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As filed with the Securities and Exchange Commission on July 13, 2000
Registration No. 333-94757
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CHECKFREE HOLDINGS CORPORATION
CHECKFREE SERVICES CORPORATION (FORMERLY CHECKFREE CORPORATION)
CHECKFREE INVESTMENT CORPORATION
CHECKFREE MANAGEMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 7374 58-2360335
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
------------------------
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)
------------------------
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)
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Copies of Correspondence to:
Robert J. Tannous, Esq.
Porter, Wright, Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215
(614) 227-1953
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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 only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED July 13, 2000
PROSPECTUS
----------
$172,500,000
(CHECKFREE HOLDINGS LOGO)
6 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2006
----------------------
This prospectus relates to:
-- $172,500,000 principal amount of 6 1/2% convertible subordinated
notes due 2006;
-- The shares of our common stock issuable upon conversion of the notes;
and
-- The subsidiary guarantee of the notes on behalf of each of our
subsidiaries.
The notes, the shares of our common stock and the subsidiary guarantee are
offered for resale in this prospectus are offered for the accounts of their
holders. The notes and the subsidiary guarantee were initially acquired from us
in November 1999 in connection with a private offering by a group of investment
banking firms as initial purchasers who resold the notes pursuant to Rule 144A
of the Securities Act of 1933.
We will pay interest on the notes on June 1 and December 1 of each year,
commencing on June 1, 2000. The notes will mature on December 1, 2006. The notes
will be convertible at your option, unless previously redeemed, into shares of
our common stock at a conversion rate of 13.6612 shares of our common stock per
note, subject to adjustments described in this prospectus. We may redeem the
notes, in whole or in part, at any time on or after December 1, 2002. If a
change in control of CheckFree occurs, each holder of the notes may require us
to repurchase some or all of its notes. If we cannot make the scheduled payments
on the notes, our subsidiaries, CheckFree Services Corporation (formerly
CheckFree Corporation), CheckFree Management Corporation, CheckFree Investment
Corporation and CheckFree Investment Services, Inc., will be required to make
them for us pursuant to a subsidiary guarantee. The notes are eligible for
trading in The Portal(TM) Market.
Our common stock is traded on the Nasdaq National Market under the symbol
"CKFR." On July 12, 2000, the last reported sale price of our common stock was
$52.875 per share.
INVESTING IN THE NOTES INVOLVES RISKS WHICH ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
The proceeds from the sale of the securities offered by this prospectus are
solely for the security holders who own and are selling the securities. We will
not receive any of the proceeds from the sale of these securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
The date of this prospectus is July 13, 2000
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TABLE OF CONTENTS
PAGE
----
Summary.....................................................................4
Risk Factors................................................................8
Forward-Looking Statements.................................................18
Ratio of Earnings to Fixed Charges.........................................18
Use of Proceeds............................................................19
Description of Notes.......................................................19
Description of Certain Indebtedness........................................33
Certain Federal Income Tax Consequences....................................34
Selling Securityholders....................................................37
Plan of Distribution.......................................................40
Legal Matters..............................................................41
Experts....................................................................41
Where You Can Find More Information........................................42
Incorporation of Documents by Reference....................................43
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SUMMARY
The information in this summary may not contain all of the information
that may be important to you. You should read the entire prospectus and the
information incorporated by reference in this prospectus, including the
financial statements and related notes, before making an investment decision.
All references to "we," "us," "our," or "CheckFree" in this prospectus mean
CheckFree Holdings Corporation and all entities owned or controlled by CheckFree
Holdings Corporation, except where it is made clear that the term only means the
parent company.
OUR COMPANY
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 any bill--electronic or paper--to anyone; and
- perform customary banking transactions, including balance inquiries,
transfers between accounts and on-line statement reconciliations.
We currently provide electronic billing and payment services for
approximately 3.3 million consumers. Our services are available through over 350
sources, including:
- 23 of the 25 largest U.S. banks;
- 8 of the top 10 U.S. brokerage firms;
- Internet portals;
- Internet-based banks;
- Internet financial sites like Quicken.com; and
- personal financial management software like Quicken and Microsoft
Money.
We have developed contracts with over 1,100 merchants nationwide that
enable us to remit more than 50% of all of our bill payments electronically.
During the three-month period ended March 31, 2000, we processed an average
of nearly 15 million transactions per month and, for the year ended June 30,
1999, we processed more than 125 million transactions.
In March 1997, we introduced electronic billing -- "E-Bill" -- which
enables merchants to deliver billing as well as marketing materials
interactively to their customers over the Internet. Through March 2000, we have
placed 76 billers into production and are now delivering in excess of 62,000
electronic bills monthly through E-Bill.
For example, when a customer instructs us to pay a bill, we have the
ability to process the payment either by electronic funds transfer, by paper
check, or by draft drawn on the customer's account. Our patented bill payment
processing system in Norcross, Georgia determines the preferred method of
payment based on a credit analysis of the customer, assessing the customer's
payment history, the amount of the bill to be paid and other relevant factors.
If the results of the credit analysis are favorable, we will assume the
risk of collection of the funds from the customer's account, and if we have an
electronic connection to the merchant, the remittance will be sent
electronically. Otherwise, the remittance will be sent to the merchant by a
paper check or draft drawn directly on the customer's checking account. In an
electronic remittance, the funds are transmitted electronically to the merchant
with the customer's account number included as an addenda record. For a paper
draft, the customer's name, address, and account number is printed on the face
of the check. In addition, our processing system provides the ability to
aggregate multiple electronic and paper remittances due to merchants. Thus, if
multiple payments are going to the same merchant on the same day, we may send
one check for the sum of these payments and include a remittance statement that
provides the customers' names, addresses, account numbers, and payment amounts.
Our strategy is to drive operational efficiency and improve profitability by
increasing the percentage of transactions we process electronically.
We are also a leading provider of institutional portfolio management
and information services and financial application software. 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 portfolio management system solution includes:
- data conversion;
- personnel training;
- trading system;
- graphical client reporting;
- performance measurement;
- technical network support and interface setup; and
- Depository Trust Corporation processing.
Our financial planning software applications include:
- retirement and estate planning modules;
- cash flow, tax and education planning modules;
- asset allocation module; and
- investment manager performance database system.
Our fee-based money manager clients are typically sponsors or managers
of wrap money management products or traditional money managers, managing
investments of institutions and high net worth individuals.
Our Software businesses provide electronic commerce and financial
applications software and services for businesses and financial institutions. We
design, market, license and support the following software applications, among
others:
- Electronic Funds Transfer.
Through our Paperless Entry Processing System Plus software, we offer
an online, real-time system providing an operational interface for originating
and receiving payments through the automated clearinghouse. The automated
clearinghouse is a nationwide electronic clearing and settlement system that
processes electronically originated credit and debit transfers among
participating depository institutions. These electronic transactions are
substitutes for paper checks and are typically used for recurring payments like
direct deposit payroll payments and corporate payments to contractors and
vendors, debit transfers that consumers make to pay insurance premiums,
mortgages, loans and other bills, and business to business payments. You may
obtain additional information on the automated clearinghouse at the Federal
Reserve Commission's website at http://www.federalreserve.gov. We do not
maintain a direct connection with the automated clearinghouse, but
rather, clear our electronic transactions through KeyBank, N.A., under
the terms of an automated clearinghouse agreement.
- Reconciliation.
Through our ReconPlus software, we provide United States banks,
international banks and corporate treasury operations with automated check and
non-check reconciliations in high volume, multi-location environments. Some of
the services provided by ReconPlus are automated deposit verification,
consolidated bank account reconciliation and cash mobilization, immediate and
accurate funds availability data and improved cash control.
- Other.
We also provide software solutions like regulatory compliance solutions
for Form 1099 processing, safe box accounting and other applications.
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During the fiscal year ended June 30, 1999, Electronic Commerce
accounted for 68% of our revenues and Software and Investment Services each
accounted for 16% of our revenues.
OUR BUSINESS STRATEGY
Our business strategy is to provide an expanding range of convenient,
secure and cost-effective electronic commerce services to financial
institutions, businesses and their customers. The key elements of our business
strategy are to:
- drive increased adoption of electronic commerce services by
consumers;
- continue to distribute electronic commerce services through multiple
channels;
- focus on customer care and technical support;
- continue to improve operational efficiency and effectiveness; and
- drive new forms of electronic commerce services.
OUR ADDRESS
Our principal executive offices are located at 4411 East Jones Bridge
Road, Norcross, Georgia 30092 and our telephone number is (678) 375-3000. We
maintain a website at www.checkfree.com. This reference to our website address
does not constitute incorporation by reference of the information contained on
our website, so you should not consider any information on this website to be a
part of this prospectus.
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THE NOTES
Issuer........................ CheckFree Holdings Corporation
4411 East Jones Bridge Road
Norcross, Georgia 30092
(678) 375-3000
Notes......................... $172,500,000 aggregate principal amount of
Convertible Subordinated Notes due 2006.
Issue Price................... 100% plus accrued interest, if any, from the
date of issue.
Interest...................... 6 1/2% per annum on the principal amount,
payable semiannually in arrears on June 1 and
December 1 of each year commencing on June 1,
2000.
Denominations................. The notes are issued in denominations of $1,000
principal amount and integral multiples thereof.
Conversion Rights............. Each note is convertible, at the option of the
holder, at anytime prior to maturity, unless
previously redeemed or otherwise purchased, into
shares of our common stock at a conversion rate
of 13.6612 shares per note. The conversion rate
is subject to adjustment upon the occurrence of
certain events affecting our common stock.
Subject to certain exceptions, upon conversion,
the holder will not receive any cash payment
representing any further interest; such accrued
cash interest will be deemed paid by the shares
of our common stock received by the holder on
conversion. See "Description of
Notes--Conversion Rights."
Maturity Date................. December 1, 2006.
Subsidiary Guarantee.......... Each of our subsidiaries, jointly and severally,
has fully and unconditionally guaranteed the
notes on a subordinated basis. Future
subsidiaries also may be required to guarantee
the notes, including BlueGill Technologies, Inc.
and TransPoint upon our completion of each of
those acquisitions. See "Description of Notes--
Subsidiary Guarantee."
Ranking....................... The notes are our unsecured obligations and are
subordinated to our existing and future senior
indebtedness. The subsidiary guarantee is
subordinated to all existing and future senior
indebtedness of our subsidiaries. At March 31,
2000, we had no senior indebtedness outstanding,
and our subsidiaries had $14.0 million of senior
indebtedness outstanding. The indenture does not
restrict the incurrence by us or our
subsidiaries of indebtedness or other
obligations.
Change in Control............. If a change in control of CheckFree occurs, you
may require us to purchase your notes at a price
equal to the principal amount of the notes. We
will also be required to pay accrued and unpaid
interest.
Sinking Fund.................. No sinking fund is provided for the notes.
Optional Redemption........... We may not redeem the notes prior to December 1,
2002. On and after such date, the notes are
redeemable for cash at any time at our option,
in whole or in part, at redemption prices set
forth in the indenture, plus
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accrued and unpaid interest to the date of
redemption. See "Description of
Notes--Redemption of the Notes at Our Option."
Use of Proceeds............... We will not receive any of the proceeds from
this offering. See "Use of Proceeds."
DTC Eligibility............... Except as described in this prospectus, the
notes are issued in fully registered book-entry
form and are represented by one or more
permanent global notes without coupons deposited
with a custodian for and registered in the name
of a nominee of The Depository Trust Company
("DTC") in New York, New York. Beneficial
interests in any of the global notes are shown
on, and transfers thereof will be effected only
through, records maintained by DTC and its
direct and indirect participants, and any such
interest may not be exchanged for certificated
notes, except in limited circumstances described
in this prospectus. Settlement and all secondary
market trading activity for the notes will be in
same day funds. See "Description of Notes--Form,
Denomination and Registration" and "--Book Entry
System."
Transfer Restrictions......... The notes and our common stock issuable upon
conversion may not be offered, sold, pledged or
otherwise transferred except as described in
this prospectus.
Registration Rights........... We have agreed:
- To file as soon as practicable, but in any
event within 60 days of the date of
issuance of the notes, a shelf
registration statement under the
Securities Act of 1933 to cover resales of
the notes and shares of our common stock
issuable on conversion thereof;
- To use our reasonable best efforts to
cause the shelf registration statement to
be declared effective by the Commission
within 120 days of the date of issuance of
the notes; and
- To use our best efforts to keep the shelf
registration statement effective and
usable until the notes, and the common
stock issuable upon conversion of the
notes,
(1) have been registered and sold pursuant
to the shelf registration,
(2) have been distributed to the public
pursuant to Rule 144 under the
Securities Act of 1933 or
(3) are saleable pursuant to Rule 144(k)
under the Securities Act of 1933 or
successor provisions.
We are subject to the payment of additional
interest if we are not in compliance with these
requirements. See "Description of
Notes--Registration Rights."
Trading....................... We can provide no assurance as to the liquidity
of the trading market for the notes. The notes
are currently traded on The Portal(TM) Market.
Our common stock is listed on the Nasdaq
National Market under the symbol "CKFR."
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RISK FACTORS
An investment in the notes or the shares of our common stock issuable
upon conversion of the notes offered by this prospectus involves a high degree
of risk. You should carefully consider the following factors as well as the
other information contained and incorporated by reference in this prospectus
before deciding to invest in the notes. You should also consider these risk
factors when you read forward-looking statements elsewhere in this prospectus.
RISKS RELATED TO THE NOTES
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS SUBORDINATED TO ALL OF OUR
EXISTING AND FUTURE SENIOR INDEBTEDNESS AND THE EXISTING AND FUTURE SENIOR
INDEBTEDNESS OF OUR SUBSIDIARIES.
