsoft and
CheckFree agree during such 45-day period, then CheckFree shall supply the Other
Services to Microsoft pursuant to the terms of a written service level
agreement. As used herein, Other Services shall be deemed to be "available from
CheckFree" if, in response to Microsoft's request, CheckFree is able to make a
legally binding offer to perform the Other Services to Microsoft's requirements
at pricing specified by CheckFree, which offer commits CheckFree to deliver the
Other Services to Microsoft within 45 days of Microsoft's request.
(iii) Notwithstanding section 7.1(d)(ii) above, Microsoft may elect not to
contact CheckFree about the Other Services and contract with a third party for
Other Services; provided, however, in such event, Microsoft shall not enter into
such third party agreement unless such agreement will expire or may be
terminated by Microsoft within one year or less from Closing.
SECTION 7.2. Conduct of CheckFree's Business Pending Closing. (a) From
February 15, 2000 until the Effective Time or the Transfers, CheckFree will:
(i) maintain its existence in good standing; and
(ii) conduct its business in the ordinary course and consistent with
past practices, except as expressly permitted by this Agreement or approved
by each of Microsoft and FDC in writing.
(b) Except (1) as set forth in Section 7.2 of the CheckFree Disclosure
Schedule, (2) as otherwise provided for herein or (3) as approved by each of
Microsoft and FDC in writing (which approval with respect to a split of the
CheckFree Common Stock shall not be unreasonably withheld or delayed), from
February 15, 2000 until the Effective Time, CheckFree shall not:
(i) issue, sell or authorize for issuance or sale any shares of its
Capital Stock or any securities convertible or exchangeable for, or any
options, warrants or rights of any kind to acquire any shares of its
Capital Stock, in each case if such issuance or sale would require approval
of the stockholders of CheckFree under applicable law or stock exchange
rules;
(ii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to
any of the CheckFree Common Stock;
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(iii) reclassify, combine, split or subdivide any of the CheckFree
Common Stock;
(iv) (A) enter into any transaction, other than as contemplated
pursuant to this Agreement, to the extent any such transaction would
require approval of the stockholders of CheckFree under applicable law or
stock exchange rules except a Material Transaction Proposal entered into
after the Required CheckFree Vote or prior to the Required CheckFree Vote
with a party who agrees with Parents to approve this Agreement as a
stockholder of CheckFree; or (B) for a period of six (6) months following
February 15, 2000, enter into an agreement relating to any acquisition,
merger, consolidation or purchase that would reasonably be expected to (I)
impose any material delay in the obtaining of, or significantly increase
the risk of not obtaining, any Authorizations, consents, orders,
declarations or approvals of any Governmental Entity necessary to
consummate the Mergers or the expiration or termination of any applicable
waiting period, (II) significantly increase the risk of any Governmental
Entity entering an order prohibiting the consummation of the Transfers, or
(III) significantly increase the risk of not being able to remove any such
order on appeal or otherwise; or
(v) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing, or announce an intention, commit or agree
to do any of the foregoing or to enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
SECTION 7.3 Conduct of Business by the Merger Subsidiaries Pending the
Mergers. Prior to the Effective Time and subject to any applicable regulatory
approvals, CheckFree shall cause the Merger Subsidiaries to (a) perform their
respective obligations hereunder and under this Agreement and the other
agreements referred to herein in accordance with the terms hereof and thereof
and take all other actions necessary or appropriate for the consummation of the
transactions contemplated hereby and thereby, (b) not incur directly or
indirectly any liabilities or obligations except those incurred in connection
with the consummation of this Agreement and the other agreements referred to
herein and the transactions contemplated hereby and thereby, (c) not engage
directly or indirectly in any business or activities of any type or kind
whatsoever and not enter into any agreements or arrangements with any person or
entity, or be subject to or be bound by any obligation or undertaking which is
not contemplated by this Agreement or the other agreements referred to herein,
(d) not create, grant or suffer to exist any Lien upon their respective
properties or assets which would attach to any properties or assets of CheckFree
after the Effective Time and (e) not amend the Certificate (or Articles) of
Incorporation or Bylaws of the Merger Subsidiaries.
ARTICLE 8
OTHER AGREEMENTS
SECTION 8.1 Preparation and Filing of CheckFree Registration Statement and
Proxy Statement/Prospectus. CheckFree, with the reasonable cooperation of each
of the Parents, the Holding Subsidiaries and the TransPoint Entities, shall
promptly prepare and file with the SEC as soon as practicable a registration
statement on Form S-4 (together with any amendments or supplements thereto,
whether prior to or after the effective date thereof, the "CheckFree
Registration Statement"), a portion of which CheckFree Registration Statement
shall also serve as the proxy statement/prospectus with respect to the meeting
of CheckFree's stockholders and the issuance of CheckFree Common Stock in
connection with this Agreement (together with any amendments or supplements
thereto, the "Proxy Statement/Prospectus"). The Parents and CheckFree shall use
their reasonable best efforts to have the CheckFree Registration Statement
declared effective by the SEC as promptly as practicable and to keep the
CheckFree Registration Statement effective as long as is necessary to consummate
the Mergers. The Parents and CheckFree shall use their reasonable best efforts
to obtain, prior to the effective date of the CheckFree Registration Statement,
all necessary permits or approvals required under Blue Sky Laws to carry out the
Mergers; provided, however, that no party shall be required to register or
qualify as a foreign corporation or to take other action which would subject it
to service of process in any jurisdiction where it will not be, following the
Mergers, so subject.
SECTION 8.2 Stockholder Meeting; Approvals. (a) CheckFree shall, as
promptly as practicable following the execution of this Agreement, duly call
and, subject to providing a reasonable period for
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solicitation of proxies from holders of CheckFree Common Stock, give notice of,
convene and hold a meeting of its stockholders (the "CheckFree Stockholders
Meeting") for the purpose of obtaining the Required CheckFree Vote with respect
to the transactions contemplated by this Agreement. In connection with the
CheckFree Stockholders Meeting, CheckFree will (i) mail to its shareholders, as
promptly as practicable, the Proxy Statement/Prospectus and all other proxy
materials for the CheckFree Stockholders Meeting, (ii) use its reasonable
efforts to obtain the Required CheckFree Vote and (iii) otherwise comply in all
material respects with all legal requirements applicable to the CheckFree
Stockholders Meeting. Notwithstanding a modification or withdrawal of the Board
of Directors recommendation to the CheckFree shareholders pursuant to Section
8.2(b), the Board of Directors of CheckFree shall cause the CheckFree
Stockholders Meeting to be held as provided in this Section 8.2(a), unless the
Parents have terminated this Agreement pursuant to Section 10.1(g).
(b) The Board of Directors of CheckFree shall recommend approval and
adoption by CheckFree's stockholders of this Agreement and the issuance of
CheckFree Common Stock in connection with this Agreement. The Board of Directors
of CheckFree shall be permitted to withdraw or modify its recommendation to the
CheckFree stockholders that they give the Required CheckFree Vote, if upon
receiving a Material Transaction Proposal which has a condition or requirement
that the Mergers not occur, the Board of Directors of CheckFree determines in
good faith, based on the advice of outside legal counsel, that, (i) in light of
such Material Transaction Proposal, such withdrawal or modification is required
to comply with their fiduciary duties under applicable law, and (ii) such
Material Transaction Proposal constitutes a Superior Proposal.
SECTION 8.3 No Solicitation. CheckFree shall not, and shall not authorize
or permit any of its officers, directors, employees, investment bankers,
attorneys or other advisers or representatives ("Representatives") to, directly
or indirectly, initiate, solicit or encourage (including by way of furnishing
information), or take any action to facilitate any inquiries or the making of
any offer or proposal which constitutes or may reasonably be expected to lead
to, any Material Transaction Proposal (as defined in Section 12.1), or, in the
event of an unsolicited Material Transaction Proposal, engage in any discussions
or negotiations relating thereto or provide any information or data to any
person relating to any Material Transaction Proposal or accept or approve any
Material Transaction Proposal; provided, however, that notwithstanding any other
provision hereof, CheckFree may (i) at any time prior to the CheckFree
Stockholders' Meeting, engage in discussions or negotiations with a third party
and/or may furnish such third party information concerning itself and its
business, properties and assets if, and only to the extent that, (A)(x) such
third party shall first have made an unsolicited bona fide Material Transaction
Proposal to CheckFree and (y) the Board of Directors of CheckFree shall have
determined in good faith, based upon the advice of outside counsel that such
action is required to comply with their fiduciary duties under applicable law
and (B) prior to furnishing such information to or entering into negotiations
with such third party, CheckFree (1) provides prompt notice to the Parents to
the effect that it is furnishing information to or entering into discussions or
negotiations with such third party and (2) receives from such third party an
executed confidentiality agreement and (ii) comply with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer. CheckFree
shall notify the Parents orally and in writing of any such inquiries, offers or
proposals (including the terms and conditions of any such proposal and the
identity of the person making it) within 24 hours of the receipt thereof and
shall keep the other party informed of the status and details of any such
inquiry, offer or proposal. CheckFree shall immediately cease and cause to be
terminated all existing discussions and negotiations, if any, with any parties
conducted heretofore with respect to any Material Transaction Proposal.
SECTION 8.4 Reserved.
SECTION 8.5 Non-Disparagement. (a) Prior to the Effective Time, each of the
Parents and the Holding Subsidiaries and the TransPoint Entities shall not, and
shall require their respective employees working in connection with the
TransPoint Business not to, make comments publicly or to current or prospective
customers or otherwise take action which disparages CheckFree or its business.
(b) Prior to the Effective Time, CheckFree shall not, and shall require its
employees not to, make comments publicly or to current or prospective customers,
or otherwise take any action which disparages the
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TransPoint Business, including by using the existence of this Agreement and the
transactions contemplated hereby as a reason not to use the products or services
of the TransPoint Business.
SECTION 8.6 Reserved.
SECTION 8.7 TransPoint Employee Matters. (a) Beginning as of the Effective
Time, CheckFree will have an initial three (3) month window to solicit and hire
key personnel of the Parents primarily engaged in the TransPoint Business, for
both electronic billing operations and electronic commerce development;
provided, however, that all costs of hiring such personnel by CheckFree,
including replacement of Microsoft or FDC stock options, shall be the
responsibility of and paid by CheckFree. For a period ending no earlier than the
first anniversary of the Effective Time, for any employee of Microsoft primarily
engaged in the TransPoint Business that is hired by CheckFree or any of its
Affiliates, CheckFree shall provide notice of termination or pay in lieu thereof
and severance pay, if applicable, that is no less favorable than the employee's
arrangement with Microsoft.
(b) At CheckFree's election, for a period of up to twelve (12) months after
the Mergers, Microsoft and FDC will continue the current arrangement under which
Microsoft and FDC perform services for the TransPoint Entities under the
Transition Services Agreement attached as Exhibit G. Under these arrangements,
CheckFree will pay the cost of such services at the rates set forth in the
Transition Services Agreement which rates are determined using multiples
consistent with those currently used in calculating the fees paid by the
TransPoint Entities for such services but using actual salaries at the time(s)
of the performance of such services. During the period of the Transition
Services Agreement, Parents shall provide support for the services to be
provided to the MSFDC International licensees.
SECTION 8.8 Reserved.
SECTION 8.9 Post-Closing Business Plan. CheckFree shall reasonably consult
with Microsoft and FDC regarding the development by CheckFree of a post-Closing
business plan for CheckFree within 60 days after Closing, which plan may include
without limitation the maintenance and operation of a development center in
Redmond, Washington. CheckFree will consider in good faith the views of
Microsoft and FDC in the development of such plan.
SECTION 8.10 Notification of Certain Matters. Each party hereto agrees,
subject to applicable laws relating to the exchange of information, promptly to
furnish the other parties hereto with copies of written communications (and
memoranda setting forth the substance of all oral communications) received by
such party, or any of its Affiliates or "associates" (as such term is defined in
Rule 12b-2 under the Exchange Act as in effect on the date hereof), from, or
delivered by any of the foregoing to, any Governmental Entity relating to or in
respect of the transactions contemplated under this Agreement.
