Higher One Holdings, Inc.

The Merger Agreement contained customary representations, warranties and covenants of the parties for a transaction of this nature, including a covenant that required the parties to use their reasonable best efforts to do all things reasonably necessary under applicable law to consummate the Offer and the Merger. Until the earlier of the effective time of the Merger and the termination of the Merger Agreement, Higher One agreed, subject to certain exceptions, to use commercially reasonable efforts to operate its business in the ordinary course consistent with past practice, and to refrain from engaging in certain activities. In addition, under the terms of the Merger Agreement, until the earlier of the consummation of the Offer and the termination of the Merger Agreement, Higher One agreed not to initiate, solicit or knowingly encourage or knowingly facilitate the making of any alternative acquisition proposals, subject to customary exceptions for Higher One to respond to and support unsolicited alternative acquisition proposals in the exercise of the fiduciary duties of the Board of Directors of Higher One. Higher One would have been obligated to pay a termination fee of approximately $10.4 million to Parent in certain circumstances, including if the Merger Agreement was terminated by Higher One to enter into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or if the Merger Agreement was terminated by Parent as a result of a Change in Recommendation (as defined in the Merger Agreement) or a material violation or breach of Higher One’s non-solicit obligations. In certain additional circumstances where the Merger Agreement was terminated by Parent and the termination fee was not payable, Higher One would have been be obligated to reimburse Parent for the reasonable and documented, out-of-pocket expenses incurred by Parent or Merger Sub in connection with the Transactions, not to exceed approximately $3.2 million in the aggregate (which amount, if paid, would be deducted from any subsequently payable termination fee). As further described in Note 10, the Merger became effective on August 4, 2016. 

On June 30, 2015, the state of Connecticut enacted changes to its corporate tax laws, including a mandatory unitary tax filing requirement for all Connecticut companies effective January 1, 2016. As a result of the tax law changes, it was then more likely than not that we would utilize certain net operating loss carry forwards for which we previously had recorded a valuation allowance. We recorded an income tax benefit of approximately $0.3 million during the three months ended June 30, 2015 due to that tax law change. The impact of that tax law change was subsequently reversed in 2015 as a result of further changes in tax law in Connecticut.

Depreciation and amortization expense of $2.9 million and $4.9 million is included in income from discontinued operations during the six months ended June 30, 2016 and 2015, respectively. Depreciation and amortization expense of $1.2 million and $2.6 million is included in income from discontinued operations during the three months ended June 30, 2016 and 2015, respectively. Capital expenditures, including costs associated with developing internal use software, of $0.1 million and $2.1 million were incurred related to the data analytics and disbursements segments during the six months ended June 30, 2016 and 2015, respectively. Capital expenditures, including costs associated with developing internal use software, of $1.0 million were incurred related to the data analytics and disbursements segments during the three months ended June 30, 2015. There were no capital expenditures related to our disposed segments during the three months ended June 30, 2016.

In February 2009 and September 2010, Higher One, Inc. filed two separate complaints against TouchNet Information Systems, Inc., or TouchNet, in the United States District Court for the District of Connecticut alleging patent infringement related to TouchNet’s offering for sale and sales of its “eRefund” product in violation of two of our patents. In the complaints, we sought judgments that TouchNet has infringed two of our patents, a judgment that TouchNet pay damages and interest on damages to compensate us for infringement, an award of our costs in connection with these actions and an injunction barring TouchNet from further infringing our patents. TouchNet answered the complaint and asserted a number of defenses and counterclaims, including that it does not infringe our patent, that our patent is invalid or unenforceable and certain allegations of unfair competition and state and federal antitrust violations. In addition, TouchNet’s counterclaims sought dismissal of our claims with prejudice, declaratory judgment that TouchNet does not infringe our patent and that our patent is invalid or unenforceable, as well as an award of fees and costs related to the action, and an injunction permanently enjoining us from suing TouchNet regarding infringement of our patent.

The decrease in net cash provided by operating activities was primarily the result of a decrease in net income, adjusted for non-cash items, during the six months ended June 30, 2016 compared to the prior year period. While we disposed of the disbursements business in June 2016, the operating results of that business were unfavorable to the prior year period. The disposition of our data analytics business also contributed to the decrease in cash provided by operating activities. Gross margin dollars associated with both the disposition of the data analytics business and disbursements business decreased a total of $16.9 million from the six months ended June 30, 2015 to the six months ended June 30, 2016.