The notes and the subsidiary guarantee are unsecured obligations and
are subordinated in right of payment, as provided in the indenture, to the prior
payment in full in cash, or other payment satisfactory to holders of senior
indebtedness, of all our existing and future senior indebtedness and that of our
subsidiaries. Senior indebtedness includes, among other things, all indebtedness
for money borrowed and indebtedness evidenced by securities, debentures, bonds
or similar instruments, other than indebtedness that is expressly junior in
right of payment to the notes and the subsidiary guarantee or ranks pari passu
in right of payment to the notes and the subsidiary guarantee. At March 31,
2000, we had no senior indebtedness, and our subsidiaries had approximately
$14.0 million of senior indebtedness. The terms of the notes and the subsidiary
guarantee do not limit the amount of additional indebtedness, including senior
indebtedness, which we and our subsidiaries can create, incur, assume or
guarantee. Upon any distribution of our assets or the assets of our subsidiaries
pursuant to any insolvency, bankruptcy, dissolution, winding up, liquidation or
reorganization, the payment on the notes and the subsidiary guarantee will be
subordinated to the extent provided in the indenture to the prior payment in
full of all our senior indebtedness and that of our subsidiaries, and there may
not be sufficient assets remaining to pay the amounts due on any or all the
notes and the subsidiary guarantee then outstanding. In addition, we may not
repurchase any notes in certain circumstances involving a change in control if
at such time the subordination provision of the indenture would prohibit us from
making payment in respect of the notes. The failure to repurchase the notes when
required would result in an event of default under the indenture and may
constitute a default under the terms of our senior indebtedness and that of our
subsidiaries.
WE ARE A HOLDING COMPANY AND RELY ON DIVIDENDS FROM OUR SUBSIDIARIES TO MAKE
INTEREST AND PRINCIPAL PAYMENTS.
We are a holding company that derives all of our operating income, if
any, from our subsidiaries. We rely on dividends and other payments from our
subsidiaries or must raise funds in public or private equity or debt offerings
or sales of assets to generate the funds necessary to meet our obligations,
including the payment of principal and interest on the notes. There can be no
assurance that we would be able to obtain such funds on acceptable terms or at
all.
THE TERMS OF OUR AND OUR SUBSIDIARIES' SENIOR INDEBTEDNESS COULD RESTRICT OUR
FLEXIBILITY AND LIMIT OUR ABILITY TO SATISFY OUR OBLIGATIONS UNDER THE NOTES AND
OUR SUBSIDIARY GUARANTEE.
We and our subsidiaries are subject to operational and financial
covenants and other restrictions contained in the bank loan documents evidencing
the senior indebtedness. These covenants could limit our operational flexibility
and restrict our ability to borrow additional funds, if necessary, to finance
our operations and to make principal and interest payments on the notes.
Additionally, our failure to comply with these operational and financial
covenants could result in an event of default under the terms of the senior
indebtedness which, if not cured or waived, could result in a substantial amount
of the senior indebtedness becoming due and payable. The effect of these
covenants, or our failure to comply with them, could have a material adverse
effect on our business, financial condition and results of operations.
THE SUBSIDIARY GUARANTEE MAY BE UNENFORCEABLE DUE TO FRAUDULENT CONVEYANCE
STATUTES.
Although laws differ among various jurisdictions, a court could, under
fraudulent conveyance laws, further subordinate or avoid the subsidiary
guarantee if it found that the subsidiary guarantee was incurred with actual
intent to hinder, delay or defraud creditors or the subsidiary guarantor did not
receive fair consideration or reasonably equivalent value for the subsidiary
guarantee and that the subsidiary guarantor was any of the following:
- insolvent or was rendered insolvent because of the subsidiary
guarantee;
- engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay at maturity.
If a court voided a subsidiary guarantee by one or more of our
subsidiaries as the result of a fraudulent conveyance, or held it unenforceable
for any other reason, holders of the notes would cease to have a claim against
the subsidiary based on the subsidiary guarantee and would be solely creditors
of CheckFree Holdings Corporation.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
IN CONTROL OFFER REQUIRED BY OUR INDENTURE.
Upon the occurrence of certain specific kinds of change in control
events specified in the indenture, we may be required to repurchase all
outstanding notes. It is possible, however, that we will not have sufficient
funds at the time of a change in control to make the required repurchase of the
notes or that restrictions in our existing or future senior indebtedness will
not allow such repurchases. Also, we or our subsidiaries may be required to
prepay certain senior indebtedness or obligations having financial covenant
provisions in favor of the holders thereof. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, may not constitute a change in control under the
indenture.
The exercise by the holders of the notes of their right to require us
to repurchase the notes could cause a default under other senior indebtedness
which we may enter into in the future, even if the change in control itself does
not, due to the financial effect on us of such repurchase.
THERE MAY NOT BE A TRADING MARKET FOR THE NOTES.
Although the notes are currently traded in The Portal(TM) Market, there
is no assurance that such trading will continue. Accordingly, you may not be
able to sell your notes or sell them at an acceptable price. Further, the notes
could trade at prices higher or lower than the initial offering price depending
on many factors, including:
- prevailing interest rates;
- the market price for our common stock;
- our operating results; and
- the market for similar securities or the securities market in
general.
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RISKS RELATED TO CHECKFREE
THE MARKET FOR OUR ELECTRONIC COMMERCE SERVICES IS EVOLVING AND MAY NOT CONTINUE
TO DEVELOP OR GROW RAPIDLY ENOUGH FOR US TO BECOME CONSISTENTLY PROFITABLE.
If the number of electronic commerce transactions does not continue to
grow or if consumers or businesses do not continue to adopt our services, it
could have a material adverse effect on our business, financial condition and
results of operations. The electronic commerce market is still evolving and
currently growing at a rapid rate. We believe future growth in the electronic
commerce market will be driven by the cost, ease-of-use and quality of products
and services offered to consumers and businesses. In order to consistently
increase and maintain our profitability, consumers and businesses must continue
to adopt our services.
Additionally, we have not consistently operated profitably to date. We
incurred:
- a loss from operations of $7.2 million and a net loss of $3.7 million
in the fiscal year ended June 30, 1998;
- a loss from operations of $3.7 million and net income of $10.5
million for the fiscal year ended June 30, 1999; and
- a loss from operations of $18.4 million and a net loss of $11.8
million for the nine months ended March 31, 2000.
In addition, we recently completed the acquisition of BlueGill Technologies,
Inc. and announced the acquisition of the TransPoint entities, owned by
Microsoft Corporation, First Data Corporation and Citibank, N.A. BlueGill has
incurred significant losses to date, including a net loss of $2.2 million for
the three months ended March 31, 2000 and a net loss of $7.1 million for the
fiscal year ended December 31, 1999. The TransPoint business also has incurred
significant losses to date, including a net loss of $31.8 million during the
nine month period ended March 31, 2000 and $42.7 million during the fiscal year
ended June 30, 1999.
We anticipate having a net loss from operations in fiscal 2000 and may
experience net losses and may not be able to sustain or increase our
profitability in the future. We intend to continue to make significant
investments of several million dollars in our research and development, sales
and marketing and customer care operations. If the investment of our capital is
not successful to grow our business, it will have a material adverse effect on
our business and financial condition, as well as negatively impact your
investment in our business and limit our ability to pay dividends in the future
to our stockholders.
WE ARE REQUIRED TO AMORTIZE GOODWILL THAT WILL CAUSE OUR EARNINGS PER SHARE TO
DECREASE.
Because we will be accounting for the BlueGill and TransPoint 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 and 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 and TransPoint 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.
OUR FUTURE PROFITABILITY DEPENDS ON OUR ABILITY TO IMPLEMENT OUR STRATEGY
SUCCESSFULLY TO INCREASE ADOPTION OF ELECTRONIC BILLING AND PAYMENT METHODS.
Our future profitability will depend, in part, on our ability to
implement our strategy successfully to increase adoption of electronic billing
and payment methods. Our strategy includes investment of time and approximately
$40 million during fiscal 2000 in programs designed to:
- drive consumer awareness of electronic billing and payment;
- encourage consumers to sign up for and use our electronic billing and
payment services offered by our distribution partners;
- build our infrastructure to handle seamless processing of
transactions;
- continue to develop state of the art, easy-to-use technology; and
- increase the number of billers whose bills we can present and pay
electronically.
If we do not successfully implement our strategy, revenue growth will
be minimal, and expenditures for these programs will not be justified.
Our investment in these programs will have a negative impact on our
short-term profitability. Additionally, our failure to implement these programs
successfully or to increase substantially adoption of electronic commerce
billing and payment methods by consumers who pay for the services could have a
material adverse effect on our business, financial condition and results of
operations.
COMPETITIVE PRESSURES WE FACE MAY HAVE A MATERIAL ADVERSE EFFECT ON US.
Electronic commerce is new and evolving rapidly, resulting in a dynamic
competitive environment. We face significant competition in our each of our
business units, Electronic Commerce, Investment Services and Software
businesses. Increased competition or other competitive pressures may result in
price reductions, reduced margins or loss of business, any of which could have a
material adverse effect on our business, financial condition and results of
operations. Further, we expect competition to persist, increase and intensify in
the future. First, we need to switch billers and consumers from paper bills sent
by mail and paid by check to electronic bill presentment and payment. Second, a
number of financial institutions have developed, and others in the future may
develop, in-house home banking services similar to ours. For example, in June
1999, Chase Manhattan Corporation, First Union Corporation and Wells Fargo & Co.
announced the formation of a new venture called Spectrum that will allow
individuals and businesses to receive and pay bills electronically. To the best
of our knowledge, Spectrum has done limited electronic presentment of bills, and
is developing a "pay anyone" capability. In addition, recently MasterCard
International announced that it would begin offering online bill presentment to
enable people to receive and pay bills over the Internet by September 2000.
Additionally, TransPoint has entered into its own agreements with financial
institutions to offer on-line home banking and electronic billing and payment
services to consumers. As previously disclosed, we have entered into an
agreement to acquire TransPoint and its operations. In the event that the
TransPoint Acquisition is not completed, TransPoint will continue to be a
competitor. We also face increased competition from billers directly presenting
bills to their customers electronically and from new competitors offering
billing and payment services utilizing scan and pay technology. These "scan and
pay" companies offer a service whereby a consumer's bill is received by the
company, scanned to create an electronic image of the bill, and electronically
delivered to the consumer who can elect to pay that bill either by writing a
paper check or through an electronic transfer of funds. We cannot assure you
that we will be able to compete effectively against financial institutions,
Spectrum, Mastercard, TransPoint, billers directly delivering bills to their
customers, scan and pay companies or other current and future electronic
commerce competitors.
In addition, we cannot assure you that we will be able to compete
effectively against current and future competitors in the investment services
and software products markets. The markets for our investment services and
software products are also highly competitive. In Investment Services, our
competition comes primarily from providers of portfolio accounting software. In
Software, our competition comes from several different market segments,
including large diversified computer software and service companies and
independent suppliers of software products. Because there are relatively low
barriers to entry, we expect competition in the software market to increase
significantly in the future.
Across all of our market segments, many of our current and potential
competitors have longer operating histories, significantly greater financial,
technical, marketing, customer service and other resources, greater name
recognition and a larger installed base of customers than we do. As a result,
these competitors may be able to respond to new or emerging technologies and
changes in customer requirements faster and more effectively than we can, or to
devote greater resources to the development, promotion and sale of products than
we can. If these competitors were to acquire a significant market share, it
could have a material adverse effect on our business, financial condition and
results of operations.
SOME OF OUR CUSTOMERS MAY COMPETE AGAINST US WHICH MAY RESULT IN A LOSS OF
REVENUE.
From time to time, some of our customers may compete against us which may
have a material adverse effect on our revenues and results of operations. For
example, in June 1999, Chase Manhattan, First Union and Wells Fargo announced
the formation of Spectrum that will allow individuals and businesses to receive
and pay bills electronically. Collectively, Chase Manhattan, First Union and
Wells Fargo accounted for 13.3% of our total revenues for the year ended June
30, 1999. Other of our significant customers may in the future decide to compete
against us and such competition may have a material adverse affect on our
business and financial results.
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SECURITY AND PRIVACY BREACHES IN OUR ELECTRONIC TRANSACTIONS MAY DAMAGE CUSTOMER
RELATIONS AND INHIBIT OUR GROWTH.
Any failures in our security and privacy measures could have a material
adverse effect on our business, financial condition and results of operations.
We electronically transfer large sums of money and personal information about
consumers utilizing our products and services. If we are unable to protect, or
consumers perceive that we are unable to protect, the security and privacy of
our electronic transactions, our growth and the growth of the electronic
commerce market in general could be materially adversely affected. A security or
privacy breach may:
- cause our customers to lose confidence in our services;
- deter consumers from using our services;
- harm our reputation;
- expose us to liability;
- increase our expenses from potential remediation costs; and
- decrease market acceptance of electronic commerce transactions.
While we believe that we utilize proven applications designed for
premium data security and integrity to process electronic transactions, there
can be no assurance that our use of these applications will be sufficient to
address changing market conditions or the security and privacy concerns of
existing and potential subscribers.
WE RELY ON THIRD PARTIES TO DISTRIBUTE OUR ELECTRONIC COMMERCE SERVICES, WHICH
MAY NOT RESULT IN WIDESPREAD ADOPTION.
We rely on our contracts with financial institutions, businesses,
billers, Internet portals and other third parties like Intuit Inc. to provide
branding for our electronic commerce services and to market our services to
their customers. None of these third parties accounted for more than 10% of our
total revenue for the year ended June 30, 1999 or for the nine months ended
March 31, 2000. These contracts are an important source of the growth in demand
for our electronic commerce services. If any of these third parties abandon,
curtail or insufficiently increase its marketing efforts, it could have a
material adverse effect on our business, financial condition and results of
operations.
CONSOLIDATION IN THE BANKING INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO SELL
OUR ELECTRONIC COMMERCE SERVICES, INVESTMENT SERVICES AND SOFTWARE.
Mergers, acquisitions and personnel changes at key financial
institutions have the potential adversely to affect our business, financial
condition and results of operations. Currently, the banking industry is
undergoing large-scale consolidation, causing the number of financial
institutions to decline. This consolidation could cause us to lose:
- current and potential customers;
- business opportunities, if combined financial institutions were to
determine that it is more efficient to develop in-house home banking
services similar to ours or offer our competitors' products or
services; and
- revenue, if combined financial institutions were able to negotiate a
greater volume discount for, or to discontinue the use of, our
products and services.