SECTION 8.11 Regulatory Matters. (a) To the extent not completed prior to
the date hereof, each party hereto shall take all reasonable steps (i) promptly
to file or cause to be filed with the Federal Trade Commission (the "FTC") and
the Department of Justice (the "DoJ") any notifications required to be filed
under the HSR Act, and the rules and regulations promulgated thereunder with
respect to the transactions contemplated hereby; (ii) to comply in a timely
manner with any request under the HSR Act for additional information, documents,
or other material received by such party or any of its controlled Affiliates or
Subsidiaries from the FTC or the DoJ or other Governmental Entity in respect of
such filings, the Mergers, or any other transactions provided for in this
Agreement, and (iii) to cooperate with the other party in connection with any
such filing and in connection with resolving any investigation or other inquiry
of any such agency or other Governmental Entity under any Antitrust Laws (as
defined in Section 8.11(b)) with respect to any such filing, the Mergers, or any
such other transaction. Each party shall promptly inform the other party of any
material communication with, and any proposed understanding, undertaking, or
agreement with, any Governmental Entity regarding any such filings, the Mergers,
or any such other transactions. No party shall participate in any meeting with
any Governmental Entity in respect of any such filings, investigation, or other
inquiry without giving the other parties notice of the meeting and, to the
extent permitted by such Governmental Entity, the opportunity to attend and
participate.
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(b) Subject to the other terms of this Section 8.11, each of CheckFree and
the Parents shall take all reasonable steps to resolve such objections, if any,
as may be asserted by any Governmental Entity with respect to the Mergers or any
other transactions provided for in this Agreement under the HSR Act, the Sherman
Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act,
as amended, and any other federal, state or foreign statutes, rules,
regulations, orders, or decrees that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade (collectively, "Antitrust Laws").
(c) If any administrative or judicial action or proceeding is instituted
(or threatened to be instituted) challenging the Mergers as violative of any
Antitrust Law, and, if by mutual agreement, CheckFree and the Parents decide
that litigation is in their best interests, each of the Parents and CheckFree
shall (unless and until it determines that litigation is not in its best
interests) cooperate vigorously to contest and resist any such action or
proceeding and to have vacated, lifted, reversed, or overturned any decree,
judgment, injunction, or other order, whether temporary, preliminary, or
permanent (each, an "Order"), that is in effect and that prohibits, prevents, or
restricts consummation of the Mergers. Each of CheckFree and the Parents shall
take such reasonable action as may be required to cause the expiration of the
notice periods under the HSR Act or other Antitrust Laws with respect to the
Mergers and any other transactions provided for under this Agreement as promptly
as possible after the execution of this Agreement.
(d) Notwithstanding anything to the contrary in this Section 8.11, (i)
neither the Parents, nor any of their respective Subsidiaries shall be required
to (A) divest or agree to hold separate any of their respective businesses,
product lines, or assets, or (B) to take or agree to take any other action or
agree to any limitation that such party reasonably believes in good faith would
be materially adverse to such party, and (ii) neither CheckFree nor its
Subsidiaries shall be required to (A) divest or agree to hold separate any of
their respective businesses, product lines, or assets, or (B) to take or agree
to take any other action or agree to any limitation such that CheckFree
reasonably determines in good faith that (1) such action or limitation would be
materially detrimental to the current CheckFree business or (2) CheckFree will
no longer receive the material benefits contemplated by this Agreement and the
transactions contemplated hereby taken as a whole.
(e) Each party hereto shall cooperate and use its commercially reasonable
efforts to promptly prepare and file all necessary documentation, to effect all
necessary applications, notices, petitions, filings and other documents, and to
use all commercially reasonable efforts to obtain all necessary permits,
consents, approvals, waivers and authorizations of all Governmental Entities and
all other persons necessary or advisable to consummate the transactions
contemplated by this Agreement. CheckFree shall have the right to review and
approve in advance all characterizations of the information relating to
CheckFree, on the one hand, and Parents shall have the right to review and
approve in advance all characterizations of the information relating to Parents
or the TransPoint Entities, on the other hand, in either case which appear in
any filing sought in connection with this Agreement. CheckFree and Parents shall
each consult with the other with respect to the obtaining of all such necessary
or advisable permits, consents, approvals, waivers and authorizations of any
Governmental Entity.
SECTION 8.12 Reasonable Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties hereto will use its
reasonable efforts to take or cause to be taken all actions, and to do, or cause
to be done, all things necessary, proper or advisable under applicable law and
regulations to consummate and make effective in the most expeditious manner
practicable, the transactions contemplated by this Agreement including (i)
subject to Section 8.11(c) the obtaining of all necessary actions and non-
actions, waivers and consents, if any, from any Governmental Entity and the
making of all necessary registrations and filings and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
avoid an action or proceeding by any Governmental Entity; (ii) the obtaining of
all necessary consents, approvals or waivers from any other Person; (iii)
subject to Section 8.11(c) the defending of any claim, investigation, action,
suit or other legal proceeding, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby; and
(iv) the execution of additional instruments necessary to consummate the
transactions contemplated by this Agreement. Each party will promptly consult
with the other and provide necessary information (including
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copies thereof) with respect to all filings made by such party with any
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
SECTION 8.13 Access; Documents; Supplemental Information. (a) From February
15, 2000 through the Closing, the Parents shall afford, shall cause each Holding
Subsidiary and TransPoint Entity to afford and, with respect to clause (ii)
below, shall use their reasonable best efforts to cause the independent
certified public accountants for the TransPoint Entities to afford, (i) to the
officers, independent certified public accountants, counsel and other
representatives of CheckFree, upon reasonable notice, reasonable access during
regular business hours to (A) the properties, books and records, including Tax
Returns filed and those in preparation, of the Holding Subsidiaries and the
TransPoint Entities, and (B) the officers, employees, accountants, counsel and
other representatives of the Holding Subsidiaries and the TransPoint Entities
and of the Parents to the extent involved with the TransPoint Business, in order
that CheckFree may have full opportunity to make such investigations as it shall
reasonably desire to make of the operations, properties, business, financial
condition and prospects of the TransPoint Business, (ii) to the independent
certified public accountants of CheckFree, upon reasonable notice, reasonable
access during regular business hours to the work papers and other records of the
accountants relating to the TransPoint Business, and (iii) to CheckFree and its
representatives, such additional financial and operating data and other
information as to the properties, operations, business and financial condition
of the Holding Subsidiaries and the TransPoint Entities as CheckFree shall from
time to time reasonably require. Unless otherwise required by law, CheckFree
will treat any such information which is nonpublic as confidential in accordance
with the terms of the Non-Disclosure Agreement, dated as of November 2, 1999
(the "Non-Disclosure Agreement"), among CheckFree, Microsoft and MSFDC.
(b) From February 15, 2000 through the Closing, CheckFree shall afford,
shall cause each of its Subsidiaries to afford and, with respect to clause (ii)
below, shall use its reasonable best efforts to cause the independent certified
public accountants for CheckFree and its Subsidiaries to afford, (i) to the
officers, independent certified public accountants, counsel and other
representatives of the Parents, upon reasonable notice, reasonable access during
regular business hours to (A) the properties, books and records, including Tax
Returns filed and those in preparation, of CheckFree and its Subsidiaries, and
(B) the officers, employees, accountants, counsel and other representatives of
CheckFree and its Subsidiaries, in order that the Parents may have full
opportunity to make such investigations as it shall reasonably desire to make of
the operations, properties, business, financial condition and prospects of
CheckFree and its Subsidiaries, (ii) to the independent certified public
accountants of the Parents, upon reasonable notice, reasonable access during
regular business hours to the work papers and other records of the accountants
relating to CheckFree and its Subsidiaries, and (iii) to the Parents and their
representatives, such additional financial and operating data and other
information as to the properties, operations, business and financial condition
of CheckFree and its Subsidiaries as the Parents shall from time to time
reasonably require. Unless otherwise required by law, the Parents will treat any
such information which is nonpublic as confidential in accordance with the terms
of the Non-Disclosure Agreement.
(c) From February 15, 2000 through the Closing, CheckFree and the Parents
agree to furnish promptly to each other copies of any notices, documents,
requests, court papers, or other materials received from any Governmental Entity
or any other third party with respect to the transactions contemplated by this
Agreement, except where it is obvious from such notice, document, request, court
paper or other material that the other party was already furnished with a copy
thereof.
(d) The Parents shall deliver to CheckFree without charge, the following
financial information (the "Supplemental Financial Information"): (i) within 45
days after each fiscal quarter ending after February 15, 2000 and prior to the
Effective Time, the unaudited balance sheet of the TransPoint Business as of the
end of such quarter and the unaudited statements of operations, stockholders'
equity and cash flows of the TransPoint Business for such quarter and for the
portion of the fiscal year then completed, (ii) within 90 days after each fiscal
year ending after February 15, 2000 and prior to the Effective Time, the audited
balance sheet of the TransPoint Business as of the end of such year and the
audited statements of operations, stockholders' equity and cash flows of the
TransPoint Business for such year, in each case prepared in accordance with GAAP
and certified by Deloitte & Touche LLP, and (iii) promptly upon the reasonable
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request by CheckFree, such additional financial information as may be required
in connection with any filing by CheckFree pursuant to the requirements of
federal or state securities laws. Such Supplemental Financial Information shall
present fairly, in all material respects, the financial position of the
TransPoint Entities for the period covered, subject, in the case of unaudited
financials, to normal year-end adjustments and the omission of footnotes.
SECTION 8.14 Comfort Letters. (a) The Parents shall use their reasonable
best efforts to cause to be delivered to CheckFree, on behalf of the TransPoint
Entities, a "comfort" letter of Deloitte & Touche LLP, the TransPoint Entities'
independent public accountants, dated the date on which the CheckFree
Registration Statement shall become effective and as of the Effective Time, and
addressed to CheckFree, in form and substance reasonably satisfactory to
CheckFree and reasonably customary in scope and substance for letters delivered
by independent public accountants in connection with transactions such as those
contemplated by this Agreement.
(b) CheckFree shall use its reasonable best efforts to cause to be
delivered to each of the Parents a "comfort" letter of Deloitte & Touche LLP,
CheckFree's independent public accountants, dated the date on which the
CheckFree Registration Statement shall become effective and as of the Effective
Time, and addressed to each of the Parents, in form and substance reasonably
satisfactory to the Parents and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
SECTION 8.15 Stock Exchange Listing. CheckFree, with the reasonable
cooperation of the Parents, shall use its reasonable best efforts to list on the
NASDAQ National Market upon official notice of issuance, the shares of CheckFree
Common Stock to be issued in connection with the transactions contemplated in
this Agreement.
SECTION 8.16 Tax Returns; Cooperation. The Parents and CheckFree will
cooperate with each other and provide such information as any party hereto may
require in order to file any return to determine Tax liability or a right to a
Tax refund or to conduct a Tax audit or other Tax proceeding. Such cooperation
shall include, but not be limited to, making employees available on a mutually
convenient basis to explain any documents or information provided hereunder or
otherwise as required in the conduct of any audit or other proceeding. In the
event that CheckFree receives notice of a Tax audit or other Tax proceeding
relating to the Holding Subsidiaries or the TransPoint Entities that would
reasonably be expected to adversely affect the Tax liability of the Parents with
respect to any pre-Closing period, CheckFree shall, promptly upon receipt of
notice of such Tax audit or other Tax proceeding, notify the Parents of such Tax
audit or other Tax proceeding and permit the Parents to participate in the
resolution of such Tax audit or other Tax proceeding, to the extent applicable
to pre-Closing periods. In the event that the Parents receive notice of a Tax
audit or other Tax proceeding relating to the Holding Subsidiaries or the
TransPoint Entities that would reasonably be expected to adversely affect the
Tax liability of the Holding Subsidiaries or the TransPoint Entities with
respect to any post-Closing period, the Parents shall, promptly upon receipt of
notice of such Tax audit or other Tax proceeding, notify CheckFree of such Tax
audit or other Tax proceeding and permit CheckFree to participate in the
resolution of such Tax audit or other Tax proceeding, to the extent applicable
to post-Closing periods. The Parents and CheckFree will retain until the
expiration of any applicable statutes of limitations (including any extensions
thereof) all Tax Returns, schedules and workpapers and all other material
records or documents relating to the Merger Subsidiaries, the Holding
Subsidiaries and the TransPoint Entities for all Tax periods through the first
Tax period ending after the Closing Date. At the expiration of such statutory
period (including any extensions thereof), each party shall have the right to
dispose of any such Tax Returns and other documents or records on thirty (30)
days written notice to the other party. Any information, documents or records
obtained under this Section 8.16 shall be kept confidential, except as may be
otherwise necessary in connection with the filing of Tax Returns or claims for
refund or in conducting an audit or other proceeding.