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WE ARE DEPENDENT UPON A SMALL NUMBER OF FINANCIAL INSTITUTION CUSTOMERS FOR A
SIGNIFICANT PERCENTAGE OF OUR SUBSCRIBERS.
We rely on our contracts with three key financial institutions for a
substantial portion of our subscriber base and the volume of electronic
transactions that we process. As of March 31, 2000, these three financial
institutions accounted for approximately 1.4 million subscribers, or
approximately 42% of our total subscriber base. No single customer, however,
accounts for more than 10% of our revenues. The loss of the contract with any of
these key financial institutions or a significant decline in the number of
transactions processed through them could have a material adverse effect on our
business, financial condition and results of operations.
IF WE DO NOT SUCCESSFULLY RENEW OR RENEGOTIATE OUR AGREEMENTS WITH OUR
CUSTOMERS, OUR BUSINESS MAY SUFFER.
Our agreements for electronic commerce services with financial
institutions generally provide for terms of three to five years. These
agreements are renegotiated from time to time when financial institutions
migrate from our PC-based platform to our web-based platform. If we are not able
to renew or renegotiate these agreements on favorable terms, it could have a
material adverse effect on our business, financial condition and results of
operations.
The profitability of our Software business depends, to a substantial
degree, upon our software customers electing to periodically renew their
maintenance agreements. If a substantial number of our software customers
declined to renew these agreements, our revenues and profits in this business
segment would be materially adversely affected.
OUR FUTURE PROFITABILITY DEPENDS ON AN INCREASE IN THE PROPORTION OF
TRANSACTIONS WE PROCESS ELECTRONICALLY.
If we are unable to increase the percentage of transactions that we
process electronically, our margins could decrease, which could have a material
adverse effect on our business, financial condition and results of operations.
We processed electronically 45% of our transactions for the year ended June 30,
1999 and 56% of the transactions for the nine months ended March 31, 2000. Our
future profitability will depend, in part, on our ability to increase the
percentage of transactions we process electronically. Compared with conventional
paper-based transactions, electronic transactions:
- cost much less to complete;
- give rise to far fewer errors, which are costly to resolve; and
- generate far fewer subscriber inquiries and, therefore, consume far
fewer customer care resources.
THE TRANSACTIONS WE PROCESS EXPOSE US TO CREDIT RISKS.
Any losses resulting from returned transactions, merchant fraud or
erroneous transmissions could result in liability to financial institutions,
merchants or subscribers, which could have a material adverse effect on our
business, financial condition and results of operations. The electronic and
conventional paper-based transactions we process expose us to credit risks.
These include risks arising from returned transactions caused by:
- insufficient funds; - closed accounts;
- unauthorized use; - theft;
- stop payment orders; - frozen accounts; and
- payment disputes; - fraud
We are also exposed to credit risk from merchant fraud and erroneous
transmissions.
WE MAY EXPERIENCE BREAKDOWNS IN OUR PAYMENT PROCESSING SYSTEM THAT COULD DAMAGE
CUSTOMER RELATIONS AND EXPOSE US TO LIABILITY.
A system outage or data loss could have a material adverse effect on
our business, financial condition and results of operations. To successfully
operate our business, we must be able to protect our payment processing and
other
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<PAGE> 12
systems from interruption by events that are beyond our control. For example,
our system may be subject to disruption of service interruptions caused by
hostile third parties similar to those experienced by many companies operating
Internet websites during February 2000 or other instances of deliberate system
sabotage. Other events that could cause system interruptions include
- fire; - telecommunications failure;
- natural disaster; - unauthorized entry; and
- power loss; - computer viruses
For the fiscal year ended June 30, 1999, we incurred a charge of $2.7
million due to problems accessing and using our system. Without the charge, our
loss from operations in our electronic commerce segment would have been $2.8
million compared to the actual $5.5 million we lost. These problems stemmed from
system errors we experienced in April 1999 due to system degradation issues in
connection with the migration of subscribers to our Genesis platform, which
resulted in consumers inability to connect with and transmit data to our
processing system. This system failure did not result in the loss of any
consumer data.
Although we completed the initial migration of some of our subscribers from
our pre-existing data processing platforms to a new system that we call the
Genesis platform, we will continue to migrate subscribers from non-Genesis
platforms to the Genesis platform at the request of our other customers. Our
main processing facility is located in Norcross, Georgia, and we have other
processing facilities located in Ohio, Illinois and Texas. During the transition
from the pre-existing platforms to the Genesis platform, we may be exposed to
loss of data or unavailability of systems due to inadequate back-ups, reduced or
eliminated redundancy, or both. Although we regularly back-up our data logs
hourly and our overall system daily, as well as take other measures to protect
against data loss and system failures, there is still some risk that we may lose
critical data or experience system failures. We constantly review our usage and
capacity constraints. We have engineered our systems to ensure that we never
exceed 80% utilization of capacity at peak processing times. That means that, in
general, we average processing at 40%-50% of capacity with no peak time
consuming more than 80% of the system's resources. As a precautionary measure,
we have entered into disaster recovery agreements for the processing systems at
all our sites, and we conduct business resumption tests on a scheduled basis.
Our property and business interruption insurance may not be adequate to
compensate us for all losses or failures that may occur.
WE MAY EXPERIENCE SOFTWARE DEFECTS AND DEVELOPMENT DELAYS, DAMAGING CUSTOMER
RELATIONS, DECREASING OUR POTENTIAL PROFITABILITY AND EXPOSING US TO LIABILITY.
Our electronic commerce services and our software products are based on
sophisticated software and computing systems which often encounter development
delays, and the underlying software may contain undetected errors or defects.
Defects in our software products and errors or delays in our processing of
electronic transactions could result in:
- additional development costs;
- diversion of technical and other resources from our other development
efforts;
- loss of credibility with current or potential customers;
- harm to our reputation; or
- exposure to liability claims.
In addition, we rely on technologies supplied to us by third parties
that may also contain undetected errors or defects that could have a material
adverse effect on our business, financial condition and results of operations.
Although we attempt to limit our potential liability for warranty claims through
disclaimers in our software documentation and limitation-of-liability provisions
in our license and customer agreements, we cannot assure you that these measures
will be successful in limiting our liability.
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<PAGE> 13
WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR NET SALES CAUSING OUR OPERATING
RESULTS TO FLUCTUATE.
We have historically experienced seasonal fluctuations in our net
sales, and we expect to experience similar fluctuations in the future. If our
net sales are below the expectations of securities analysts and investors due to
seasonal fluctuations, our stock price could decrease unexpectedly. Our growth
in new electronic commerce subscribers is affected by seasonal factors like
holiday-based personal computer sales. These seasonal factors may impact our
operating results by concentrating subscriber acquisition and set-up costs,
which may not be immediately offset by revenue increases primarily due to
introductory service price discounts. Additionally, on-line interactive service
subscribers generally tend to be less active users during the summer months,
resulting in lower revenue during this period.
Our software sales also have historically displayed seasonal
variability, with sales and earnings generally stronger in the quarters ended
December 31 and June 30 of each year and generally weaker in the quarters ended
September 30 and March 31 of each year. The seasonality in software sales is
due, in part, to calendar year-end buying patterns of financial institution
customers and our software sales compensation structure, which measures sales
performance at our June 30 fiscal year end.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGE OR CHANGES IN INDUSTRY
STANDARDS, OUR SERVICES COULD BECOME OBSOLETE AND WE COULD LOSE OUR CUSTOMERS.
If competitors introduce new products and services embodying new
technologies, or if new industry standards and practices emerge, our existing
product and service offerings, proprietary technology and systems may become
obsolete. Further, if we fail to adopt or develop new technologies or to adapt
our products and services to emerging industry standards, we may lose current
and future customers, which could have a material adverse effect on our
business, financial condition and results of operations. The electronic commerce
industry is changing rapidly. To remain competitive, we must continue to enhance
and improve the functionality and features of our products, services and
technologies. For example, we are currently migrating our products and services
from a PC-based platform to a web-based platform.
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<PAGE> 14
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, PERMITTING COMPETITORS
TO DUPLICATE OUR PRODUCTS AND SERVICES.
Our success and ability to compete is dependent, in part, upon our
proprietary technology, which includes our patent for our electronic billing and
payment processing system, our source code information for our software
products, and our operating technology. We rely primarily on patent, copyright,
trade secret and trademark laws to protect our technology. In addition, we have
been granted a patent for some features of our electronic billing and payment
processing system, which we believe provides some measure of security for our
technologies. If challenged, we cannot assure you that our patent will prove to
be valid or provide the protection that we need. Further, the source code for
our proprietary software is protected both as a trade secret and as a
copyrighted work. We generally enter into confidentiality and assignment
agreements with our employees, consultants and vendors, and generally control
access to and distribution of our software, documentation and other proprietary
information.
Because our means of protecting our proprietary rights may not be
adequate, it may be possible for a third party to copy, reverse engineer or
otherwise obtain and use our technology without authorization. In addition, the
laws of some countries in which we sell our products do not protect software and
intellectual property rights to the same extent as the laws of the U.S.
Unauthorized copying, use or reverse engineering of our products could have a
material adverse effect on our business, financial condition and results of
operations.
A third party could also claim that our technology infringes its
proprietary rights. As the number of software products in our target markets
increases and the functionality of these products overlap, we believe that
software developers may increasingly face infringement claims. These claims,
even if without merit, can be time-consuming and expensive to defend. A third
party asserting infringement claims against us in the future may require us to
enter into costly royalty arrangements or litigation.
OUR BUSINESS COULD BECOME SUBJECT TO INCREASED GOVERNMENT REGULATION, WHICH
COULD MAKE OUR BUSINESS MORE EXPENSIVE TO OPERATE.
We believe that we are not required to be licensed by the Office of the
Comptroller of the Currency, or OCC, the Federal Reserve Board or other federal
agencies that regulate or monitor banks or other types of providers of
electronic commerce services. A number of states have legislation regulating or
licensing check sellers, money transmitters or service providers to banks, and
we have registered under this legislation in specific instances. Because
electronic commerce in general, and most of our products and services in
particular, are so new, the application of many of these laws and regulations is
uncertain and difficult to interpret. The entities responsible for interpreting
and enforcing these laws and regulations could amend these laws or regulations
or issue new interpretations of existing laws or regulations. Any of these
changes could lead to increased operating costs and reduce the convenience and
functionality of our products or services, possibly resulting in reduced market
acceptance. It is also possible that new laws and regulations may be enacted
with respect to the Internet, including taxation of electronic commerce
activities. The adoption of any of these laws or regulations may decrease the
growth of the Internet, which could in turn decrease the demand for our products
or services, increase our cost of doing business or could otherwise have a
material adverse effect on our business, financial condition and results of
operations.
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<PAGE> 15
The Federal Reserve rules provide that we can only access the Federal
Reserve's ACH through a bank. If the Federal Reserve rules were to change to
further restrict our access to the ACH or limit our ability to provide ACH
transaction processing services, it could have a material adverse effect on our
business, financial condition and results of operations.
RISKS RELATED TO THE COMMON STOCK
THE MARKET PRICE FOR OUR COMMON STOCK OF HAS BEEN VOLATILE.
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. 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;
- 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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<PAGE> 16
AVAILABILITY OF SIGNIFICANT AMOUNTS OF OUR COMMON STOCK FOR SALE IN THE FUTURE
COULD ADVERSELY AFFECT OUR STOCK PRICE.
The availability for future sale of a substantial number of shares of our
common stock in the public market, or issuance of common stock upon the exercise
of stock options, warrants or conversion of the notes or otherwise could
adversely affect the market price for our common stock. As of January 31, 2000,
we had outstanding 52,635,730 shares of our common stock, of which 34,532,321
shares of our issued and outstanding common stock were held by nonaffiliates.
The holders of the remaining 18,103,409 shares were entitled to resell them only
by a registration statement under the Securities Act of 1933 or an applicable
exemption from registration. As of January 31, 2000, we had an additional
21,087,430 shares of our common stock available for future sale, including:
- outstanding options to purchase 5,826,583 shares of our common stock, of
which options for 1,428,287 shares were fully vested and exercisable at
an average weighted exercise price of approximately $9.21 per share;
- issued warrants to purchase 11,400,000 shares of our common stock, of
which warrants for 2,725,000 shares were fully vested and exercisable at
a weighted exercise price of approximately $20.86 per share;
- up to 704,347 shares available for issuance under our Associate Stock
Purchase Plan;
- up to 799,943 shares available for issuance under our 401(k) Plan; and
- up to 2,356,557 shares of our common stock issuable upon conversion of
the notes.
As of March 31, 2000, the following entities hold shares or warrants to
purchase shares of our common stock in the following amounts:
- Intuit, Inc., which holds 10,175,000 shares;
- Integrion Financial Network, L.L.C., which with current and former
members, collectively holds warrants to purchase up to 9,700,000 shares,
2,700,000 of which are fully vested and exercisable; and
- Bank One, which holds warrants to purchase 1,000,000 shares and may be
entitled to receive warrants to purchase up to 2,000,000 additional
shares,none of which are vested or exercisable.
Each of Intuit, Integrion and Bank One may be entitled to registration
rights. If Intuit, Integrion or Bank One, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, these sales may have an adverse effect on the market price of our common
stock.
If we complete the TransPoint acquisition, CheckFree Corporation will issue
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.
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 and Citibank may be able to sell up to the greater of
one percent of CheckFree Corporation's average weekly trading volume or one
percent of CheckFree Corporation's 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 either Microsoft or
First Data, or the perception that these sales could occur, may adversely affect
prevailing market prices for our common stock.
ANTI-TAKEOVER PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAKE
ANY CHANGE IN CONTROL MORE DIFFICULT.
Our certificate of incorporation and by-laws contain provisions that
may have the effect of delaying or preventing a change in control, may
discourage bids at a premium over the market price of our common stock and may
adversely affect the market price of our common stock and the voting and other
rights of the holders of our common stock. These provisions include:
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<PAGE> 17
- division of our board of directors into three classes serving
staggered three-year terms;
- removal of our directors by the stockholders only for cause upon 80%
stockholder approval;
- prohibiting our stockholders from calling a special meeting of
stockholders;
- ability to issue additional shares of our common stock or preferred
stock without stockholder approval;
- prohibiting our stockholders from unilaterally amending our
certificate of incorporation or by-laws except with 80% stockholder
approval; and
- advance notice requirements for raising business or making
nominations at stockholders' meetings.
We also have a stockholder rights plan that allows us to issue
preferred stock with rights senior to those of our common stock without any
further vote or action by our stockholders. The issuance of our preferred stock
under the stockholder rights plan could decrease the amount of earnings and
assets available for distribution to the holders of our common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of our common stock. In some circumstances, the issuance of preferred stock
could have the effect of decreasing the market price of our common stock.
We are also subject to provisions of the Delaware corporation law that,
in general, prohibit any business combination with a beneficial owner of 15% or
more of our common stock for five years unless the holder's acquisition of our
stock was approved in advance by our board of directors.
In addition, 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 TransPoint acquisition, both 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. This potential termination
event could discourage third parties from acquiring CheckFree.
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<PAGE> 18
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 prospectus
contains such "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 they may also be made as
part of this prospectus by reference to other documents filed by us with the
Securities and Exchange Commission, which is known as "incorporation by
reference." These statements may include statements regarding the period
following completion of the transaction contemplated in this prospectus.
Words such as "anticipate," "estimate," "expects," "projects,"
"intends," "plans," "believes" and words and terms of similar substance used in
connection with any discussion of our future operating of financial performance
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 our business, the factors relating to the our business
discussed under "Risk Factors," among others, could cause actual results to
differ materially from those described in the forward-looking statements. These
factors include:
- anticipated trends in our business, including trends in the
electronic commerce, investment services, and software segments;
- our intention to develop and introduce new products and services;
- our anticipated growth and growth strategies;
- our anticipated completion of the BlueGill and TransPoint
acquisitions; and
- anticipated levels of adoption of electronic billing and payment.
Stockholders are cautioned not to place undue reliance on the forward-looking
statements, which speak only of the date of this prospectus or the date of the
document incorporated by reference in this prospectus. We have no obligation,
and each 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 we
filed with the Securities and Exchange Commission, as amended.
All subsequent forward-looking statements attributable us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section.
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
The ratio of earnings to fixed charges and deficiency of earnings to
cover fixed charges presented below should be read together with the financial
statements and the notes accompanying them and "Management's Discussions and
Analysis of Financial Condition and Results of Operations" found in our annual
report on Form 10-K/A for the year ended June 30, 1999 and quarterly report on
Form 10-Q/A for the quarter ended March 31, 2000, incorporated into this
registration statement by reference. In calculating the ratio of earnings to
fixed charges, earnings consist of income (loss) before income taxes after
excluding fixed charges. Fixed charges consist of interest expense and one third
of rental expense, deemed representative of that portion of rental expense
estimated to be attributable to interest.
<TABLE>
<CAPTION>
Six Nine months
Year ended months Year ended ended
December 31, ended June 30, March 31,
------------- June 30, ----------------------------- -------------
1994 1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficiency N/A $175 $146,831 $173,830 $4,344 $1,552 $2,823 $18,496
Ratio of Earnings
to Fixed Charges 1.9 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
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USE OF PROCEEDS
The proceeds from the sale of the securities offered by this prospectus
are solely for the security holders who currently own and are selling the
securities. We will not receive any of the proceeds from the sale of these
securities.
DESCRIPTION OF NOTES
WE ENCOURAGE YOU TO READ THE INDENTURE BECAUSE IT IS THE LEGAL DOCUMENT
THAT GOVERNS THE NOTES.
The notes were issued under an indenture between us and Fifth Third
Bank, as trustee, dated as of November 29, 1999, as supplemented by a
supplemental indenture dated as of November 29, 1999, among us, our subsidiaries
and the trustee. We refer to the indenture and the first supplemental together
as the indenture. A copy of the indenture will be made available to prospective
investors in the notes upon request to us, and will be available for inspection
during normal business hours at the corporate trust office of the trustee. The
following summaries of specific provisions of the notes and the indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the notes and the indenture. Unless
the context suggests otherwise, references in this "Description of Notes" to
"we" or "us" refer to CheckFree Holdings Corporation and not to our
subsidiaries.
GENERAL
The notes are our unsecured, subordinated obligations to $172,500,000
aggregate principal amount and will mature on December 1, 2006. The principal
amount of each note is $1,000 and will be payable at the office of the paying
agent, which initially will be the trustee, or an office or agency maintained by
us for that purpose in the Borough of Manhattan, New York, New York.
The notes bear interest at the rate of 6 1/2% per annum on the
principal amount from the date of issuance, or from the most recent date to
which interest has been paid or provided for until the notes are paid in full or
funds are made available for payment in full of the notes in accordance with the
indenture. Interest is payable at maturity, or earlier purchase, redemption or,
in some circumstances, conversion, and semiannually on June 1 and December 1 of
each year, commencing on June 1, 2000, to holders of record at the close of
business on May 15 or November 15 immediately preceding each interest payment
date. Each payment of interest on the notes will include interest accrued
through the day before the applicable interest payment date or the date of
maturity, or earlier purchase, redemption or, in some circumstances, conversion,
as the case may be. Any payment of principal and cash interest required to be
made on any day that is not a business day will be made on the next succeeding
business day. We currently expect to fund interest payments through our working
capital. We cannot assure you that our working capital will be adequate to fund
the interest payments or that alternative sources of financing will be available
to fund the interest payments.
In the event of the maturity, conversion, purchase by us at the option
of a holder or redemption of a note, interest will cease to accrue on the note,
under the terms and subject to the conditions of the indenture. We may not
reissue a note that has matured or been converted, redeemed or otherwise
cancelled.
You may present the notes for conversion at the office of the
conversion agent and for exchange or registration of transfer at the office of
the registrar. Each agent shall initially be the trustee.
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FORM, DENOMINATION AND REGISTRATION
We initially issued the notes in the form of global notes. The global
notes are deposited with, or on behalf of, the clearing agency registered under
the Securities Exchange Act of 1934 that is designated to act as depositary for
the notes and registered in the name of the depositary or its nominee. The
Depository Trust Company, commonly known as DTC, is the initial depositary.
BOOK ENTRY SYSTEM
Upon the issuance of a global note, the depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the debt securities represented by the global note to the accounts of
institutions or persons, commonly known as participants, that have accounts with
the depositary or its nominee. The accounts to be credited will be designated by
the initial purchasers, dealers or agents. Ownership of beneficial interests in
a global note will be limited to participants or persons that may hold interests
through participants. Ownership of interests in the global note will be shown
on, and the transfer of those ownership interests will be effected only through,
records maintained by the depositary, with respect to participants' interests,
and the participants, with respect to the owners of beneficial interests in the
global note. The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of the securities in definitive form. These
limits and laws may impair the ability to transfer beneficial interests in a
global note.
So long as the depositary, or its nominee, is the registered holder and
owner of the global note, the depositary or its nominee, as the case may be,
will be considered the sole owner and holder for all purposes of the debt
securities and for all purposes under the indenture. Except as set forth below,
owners of beneficial interests in a global note will not be entitled to have the
notes registered in their names, will not receive or be entitled to receive
physical delivery of the notes in definitive form and will not be considered to
be the owners or holders of any notes or the global note. Accordingly, each
person owning a beneficial interest in a global note must rely on the procedures
of the depositary and, if the person is not a participant, on the procedures of
the participant through which the person owns its interest, to exercise any
rights of a holder of the notes. We understand that under existing industry
practice, in the event we request any action of holders of the notes or if an
owner of a beneficial interest in a global note desires to take any action that
the depositary, as the holder of the global note, is entitled to take, the
depositary would authorize the participants to take that action, and that the
participants would authorize beneficial owners owning through the participants
to take the actions or would otherwise act upon the instructions of beneficial
owners owning through them.
Payments of principal of and premium, if any, and interest, if any, on
the notes represented by a global note will be made to the depositary or its
nominee, as the case may be, as the registered owner and holder of the global
note, against surrender of the notes at the principal corporate trust office of
the trustee. Interest payments will be made at the principal corporate trust
office of the trustee or by a check mailed to the holder at its registered
address.
We expect that the depositary, upon receipt of any payment of
principal, premium, if any, of interest, if any, in respect of a global note,
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the global note as shown on the records of the depositary. We expect that
payments by participants to owners of beneficial interests in a global note held
through the participants will be governed by standing instructions and customary
practices, as is now the case with securities held for accounts of customers in
bearer-form or registered in "street name," and will be the responsibility of
the participant. Neither we nor the trustee nor any of our agents or the trustee
will have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in a global
note or for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests or for any other aspect of the relationship
between the depositary and its participants or the relationship between the
participants and the owners of beneficial interests in the global note owning
through the participants.
Unless and until it is exchanged in whole or in part for the notes in
definitive form, a global note may not be transferred except as a whole by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary.
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Notes represented by a global note will be exchangeable for the notes
in definitive form of like tenor as the global note in denominations of $1,000
and in any greater amount that is an integral multiple thereof if:
- the depositary notifies us and the trustee that it is unwilling or
unable to continue as depositary for the global note or if at any
time the depositary ceases to be a clearing agency registered under
the Securities Exchange Act of 1934 and a successor depositary is not
appointed by us within 90 days;
- we, in our sole discretion, determine not to have all of the notes
represented by a global note and notify the trustee thereof; or
- there shall have occurred and be continuing an event of default or an
event which, with the giving of notice or lapse of time, or both,
would constitute an event of default with respect to the notes.
Any note that is exchangeable pursuant to the preceding sentence is
exchangeable for the notes registered in the names as the depositary shall
instruct the trustee. It is expected that these instructions may be based upon
directions received by the depositary from its participants with respect to
ownership of beneficial interests in the global note. Subject to the foregoing,
a global note is not exchangeable except for a global note or global notes of
the same aggregate denominations to be registered in the name of the depositary
or its nominee.
SUBSIDIARY GUARANTEE
Each of our subsidiaries, jointly and severally, has fully and
unconditionally guaranteed, on a subordinated basis, our obligations under the
notes. The subsidiary guarantee is subordinated to the prior payment in full in
cash or cash equivalents of all senior indebtedness of that subsidiary. The
subordination provisions applicable to the subsidiary guarantee will be
substantially similar to the subordination provisions applicable to the notes.
The obligations of each subsidiary under the subsidiary guarantee are limited as
necessary to seek to prevent that subsidiary guarantee from constituting a
fraudulent conveyance under applicable law. Additionally, our future
subsidiaries may also be required to guarantee the notes, including BlueGill
Technologies and TransPoint upon our completion of each of those acquisitions.
A subsidiary guarantor may not sell or otherwise dispose of all or
substantially all of its assets, or consolidate with or merge with or into,
another person unless:
- immediately after giving effect to that transaction, no default or
event of default exists under the indenture; and
- the person acquiring the property in any similar sale or disposition
or the person formed by or surviving any similar consolidation or
merger assumes all the obligations of that subsidiary guarantor
pursuant to a supplemental indenture satisfactory to the trustee.
A subsidiary will be released from the subsidiary guarantee:
- in connection with any sale or other disposition of all or
substantially all of the assets of that subsidiary, if the
disposition is to us or another subsidiary guarantor; or
- in connection with any sale of all of the capital stock of a
subsidiary guarantor, if the person acquiring the capital stock
assumes all the obligations of that subsidiary guarantor pursuant to
a supplemental indenture satisfactory to the trustee.
Since we have no assets separate from our investment in our
subsidiaries, except for an insignificant amount of cash, and no operations, we
have not included audited financial information of our subsidiary guarantors in
this prospectus.
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SUBORDINATION OF THE NOTES
The notes and the subsidiary guarantee are unsecured obligations of
CheckFree and are subordinated in right of payment, as set forth in the
indenture, to the prior payment in full in cash or other payment satisfactory to
holders of senior indebtedness of all our existing and future senior
indebtedness and that of our subsidiaries.
At March 31, 2000, we had no senior indebtedness outstanding and our
subsidiaries had $14.0 million of senior indebtedness outstanding. The indenture
does not restrict the incurrence by CheckFree or our subsidiaries of senior
indebtedness or other obligations.
The term "senior indebtedness" means:
(1) the principal, premium, if any, interest and all other amounts owed
in respect of all our indebtedness:
(a) for money borrowed, and
(b) evidenced by securities, debentures, bonds or other similar
instruments;
(2) all our capital lease obligations;
(3) all our obligations issued or assumed as the deferred purchase
price of property, all our conditional sale obligations and all our
obligations under any title retention agreement;
(4) all our obligations for the reimbursement of any letter of credit,
banker's acceptance, security purchase facility or similar credit
transaction;
(5) all obligations of the type referred to in clauses (1) through (4)
above of other persons for the payment of which we are responsible
or liable as obligor, guarantor or otherwise; and
(6) all obligations of the type referred to in clauses (1) through (5)
above of other persons secured by any lien on any property or asset
of ours, whether or not this obligation is assumed by us, except
for:
(a) any indebtedness that is by its terms subordinated to or pari
passu with the notes; and
(b) any indebtedness between or among us or our affiliates,
including all other debt securities and guarantees in respect
of those debt securities issued to any trust, or trustee of a
trust, partnership or other entity affiliated with us that is,
directly or indirectly, a financing vehicle of ours in
connection with the issuance by a similar financing vehicle of
preferred securities or other securities that rank pari passu
with, or junior to, the notes or the subsidiary guarantee.
The senior indebtedness shall continue to be senior indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of that senior indebtedness.
By reason of this subordination, in the event of dissolution,
insolvency, bankruptcy or other similar proceedings, upon any distribution of
our assets:
- the holders of the notes are required to pay over their share of that
distribution to the trustee in bankruptcy, receiver or other person
distributing our assets for application to the payment of all senior
indebtedness remaining unpaid, to the extent necessary to pay all
holders of senior indebtedness in full in cash or other payment
satisfactory to the holders of senior indebtedness; and
- unsecured creditors of ours who are not holders of the notes or
holders of senior indebtedness of ours may recover less, ratably,
than holders of senior indebtedness of ours and may recover more,
ratably, than the holders of the notes.