SECTION 8.17 Reorganization. (a) On or after the Effective Time, CheckFree
and the applicable Parent shall, for all applicable tax purposes, report each of
the Mergers in a manner consistent with such Merger constituting a
reorganization under Section 368(a) of the Code.
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(b) CheckFree shall not, within the three (3) year period following the
Effective Time, (i) liquidate (or permit the liquidation of) Surviving H&B,
Surviving FDC International or Surviving Citi Holdings, (ii) merge Surviving
H&B, Surviving FDC International or Surviving Citi Holdings with or into another
corporation or other entity, including CheckFree, if Surviving H&B, Surviving
FDC International or Surviving Citi Holdings, as the case may be, is not the
surviving corporation of such merger, (iii) otherwise terminate the existence of
Surviving H&B, Surviving FDC International or Surviving Citi Holdings, (iv)
cause Surviving H&B, Surviving FDC International or Surviving Citi Holdings to
distribute substantially all of its assets, or (v) enter into a contract to do
any of the foregoing. During the three (3) year period following the Effective
Time, CheckFree shall cause each of the Surviving Corporations to continue its
business or use a substantial portion of its business assets in a business.
(c) On or after the Effective Time, (i) CheckFree shall not, and shall not
cause any of the Surviving Corporations to, take any action or fail to take any
action which action or failure is reasonably likely to cause any of the
representations set forth in the letter of representation to be executed at
Closing and substantially in the form of Exhibit M to be untrue, and (ii)
CheckFree shall take any other reasonable action requested in a reasonable
manner by any of the Parents in order to facilitate the qualification of any of
the Mergers as a reorganization under Section 368(a) of the Code.
SECTION 8.18 Financial Condition. Each of the Parents covenants and agrees
that immediately prior to and at the Effective Time (i) each TransPoint Entity,
and any entity acquired prior to the Effective Time as permitted by Section
7.1(b)(iv), will have no Indebtedness; (ii) the TransPoint Entities and any
entity acquired prior to the Effective Time as permitted by Section 7.1(b)(iv),
in the aggregate, will have available $100 million of cash (determined in
accordance with GAAP applied in a manner consistent with the Financial
Statements); and (iii) the Adjusted Working Capital of the TransPoint Entities
will be zero or greater. For purposes hereof, "Adjusted Working Capital" means
the consolidated short term assets of the TransPoint Entities minus the
consolidated short-term liabilities of the TransPoint Entities, in each case
determined in accordance with GAAP applied in a manner consistent with the
Financial Statements; provided, however, that for purposes of this Section 8.18
the "deferred revenues" liability resulting from the existing contracts of MSFDC
International (as set forth on Schedule 8.18) shall not be included in such
calculation; provided further, that for purposes of determining Adjusted Working
Capital, consolidated short term assets and liabilities of the TransPoint
Entities shall include the pro rata share of such assets and liabilities (based
on the percentage ownership by the TransPoint Entities) of any acquisitions made
by the TransPoint Entities in the Executory Period; provided further, if such
acquisition has not closed prior to the Effective Time and such proposed
acquisition had a net adjustment included in the calculation of Adjusted Working
Capital under this Section 8.18 and such acquisition does not close, Parents and
CheckFree shall make an equitable adjustment based on this change as soon as
practicable thereafter; provided further that the accounts payable of the
TransPoint Entities in connection with the transactions contemplated in this
Agreement (excluding investment banking fees) that are either a direct
obligation of the TransPoint Entities or of the TransPoint Entities to one or
more Parents shall also be excluded from the net short term liabilities in
computing Adjusted Working Capital; and provided further that the direct
expenses of Parents in Section 10.3(a) shall not be considered a TransPoint
Entity expense. Each of the Parents jointly and severally agrees to take all
necessary action to cause the first sentence of this Section 8.18 to be true and
correct including, to the extent necessary, making such additional cash
contributions to the TransPoint Entities as may be required.
SECTION 8.19 Other Actions of the Parties. At the Closing, each of the
parties to this Agreement shall execute and deliver each of the Ancillary
Agreements to which it is a party.
SECTION 8.20 Officers and Directors. CheckFree agrees that all rights to
indemnification (including advancement of expenses) existing on February 15,
2000 in favor of the present or former officers, directors, and employees of the
TransPoint Entities and the Holding Subsidiaries (collectively, the "TransPoint
Indemnified Persons") with respect to actions taken in their capacities as
officers, directors, and employees of the TransPoint Entities prior to the
Effective Time as provided in the TransPoint Entities' organizational documents
and indemnification agreements shall survive the Mergers and continue in full
force and effect for a period of six (6) years following the Effective Time and
shall be guaranteed by CheckFree and that the TransPoint Entities' former and
present officers and directors shall be provided by CheckFree with the same
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level of indemnification as currently exists for CheckFree's officers and
directors. This Section 8.20 shall survive the consummation of the Mergers at
the Effective Time, and is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on CheckFree and its respective successors
and assigns.
SECTION 8.21 CheckFree Rights Agreement. CheckFree agrees that the
CheckFree Rights Agreement shall remain in effect, and shall not be amended or
revised, through the Effective Time except as may be required in connection with
the Board of Directors' determination regarding a Material Transaction Proposal
pursuant to Section 8.3. If CheckFree waives the application of the CheckFree
Rights Agreement as to any party other than (i) after the Required CheckFree
Vote in connection with a Material Transaction Proposal or (ii) prior to the
CheckFree stockholder vote in connection with a Material Transaction Proposal
with a party that agrees with Parents to approve this Agreement as a stockholder
of CheckFree, it shall afford the same treatment to Parents.
SECTION 8.22 Non-Competition. In connection with and as part of the
transactions contemplated in this Agreement, Microsoft and FDC will be obligated
under, effective as of the Effective Time, certain non-competition agreements as
contained in the Commercial Alliance Agreement and the Marketing Agreement.
SECTION 8.23 Support of TransPoint Platform. CheckFree agrees to, and as
soon as practicable after February 15, 2000 will publicly announce that it will,
support the TransPoint Business bill presentment and bill payment services
platform for the TransPoint Entities' customers (including the licensees of
MSFDC International) for the longer of (i) the term of each such customer's
contract and (ii) three years from the Effective Time. Consequently, if the
contract of any TransPoint customer terminates prior to the third anniversary of
the Effective Time, and such customer chooses to enter into a new contract on
substantially the same terms, such customer may elect to continue to use the
TransPoint Business bill presentment and bill payment services platform until
the third anniversary of the Effective Time.
SECTION 8.24 Post-Closing Cooperation. At the Effective Time, the Parents
will deliver or cause to be delivered to CheckFree copies of all books and
records relating to the TransPoint Entities and the Holding Subsidiaries,
including all written contracts to which any of the TransPoint Entities or the
Holding Subsidiaries is a party. After the Effective Time, the Parents will
cooperate and use reasonable best efforts to cause their continuing employees
who formerly were primarily engaged in the TransPoint Business to cooperate with
CheckFree, at CheckFree's expense, in respect of any litigation relating to the
TransPoint Entities or the TransPoint Business. At the Effective Time, the
Parents will provide CheckFree with a list of employees of Parents who were
primarily engaged in the TransPoint Business prior to the Effective Time.
ARTICLE 9
CONDITIONS PRECEDENT TO CLOSING
SECTION 9.1 Conditions to Each Party's Obligation to Effect the
Mergers. The respective obligations of each party hereto to effect the Mergers
shall be subject to the fulfillment or satisfaction, prior to or on the Closing
Date, of the following conditions:
(a) Shareholder Approval. The issuance of CheckFree Common Stock in
connection with this Agreement shall have been duly approved by the requisite
vote of CheckFree Common Stock (as set forth in Section 6.6(a)) (the "Required
CheckFree Vote").
(b) Approvals. All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting periods
imposed by, any Governmental Entity, which the failure to obtain, make or occur
would have the effect of making the Mergers or any of the transactions
contemplated hereby illegal or would, assuming the Mergers had taken place, be
inconsistent with the obligations of the parties under the provisions of Section
8.11(d), shall have been obtained, made or occurred or there has been a specific
written consent of such adversely affected party.
(c) No Injunction. No judgment, order, decree, statute, law, ordinance,
rule or regulation, entered, enacted, promulgated, enforced or issued by any
court or other Governmental Entity of competent jurisdiction
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or other legal restraint or prohibition shall be in effect specifically
referencing any of the parties hereto or the transactions contemplated by this
Agreement that prevents or would make illegal the consummation of the Mergers.
(d) Registration Statement. The CheckFree Registration Statement shall have
become effective in accordance with the provisions of the Securities Act. No
stop order suspending the effectiveness of the CheckFree Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall have
been initiated or, to the Knowledge of the Parents or CheckFree, threatened by
the SEC.
(e) Stock Exchange Listing. The shares of CheckFree Common Stock issued in
accordance with the transactions contemplated by this Agreement shall have been
authorized for listing on the NASDAQ National Market, subject to official notice
of issuance.
(f) Ancillary Agreements. The Parents and CheckFree shall have previously
or concurrently executed all of the Ancillary Agreements to which they are
parties.
SECTION 9.2 Conditions to Obligations of Parents and Holding Subsidiaries
to Effect the Mergers. All obligations of Parents and Holding Subsidiaries to
effect the Mergers and execute the Ancillary Agreements are subject to the
fulfillment or satisfaction, prior to or on the Closing Date, of each of the
following conditions precedent:
(a) Performance of Obligations; Representations and Warranties. CheckFree
shall have performed and complied in all material respects with all agreements
and conditions contained in this Agreement, that are required to be performed or
complied with by it prior to or at the Closing. Each of the representations and
warranties of CheckFree contained in Article 6 of this Agreement or in any of
the Ancillary Agreements to the extent it is qualified by Material Adverse
Effect or materiality shall be true and correct and each of the representations
and warranties of CheckFree to the extent it is not so qualified by Material
Adverse Effect or materiality shall be true and correct in all material
respects, in each case, on and as of the Closing with the same effect as though
such representations and warranties were made on and as of the Closing, except
to the extent that any representations and warranties expressly relate to an
earlier date, in which case such representations and warranties shall be as of
such earlier date.
(b) Officers Certificate. The Parents shall have received a certificate
dated the Closing Date and signed by the President or a Vice President of
CheckFree, certifying that the conditions specified in Section 9.2(a) have been
satisfied.
(c) Representation Letters. CheckFree, Merger Sub A, Merger Sub B and
Merger Sub C shall have executed and delivered a letter substantially in the
form of Exhibit M.
SECTION 9.3 Conditions to Obligations of CheckFree to Effect the
Mergers. All obligations of CheckFree to effect the Mergers and execute the
Ancillary Agreements are subject to the fulfillment or satisfaction, prior to or
on the Closing Date, of each of the following conditions precedent:
(a) Performance of Obligations; Representations and Warranties. Each of the
Parents, the Holding Subsidiaries and the TransPoint Entities shall have
performed and complied in all material respects with all agreements and
conditions contained in this Agreement that are required to be performed or
complied with by it prior to or at the Closing. Each of the Parents'
representations and warranties contained in Article 4 of this Agreement with
respect to themselves and the Holding Subsidiaries, each of the Parents'
representations and warranties contained in Article 5 of this Agreement with
respect to the TransPoint Entities, and each of the Parents' representation and
warranties set forth in the Ancillary Agreements, to the extent it is qualified
by Material Adverse Effect or materiality, shall be true and correct and each of
the Parents' representations and warranties to the extent it is not so qualified
by Material Adverse Effect or materiality shall be true and correct in all
material respects, in each case, on and as of the Closing with the same effect
as though such representations and warranties were made on and as of the
Closing, except for changes permitted by this Agreement and except to the extent
that any representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall be as of such earlier date.
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(b) Officers Certificate. CheckFree shall have received a certificate dated
the Closing Date and signed by the President or a Vice President of each of the
Parents, the Holding Subsidiaries and the TransPoint Entities certifying that
the conditions specified in Section 9.3(a) have been satisfied.