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In addition, no payment of the principal amount, redemption price, change in
control purchase price or interest with respect to any of the notes may be made
by us, nor may we acquire any of the notes for cash or property, except as set
forth in the indenture, if:
- any payment default on any senior indebtedness has occurred and is
continuing beyond any applicable grace period; or
- any default, other than a payment default, with respect to senior
indebtedness occurs and is continuing that permits the acceleration
of the maturity thereof and the default is either the subject of
judicial proceedings or we receive a written senior indebtedness
default notice.
Notwithstanding the foregoing, payments with respect to the notes may resume and
we may acquire the notes for cash when:
- the default with respect to the senior indebtedness is cured or
waived or ceases to exist; or
- we receive a senior indebtedness default notice and 179 or more days
pass after notice of the default is received by us, provided that the
terms of the Indenture otherwise permit the payment or acquisition of
the notes at that time.
If we receive a senior indebtedness default notice, then a similar
notice received within nine months thereafter relating to the same default on
the same issue of senior indebtedness shall not be effective to prevent the
payment or acquisition of the notes as provided above. In addition, no payment
may be made on the notes if any notes are declared due and payable prior to
their stated maturity by reason of the occurrence of an event of default until
the earlier of:
- 120 days after the date of the acceleration; or
- the payment in full of all senior indebtedness, but only if the
payment is then otherwise permitted under the terms of the indenture.
Upon any payment or distribution of our assets or those of our
subsidiaries to creditors upon any dissolution, winding up, liquidation or
reorganization of us, whether voluntary or involuntary, or in bankruptcy,
insolvency, receivership or other similar proceedings, the holders of all senior
indebtedness shall first be entitled to receive payment in full, in cash or
other payment satisfactory to the holders of senior indebtedness, of all amounts
due or to become due thereon, or payment of the amounts shall have been provided
for, before the holders of the notes shall be entitled to receive any payment or
distribution with respect to any of the notes or the subsidiary guarantee.
CONVERSION RIGHTS
A holder of a note is entitled to convert the note into shares of our
common stock at any time before the close of business on November 30, 2006;
provided, however, that if a note is called for redemption, the holder is
entitled to convert it at any time before the close of business on the
redemption date. A note in respect of which a holder has delivered a change in
control purchase notice exercising the holder's option to require us to purchase
the holder's note may be converted only if that notice is withdrawn by a written
notice of withdrawal delivered by the holder to the paying agent prior to the
close of business on the change in control purchase date, in accordance with the
terms of the indenture.
The initial conversion rate for the notes is 13.6612 shares of our
common stock per $1,000 principal amount, or $73.20 per share of our common
stock, subject to adjustment upon the occurrence of specific events described
below. A holder otherwise entitled to a fractional share of our common stock
will receive cash in an amount equal to the market value of the fractional share
based on the closing sale price on the trading day immediately preceding the
conversion date. A holder may convert a portion of its notes so long as the
portion is $1,000 principal amount or an integral multiple thereof.
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To convert a note, a holder must:
- complete and manually sign the conversion notice on the back of the
note and deliver the notice to the conversion agent, which initially
will be the Trustee, at the office maintained by the conversion agent
for that purpose;
- surrender the note to the conversion agent;
- if required, furnish appropriate endorsements and transfer documents;
and
- if required, pay all transfer or similar taxes.
Pursuant to the indenture, the date on which all of the foregoing requirements
have been satisfied is the conversion date.
Upon conversion of a note, a holder will not receive, except as
provided below, any cash payment representing accrued interest thereon. Our
delivery to the holder of the fixed number of shares of our common stock into
which the note is convertible, together with the cash payment, if any, in lieu
of any fractional shares, will satisfy our obligation to pay the principal
amount of the note, and the accrued and unpaid interest to the conversion date.
Thus, the accrued interest will be deemed to be paid in full rather than
cancelled, extinguished or forfeited. Notwithstanding the foregoing, accrued but
unpaid cash interest will be payable upon any conversion of the notes at the
option of the holder made concurrently with or after acceleration of the notes
following an event of default. The notes surrendered for conversion during the
period from the close of business on any regular record date next preceding any
interest payment date to the opening of business on the interest payment date,
except the notes to be redeemed on a date within that period, must be
accompanied by payment of an amount equal to the interest thereon that the
registered holder is to receive. Except where the notes surrendered for
conversion must be accompanied by payment as described above, no interest on the
converted notes will be payable by us on any interest payment date subsequent to
the date of conversion. The conversion rate will not be adjusted at any time
during the term of the notes for accrued interest.
A certificate for the number of full shares of our common stock into
which any note is converted, and cash in lieu of any fractional shares, will be
delivered as soon as practicable, but in any event no later than the seventh
business day following the conversion date.
The conversion rate is subject to adjustment in some events, including:
- the issuance of shares of our common stock as a dividend or a
distribution with respect to our common stock;
- subdivisions, combinations and reclassification of our common stock;
- the issuance to all holders of our common stock of rights or warrants
entitling them to subscribe for shares of our common stock at less
than the then market price of our common stock;
- the distribution to holders of our common stock of evidences of our
indebtedness, securities or capital stock, cash or assets;
- the payment of dividends and other distributions on our common stock
paid exclusively in cash, excluding cash dividends if the aggregate
amount thereof, when taken together with:
(a) other all-cash distributions made within the preceding 12 months
not triggering a conversion rate adjustment and
(b) any cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer by us or one
of our subsidiaries for our common stock concluded within the
preceding 12 months not triggering a conversion rate adjustment,
does not exceed 10% of our aggregate market capitalization,
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the aggregate market capitalization being the product of the
current market price of our common stock as of the trading day
immediately preceding the date of declaration of the dividend
multiplied by the number of shares of our common stock then
outstanding, on the date of the distribution; and
- payment to holders of our common stock in respect of a tender or
exchange offer, other than an odd-lot offer, by us or one of our
subsidiaries for our common stock as of the trading day next
succeeding the last date tenders or exchanges may be made pursuant to
the tender or exchange offer which involves an aggregate
consideration that, together with
(a) any cash and the fair market value of other consideration payable
in respect of any tender or exchange offer by us or one of our
subsidiaries for our common stock concluded within the preceding
12 months and
(b) the aggregate amount of any all-cash distributions to all holders
of our common stock made within the preceding 12 months, exceeds
10% of our aggregate market capitalization.
No adjustment, however, need be made if holders may participate in the
transactions otherwise giving rise to an adjustment on a basis and with notice
that our board of directors determines to be fair and appropriate, or in some
other cases specified in the indenture. In cases where the fair market value of
the portion of assets, debt securities or rights, warrants or options to
purchase our securities applicable to one share of our common stock distributed
to stockholders exceeds the average sale price, as defined, in the indenture per
share of our common stock, or the average sale price exceeds the fair market
value of the portion of assets, debt securities or rights, warrants or options
so distributed by less than $1.00, rather than being entitled to an adjustment
in the conversion rate, the holder of a note upon conversion thereof will be
entitled to receive, in addition to the shares of our common stock into which
the note is convertible, the kind and amounts of assets, debt securities or
rights, options or warrants comprising the distribution that the holder would
have received if the holder had converted the note immediately prior to the
record date for determining the stockholders entitled to receive the
distribution. The indenture permits us to increase the conversion rate from time
to time.
In the event that we become a party to any transaction, including, and
with some exceptions:
- any recapitalization or reclassification of our common stock;
- any consolidation of us with, or merger of us into, any other Person,
or any merger of another Person into us;
- any sale, transfer or lease of all or substantially all of our
assets; or
- any compulsory share exchange,
pursuant to which our common stock is converted into the right to receive other
securities, cash or other property, then the holders of the notes then
outstanding will have the right to convert the notes into the kind and amount of
securities, cash or other property receivable upon the consummation of any
transaction by a holder of the number of shares of our common stock issuable
upon conversion of the notes immediately prior to the transaction.
In the case of a transaction, each note will become convertible into
the securities, cash or property receivable by a holder of the number of shares
of our common stock into which the note was convertible immediately prior to the
transaction. This change could substantially lessen or eliminate the value of
the conversion privilege associated with the notes in the future. For example,
if we were acquired in a cash merger, each note would become convertible solely
into cash and would no longer be convertible into securities whose value would
vary depending on our future prospects and other factors.
In the event of a taxable distribution to holders of our common stock
which results in an adjustment of the conversion rate or in the event the
conversion rate is increased at our discretion, the holders of the notes may, in
some circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend.
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Moreover, in some other circumstances, the absence of an adjustment to the
conversion rate may result in a taxable dividend to holders of our common stock.
REDEMPTION OF THE NOTES AT OUR OPTION
No sinking fund is provided for the notes. Prior to December 1, 2002,
we will not be entitled at our option to redeem the notes. On and after that
date, we will be entitled to redeem the notes for cash as a whole at any time,
or from time to time in part, upon not less than 30 days' nor more than 60 days'
notice of redemption given by mail to holders of the notes, unless a shorter
notice shall be satisfactory to the trustee, at the redemption prices set forth
below plus accrued cash interest to the redemption date. Any redemption must be
in integral multiples of $1,000 principal amount.
The table below shows redemption prices of a note per $1,000 principal
amount if redeemed during the twelve-month periods set forth below.
Period Redemption Price
------ ----------------
December 1, 2002 through November 30, 2003 ........... 103.71%
December 1, 2003 through November 30, 2004 ........... 102.79%
December 1, 2004 through November 30, 2005 ........... 101.86%
Thereafter ........................................... 100.93%
If fewer than all of the notes are to be redeemed, the trustee will
select the notes to be redeemed in principal amounts at maturity of $1,000 or
integral multiples thereof by lot, pro rata or by another method the trustee
considers fair and appropriate. If a portion of a holder's notes is selected for
partial redemption and that holder converts a portion of those notes prior to
the redemption, the converted portion shall be deemed, solely for purposes of
determining the aggregate principal amount of the notes to be redeemed by us, to
be of the portion selected for redemption.
CHANGE IN CONTROL PERMITS PURCHASE OF THE NOTES AT THE OPTION OF THE HOLDER
In the event of any change in control of CheckFree, each holder of the
notes will have the right, at the holder's option, subject to the terms and
conditions of the indenture, to require us to purchase all or any part of the
holder's notes on the change in control purchase date that is 30 business days
after the occurrence of the change in control at a cash price equal to 100% of
the principal amount of the holder's notes plus accrued cash interest to the
change in control purchase date. This amount is called the change in control
purchase price.
Within 15 business days after the change in control, we will mail to
the trustee and to each holder a notice regarding the change in control, which
notice shall state, among other things:
- the date of the change in control and, briefly, the events causing
the change in control;
- the date of which the change in control purchase notice must be
given;
- the change in control purchase date;
- the change in control purchase price;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustments thereto;
- the procedures that holders must follow to exercise these rights;
- the procedures for withdrawing a change in control purchase notice;
- that holders who want to convert notes must satisfy the requirements
set forth in the notes; and
- briefly, the conversion rights of the holders of the notes.
We will cause a copy of this notice to be published in The Wall Street Journal
or another daily newspaper of national circulation.
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To exercise the purchase right, the holder must deliver a written
change in control purchase notice of the exercise of the right to the paying
agent in the Borough of Manhattan, New York, New York, prior to the close of
business, on the change in control purchase date. Any change in control purchase
notice must provide:
- the certificate numbers of the notes to be delivered by the holder
thereof for purchase by us;
- the portion of the principal amount of the notes to be purchased,
which portion must be $1,000 or an integral multiple thereof; and
- that the notes are to be purchased by us pursuant to the applicable
provisions of the notes.
Any change in control purchase notice may be withdrawn by the holder by
a written notice of withdrawal delivered to the paying agent prior to the close
of business on the change in control purchase date. The notice of withdrawal
shall state the principal amount and the certificate numbers of the notes as to
which the withdrawal notice relates and the principal amount, if any, which
remains subject to a change in control purchase notice.
Payment of the change in control purchase price for a note for which a
change in control purchase notice has been delivered and not withdrawn is
conditioned upon delivery of the note to the paying agent or an office or agency
maintained by us for that purpose in the Borough of Manhattan, New York, New
York, at anytime after the delivery of a change in control purchase notice.
Payment of the change in control purchase price for the note will be made
promptly following the later of the business day following the change in control
purchase date and the time of delivery of the note. If the paying agent holds,
in accordance with the terms of the indenture, money sufficient to pay the
change in control purchase price of the note on the business day following the
change in control purchase date, then, immediately after the change in control
purchase date, the note will cease to be outstanding and interest on the note
will cease to accrue and will be deemed paid, whether or not the note is
delivered to the paying agent, and all other rights of the holder shall
terminate, other than the right to receive the change in control purchase price
upon delivery of the note.
Under the indenture, a "change in control" is deemed to have occurred
upon the occurrence of any of the following events:
- any "person" or "group," other than permitted holder, is or becomes
the beneficial owner, directly or indirectly, of more than 40% of our
total outstanding voting stock;
- we consolidate with, or merge with or into another person or convey,
transfer, lease or otherwise dispose of all or substantially all of
our assets to any person, or any person consolidates with or merges
with or into us, in any event pursuant to a transaction in which our
outstanding voting stock is converted into or exchanged for cash,
securities or other property, other than any transaction where:
(1) our voting stock is not converted or exchanged at all, except to
the extent necessary to reflect a change in our jurisdiction of
incorporation, or in converted into or exchanged for:
(a) voting stock, other than redeemable capital stock, of the
surviving or transferee corporation or
(b) voting stock, other than redeemable capital stock, of the
surviving or transferee corporation, and
(2) immediately after the transaction, no "person" or "group" is the
beneficial owner, directly or indirectly, of more than 40% of our
total outstanding voting stock of the surviving or transferee
corporation;
- during any consecutive two-year period, individuals who at the
beginning of that period constituted our board of directors, together
with any new directors whose election to our board of directors, or
whose nomination for election by our stockholders, was approved by a
vote of 66-2/3% of the directors then still in office who were either
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of our board of directors then in
office; or
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- we are liquidated or dissolved or a special resolution is passed by
our stockholders approving the plan of liquidation or dissolution
other than in a transaction that complies with the provisions
described in the indenture.
"Redeemable capital stock" means any class or series of capital stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
stated maturity of the notes or is redeemable at the option of the holder
thereof at any time prior to the final stated maturity, or is convertible into
or exchangeable for debt securities at anytime prior to the final stated
maturity; provided, however, that redeemable capital stock shall not include any
of our common stock the holder of which has a right to put to us upon
terminations of employment.
The indenture does not permit our board of directors to waive our
obligation to purchase the notes at the option of a holder in the event of a
change in control.
We will comply with the tender offer rules under the Securities
Exchange Act of 1934 which may then be applicable, and will file Schedule 13E-4
or any other schedule required thereunder in connection with any offer by us to
purchase the notes at the option of the holders thereof upon a change in
control. In some circumstances, the change in control purchase feature of the
notes may make more difficult or discourage a takeover of us and, thus, the
removal of incumbent management. The change in control purchase feature,
however, is not the result of our knowledge of any specific effort to accumulate
shares of our common stock or to obtain control of us by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by management to
adopt a series of anti-takeover provisions. Instead, the change in control
purchase feature is the result from negotiations between us and the initial
purchasers.
If a change in control were to occur, there can be no assurance that we
would have funds sufficient to pay the change in control purchase price for all
of the notes that might be delivered by holders seeking to exercise the purchase
right, because we or our subsidiaries might also be required to prepay
indebtedness or obligations having financial covenants with change of control
provisions in favor of the holders thereof. In addition, our other indebtedness
may have cross-default provisions that could be triggered by a default under the
change in control provisions thereby possibly accelerating the maturity of the
indebtedness. In that case, the holders of the notes would be subordinated to
the prior claims of the holders of the indebtedness. In addition, our ability to
purchase the notes with cash may be limited by the terms of our then-existing
borrowing agreements. None of the notes may be purchased pursuant to the
provisions described above if there has occurred and is continuing an event of
default.
CONSOLIDATION, MERGER AND SALE OR LEASE OF ASSETS
We, without the consent of any holders of the outstanding notes, are
entitled to consolidate with or merge into or transfer or lease its assets
substantially as an entirety to, any individual, corporation, partnership,
limited liability company, joint venture, association joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof, each a person, and any person is entitled to consolidate
with or merge into, or transfer or lease its assets substantially as an entirety
to us, provided that:
- the person formed by the consolidation or into which we are merged or
the person which acquires or leases our assets substantially as an
entirety is a corporation, partnership, limited liability company or
trust organized and existing under the laws of any United States
jurisdiction and expressly assumes our obligations on the notes and
under the indenture;
- immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time or both,
would become an event of default, happened and is continuing; and
- other conditions described in the indenture are met.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The indenture provides that, if an event of default specified in the
indenture occurs and is continuing, either the trustee or the holders of not
less than 25% in aggregate principal amount of the notes then outstanding may
declare the
28
<PAGE> 29
principal amount of and accrued interest to the date of the declaration of all
the notes to be immediately due and payable. In the case of some events of
bankruptcy or insolvency, the principal amount of and accrued interest on all
the notes to the date of the occurrence of the event shall automatically become
and be immediately due and payable. Upon any acceleration, the subordination
provisions of the Indenture preclude any payment being made to holders of the
notes until the earlier of:
- 120 days or more after the date of the acceleration; and
- the payment in full of all senior indebtedness, but only if the
payment is then otherwise permitted under the terms of the indenture.
Under some circumstances, the holders of a majority in aggregate principal
amount of the outstanding notes may rescind any acceleration with respect to the
notes and its consequences. Interest shall accrue and be payable on demand upon
a default in the payment of principal interest when due, redemption price,
change in control purchase price or shares of our common stock, or cash in lieu
of fractional shares to be delivered on conversion of the notes, in each case to
the extent that the payment of the interest shall be legally enforceable.
Under the indenture, events of default include:
- default in payment of the principal amount, interest when due, if the
default in payment of interest shall continue for 31 days, redemption
price, or change in control purchase price with respect to any note,
when the same becomes due and payable;
- failure by us to deliver shares of our common stock when our common
stock is required to be delivered following the conversion of a note
and continuation of the default for 10 days;
- failure by us to comply with any of our other agreements in the notes
or the indenture upon our receipt of notice of our default from the
trustee or from holders of not less than 25% in aggregate principal
amount of the notes then outstanding and our failure to cure the
default within 90 days after our receipt of the notice;
- default under any bond, note or other evidence of indebtedness for
money borrowed by us having an aggregate outstanding principal amount
of in excess $10 million, which default shall have resulted in the
indebtedness being accelerated, without the indebtedness being
discharged or the acceleration having been rescinded or annulled
within 20 days after receipt of notice thereof by us from the trustee
or us and the trustee from the holders of not less than 25% in
aggregate principal amount of the notes then outstanding; or
- some events of bankruptcy or insolvency.
The trustee will, within 90 days after the occurrence of any default,
mail to all holders of the notes notice of all defaults of which the trustee is
aware, unless the defaults have been cured or waived before the giving of the
notice; provided that the trustee may withhold the notice as to any default
other than the payment default, if it determines in good faith that withholding
the notice is in the interests of the holders.
The holders of a majority in aggregate principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee, provided that the direction shall not be in
conflict with any law or the indenture and subject to some other limitations.
The trustee may refuse to perform any duty or exercise any right of power or
extend or risk its own funds or otherwise incur any financial liability unless
it receives indemnity satisfactory to it against any loss, liability or expense.
No holder of any note will have any right to pursue any remedy with respect to
the Indenture or the notes, unless:
- the holder shall have previously given the trustee written notice of
a continuing event of default;
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<PAGE> 30
- the holders of at least 25% in aggregate principal amount of the
outstanding notes shall have made written request to the trustee to
pursue the remedy;
- the holder or holders shall have offered to the trustee reasonable
security or indemnity against any loss, liability or expense
satisfactory to it;
- the trustee shall have failed to comply with the request within 60
days after receipt of the notice, request and offer of security or
indemnity; and
- the holders of a majority in aggregate principal amount of the
outstanding notes shall not have given the trustee a direction
inconsistent with the request within 60 days after receipt of the
request.
The right of any holder:
- to receive payment of principal, the redemption price, change in
control purchase price or interest in respect of the notes held by
the holder on or after the respective due dates expressed in the
notes,
- to convert the notes, or
- to bring suit for the enforcement of any payment on or after the
respective dates or the right to convert,
shall not be impaired or adversely affected without the holder's consent.
The holders of a majority in aggregate principal amount of the notes at
the time outstanding may waive any existing default and its consequences except:
- any default in any payment on the notes;
- any default with respect to the conversion of the notes; or
- any default in respect of some covenants or provisions in the
indenture that may not be modified without the consent of the holder
of each note.
When a default is waived, it is deemed cured and will cease to exist, but no
waiver shall extend to any subsequent or other default or impair any consequent
right.
We will be required to furnish to the trustee annually a statement as
to any default by us in the performance and observance of our obligations under
the Indenture. In addition, we will be required to file with the trustee written
notice of the occurrence of any default or event of default within five business
days of our becoming aware of the default or event of default.
MODIFICATION
The indenture or the notes may be modified or amended by us and the
trustee with the consent of the holders of not less than a majority in aggregate
principal amount of the notes then outstanding. Without the consent of each
holder affected thereby, however, no amendment may, among other things:
- reduce the principal amount, change in control purchase price or
redemption price with respect to any note, or extend the stated
maturity of any note or alter the manner of payment or rate of
interest or any note or make any note payable in money or securities
other than that stated in the note;
- make any reduction in the principal amount of notes whose holders
must consent to an amendment or any waiver under the indenture or
modify the Indenture provisions relating to the amendments or
waivers;
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<PAGE> 31
- make any change that adversely affects the right of a holder to
convert any note;
- modify the provisions of the Indenture relating to the ranking of the
notes in a manner adverse to the holders of the notes; or
- impair the right to institute suit for enforcement of any payment
with respect to, or conversion of, the notes.
Without the consent of any holder of notes, we and the trustee may
amend the indenture to:
- cure any ambiguity, defect or inconsistency; provided, however, that
the amendment does not materially adversely affect the rights of any
holder of the notes;
- provide for the assumption by a successor to us of our obligations
under the indenture;
- provide for uncertificated notes in addition to certificated notes,
as long as these uncertificated notes are in registered form for
United States Federal income tax purposes;
- make any change that does not adversely affect the rights of any
holder of the notes;
- make any change to comply with any requirement of the Commission in
connection with the qualification of the indenture under the Trust
Indenture Act of 1939; or
- add to our covenants or obligations under the indenture for the
protection of the holders of the notes or surrender any right, power
or option conferred by the indenture on us.
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all of the outstanding notes or by
depositing with the trustee, the paying agent or the conversion agent, if
applicable, after the notes have become due and payable, whether at stated
maturity, or any redemption date, or any purchase date, or a change in control
purchase date, or upon conversion or otherwise, cash sufficient to pay all of
the outstanding notes and paying all other sums payable under the indenture by
us.
NO RECOURSE AGAINST OTHERS
The indenture provides that our directors, officers, employees,
representatives, advisors or stockholders shall not have any liability for any
of our obligations under the notes or the indenture or for any claim based on,
in respect of or by reason of the obligations or their creation.
REGISTRATION RIGHTS
We and our subsidiaries have entered into a registration rights
agreement with the initial purchasers for the benefit of the holders of the
notes and our common stock issuable upon their conversion. The registration
rights agreement obligates us, at our sole expense, as follows:
- to file a shelf registration statement as soon as practicable, but in
no event more than 60 days after the closing of the issue of the
notes, covering resales of our registrable securities. We use the
term "registrable securities" to refer to all outstanding notes, and
our common stock issuable upon conversion of the notes, that have not
been registered and sold pursuant to the shelf registration
statement, that have not been distributed to the public pursuant to
Rule 144 under the Securities Act of 1933 or that are not saleable
pursuant to Rule 144(k) under the Securities Act of 1933 or successor
provisions;
- to use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act of 1933
within 120 days after the closing; and
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<PAGE> 32
- to use our reasonable best efforts to keep the shelf registration
statement effective and usable until the time that all the notes, and
our common stock issuable upon conversion of the notes, shall no
longer qualify as registrable securities. We will be permitted to
suspend the use of the shelf registration statement for limited
periods of time under some circumstances if we provide the holders of
the registrable securities with written notice of the suspension.
We will, when the shelf registration is filed:
- provide each holder of registrable securities with copies of the
prospectus that is part of the shelf registration statement;
- notify each holder when the shelf registration statement for the
registrable securities has become effective; and
- take other actions as are required to permit unrestricted resales of
the registrable securities.
A holder that sells registrable securities pursuant to a shelf
registration statement:
- will usually be required to be named as a selling security holder in
the related prospectus and to deliver the prospectus to the
purchasers;
- will be subject to some of the civil liability provisions of the
Securities Act of 1933 in connection with those sales; and
- will be bound by the provisions of the registration rights agreement
that are applicable to a holder, including indemnification rights and
obligations.
Holders who wish to sell registrable securities will be required to make
representations and to provide some information to us, as described in the
registration rights agreement.
If a registration default occurs, then additional cash interest will
accrue and become payable on the notes at a rate equal to 0.50% per annum, which
rate will be increased by an additional 0.25% per annum for each 90-day period
that the registration default has not been cured. The aggregate additional cash
interest shall in no event exceed one percent per annum. All additional interest
payments shall be paid to the holders of the registrable securities in the same
manner as regular interest payments on the notes on semi-annual payment dates
which correspond to interest payment dates on the notes. Following the cure of a
registration default, additional interest will no longer accrue in connection
with that registration default. We use the term "registration default" to mean
if:
- the Commission has not declared the shelf registration statement
effective within 120 days of closing; or
- during the specified period, we fail to keep the shelf registration
statement that has been declared effective continuously effective and
usable, for more than 30 days during any three-month period or 60
days during any twelve-month period.
Each registrable security will contain a legend to the effect that the
holder will be deemed to have agreed to be bound by the provisions of the
registration rights agreement.
INFORMATION CONCERNING THE TRUSTEE
Fifth Third Bank is the trustee, registrar, paying agent and conversion
agent under the indenture.
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<PAGE> 33
DESCRIPTION OF CERTAIN INDEBTEDNESS
The description below summarizes the more important terms of our bank
borrowing arrangement with KeyBank, NA. Those arrangements primarily consist of
a loan agreement by our principal operating subsidiary, CheckFree Services
Corporation. We referred to loan agreement as the "credit facility."
The credit facility and its associated documents contain the full legal
text of the matters described in this section. The credit facility and its
associated documents are governed by Ohio law. The following statements are
subject to the detailed provisions of the loan agreement and are qualified in
their entirety by reference to the loan agreement, copies of the forms of which
are on file and available at our principal executive offices. Wherever
particular provisions of the loan agreements are referred to, those provisions
are incorporated by reference as part of the statement made and the statements
are qualified in their entirety by that reference.
In order to provide additional working capital and funds for general
corporate purposes, CheckFree Corporation has entered into a revolving loan
credit facility for an amount up to $30 million that matures on December 30,
2002. Currently, we have no indebtedness under the credit facility. The credit
facility provides for interest rates determined, at our option, at either LIBOR
rate or the prime rate.
CheckFree Services Corporation may borrow for working capital and
general corporate purposes. We are required to maintain the following financial
ratio: debt to capitalization ratio of less than or equal to 50% for each fiscal
quarter ended March 31, 2000 and thereafter.
The credit facility contains certain financial and operating covenants
and other restrictions with which we must comply, whether or not any borrowings
are outstanding. These include restrictions on:
- acquisitions;
- additional indebtedness;
- EBITDA; and
- capital expenditures and capitalized software.
We and CheckFree Investment Corporation guarantee the credit facility.
The credit facility is collateralized by liens on CheckFree Services
Corporation's cash, accountants receivable, our building in Dublin Ohio, and all
books and records relating to accounts receivable in the proceeds on all the
foregoing.