ARTICLE 10
TERMINATION AND AMENDMENT
SECTION 10.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereunder may be abandoned, at any time prior to the
Effective Time, whether before or after the approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of
CheckFree:
(a) by the mutual written consent of each of the Parents and CheckFree;
(b) by CheckFree or the Parents acting as a group, if (i) the Effective
Time shall not have occurred by February 15, 2001; provided that the right to
terminate this Agreement under this Section 10.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before such date; or (ii) any Governmental Entity shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Mergers and such order, decree, ruling or other action shall
have become final and nonappealable;
(c) by the Parents acting as a group, if CheckFree breaches any of its
representations, warranties, covenants or agreements under this Agreement, such
that the conditions set forth in Section 9.2 would not be satisfied unless such
breach is cured within 15 days after notice to CheckFree by the Parents;
(d) by CheckFree, if any of the Parents breach any of its representations,
warranties, covenants or agreements under this Agreement such that the
conditions set forth in Section 9.3 would not be satisfied, unless such breach
is cured within 15 days after notice to all Parents by CheckFree;
(e) by CheckFree or the Parents acting as a group if the approval by the
stockholders of CheckFree required for the issuance of CheckFree Common Stock in
connection with this Agreement shall not have been obtained by reason of the
failure to obtain the Required CheckFree Vote at a duly held meeting of
stockholders of CheckFree or at any adjournment thereof;
(f) by CheckFree or the Parents pursuant to Section 8.11(d)(ii) or Section
8.11(d)(i), respectively, if, as a condition or requirement of approval or
consent of a Governmental Entity to the Mergers, such Governmental Entity would
impose a limitation or restriction on such party which it is not required to
take under Section 8.11(d)(ii) or Section 8.11(d)(i), respectively; or
(g) by the Parents if the Board of Directors of CheckFree, pursuant to
Section 8.2(b), withdraws or adversely modifies its recommendation to the
CheckFree stockholders that they approve the issuance of CheckFree Common Stock
in connection with this Agreement (provided that a neutral stance shall not be
deemed an adverse modification).
SECTION 10.2 Effect of Termination. In the event of a termination of this
Agreement by either the Parents or CheckFree as provided in Section 10.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of CheckFree or the Parents or their respective
Representatives, except with respect to any willful breach of any covenant or
agreement contained in this Agreement prior to such termination; and except that
this Section 10.2, Section 10.3 and the Non-Disclosure Agreement shall continue
in effect.
SECTION 10.3 Fees and Expenses. (a) Subject to Sections 10.3(b), (c) and
(d), whether or not the Mergers are consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such fees
and expenses; provided, however that, in the event that the Mergers are
consummated, to the extent the aggregate fees and expenses of the investment
bankers for the TransPoint Entities exceed the aggregate fees and expenses of
the investment
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bankers for CheckFree and HoldCo, the Parents shall jointly and severally pay
(and indemnify and hold harmless HoldCo and its Affiliates against) such excess
fees and expenses.
(b) If either CheckFree or the Parents shall terminate this Agreement
pursuant to Section 10.1(e) or if any Parent shall terminate this Agreement
pursuant to Section 10.1(g), then CheckFree shall pay to the Parents an
aggregate amount of $25,000,000 not later than, the date of termination of this
Agreement, with such $25,000,000 payment to be allocated among the Parents pro
rata in the same proportion as set forth in Schedule 10.3. Subject to Section
10.3(d), receipt by the Parents of the final payment to which the Parents are
entitled pursuant to this Section 10.3(b) shall constitute conclusive evidence
that this Agreement has been validly terminated and upon acceptance of payment
of such amount, CheckFree shall be fully released and discharged from any
liability or obligations resulting from or under this Agreement or the
transactions contemplated herein.
(c) In the event CheckFree elects to terminate this Agreement pursuant to
Section 10.1(f) based on its reasonable good faith determination under Section
8.11(d)(ii)(B), regarding a proposed restriction or limitation by a Governmental
Entity imposed as a condition to its consent to or approval of the Mergers, then
CheckFree shall pay to the Parents an aggregate amount of $12,500,000 not later
than the date of such termination. Such $12,500,000 payment shall be allocated
among the Parents pro rata in the same proportions as set forth in Schedule
10.3.
(d) If either CheckFree or any Parent shall terminate this Agreement
pursuant to Section 10.1(e) or if any Parent shall terminate this Agreement
pursuant to Section 10.1(g) in each case where the Board of Directors of
CheckFree has modified or withdrawn its recommendation of approval of the
issuance of CheckFree Common Stock in connection with this Agreement pursuant to
Section 8.2(b), and if CheckFree is a party to any Material Transaction Proposal
where a definitive agreement is entered into or where a third Person has
publicly announced its intention to commence a tender offer or exchange offer
not later than 26 weeks (the "Alternative Agreement Period") after such
termination of this Agreement (provided that if CheckFree is not a party to a
Material Transaction Proposal for at least a 56 consecutive day period during
such 26 week period, then the Alternative Agreement Period shall be for the
longer of (i) 20 weeks or (ii) until the last day of such 56 day period, but on
no event shall the Alternative Agreement Period extend beyond 26 weeks) and such
transaction is consummated within eighteen months after the termination of this
Agreement, then CheckFree shall pay an additional amount on the closing of such
Material Transaction Proposal transaction such that the aggregate fee, inclusive
of the $25,000,000, shall total 3.5% of the amount of the Fair Market Value of
17,000,000 shares of CheckFree Common Stock at the time of the CheckFree
stockholder vote. Such additional payment shall be allocated among the Parents
pro rata in the same proportion as set forth in Schedule 10.3. Receipt by the
Parents of the final payment to which the Parents are entitled pursuant to this
Section 10.3(d) shall constitute conclusive evidence that this Agreement has
been validly terminated and upon acceptance of payment of such amount, CheckFree
shall be fully released and discharged from any liability or obligations
resulting from or under this Agreement or the transactions contemplated herein.
SECTION 10.4 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
but no amendment shall be made which by law requires further approval by the
stockholders of CheckFree without such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 10.5 Extension; Waiver. At any time prior to the Effective Time,
each of the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto and
(c) waive compliance of the other parties with any of the agreements or
conditions to its obligations contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party.
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ARTICLE 11
INDEMNIFICATION
SECTION 11.1 Indemnification by the Parents. (a) From and after the
Effective Time, the Parents, severally (but not jointly) in proportion to the
number of shares of CheckFree Common Stock received by each Parent or any of its
Subsidiaries pursuant to Section 3.1 in respect of the Mergers, shall indemnify
and hold harmless, on an after tax basis, CheckFree, each of its Affiliates
(including, after the Closing, the TransPoint Entities) and the Representatives
of each of the foregoing, from and against any claim, loss, liability, damage,
cost or expense (including reasonable legal fees and expenses) (collectively,
"Losses") suffered or incurred by any such indemnified party to the extent
arising from or relating to (i) any breach of any representation or warranty of
the Parents contained in Article 5 of this Agreement, (ii) any breach of any
covenant or other agreement of the Parents contained in Article 7 or Sections
8.13, 8.14 or 8.18 of this Agreement, and (iii) any Taxes of the Holding
Subsidiaries and the TransPoint Entities for any period (or portion thereof)
ending on or before the Closing Date; provided, however, that (A) the Parents
shall not have any liability under clause (i) above unless the aggregate of all
Losses relating thereto for which the Parents would, but for this proviso, be
liable exceeds $7,500,000 on a cumulative basis, and then only to the extent of
any such excess, and (B) each Parents' aggregate liability under clause (i) of
this Section 11.1(a) and clause (i) of Section 11.1(b) shall in no event exceed,
except to the extent such liability arises from a breach of a representation
under Section 5.2 regarding such Parent's beneficial ownership of the Capital
Stock of the TransPoint Entities, the lesser of (x)forty percent (40%) of the
Fair Market Value (measured at the Effective Time) of the CheckFree Common Stock
received by such Parent or any of its Subsidiaries pursuant to Section 3.1 in
consideration of the Mergers, and (y) the Fair Market Value, measured at the
time that such indemnification is due, of the CheckFree Common Stock received by
such Parent or any of its Subsidiaries pursuant to Section 3.1 in consideration
of the Mergers. Solely with respect to clause (i) of this Section 11.1(a), the
representations and warranties in Article 5 of this Agreement (other than
Sections 5.4(b) and (d), 5.6(a) and 5.10) shall be considered without giving
effect to any limitation or qualification as to "materiality", "Material Adverse
Effect" or any other derivation of the word "material" for the purposes of
determining (x) whether a breach of any such representation or warranty has
occurred or (y) the amount of any damages related to such breach.
(b) From and after the Effective Time, the Parents, severally but not
jointly, shall indemnify and hold harmless, on an after tax basis, CheckFree,
each of its Affiliates (including, after the Closing, the TransPoint Entities),
and the Representatives of each of the foregoing from any Losses suffered or
incurred by any such indemnified party to the extent arising from or relating to
(i) any breach of any representation or warranty of such Parent contained in
Article 4 of this Agreement and (ii) any breach of any covenant or other
agreement of such Parent or its Holding Subsidiaries other than any covenant or
agreement subject to Section 11.1(a)(ii); provided, however, that each Parent's
aggregate liability under clause (i) of this Section 11.1(b) and clause (i) of
Section 11.1(a) shall in no event exceed the lesser of (A) forty percent (40%)
of the Fair Market Value (measured at the Effective Time) of the CheckFree
Common Stock received by such Parent or any of its Subsidiaries pursuant to
Section 3.1 in consideration of the Mergers, and (B) the Fair Market Value,
measured at the time that such indemnification is due, of the CheckFree Common
Stock received by such Parent or any of its Subsidiaries pursuant to Section 3.1
in consideration of the Mergers; and further provided that the Parents shall not
have liability under clause (i) above unless the aggregate of all Losses
relating thereto for which the Parents would, but for this proviso, be liable
exceeds $7,500,000 on a cumulative basis, and then only to the extent of such
excess.
SECTION 11.2 Indemnification by CheckFree. From and after the Effective
Time, CheckFree shall indemnify and hold harmless, on an after tax basis, each
of the Parents, their respective Affiliates and their respective Representatives
from and against any Losses suffered or incurred by any such indemnified party
to the extent arising from or relating to (a) any breach of any representation
or warranty of CheckFree contained in Section 6 of this Agreement and (b) any
breach of any covenant or other Agreement of CheckFree contained in this
Agreement; provided, however, that (i) CheckFree shall not have any liability
under clause (a) of this Section 11.2 unless the aggregate of all losses
relating thereto for which CheckFree would but for this proviso, be liable
exceeds $7,500,000 on a cumulative basis, and then only to the extent of any
such
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excess; and (ii) CheckFree's aggregate liability under clause (a) of this
Section 11.2 shall in no event exceed forty percent (40%) of the Fair Market
Value of the CheckFree Common Stock issued to the Parents or any of their
Subsidiaries pursuant to Section 3.1 in consideration of the Mergers measured at
the Effective Time.
SECTION 11.3 Calculation of Losses. The amount of any and all Losses under
this Article 11 shall be determined net of any amounts actually recovered by the
indemnified party from any third party or under any insurance policies which may
be in effect with respect to such losses.
SECTION 11.4 Termination of Indemnification. The obligations to indemnify
and hold harmless a party hereto, pursuant to clause (i) of Sections 11.1(a) and
(b) and clause (a) of Section 11.2, shall terminate when the applicable
representation or warranty terminates pursuant to Section 12.2; provided,
however, that such obligations to indemnify and hold harmless shall not
terminate with respect to any matter as to which the person to be indemnified or
another indemnified party shall have, prior to the expiration of the applicable
period, previously made a claim by delivering a written notice (stating in
reasonable detail the nature of, and factual basis for, any such claim for
indemnification, and the provisions of this Agreement upon which such claim for
indemnification is made) to the indemnifying party. The obligation to indemnify
and hold harmless a party hereto pursuant to the other clauses of Sections 11.1
and 11.2 shall not terminate.