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<PAGE> 34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussions summarizes certain United States federal
income tax considerations that may be relevant to the purchase, ownership and
disposition of the notes and our common stock into which the notes may be
converted, but does not purport to be a complete analysis of the potential tax
considerations relating thereto. This summary deals only with holders that are
United States Persons (as defined below) that will hold the notes and our common
stock as capital assets and does not address tax considerations applicable to
investors that may be subject to special tax rules such as dealers in securities
or currencies, financial institutions, real estate investment trusts, regulated
investment companies, banks, insurance companies, tax-exempt entities, persons
holding the notes as part of a hedging or conversion transaction, a straddle or
a constructive sale, persons whose functional currency is not the U.S. dollar,
and holders of the notes that did not acquire the notes in the initial
distribution thereof at their original issue price. In addition, this discussion
does not consider the effect of any alternative minimum, estate, gift, foreign,
state, local or other tax laws.
As used herein, "United States Person" means a beneficial owner of the
notes or our common stock into which the notes may be converted, who or that is:
- a citizen or resident of the United States for federal income tax
purposes;
- a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or political
subdivision thereof;
- an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
- a trust if (1) a U.S. court is able to exercise primary supervision
over the administration of the trust and (2) one or more U.S.
fiduciaries have authority to control all substantial decisions of
the trust.
THE DISCUSSION OF THE UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
BELOW IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THE APPLICABLE TREASURY REGULATIONS PROMULGATED AND PROPOSED
UNDER THE INTERNAL REVENUE CODE, JUDICIAL DECISIONS AND ADMINISTRATIVE
INTERPRETATIONS, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE
BASIS. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER YOU ARE STRONGLY URGED TO
CONSULT YOUR TAX ADVISOR WITH RESPECT TO YOUR PARTICULAR TAX SITUATION AND THE
PARTICULAR TAX EFFECTS OF ANY STATE, LOCAL, NON-UNITED STATES OR OTHER TAX LAWS
AND POSSIBLE CHANGES IN THE TAX LAWS.
NOTES
Stated Interest. Generally, a holder will be required to include in
gross income, as ordinary income, the stated interest on a note at the time that
the interest accrues or is received, in accordance with the holder's regular
method of accounting for federal income tax purposes.
Interest Deduction on the Notes. The Taxpayer Relief Act of 1997
enacted Section 163(1) of the Internal Revenue Code, which disallows any
interest paid or accrued on indebtedness payable in equity of the issuer.
Indebtedness is treated as payable in equity of the issuer if:
(1) a substantial portion of the principal or interest is required to
be paid or converted into the equity,
(2) a substantial amount of the principal or interest is required to
be determined by reference to the value of the equity, or
(3) the indebtedness is part of an arrangement which is reasonably
expected to result in a transaction in (1) or (2).
Principal or interest is treated as required to be so paid, converted or
determined if it may be required at the option of the holder of the debt
instrument and there is a substantial certainty that the option will be
exercised. We do not believe that deductions for interest paid or accrued on the
notes should be disallowed under Section 163(l) but there can be no assurance
that such position will not be challenged successfully by the Internal Revenue
Service.
Sale, Exchange or Retirement of the Notes. A holder's tax basis in a
note will be its cost. A holder generally will recognize gain or loss on the
sale, exchange or retirement (including a redemption by us) of a note in an
amount equal to the difference between the amount of cash plus the net fair
market value of any property received, other than any such amount received in
respect of accrued interest (which will be taxable as such if not previously
included in income), and the holder's adjusted tax basis in the note. Gain or
loss recognized on the sale, exchange or retirement of a
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<PAGE> 35
note generally will be a capital gain or loss. In the case of a non-corporate
holder, the federal tax rate applicable to capital gains will depend upon the
holder's holding period for the notes, with a preferential rate available for
the notes held for more than twelve months. The deductibility of capital losses
is subject to limitations.
CONVERSION OF THE NOTES
A holder generally will not recognize any income, gain, or loss upon
conversion of a note into our common stock, except with respect to cash received
in lieu of a fractional share of our common stock. The holder's basis in our
common stock received on conversion of a note will be the same as the holder's
adjusted tax basis in the note at the time of conversion, reduced by any basis
allocable to a fractional share interest as described below, and the holding
period for our common stock received on conversion will generally include the
holding period of the note converted.
Cash received in lieu of a fractional share of our common stock will be
treated as a payment in exchange for the fractional share interest in our common
stock. Accordingly, the receipt of cash in lieu of a fractional share of our
common stock will generally result in capital gain or loss, measured by the
difference between the cash received for the fractional share and the holder's
adjusted tax basis in the fractional share.
CONSTRUCTIVE DIVIDENDS
The conversion price of the notes is subject to adjustment under
certain circumstances. See "Description of Notes--Conversion Rights." Under
Section 305 of the Internal Revenue Code and the Treasury Regulations issued
thereunder, certain adjustments to the conversion price may be treated as a
taxable distribution resulting in ordinary income, subject to a possible
dividends-received deduction for corporate holders, to the extent of our current
and accumulated earnings and profits if, and to the extent that, adjustments in
the conversion price increase such holder's proportionate interest in our
earnings, profits and assets. Such adjustments may occur in limited
circumstances, particularly adjustments to reflect taxable dividends to holders
of our common stock and in such a case a constructive distribution would arise,
whether or not the holders ever convert the notes. Holders of the notes,
therefore, could have taxable income as a result of an event in which they
received no cash or property. A holder's tax basis in a note, however, generally
will be increased by the amount of any constructive dividend included in taxable
income. Similarly, a failure to adjust the Conversion Rate to reflect a stock
dividend or other event increasing the proportionate interest of the holders of
our outstanding common stock could, in some circumstances, give rise to deemed
dividend income to holders of our common stock.
DIVIDENDS ON COMMON STOCK
Dividends paid on our common stock generally will be includable in the
income of a holder as ordinary income to the extent of our current or
accumulated earnings and profits. Subject to certain limitations, a corporate
taxpayer holding common stock that receives dividends thereon generally will be
eligible for a dividends-received deduction equal to 70% of the dividends
received. The dividends-received deduction is subject, however, to certain
holding period, taxable income and other limitations. In addition, corporate
holders should consider the rules under Section 1059 of the Internal Revenue
Code that may reduce their basis in our common stock.
SALE, EXCHANGE OR REDEMPTION OF COMMON STOCK
Upon the sale, exchange or redemption of our common stock, a holder
generally will recognize capital gain or loss equal to the difference between
the amount realized on the sale, exchange or redemption and the holder's
adjusted tax basis in our common stock. In the case of a non-corporate holder,
the Federal tax rate applicable to capital gains will depend upon the holder's
holding period for our common stock, with a preferential rate available for our
common stock held for more than twelve months. The deductibility of capital
losses is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments
of principal, premium, if any, and interest on a note, payments of actual or
constructive dividends on our common stock, and payment of the proceeds of
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<PAGE> 36
the sale of a note or our common stock to certain non-corporate, not otherwise
exempt holders, and a 31% backup withholding tax may apply to the payments if
such non-corporate holder:
- fails to furnish or certify its correct taxpayer identification
number to the payor in the manner required or establish an
exemption from backup withholding,
- is notified by the Internal Revenue Service that it has failed to
report payments of interest and dividends properly, or
- under certain circumstances, fails to certify under penalties of
perjury, that it has not been notified by the Internal Revenue
Service that it is subject to backup withholding for failure to
report interest and dividend payments. Any amounts withheld under
the backup withholding rules from a payment to a holder will be
allowed as a credit against the holder's United States federal
income tax liability and may entitle the holder to a refund.
THE ABOVE SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF ITS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER SHOULD CONSULT ITS TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO THE HOLDER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND TREATIES,
OR SUBSEQUENT REVISIONS OF THESE TAX LAWS.
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<PAGE> 37
SELLING SECURITYHOLDERS
The notes were originally issued by us and sold by the initial
purchasers in private transactions exempt from the registration requirements of
the Securities Act of 1933 to "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act of 1933). The selling securityholders, which
term includes their transferees, pledgees, donees or their successors, may from
time to time offer and sell pursuant to this prospectus any or all of the notes
and common stock issuable upon conversion of the notes.
The following table provides information as of July 10, 2000 regarding
the record ownership of the notes including the principal amount and the
percentage outstanding and the number of shares of our common stock issuable
upon conversion of the notes:
<TABLE>
<CAPTION>
NUMBER OF SHARES
PRINCIPAL AMOUNT INTO WHICH THE
OF THE NOTES PERCENTAGE OF NOTES MAY BE
NAME AND ADDRESS OF NOTEHOLDER OWNED THE NOTES OWNED CONVERTED
--------------------------------------------------- ------------------ ----------------- -------------------
<S> <C> <C> <C>
AmSouth Bank
1900 5th Avenue
North Birmingham, Alabama 35203.............. $ 75,000 0.04% 1,025
The Bank of New York
925 Patterson Plank Road
Secaucus, New Jersey 07094................... $ 10,315,000 5.98% 140,915
Bankers Trust Company
c/o BT Services Tennessee Inc.
648 Grassmere Park Drive
Nashville, Tennessee 37211................... $ 343,000 0.20% 4,686
Bear, Stearns Securities Corp.
One Metrotech Center North, 4th Floor
Brooklyn, New York 11201..................... $ 15,705,000 9.10% 214,549
Bank of America, National Association
1401 Elm Street, 16th Floor
Dallas, Texas 75202.......................... $ 900,000 0.52% 12,295
Boston Safe Deposit and Trust Company
c/o Mellon Bank N.A.
Three Mellon Bank Center
Pittsburgh, Pennsylvania 15259............... $ 10,465,000 6.07% 142,964
Brown Brothers Darriman & Co.
63 Wall Street, 8th Floor
New York, New York 10005..................... $ 7,000,000 4.06% 95,628
Chase Manhattan Bank
4 New York Plaza, 13th Floor
New York, New York 10004..................... $ 4,335,000 2.51% 59,221
Chase Manhattan Bank, Trust
4 New York Plaza, 13th Floor
New York, New York 10004..................... $ 1,000,000 0.58% 13,661
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C> <C> <C>
CIBC World Markets Corp.
200 Liberty Street, 6th Floor
New York, New York 10281..................... $ 350,000 0.20% 4,781
Citibank, N.A.
3800 Citicorp Center
Tampa, Florida 33610......................... $ 3,491,000 2.02% 47,691
Credit Suisse First Boston Corporation
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, New York 11717..................... $ 1,675,000 0.97% 22,883
Deutsche Bank Securities Inc.
175 Water Street
New York, New York 10038..................... $ 36,400,000 21.10% 497,268
Fleetboston Robertson Stephens, Inc.
555 California Street, Suite 2600
San Francisco, California 94104.............. $ 205,000 0.12% 2,801
First Tennessee Bank N.A.
530 Oak Court Drive, Suite 200
Memphis, Tennessee 38117..................... $ 950,000 0.55% 12,978
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45201....................... $ 30,000 0.02% 410
Fleet National Bank
Fleet Services Corp.
2nd Floor
Rochester, New York 14638.................... $ 28,000 0.02% 383
Goldman, Sachs & Co.
1 New York Plaza, 45th Floor
New York, New York 10004..................... $ 10,250,000 5.94% 140,027
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116.................. $ 85,000 0.50% 1,161
KeyBank National Association
4900 Tiedeman Road
Brooklyn, Ohio 44144......................... $ 48,000 0.03% 656
Lazard Freres & Co.
120 Broadway
New York, New York 10271..................... $ 500,000 0.29% 6,831
Lehman Brothers, Inc.
c/o BSSC
P.O. Box 29198
Brooklyn, New York 11202..................... $ 1,868,000 1.08% 25,519
Mercantile-Safe Deposit & Trust Co.
766 Old Hammonds Ferry Road
Linthicon, Maryland 21090.................... $ 1,725,000 1.00% 23,566
Merrill Lynch, Pierce, Fenner & Smith Safekeeping
4 Corporate Place, Corporate Park 287
Piscataway, New Jersey 08855................. $ 20,000 0.01% 273
Merrill Lynch, Pierce, Fenner & Smith, Inc.
4 Corporate Place
Piscataway, New Jersey 08855................. $ 2,565,000 1.49% 35,041
</TABLE>
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<PAGE> 39
<TABLE>
<S> <C> <C> <C>
Morgan Stanley & Co. Incorporated
One Pierrepont Plaza 7th Floor
Brooklyn, New York 11201..................... $ 23,105,000 13.39% 315,642
The Northern Trust Company
801 South Canal Street
Chicago, Illinois 60607...................... $ 952,000 0.55% 13,005
Paine Webber Incorporated
1000 Harbor Blvd.
Weehawken, New Jersey 07087.................. $ 3,627,000 2.10% 49,549
Salomon Smith Barney Inc.
333 West 34th Street
New York, New York 10001..................... $ 17,388,000 10.08% 237,541
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171............ $ 16,625,000 9.64% 227,118
UMB Bank, National Association
P.O. Box 419260
Kansas City, Missouri 64141.................. $ 475,000 0.28% 6,489
------------ ------- ---------
Total............................... $172,500,000 100.00% 2,356,557
============ ======= =========
</TABLE>
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<PAGE> 40
Prior to any use of this prospectus in connection with a resale of the
notes and/or the common stock issuable upon conversion of the notes, this
prospectus will be supplemented to update the name and number of shares
beneficially owned by the selling securityholder intending to sell notes and/or
common stock and the principal amount of notes and/or number of shares of common
stock to be offered. The prospectus supplement will also disclose whether any
selling securityholder selling in connection with the prospectus supplement has
held any position or office with, been employed by or otherwise has had a
material relationship with us or any of our affiliates during the three years
prior to the date of the prospectus supplement.
PLAN OF DISTRIBUTION
The notes and our common stock may be sold from time to time to
purchasers directly by the selling securityholders. Alternatively, the selling
securityholders may from time to time offer the notes with discounts,
concessions or commissions from the selling securityholders and/or the
purchasers of the notes and our common stock for whom they may act as agent. The
selling securityholders and any such brokers, dealers or agents who participate
in the distribution of the notes and our common stock may be deemed to be
"underwriters," and any profits on the sale of the notes and our common stock by
them and any discounts, commissions or concessions received by any such brokers,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act. To the extent the selling securityholder may be deemed
to be underwriters, the selling securityholders may be subject to certain
statutory liabilities, including, but not limited to, Sections 11, 12 and 17 of
the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934.
The notes and our underlying common stock may be sold from time to time
in one or more transactions at fixed prices, at prevailing market prices at the
time of sale, at varying prices determined at the time of sale or at negotiated
prices. The notes and our common stock may be sold by one or more of the
following methods:
- a block trade in which the broker or dealer so engaged will attempt
to sell the notes and our common stock issuable upon conversion
thereof as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- an exchange distribution in accordance with the rules of such
exchange;
- face-to-face transactions between sellers and purchasers without a
broker-dealer;
- through the writing of options; and
- other transactions.
At any time a particular offer of the notes and our common stock is
made, a revised prospectus or prospectus supplement, if required, will be
distributed which will set forth the aggregate amount and type of securities
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions, concessions and
other items constituting compensation from the selling securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
The
40
<PAGE> 41
prospectus supplement and, if necessary, a post-effective amendment to the
registration statement of which this prospectus is a part, will be filed with
the SEC to reflect the disclosure of additional information with respect to the
distribution of the notes and our common stock. In addition, the notes and our
common stock covered by this prospectus may be sold in private transactions or
under Rule 144 rather than pursuant to this prospectus.
We have agreed in the registration rights agreement to keep this
prospectus useable until the notes or our common stock issuable upon conversion
thereof are no longer registrable securities, as described in the registration
rights agreement. To our knowledge currently no plans, arrangements or
understandings exist between any selling securityholders and any broker, dealer,
agent or underwriter regarding the sale of the securities by the selling
securityholders. We cannot assure you that any selling securityholder will sell
any or all of the securities offered by it under this prospectus or that any
selling securityholder will not transfer, devise or gift such securities by
other means not described in this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934 and the rules and regulations thereunder, including, without
limitation, Regulation M. That regulation may limit the timing of purchases and
sales of any of the notes and our common stock by the selling securityholders
and any other participating person. Furthermore, Regulation M of the Securities
Exchange Act of 1934 may restrict the ability of any person engaged in the
distribution of the notes and our common stock to engage in market-making
activities with respect to the particular notes and our common stock being
distributed for a period of up to five business days prior to the commencement
of the distribution. All of the foregoing may affect the marketability of the
notes and our common stock and the ability of any person or entity to engage in
market-making activities with respect to the notes and our common stock.
Pursuant to the registration rights agreement entered into in
connection with our initial private placement, we and each of the selling
securityholders will be indemnified by the other against certain liabilities,
including certain liabilities under the Securities Act of 1933, or will be
entitled to contribution in connection with these matters.
We have agreed to pay substantially all of the expenses incidental to
the registration, offering and resale by the selling securityholders of the
notes to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents.
We will not receive any of the proceeds of the sale of the notes and
our underlying common stock covered by this prospectus.
LEGAL MATTERS
The validity of the notes and any shares of our common stock issuable
upon conversion of the notes offered in connection with this prospectus will be
passed upon for us by Porter, Wright, Morris & Arthur LLP, Columbus, Ohio.
Partners of Porter, Wright, Morris & Arthur LLP who participated in the
preparation of this 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 prospectus.
EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this prospectus by reference from our Annual
Report on Form 10-K/A 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 TransPoint, a development
stage company, incorporated in this prospectus by reference from the Form 8-K of
CheckFree Holdings Corporation filed July 12, 2000 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report, which is
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 Technologies, Inc.
incorporated in this prospectus by reference from the Form 8-K of CheckFree
Holdings Corporation filed March 22, 2000, as amended on April 27, 2000, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
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<PAGE> 42
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, therefore, we file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You can inspect and copy any document we file with the Commission at
the following locations:
- at the Public Reference Room of the Commission, Room 1024-Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
- at the Public Reference Room of the Commission's regional office at
Seven World Trade Center, 13th Floor, New York, New York 10048;
- at the Public Reference Room of the Commission's regional office at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;
- by writing the Commission, Public Reference Section, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549;
- at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006;
or
- from the Commission's web site at www.sec.gov.
Some of these locations may charge a prescribed fee or modest fee for
copies.
We have filed with the Commission a registration statement and related
exhibits under the Securities Act of 1933. The registration statement relates to
the securities offered by the selling securityholders. As permitted by the
Commission, this prospectus, which constitutes a part of the registration
statement, does not contain all the information included in the registration
statement. Such additional information may be obtained from the locations
described above. Statement contained in this prospectus as to contents of any
contract or other document are not necessarily complete. You should refer to the
contract or other document for all the details.
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<PAGE> 43
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, previously filed by us with the Commission
pursuant to the Securities Exchange Act of 1934, are incorporated by reference
into this prospectus and should be considered a part of the prospectus.
Information that we later file with the Commission will automatically update and
supersede the information contained in this prospectus and is incorporated by
reference.
- Our Annual Report on Form 10-K for the fiscal year ended June 30,
1999 (filed September 28, 1999, amended July 10, 2000);
- Our Proxy Statement for the Annual Meeting of Stockholders held on
November 4, 1999 (filed October 8, 1999);
- Our 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);
- 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), dated June 6, 2000
(filed June 7, 2000) and dated July 12, 2000 (filed July 12, 2000);
- The description of our 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 such 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 such documents
described in paragraphs (i), (k) and (l) of Item 402 of Regulation
S-K promulgated by the Commission).
These documents are or will be available for inspection or copying at
the locations identified above under the caption "Where You Can Find More
Information." We will provide without charge to each to whom this prospectus is
delivered, upon written or oral request, a copy of any and all of the documents
that have been incorporated by reference in this prospectus (other than exhibits
to such documents unless such exhibits are specifically incorporated by
reference). You should direct requests for documents to:
CheckFree Holdings Corporation
4411 East Jones Bridge Road
Norcross, Georgia 30092
Attention: Investor Relations
Telephone Number: (678) 375-3000
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<PAGE> 44
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be paid by the
Company in connection with the sale and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. All
amounts shown are estimates, except the SEC registration fee and the Nasdaq
National Market listing fee:
SEC Registration Fee.............................. $ 45,540
Nasdaq National Market listing fee................ $ 17,500
Printing and engraving fee........................ $235,000
Legal fees and expenses........................... $150,000
Accounting fees and expenses...................... $ 70,000
Transfer agent and registrar's fees and expenses.. $ 5,000
Miscellaneous expenses............................ $ 1,960
--------
Total........................................ $525,000
========
ITEM 15. 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 such 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 certain circumstances, 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
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<PAGE> 45
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 of 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 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 lawsuit 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 that, subject to certain exceptions, insures the directors and
officers of the Registrant and its subsidiary.
(d) The Registrant has entered into indemnification contracts with its
directors and certain 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.
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<PAGE> 46
(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.
ITEM 16. EXHIBITS
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------ -----------
2(a) Asset Purchase Agreement, dated as of July 1, 1997,
among CheckFree Corporation, Servantis Systems
Holdings, Inc., Servantis Systems, Inc., London
Bridge Software Holdings plc, and LBSS, Inc.
(Reference is made to Exhibit 2 to the Current Report
on Form 8-K, dated July 1, 1997, filed with the
Securities and Exchange Commission on July 3, 1997,
and incorporated herein by reference.)
2(b) Agreement and Plan of Merger, dated as of December
22, 1997, among the Company, CheckFree Corporation,
and CheckFree Merger Corporation. (Reference is made
to Exhibit 2 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.)
2(c) Agreement and Plan of Merger, dated as of December
20, 1999, among CheckFree Holdings Corporation,
CheckFree Acquisition Corporation IV, and BlueGill
Technologies, Inc. (Reference is made to Appendix A
of Form S-4 Registration Statement (333-32644)
incorporated herein by reference.)
2(d) 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) incorporated herein by
reference.)
2(e) 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 of Form
S-4 Registration Statement (333-41098) incorporated
herein by reference.)
3(a) Restated Certificate of Incorporation of the Company.
(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 the Company. (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. (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 the Company's Restated Certificate of
Incorporation (contained in the Company's Restated
Certificate of Incorporation filed as Exhibit 3(a)
hereto) and Articles II, III, IV, VI and VIII of the
Company's By-Laws (contained in the Company's By-Laws
filed as Exhibit 3(b) hereto).
4(b) Rights Agreement, dated as of December 16, 1997, by
and between the Company 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.)
4(c) * Form of Guarantee.
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<PAGE> 47
4(d) * Indenture, by and between the Company and Fifth Third
Bank as Trustee, for the 6.5% Convertible
Subordinated Notes due 2006, dated as of November 29,
1999, including the form of the 6.5% Note.
4(f) * First Supplemental Indenture by and among the
Company, CheckFree Corporation, CheckFree Investment
Corporation, CheckFree Investment Services, Inc.,
CheckFree Management Corporation, and Fifth Third
Bank as Trustee, for the 6.5% Convertible
Subordinated Notes due 2006, dated as of November
29, 1999.
4(g) * Form of the Global Note.
4(h) * Registration Rights Agreement, dated as of November
29, 1999, among the Company, CheckFree Corporation,
CheckFree Investment Corporation, CheckFree
Management Corporation, CheckFree Investment
Services, Inc., Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Deutsche Bank
Securities Inc., and Hambrecht & Quist LLC.
5 * Opinion of Porter, Wright, Morris & Arthur LLP.
23.1 Consent of Porter, Wright, Morris & Arthur LLP
(included in Exhibit 5).
23.2 ** Consent of Deloitte & Touche LLP.
23.3 ** Consent of Deloitte & Touche LLP.
23.4 ** Consent of Arthur Andersen LLP.
24 * Power of Attorney.
------------------
* Previously filed with this registration statement.
** Filed with this registration statement.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file during any period in which offers or sales are being made,
a post effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume or securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that for the purpose 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;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
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<PAGE> 48
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.
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.
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<PAGE> 49
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-3 and has duly caused this Amendment
No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norcross, State of
Georgia, on July 13, 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
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 13th day of July, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ *Peter J. Kight Chairman of the Board and Chief Executive Officer
------------------------------------------------------ (Principal Executive Officer)
Peter J. Kight
/s/ *Mark A. Johnson Director
------------------------------------------------------
Mark A. Johnson
/s/ David Mangum Executive Vice President and Chief Financial Officer
------------------------------------------------------ (Principal Financial Officer)
David Mangum
/s/ *Gary A. Luoma, Jr. Vice President, Chief Accounting Officer and Assistant
------------------------------------------------------ Secretary
Gary A. Luoma, Jr. (Principal Accounting Officer)
/s/ *William P. Boardman Director
------------------------------------------------------
William P. Boardman
/s/ *George R. Manser Director
------------------------------------------------------
George R. Manser
/s/ *Eugene F. Quinn Director
------------------------------------------------------
Eugene F. Quinn
/s/ *Jeffrey M. Wilkins Director
------------------------------------------------------
Jeffrey M. Wilkins
*By: /s/Curtis A. Loveland
------------------------------------------------------
Curtis A. Loveland, Attorney-in-Fact
</TABLE>
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<PAGE> 50
EXHIBIT INDEX
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
------ -----------
2(a) Asset Purchase Agreement, dated as of July 1, 1997, among
CheckFree Corporation, Servantis Systems Holdings, Inc.,
Servantis Systems, Inc., London Bridge Software Holdings
plc, and LBSS, Inc. (Reference is made to Exhibit 2 to the
Current Report on Form 8-K, dated July 1, 1997, filed with
the Securities and Exchange Commission on July 3, 1997, and
incorporated herein by reference.)
2(b) Agreement and Plan of Merger, dated as of December 22,
1997, among the Company, CheckFree Corporation, and
CheckFree Merger Corporation. (Reference is made to Exhibit
2 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.)
2(c) Agreement and Plan of Merger, dated as of December 20,
1999, among CheckFree Holdings Corporation, CheckFree
Acquisition Corporation IV, and BlueGill Technologies, Inc.
(Reference is made to Appendix A of Form S-4 Registration
Statement (333-32644) incorporated herein by reference.)
2(d) 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) incorporated herein
by reference.)
2(e) 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 of Form
S-4 Registration Statement (333-41098) incorporated herein
by reference.)
3(a) Restated Certificate of Incorporation of the Company.
(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 the Company. (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. (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 the Company's Restated Certificate of Incorporation
(contained in the Company's Restated Certificate of
Incorporation filed as Exhibit 3(a) hereto) and Articles
II, III, IV, VI and VIII of the Company's By-Laws
(contained in the Company's By-Laws filed as Exhibit 3(b)
hereto).
4(b) Rights Agreement, dated as of December 16, 1997, by and
between the Company 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.)
4(c) * Form of Guarantee.
4(d) * Indenture, by and between the Company and Fifth Third Bank
as Trustee, for the 6.5% Convertible Subordinated Notes due
2006, dated as of November 29, 1999, including the form of
the 6.5% Note.
4(f) * First Supplemental Indenture by and among the Company,
CheckFree Corporation, CheckFree Investment Corporation,
CheckFree Investment Services, Inc., CheckFree Management
Corporation, and Fifth Third Bank as Trustee, for the 6.5%
Convertible Subordinated Notes due 2006, dated as of
November 29, 1999.
4(g) * Form of the Global Note.
4(h) * Registration Rights Agreement, dated as of November 29,
1999, among the Company, CheckFree Corporation, CheckFree
Investment Corporation, CheckFree Management Corporation,
CheckFree Investment Services, Inc., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Deutsche Bank Securities Inc., and Hambrecht & Quist LLC.
5 * Opinion of Porter, Wright, Morris & Arthur LLP.
23.1 Consent of Porter, Wright, Morris & Arthur LLP (included in
Exhibit 5).
23.2 ** Consent of Deloitte & Touche LLP.
23.3 ** Consent of Deloitte & Touche LLP.
23.4 ** Consent of Arthur Andersen LLP.
24 * Power of Attorney.
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* Previously filed with this registration statement.
** Filed with this registration statement.
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