SECTION 11.5 Procedures Relating to Indemnification. (a) In order for a
party (the "indemnified party") to be entitled to any indemnification provided
for under this Agreement in respect of, arising out of or involving a claim or
demand made by any Person against the indemnified party (a "Third Party Claim"),
such indemnified party must notify the indemnifying party in writing, and in
reasonable detail, of the Third Party Claim (including the estimated amount of
Losses, if known or reasonably capable of estimation) as promptly as reasonably
possible after receipt by such indemnified party of notice of the Third Party
Claim; provided, however, that failure to give such notification on a timely
basis shall not affect the indemnification provided hereunder except to the
extent the indemnifying party shall have been actually prejudiced as a result of
such failure.
(b) If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party;
provided, that, if the indemnifying party assumes such defense, it shall
promptly deliver to the indemnified party a notice as to whether it will contest
the applicability of this Article 11 to such Third Party Claim or contest its
obligation to provide indemnification with respect thereto. Should the
indemnifying party so elect to assume the defense of a Third Party Claim, the
indemnifying party shall not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof unless (i) representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them or (ii) the indemnifying party fails to reasonably continue to contest any
such Third Party Claim in good faith. If the indemnifying party assumes such
defense, the indemnified party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party, it being understood, however, that
the indemnifying party shall control such defense. The indemnifying party shall
be liable for the fees and expenses of counsel employed by the indemnified party
for any period during which the indemnifying party has not assumed the defense
thereof. Whether or not the indemnifying party chooses to defend any Third Party
Claim, all the parties hereto shall cooperate in the defense or prosecution of
such Third Party Claim. Such cooperation shall include the retention and (upon
the request of the party who is defending or prosecuting such Third Party Claim)
the provision of records and information which are reasonably relevant to such
Third Party Claim, and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder. Whether or not the indemnifying party shall have assumed the defense
of a Third Party Claim, the indemnified party shall not settle or compromise
such Third Party Claim without the indemnifying party's prior written consent
(which consent shall not be unreasonably withheld). In any event, the
indemnifying party shall not, without the prior written consent of the
indemnified party, settle, compromise or offer to settle or compromise any such
Third Party Claim on a basis which would result in the imposition of a consent
order, injunction, deed restriction or decree upon or restrict the future
activity or conduct of the indemnified party or any Subsidiary or Affiliate
thereof or which does not include an
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unconditional release of the indemnified party and its Affiliates and their
respective Representatives for any liability arising out of such Third Party
Claim or any related Third Party Claim.
SECTION 11.6 Parents' Agent. (a) Lewis Levin shall be constituted and
appointed as agent ("Parents' Agent") for and on behalf of the Parents, their
respective Affiliates and their respective Representatives (collectively, the
"Parent Indemnified Parties") to give and receive notices and communications, to
organize or assume the defense of Third Party Claims, to agree to, negotiate, or
enter into settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to Third Party
Claims, and to take all actions necessary or appropriate in the judgment of the
Parents' Agent for the accomplishment of the foregoing. The Parents' Agent shall
act in a fiduciary capacity with respect to the affected Parent as to each such
action. Such agency may be changed by the holders of a majority of the shares of
CheckFree Common Stock acquired by the Parents in consideration of the Mergers
from time to time upon not less than ten (10) days' prior written notice to
CheckFree. No bond shall be required of the Parents' Agent, and the Parents'
Agent shall receive no compensation for services rendered. Notices or
communications to or from the Parents' Agent shall constitute notice to or from
any applicable Parent Indemnified Party.
(b) The Parents' Agent shall not be liable to any of the Parent Indemnified
Parties for any act done or omitted hereunder as Parents' Agent except to the
extent it has acted with gross negligence or willful misconduct, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
that it did not act with gross negligence or willful misconduct. The Parents
shall severally indemnify the Parents' Agent and hold it harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Parents' Agent and arising out of or in connection with the
acceptance or administration of the duties hereunder.
(c) The Parents' Agent shall have reasonable access to information about
the TransPoint Entities and the reasonable assistance of the TransPoint
Entities' officers and employees for purposes of performing its duties and
exercising its rights hereunder, provided that the Parents' Agent shall treat
confidentially and not disclose any nonpublic information from or about the
TransPoint Entities to anyone (except on a need to know basis to individuals who
agree to treat such information confidentially). The Parents' Agent shall be a
third party beneficiary of the terms of this Section 11.6(c).
SECTION 11.7 Actions of the Parents' Agent. A decision, act, consent or
instruction of the Parents' Agent shall constitute a decision of all Parents and
shall be final, binding and conclusive upon each such Parent, and CheckFree may
rely upon any written decision, act, consent or instruction of the Parents'
Agent as being the decision, act, consent or instruction of each and every
Parent. CheckFree is hereby relieved from any liability to any Person for any
acts done by them in accordance with such written decision, act, consent or
instruction of the Parents' Agent.
SECTION 11.8 Exclusive Remedy. Each of the parties to this Agreement
acknowledges and agrees that, from and after the Closing, its sole and exclusive
remedy with respect to any and all rights, claims, and causes of action (other
than fraud) for any breach of this Agreement shall be pursuant to the
indemnification provisions set forth in this Article 11.
ARTICLE 12
DEFINITIONS AND MISCELLANEOUS PROVISIONS
SECTION 12.1 Definitions. As used in this Agreement the terms set forth
below shall have the following meanings:
(a) "Affiliate" of a Person shall mean any other Person who directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with, such Person. "Control" shall mean the possession of
the power, directly or indirectly, to direct or cause the direction of the
management and policies of a Person whether through the ownership of voting
securities, by contract or otherwise.
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(b) "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock or
other equity interests (including, without limitation, partnership or membership
interests in a partnership or limited liability company or any other interest or
participation that confers on a Person the right to receive a share of the
profits and loss, or distributions of assets, of the issuing Person) whether
outstanding on the date hereof or issued after the date hereof, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
(c) "Designated Group" or "Designated Groups" shall mean those individuals
set forth on Schedule 12.1 for each party to this Agreement.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and all rules and regulations promulgated thereunder.
(e) "Fair Market Value" shall mean, with respect to any particular date,
the closing price on the NASDAQ National Market or the New York Stock Exchange
as the case may be of the CheckFree Common Stock on such date (unless such date
is not a trading day on such market or exchange, in which case the closing price
on such market or exchange on the most recent trading day immediately preceding
such date shall apply).
(f) "Governmental Entity" shall mean any Federal, state or local government
or any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign, including the European Union.
(g) "Knowledge" in respect of any representation and warranty of the
Parents or CheckFree set forth in this Agreement shall mean the actual knowledge
of the applicable Designated Group.
(h) "Liens" shall mean any mortgage, pledge, lien, security interest,
conditional or installment sale agreement, encumbrance, charge or other claims
of third parties of any kind.
(i) "Material Adverse Effect" on a Person shall mean any material adverse
effect on (a) the assets, business, liabilities, financial condition or results
of operations of such Person and its Subsidiaries, taken as a whole; or (b) the
ability of the such Person to perform its obligations under this Agreement.
(j) "Material Transaction Proposal" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving CheckFree, or any proposal or offer to acquire in any manner, directly
or indirectly, at least 50% of the equity interests in or at least 50% of the
consolidated assets of CheckFree other than pursuant to the transactions
contemplated by this Agreement.
(k) "Permitted Liens" shall mean (a) Liens for taxes, assessments, or
similar charges, incurred in the ordinary course of business that are not yet
due and payable or are being contested in good faith; (b) pledges or deposits
made in the ordinary course of business; (c) Liens of mechanics, materialmen,
warehousemen or other like Liens securing obligations incurred in the ordinary
course of business that are not yet due and payable or are being contested in
good faith; and (d) other Liens and encumbrances which are incurred in the
ordinary course of business and which do not in the aggregate materially detract
from the value of the assets or properties affected or materially impair the use
thereof in the operation of the TransPoint Business.
(l) "Person" shall mean any individual, corporation, partnership, limited
partnership, limited liability company, trust, association or entity or
government agency or authority.
(m) "SEC" shall mean the Securities and Exchange Commission.
(n) "Securities Act" shall mean the Securities Act of 1933, as amended, and
all rules and regulations promulgated thereunder.
(o) "Subsidiary" of a Person shall mean any corporation, partnership, joint
venture or other entity in which such Person (a) owns, directly or indirectly,
50% or more of the outstanding voting securities or equity interests or (b) is a
general partner.
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(p) "Superior Proposal" shall mean a bona fide written proposal made by a
third party to acquire CheckFree pursuant to a Material Transaction Proposal,
which the Board of Directors of CheckFree determine in good faith (taking into
account the advice of independent financial advisors) to be in the best
interests of CheckFree and its stockholders rather than the Mergers (and any
revised proposal made by the other parties to this Agreement).
(q) "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall mean
(i) any federal, state, local, municipal or foreign net income, gross income,
gross receipts, windfall profit, severance, property, production, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative or
add-on minimum, ad valorem, value-added, transfer, stamp, or environmental tax,
or any other tax, custom, duty, tariff levy, import, governmental fee or other
like assessment or charge, together with any interest or penalty, addition to
tax or additional amount imposed by any Governmental Entity, (ii) any liability
for the payment of any amounts of the type described in (i) as a result of being
a member of an affiliated, consolidated, combined or unitary group for any
taxable period, and (iii) any liability for the payment of any amounts of the
type described in (i) or (ii) as a result of being a transferee of or successor
to any Person or as a result of an express or implied obligation to indemnify
any other Person.
(r) "Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
SECTION 12.2 Survival of Representations and Warranties. The
representations and warranties of the parties in Articles 4, 5 and 6 of this
Agreement shall survive the Closing for purposes of Section 11.1 and Section
11.2 until the close of business on the one year anniversary of the Closing Date
and shall then terminate for all purposes; provided, however, that (i) the
representations and warranties provided in Sections 4.2 and 6.5 with respect to
the authority to enter into this Agreement and the Ancillary Agreements shall
survive the Closing indefinitely solely for purposes of Sections 11.1 and 11.3
and (ii) the representations and warranties set forth in Section 4.12 (Taxes)
and Section 5.13 (Taxes), and the indemnification under Section 11.1(a)(iii),
shall survive until the 30-day period following the termination of the statute
of limitations with respect thereto.
SECTION 12.3 Amendment and Restatement; Effectiveness of Representations,
Warranties and Agreements. (a) This Agreement amends certain provisions of the
Original Agreement and restates the terms of the Original Agreement in their
entirety so as to reflect and give effect to such amendments; except as provided
in Section 12.3(b), all amendments to the Original Agreement effected by this
Agreement, and all other covenants, agreements, terms and provisions of this
Agreement, shall have effect from the date of the Original Agreement.
(b) Each of the representations and warranties made in Sections 4, 5 and 6
shall be deemed (i) to be made on the date of the Original Agreement (other than
the representations and warranties in respect of this Agreement that are
contained in Sections 4.2, 4.10, 4.11, 4.12, 5.2(a) and 6.2 and in Article 6
solely with respect to Merger Sub A and Merger Sub B, which are made as of the
date hereof) and as of the Closing Date and (ii) not made on the date hereof
(except as set forth in the parenthetical in clause (i) above).
(c) Chopper Corporation, Microsoft II, LLC and First Data, L.L.C. were
parties to the Original Agreement and therefore are joining this Agreement
solely for the purpose of consenting to the amendments and restatement effected
hereby. Such parties shall have no other rights or obligations with respect to
this Agreement and the transactions contemplated hereby.
SECTION 12.4 Schedules and Exhibits. All Schedules and Exhibits referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
SECTION 12.5 Press Releases. Except as required by law or the rules of any
securities exchange on which such party's securities are listed or listing
agreement, none of the Parents, Holding Subsidiaries, CheckFree or the
TransPoint Entities shall issue, or cause to be issued, any press release or
otherwise make any public announcement with respect to this Agreement, the
Ancillary Agreements nor the transactions contemplated hereby or thereby, prior
to the Closing, without the prior written consent of CheckFree and the
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Parents; provided, however, that in the event such disclosure is required by law
or the rules of such securities exchange, such disclosure shall be made by the
party or parties hereto making such disclosure (each, a "Disclosing Party") only
to the extent necessary to comply with such law or listing agreement and each
such Disclosing Party shall (a) use reasonable efforts to provide the other
parties hereto that are not Disclosing Parties with advance notice of such
disclosure so that such parties at their expense may seek a protective order or
other confidential treatment of such information and (b) use its reasonable
efforts to assist the other parties hereto that are not Disclosing Parties in
obtaining such order or treatment or otherwise limiting the adverse affects of
the disclosure to such parties.
SECTION 12.6 Contents of Agreement; Parties in Interest. This Agreement,
the Ancillary Agreements, and the other agreements, schedules and exhibits
referred to or contemplated herein and the Non-Disclosure Agreement set forth
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby, and, except as set forth in this Agreement, the Ancillary
Agreements, and such other agreements, schedules and exhibits and the
Non-Disclosure Agreement, there are no representations or warranties, express or
implied, made by any party to this Agreement with respect to the subject matter
of this Agreement and the Non-Disclosure Agreement. Except for the matters set
forth in the Non-Disclosure Agreement, any and all previous agreements and
understandings between or among the parties regarding the subject matter hereof,
whether written or oral, are superseded by this Agreement, the Ancillary
Agreements, and the other agreements referred to or contemplated herein. All
statements contained in schedules, exhibits, certificates and other instruments
attached hereto shall be deemed representations and warranties (or exceptions
thereto) by the Parents or CheckFree or other parties hereto, as the case may
be.
SECTION 12.7 Assignment and Binding Effect. This Agreement may not be
assigned by any party hereto without the prior written consent of the other
parties. All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
SECTION 12.8 Notices. Any notice, request, demand, waiver, consent,
approval, or other communication which is required or permitted to be given to
any party hereunder shall be in writing and shall be deemed given only if
delivered to the party personally or sent to the party by facsimile transmission
with the receipt of such transmission acknowledged by such party by other than
automatic means (promptly followed by a hard-copy delivered in accordance with
this Section 12.8), by registered or certified mail (return receipt requested),
with postage and registration or certification fees thereon prepaid, addressed
to the party at its address set forth below, or by any other means where receipt
of such notice is acknowledged by other than automatic means:
If to CheckFree:
CheckFree Holdings Corporation
4411 E. Jones Bridge Road
Norcross, Georgia 30092
Attn: Peter J. Kight
Phone: (678) 375-1600
Fax: (678) 375-3010
Email: [email protected]
with a copy to:
CheckFree Holdings Corporation
4411 E. Jones Bridge Road
Norcross, Georgia 30092
Attn: Allen L. Shulman
Phone: (678) 375-3632
Fax: (678) 375-3633
E-mail: [email protected]
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with an additional copy to:
Simpson Thacher & Bartlett
3373 Hillview Avenue, Suite 250
(after October 1, 2000:
3330 Hillview Avenue)
Palo Alto, California 94304
Attn: Daniel Clivner
Richard Capelouto
Phone: (650) 251-5000
Fax: (650) 251-5002
Email: [email protected]
[email protected]
with an additional copy to:
Porter, Wright, Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215
Attn: Robert J. Tannous
Phone: (614) 227-1953
Fax: (614) 227-2100
Email: [email protected]
If to Microsoft:
Microsoft
One Microsoft Way
Redmond, Washington 98052
Attn: Lewis Levin
Phone: (425) 936-8954
Fax: (425) 936-7329
Email: [email protected]
with a copy to:
Microsoft
One Microsoft Way
Redmond, Washington 98052
Attn: Kevin Harrang
Phone: (425) 936-6601
Fax: (425) 936-7329
E-mail: [email protected]
with an additional copy to:
Microsoft
One Microsoft Way
Redmond, Washington 98052
Attn: Robert A. Eshelman
Phone: (425) 936-7520
Fax: (425) 936-7329
E-mail: [email protected]
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with a copy to:
Preston Gates & Ellis LLP
701 Fifth Avenue
Seattle, Washington 98104-7078
Attn: C. Kent Carlson
Phone: (206) 623-7580
Fax: (206) 623-7022
Email: [email protected]
If to FDC:
First Data Corporation
5660 New Northside Drive
Suite 1400
Atlanta, Georgia 30328-5800
Attn: Chairman and General Counsel
Fax: (770) 857-0405
with a copy to:
Sidley & Austin
Bank One Plaza
Chicago, Illinois
Attn: Frederick C. Lowinger
Michael A. Gordon
Phone: (312) 853-7238
Fax: (312) 853-7036
Email: [email protected]
If to Citibank:
Citibank, N.A.
Technology and Intellectual Property/Legal Affairs Office
909 Third Avenue, 32nd Floor
New York, NY 10043
Attn: e-citi General Counsel's Office
Phone: (212) 559-0619
Fax: (212) 793-2516
with a copy to:
Citicorp
153 East 53rd Street, 4th Floor
New York, NY 10043
Attn: Ed Horowitz, Executive Vice President
Phone: (212) 559-5051
Fax: (212) 793-2516
and
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attn: Creighton O'M. Condon
Phone: (212) 848-4000
Fax: (212) 848-7179
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or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication to such addresses will be
deemed to have been given as of the date so delivered, transmitted or mailed.
SECTION 12.9 Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of Delaware as
applied to contracts made and fully performed in such state.
SECTION 12.10 Third Party Beneficiaries. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto, and their respective successors and assigns, and they shall
not be construed as conferring, and are not intended to confer, any rights on
any other Person; provided, however, that each of the indemnified parties shall
be a third party beneficiary of the general provisions set forth in Article 11.
SECTION 12.11 Severability. If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other terms and provisions of the
Agreement shall remain in full force and effect. Upon such determination, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
give effect to the original intent of the parties to the fullest extent
permitted by applicable law.
SECTION 12.12 Section Headings. All section headings are for convenience
only and shall in no way modify or restrict any of the terms or provisions
hereof.
SECTION 12.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Parents and
CheckFree may become a party hereto by executing a counterpart hereof. This
Agreement and any counterpart so executed shall be deemed to be one and the same
instrument.
SECTION 12.14 Specific Performance. The parties hereto agree that money
damages may be an inadequate remedy in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in addition to any other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the date first above written.
CHECKFREE HOLDINGS CORPORATION
By: /s/ ALLEN L. SHULMAN
-------------------------------------
Name: Allen L. Shulman
Title: Executive Vice President and
General Counsel
MICROSOFT CORPORATION
By: /s/ LEWIS C. LEVIN
-------------------------------------
Name: Lewis C. Levin
Title: Vice President
FIRST DATA CORPORATION
By: /s/ DAVID TRIENEN
-------------------------------------
Name: David Trienen
Title: Vice President
CITIBANK, N.A.
By: /s/ BILL CARSON
-------------------------------------
Name: Bill Carson
Title:
MSFDC INTERNATIONAL, INC.
By: /s/ LEWIS C. LEVIN
-------------------------------------
Name: Lewis C. Levin
Title: Chief Executive Officer
H&B FINANCE, INC.
By: /s/ LEWIS C.
LEVIN
-------------------------------------
Name: Lewis C. Levin
Title:
CITI TRANSPOINT HOLDINGS, INC.
By: /s/ BILL CARSON
-------------------------------------
Name: Bill Carson
Title:
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FDC INTERNATIONAL PARTNER, INC.
By: /s/ JEFFREY LEVENTHAL
-------------------------------------
Name: Jeffrey Leventhal
Title: Vice President
TRANSPOINT ACQUISITION CORPORATION
By: /s/ ALLEN L. SHULMAN
-------------------------------------
Name: Allen L. Shulman
Title: Vice President
TANK ACQUISITION CORPORATION
By: /s/ ALLEN L. SHULMAN
-------------------------------------
Name: Allen L. Shulman
Title: Vice President
CHOPPER MERGER CORPORATION
By: /s/ ALLEN L. SHULMAN
-------------------------------------
Name: Allen L. Shulman
Title: Executive Vice President
CHECKFREE CORPORATION
By: /s/ ALLEN L. SHULMAN
-------------------------------------
Name: Allen L. Shulman
Title: Executive Vice President
MICROSOFT II, LLC
By: /s/ LEWIS C. LEVIN
-------------------------------------
Name: Lewis C. Levin
Title:
FIRST DATA, L.L.C.
By: /s/ JEFFREY LEVENTHAL
-------------------------------------
Name: Jeffrey Leventhal
Title: Vice President
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APPENDIX B
[LETTERHEAD OF MERRILL LYNCH & CO.]
February 11, 2000
Board of Directors
CheckFree Holdings Corporation
4411 East Jones Bridge Road
Norcross, GA 30092
Gentlemen:
Microsoft Corporation ("Microsoft"), First Data Corporation ("First Data"),
Citibank, N.A. ("Citibank" and, together with Microsoft and First Data, the
"Parents"), certain subsidiaries of each of the Parents (the "Subsidiaries"),
CheckFree Holdings Corporation ("CheckFree"), HoldCo and Merger Sub C, a wholly
owned subsidiary of HoldCo, propose to enter into an agreement (the "Agreement")
pursuant to which (i) CheckFree will merge into Merger Sub C, (ii) each share of
CheckFree common stock will be converted into a share of HoldCo common stock and
each right to purchase a share of CheckFree common stock will be converted into
a right to purchase a share of HoldCo common stock under equivalent conditions
(CheckFree and HoldCo together, the "Company") and (iii) the Subsidiaries will
transfer their equity interests in the limited liability companies and limited
partnership composing TransPoint (together, "TransPoint") to HoldCo in exchange
for 13,000,000 shares of HoldCo common stock. Such steps as prescribed by the
Agreement are referred to herein as the "Transfers." Before giving effect to the
Transfers, HoldCo will be a wholly owned subsidiary of CheckFree. The Agreement
also calls for HoldCo to enter into stockholders agreements, registration rights
agreements, a commercial alliance agreement and a marketing agreement
(collectively, the "Ancillary Agreements"), as well as service and license
agreements. Microsoft and First Data will be issued an additional 4,000,000
shares of HoldCo common stock, in the aggregate (together with the 13,000,000
shares, the "Parent Consideration"), in consideration for their entering into
the commercial alliance and marketing agreements, respectively.
You have asked us whether, in our opinion, the proposed terms of the
Transfers and the Parent Consideration, taken as a whole, are fair to the
Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed publicly available business and financial information relating
to CheckFree that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of
TransPoint and CheckFree, furnished to us by TransPoint and CheckFree;
(3) Conducted discussions with members of senior management of TransPoint
and CheckFree concerning their respective businesses and prospects;
(4) Compared the results of operations of CheckFree with that of certain
companies which we deemed to be reasonably similar to CheckFree;
(5) Conducted discounted cash flow analyses based on the financial
forecasts of TransPoint and CheckFree;
(6) Reviewed the historical market prices and trading activity for the
shares of common stock of CheckFree and compared them with that of
certain publicly traded companies which we deemed to be reasonably
similar to CheckFree:
(7) Reviewed a draft of the Agreement dated February 9, 2000;
(8) Reviewed drafts of the Ancillary Agreements, each of which was dated on
or about February 9, 2000; and
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(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by TransPoint and
CheckFree, and we have not independently verified such information or undertaken
an independent appraisal of the assets of TransPoint or CheckFree. We have not
conducted any physical inspection of the properties or facilities of TransPoint
or CheckFree. With respect to the financial forecasts furnished by TransPoint
and CheckFree, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of TransPoint's or
CheckFree's management as to the expected future financial performance of
TransPoint or CheckFree, as the case may be. We have assumed, with your consent,
that the Transfer will be treated as a tax-free reorganization and exchange for
federal income tax purposes if it is consummated in accordance with the
Agreement. We have also assumed that the final form of the Agreement will be
substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transfers, no requirements of divestiture or separation of business
units or other restrictions on, or amendments or modifications to, material
provisions of the Agreement or the Ancillary Agreements (including without
limitation provisions concerning non-competition agreements and business
relationships between CheckFree and each of Microsoft and First Data and
concerning revenue guarantees to CheckFree by each of Microsoft and First Data)
will be imposed that will have a material adverse effect on the contemplated
benefits of the Transfers.
We have, in the past, provided investment banking services to CheckFree and
have received fees for the rendering of such services. CheckFree has provided
certain services to us in the past and has received fees for those services.
This opinion is solely for the use and benefit of the Board of Directors of
CheckFree in its evaluation of the Transfers and shall not be used for any other
purpose. Our opinion does not address the merits of the underlying decision by
CheckFree to consummate the Transfers. This opinion is not intended to be relied
upon or confer any rights or remedies upon any employee, creditor, stockholder
or other equity holder of CheckFree, or any other party. This opinion shall not
be reproduced, disseminated, quoted, summarized or referred to at any time, in
any manner or for any purpose, nor shall any public references to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") or any of its affiliates
be made by the Company or any of its affiliates without the prior written
consent of Merrill Lynch.
We are not expressing any opinion herein as to the prices at which HoldCo's
common stock will trade following the announcement or the consummation of the
Transfers.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed terms of the Transfers and the Parent Consideration, taken as a
whole, are fair to the Company from a financial point of view.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
--------------------------------------
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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<TABLE>
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[Merrill Lynch LOGO] Investment Banking
Corporate and Institutional
Client Group
World Financial Center
North Tower
New York, New York 10281-1320
212 449 1000
</TABLE>
May 31, 2000
Board of Directors
CheckFree Holdings Corporation
4411 East Jones Bridge Road
Norcross, GA 30092
Ladies and Gentlemen:
As you are aware, Merrill Lynch rendered a Fairness Opinion to you dated
February 11, 2000 (the "Opinion"), in which we gave you our opinion that the
proposed terms of the transaction described therein (the "Transaction") with
TransPoint (as defined in the Opinion) was fair to CheckFree Holdings
Corporation (the "Company") from a financial point of view. Since that time, you
have informed us that there have been certain technical changes to the structure
of the Transaction as you have described in your Registration Statement on Form
S-4. After reviewing these changes and discussing them with your management
team, we have concluded that the changes in the terms of the Transaction, had
they been known to us at the time we delivered the Opinion, would not have
caused us to change the conclusions stated in our Opinion as of the date
thereof.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
--------------------------------------
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Article IX of the Registrant's By-Laws (the "By-Laws") provides that
the Registrant shall, to the fullest extent permitted by applicable law as then
in effect, indemnify any person who is or was involved or threatened to be made
so involved in any action by reason of the fact that he is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another entity. The right to indemnification
includes the right to receive payment of expenses in advance of the final
disposition of the proceeding. All indemnification rights in Article IX are
contract rights. The Registrant also may provide indemnification for employees,
agents, attorneys and representatives of the Registrant by action of its board
of directors. Article IX expressly states that no amendment to the By-Laws or
the Certificate of Incorporation shall adversely affect any right to
indemnification for acts occurring prior to that amendment. The right of
indemnification is not exclusive of any other rights of indemnification that may
be available.
In determining the right to indemnification under Article IX, the
Registrant has the burden of proof that the indemnitee has not met the
applicable standard of conduct. If successful in whole or in part in such a
proceeding, the indemnitee is entitled to be indemnified for expenses incurred
in connection with such proceeding. All reasonable expenses incurred by an
indemnitee in connection with any proceeding shall be advanced by the Registrant
after receipt of a statement from the indemnitee requesting such advance.
Article IX provides that the Registrant may purchase and maintain insurance
in connection with any expenses, liability or loss relating to any proceeding,
whether or not the Registrant would have the power to indemnify the officer,
director, employee, agent, attorney, trustee or representative. The Registrant
also may enter into indemnification contracts with any of the foregoing persons,
which contracts are deemed specifically approved and authorized by the
stockholders and not subject to invalidity by reason of any interested
directors.
If any provision of Article IX is held invalid, illegal or unenforceable,
the remaining provisions of Article IX shall not be affected. An indemnitee also
may elect, as an alternative to the Article IX procedures, to follow procedures
authorized by applicable corporate law or statute. Article IX sets forth
specific procedures for the advancement of expenses and for the determination of
entitlement to indemnification. Entitlement to indemnification shall be
determined by a majority vote of disinterested directors, by a written opinion
of independent counsel under specific circumstances or by the Registrant's
stockholders if a majority of the disinterested directors determines the issue
should be submitted to the stockholders, or, if none of the persons empowered to
make a determination have been appointed and have made a determination within 60
days after the receipt of a request for indemnification, the indemnitee is
deemed to be entitled to indemnification unless the indemnitee misrepresented or
omitted a material fact in making or supporting his request for indemnification
or the indemnification is prohibited by law. The termination of an action by
judgment, order, settlement or conviction or upon a plea of nolo contendere does
not adversely affect the right of an indemnitee to indemnification or create any
presumption with respect to any standard of conduct. An indemnitee is entitled
to indemnification for expenses if he is successful on the merits, if the action
is terminated without a determination of liability on the part of the indemnitee
or if the indemnitee was not a party to the action. An indemnitee who is
determined not to be entitled to indemnification may appeal such determination
either through the courts or by arbitration.
(b) Under Section 145 of the Delaware General Corporation Law,
indemnification of any person who is or was a party or threatened to be made so
in any action by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or was serving as such for another
corporation or enterprise at the request of the corporation is permitted against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the indemnified person in such
proceeding where the indemnified person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and in criminal actions, where he had no reasonable cause to
believe his conduct was unlawful. Indemnification is also permitted in lawsuits
brought by or on behalf of the
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corporation if the standards of conduct described above are met, except that no
indemnification is permitted in respect to any matter in which the person is
adjudged to be liable to the corporation unless a court shall determine that
indemnification is fair and reasonable in view of all the circumstances of the
case. Indemnification against expenses (including attorneys' fees) actually and
reasonably incurred by directors, officers, employees and agents is required
under Section 145 of the Delaware Law in those cases where the person to be
indemnified has been successful on the merits or otherwise in defense of a
proceeding of the type described above. In cases where indemnification is
permissive, a determination as to whether the person met the applicable standard
of conduct must be made (unless ordered by a court) by majority vote of the
disinterested directors, by a committee of the disinterested directors
designated by a majority vote of such directors, even though less than a quorum,
by independent legal counsel, or by the stockholders. Such indemnification
rights are specifically not deemed to be exclusive of other rights of
indemnification by agreement or otherwise and the corporation is authorized to
advance expenses incurred prior to the final disposition of a matter upon
receipt of an undertaking to repay such amounts on a determination that
indemnification was not permitted in the circumstances of the case.
(c) Under Section 145 of the Delaware Law and Article IX of the By-Laws,
the Registrant may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee, or agent of the Registrant, or who,
while serving in such capacity, is or was at the request of the Registrant, a
director, officer, employee or agent of another corporation or other enterprise,
against liability asserted against or incurred by such person in any such
capacity whether or not the Registrant would have the power to provide indemnity
under Section 145 or the By-Laws. The Registrant has obtained insurance which,
subject to specific exceptions, insures the directors and officers of the
Registrant and its subsidiaries
(d) The Registrant has entered into indemnification contracts with its
directors and some officers which provides that such directors and officers will
be indemnified to the fullest extent provided by Section 145 of the Delaware Law
(or such other future statutory provision authorizing or permitting
indemnification) against all expenses (including attorneys' fees), judgments,
fines and settlement amounts, actually and reasonably paid or incurred by them
in any action or proceeding, including any action by or in the right of the
Registrant, by reason of the fact that they were a director, officer, employee
or agent of the Registrant, or were serving at the request of the Registrant as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise.
No indemnity will be provided under such indemnification contracts (i)
except to the extent that the aggregate losses to be indemnified pursuant
thereto exceed the amount for which the indemnitee is indemnified pursuant to
any directors and officers liability insurance purchased and maintained by the
Registrant; (ii) in respect to remuneration paid to an indemnitee if it shall be
determined by a final judgment that such remuneration was in violation of law;
(iii) on account of any suit in which judgment is rendered against an indemnitee
for an accounting of profits made from the purchase or sale by indemnitee of
securities of the Registrant pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; (iv) on account of the indemnitee's
act or omission being finally adjudged to have been not in good faith or
involving intentional misconduct or a knowing violation of law; or (v) if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
(e) Article EIGHTH of the Registrant's Restated Certificate of
Incorporation provides that a director of the Registrant shall not be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for any unlawful payment of a dividend or
unlawful stock purchase or redemption; or (iv) for any transaction from which
the director derived any improper personal benefit.
The above discussion of the Registrant's By-Laws, Restated Certificate of
Incorporation, indemnification agreements, and of Section 145 of the Delaware
Law is not intended to be exhaustive and is respectively qualified in its
entirety by such By-Laws, Restated Certificate of Incorporation and statutes.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
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EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
2(a) Agreement and Plan of Merger, dated as of December 20, 1999,
among CheckFree Holdings Corporation, CheckFree Acquisition
Corporation IV, and BlueGill Technologies, Inc. (Reference
to Appendix A of Form S-4 Registration Statement (333-32644)
and incorporated herein by reference.)
2(b) Agreement and Plan Merger and Contribution Agreement, dated
as of February 15, 2000, among Microsoft Corporation, First
Data Corporation, Citibank, N.A., MS II, LLC, First Data,
L.L.C., H & B Finance, Inc., First Data International
Partner, Inc., MSFDC International, Inc., Citicorp
Electronic Commerce, Inc., CheckFree Holdings Corporation,
Chopper Merger Corporation, and CheckFree Corporation
(Reference is made to Exhibit 2(b) of the Registration
Statement on Form S-4 (333-32644) and incorporated herein by
reference.)
2(c) Amended and Restated Agreement and Plan of Merger, dated as
of July 7, 2000, among CheckFree Holdings Corporation,
Microsoft Corporation, First Data Corporation, Citibank,
N.A., H&B Finance, Inc., FDC International Partner, Inc.,
FDR Subsidiary Corp., MS FDC International, Inc., Citi
TransPoint Holdings Inc., TransPoint Acquisition
Corporation, Tank Acquisition Corporation, Chopper Merger
Corporation, CheckFree Corporation, Microsoft II, LLC and
First Data, L.L.C. (Reference is made to Appendix A to the
Proxy Statement/ Prospectus that is a part of this
Registration Statement and incorporated herein by
reference.)
3(a) Restated Certificate of Incorporation of CheckFree Holdings
Corporation. (Reference is made to Exhibit 3(a) to the
Current Report on Form 8-K, dated December 22, 1997, filed
with the Securities and Exchange Commission on December 30,
1997, and incorporated herein by reference.)
3(b) By-Laws of CheckFree Holdings Corporation. (Reference is
made to Exhibit 3(b) to the Current Report on Form 8-K,
dated December 22, 1997, filed with the Securities and
Exchange Commission on December 30, 1997, and incorporated
herein by reference.)
3(c) Form of Specimen Stock Certificate of CheckFree Holdings
Corporation. (Reference is made to Exhibit 3(c) to the
Current Report on Form 8-K, dated December 22, 1997, filed
with the Securities and Exchange Commission on December 30,
1997, and incorporated herein by reference.)
4(a) Articles FOURTH, FIFTH, SEVENTH, EIGHTH, TENTH and ELEVENTH
of CheckFree Holdings Corporation's Restated Certificate of
Incorporation (contained in CheckFree Holdings Corporation's
Restated Certificate of Incorporation filed as Exhibit 3(f)
hereto) and Articles II, III, IV, VI and VIII of CheckFree
Holdings Corporation's By-Laws (contained in CheckFree
Holdings' By-Laws filed as Exhibit 3(g) hereto).
4(b) Rights Agreement, dated as of December 16, 1997, by and
between CheckFree Holdings Corporation and The Fifth Third
Bank, as Rights Agent. (Reference is made to Exhibit 4.1 to
Amendment No. 1 to Registration Statement on Form 8-A, filed
with the Securities and Exchange Commission on May 12, 1999,
and incorporated herein by reference.)
5* Opinion of Porter, Wright, Morris & Arthur LLP regarding
legality.
10(a) CheckFree Holdings Corporation Amended and Restated
Associate Stock Purchase Plan. (Reference is made to Exhibit
4(a) to Post-Effective Amendment No. 1 to Form S-8, as
amended (Registration No. 333-21795), filed with the
Securities and Exchange Commission on January 14, 1998, and
incorporated herein by reference.)
10(b) CheckFree Holdings Corporation Amended and Restated 1995
Stock Option Plan. (Reference is made to Exhibit 4(a) to
Post-Effective Amendment No. 1 to Form S-8, as amended
(Registration No. 33-98446), filed with the Securities and
Exchange Commission on January 9, 1998, and incorporated
herein by reference.)
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10(c) CheckFree Holdings Corporation Amended and Restated 1993
Stock Option Plan. (Reference is made to Exhibit 4(a) to
Post-Effective Amendment No. 1 to Form S-8, as amended
(Registration No. 33-98442), filed with the Securities and
Exchange Commission on January 9, 1998, and incorporated
herein by reference.)
10(d) CheckFree Holdings Corporation Amended and Restated 1983
Non-Statutory Stock Option Plan. (Reference is made to
Exhibit 4(a) to Post-Effective Amendment No. 1 to Form S-8,
as amended (Registration No. 33-98440), filed with the
Securities and Exchange Commission on January 9, 1998, and
incorporated herein by reference.)
10(e) CheckFree Holdings Corporation Second Amended and Restated
1983 Incentive Stock Option Plan. (Reference is made to
Exhibit 4(a) to Post-Effective Amendment No. 1 to Form S-8,
as amended (Registration No. 33-98444), filed with the
Securities and Exchange Commission on January 9, 1998, and
incorporated herein by reference.)
10(f) Form of Agreement. (Reference is made to Exhibit 10(a) to
Registration Statement on Form S-1, as amended (Registration
No. 33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated herein by
reference.)
10(g) Schedule identifying material details of Indemnification
Agreements substantially identical to Exhibit 10(f).
(Reference is made to Exhibit 10(g) to CheckFree Holdings
Corporation's Form 10-K for the year ended June 30, 1997,
filed with the Securities and Exchange Commission on
September 26, 1997, and incorporated herein by reference.)
10(h) Noncompete, Nondisclosure, and Assignment Agreement, dated
February 1, 1990, between Peter J. Kight and CheckFree
Holdings Corporation. (Reference is made to Exhibit 10(i) to
Registration Statement on Form S-1, as amended (Registration
No. 33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated herein by
reference.)
10(i) Noncompete, Nondisclosure, and Assignment Agreement, dated
February 1, 1990, between Mark A. Johnson and CheckFree
Holdings Corporation. (Reference is made to Exhibit 10(j) to
Registration Statement on Form S-1, as amended (Registration
No. 33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated herein by
reference.)
10(j) Electronic Bill Payment Services Agreement, dated March 10,
1995, between the CheckFree Holdings Corporation and FiTech,
Inc. (Reference is made to Exhibit 10(gg) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange Commission
on August 14, 1995, and incorporated herein by reference.)**
10(k) Amendment to Bill Payment and Remote Banking Services
Agreement, dated July 1, 1995, between CheckFree Holdings
Corporation and FiTech, Inc. (Reference is made to Exhibit
10(hh) to Registration Statement on Form S-1, as amended
(Registration No. 33-95738), filed with the Securities and
Exchange Commission on August 14, 1995, and incorporated
herein by reference.)**
10(l) ACH Operations Agreement, dated April 1, 1994, between
CheckFree Holdings Corporation and Society National Bank.
(Reference is made to Exhibit 10(ii) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange Commission
on August 14, 1995, and incorporated herein by reference.)
10(m) Merchant Processing Agreement, dated March 13, 1995, between
CheckFree Holdings Corporation and Society National Bank.
(Reference is made to Exhibit 10(jj) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange Commission
on August 14, 1995, and incorporated herein by reference.)
10(n) Lease, dated August 1, 1993, between CheckFree Holdings
Corporation and the Director of Development of the State of
Ohio. (Reference is made to Exhibit 10(rr) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange Commission
on August 14, 1995, and incorporated herein by reference.)
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10(o) Guaranty Agreement, dated August 1, 1993, between CheckFree
Holdings Corporation and The Provident Bank. (Reference is
made to Exhibit 10(ss) to Registration Statement on Form
S-1, as amended (Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14, 1995, and
incorporated herein by reference.)
10(p) Demand Mortgage Note, dated August 25, 1993, of CheckFree
Holdings Corporation. (Reference is made to Exhibit 10(tt)
to Registration Statement on Form S-1, as amended
(Registration No. 33-95738), filed with the Securities and
Exchange Commission on August 14, 1995, and incorporated
herein by reference.)
10(q) Irrevocable Letter of Credit from Society National Bank for
CheckFree Holdings Corporation, dated August 25, 1993
(including second renewal thereof). (Reference is made to
Exhibit 10(uu) to Registration Statement on Form S-1, as
amended (Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14, 1995, and
incorporated herein by reference.)
10(r) Open-End Mortgage, Assignment of Rents and Security
Agreement, dated August 25, 1993, with CheckFree Holdings
Corporation as mortgagor and Society National Bank as
mortgagee. (Reference is made to Exhibit 10(vv) to
Registration Statement on Form S-1, as amended (Registration
No. 33-95738), filed with the Securities and Exchange
Commission on August 14, 1995, and incorporated herein by
reference.)
10(s) Loan and Security Agreement, dated August 25, 1993, between
CheckFree Holdings Corporation and Society National Bank.
(Reference is made to Exhibit 10(ww) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange Commission
on August 14, 1995, and incorporated herein by reference.)
10(t) Commercial Note Variable Rate, dated January 3, 1995, of
CheckFree Holdings Corporation. (Reference is made to
Exhibit 10(xx) to Registration Statement on Form S-1, as
amended (Registration No. 33-95738), filed with the
Securities and Exchange Commission on August 14, 1995, and
incorporated herein by reference.)
10(u) Reimbursement Agreement, dated August 25, 1993, between
CheckFree Holdings Corporation and Peter J. Kight.
(Reference is made to Exhibit 10(yy) to Registration
Statement on Form S-1, as amended (Registration No.
33-95738), filed with the Securities and Exchange Commission
on August 14, 1995, and incorporated herein by reference.)
10(v) License Agreement, dated October 27, 1995, between CheckFree
Holdings Corporation and Block Financial Corporation.
(Reference is made to Exhibit 10(ddd) to CheckFree Holdings
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Securities and Exchange
Commission, and incorporated herein by reference.)**
10(w) Joint Marketing and Trademark License Agreement, dated
December 28, 1995, between CheckFree Holdings Corporation
and Electronic Data Systems Corporation. (Reference is made
to Exhibit 10(eee) to CheckFree Holdings Corporation's
Annual Report on Form 10-K for the year ended December 31,
1995, filed with the Securities and Exchange Commission, and
incorporated herein by reference.)**
10(x) Joint Marketing Agreement, dated November 3, 1995, between
CheckFree Holdings Corporation and Fiserv, Inc. (Reference
is made to Exhibit 10(fff) to CheckFree Holdings
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Securities and Exchange
Commission, and incorporated herein by reference.)**
10(y) Payment Services, Software Development and Marketing
Agreement, dated as of February 27, 1996, between CheckFree
Holdings Corporation and CyberCash. (Reference is made to
Exhibit 10(a) to the Form 10-Q for the quarter ended March
31, 1996, filed with the Securities and Exchange Commission,
and incorporated herein by reference.) **
10(z) Executive Employment Agreement between CheckFree Holdings
Corporation and Peter J. Kight. (Reference is made to
Exhibit 10(z) to CheckFree Holdings Corporation's Form 10-K
for the year ended June 30, 1997, filed with the Securities
and Exchange Commission on September 26, 1997, and
incorporated herein by reference.)
</TABLE>
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<PAGE> 158
<TABLE>
<S> <C>
10(aa) Executive Employment Agreement between CheckFree Holdings
Corporation and Lynn D. Busing. (Reference is made to
Exhibit 10(f) to the Form 10-Q for the quarter ended March
31, 1996, filed with the Securities and Exchange Commission,
and incorporated herein by reference.)
10(bb) Agreement for ACH Services between CheckFree Holdings
Corporation and The Chase Manhattan Bank, N.A., dated as of
July 1, 1996. (Reference is made to Exhibit 10(qqq) to the
Form 10-K for the transition period ended June 30, 1996,
filed with the Securities and Exchange Commission, and
incorporated herein by reference.)
10(cc) Loan and Security Agreement, dated as of May 13, 1997, among
KeyBank National Association, CheckFree Holdings
Corporation, CheckFree Software Solutions, Inc., CheckFree
Services Corporation, Security APL, Inc., Servantis Systems,
Inc., and Servantis Services, Inc. (Reference is made to
Exhibit 10(ee) to CheckFree Holdings Corporation's Form 10-K
for the year ended June 30, 1997, filed with the Securities
and Exchange Commission on September 26, 1997, and
incorporated herein by reference.)
10(dd) First Amendment to Loan and Security Agreement by and
between KeyBank National Association, as Lender, and
CheckFree Corporation, as Borrower, dated as of December 9,
1998. (Reference is made to Exhibit 10.1 to CheckFree
Holdings Corporation's Form 10-Q for the quarter ended March
31, 1999, filed with the Securities and Exchange Commission
on May 17, 1999, and incorporated herein by reference.)
10(ee) CheckFree Holdings Corporation Incentive Compensation Plan.
(Reference is made to Exhibit 10(ff) to CheckFree Holdings
Corporation's Form 10-K for the year ended June 30, 1997,
filed with the Securities and Exchange Commission on
September 26, 1997, and incorporated herein by reference.)
10(ff)* Form of Stockholder Agreement to be entered into between
CheckFree Holdings Corporation and each of Microsoft
Corporation and First Data Corporation.
10(gg)* Form of Registration Rights Agreement to be entered into
between CheckFree Holdings Corporation and each of Microsoft
Corporation and First Data Corporation.
10(hh)* Form of Registration Rights Agreement to be entered into
between CheckFree Holdings Corporation and Citibank, N.A.
10(ii) Form of Commercial Alliance Agreement to be entered into
between CheckFree Holdings Corporation and Microsoft
Corporation. (Reference is made to Exhibit 10(ff) of
CheckFree Holdings Corporation's Amendment No. 1 to the
Registration Statement on Form S-4 (Registration No.
333-32644) filed with the Securities and Exchange Commission
on April 18, 2000 and incorporated herein by reference).***
10(jj) Form of Marketing Agreement to be entered into between
CheckFree Holdings Corporation and First Data Corporation.
(Reference is made to Exhibit 10(gg) of CheckFree Holdings
Corporation's Amendment No. 1 to the Registration Statement
on Form S-4 (Registration No. 333-32644) filed with the
Securities and Exchange Commission on April 18, 2000 and
incorporated herein by reference).***
21(a)* Subsidiaries of CheckFree Holdings Corporation.
23(a) Consent of Porter, Wright, Morris & Arthur LLP (included in
Exhibit 5).
23(b)* Consent of Deloitte & Touche LLP.
23(c)* Consent of Deloitte & Touche LLP.
23(d)* Consent of Arthur Andersen LLP.
24* Powers of Attorney.
</TABLE>
---------------
* Filed with this report.
** Portions of this Exhibit have been given confidential treatment by the
Commission.
*** We have requested that the Commission give confidential treatment to
portions of this Exhibit.
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<PAGE> 159
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of the Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Registration Statement, within one business
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE> 160
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this. Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Norcross, State of Georgia, on July 10, 2000.
CHECKFREE HOLDINGS CORPORATION
By: /s/ DAVID MANGUM
------------------------------------
David Mangum
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this.
Registration Statement has been signed below by the following persons in the
capacities indicated on the 10th day of July, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
*PETER J. KIGHT Chairman of the Board and
-------------------------------------------------------- Chief Executive Officer
Peter J. Kight (Principal Executive Officer)
*MARK A. JOHNSON Director
--------------------------------------------------------
Mark A. Johnson
/s/ DAVID MANGUM Executive Vice President and
-------------------------------------------------------- Chief Financial Officer
David Mangum (Principal Financial Officer)
*GARY A. LUOMA, JR. Vice President, Chief Accounting
-------------------------------------------------------- Officer and Assistant Secretary
Gary A. Luoma, Jr. (Principal Accounting Officer)
*WILLIAM P. BOARDMAN Director
--------------------------------------------------------
William P. Boardman
*GEORGE R. MANSER Director
--------------------------------------------------------
George R. Manser
*EUGENE F. QUINN Director
--------------------------------------------------------
Eugene F. Quinn
*JEFFREY M. WILKINS Director
--------------------------------------------------------
Jeffrey M. Wilkins
*By: /s/ CURTIS A. LOVELAND
--------------------------------------------------------
Curtis A. Loveland, Attorney-in-Fact
</TABLE>
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