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As filed with the Securities and Exchange Commission on January 26, 2000
Registration No. 333-94757
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CHECKFREE HOLDINGS 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) 375-3387
(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) 375-3387
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
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 JANUARY 26, 2000
PROSPECTUS
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$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 our company 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 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 January 25, 2000, the last reported sale price of our common stock
was $79.94 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 January 26, 2000
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TABLE OF CONTENTS
PAGE
----
Summary.....................................................................4
Risk Factors................................................................8
Forward-Looking Statements.................................................19
Ratio of Earnings to Fixed Charges.........................................19
Use of Proceeds............................................................20
Description of Notes.......................................................20
Description of Certain Indebtedness........................................34
Certain Federal Income Tax Consequences....................................35
Selling Securityholders....................................................38
Plan of Distribution.......................................................38
Legal Matters..............................................................39
Experts....................................................................39
Where You Can Find More Information........................................40
Incorporation of Documents by Reference....................................41
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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," "CheckFree" or the "Company" 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.
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 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;
- Yahoo!, a leading Internet portal;
- WingspanBank.com, a leading Internet-based full-service bank;
- Internet financial sites like Quicken.com; and
- Personal financial management software like Quicken and Microsoft
Money.
We have developed relationships 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 September 30, 1999, we
processed an average of nearly 13 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. As of September 30, 1999, we
have signed contracts for E-Bill services with 77 of the country's largest
billers, who together deliver more than 500 million bills each month. In
September 1999, we presented more than 20,000 electronic bills through more than
53 financial institutions and Internet portals, double the number of bills
presented through E-Bill services in March 1999.
We also are a leading provider of institutional portfolio management
and information services and financial application software. Our Investment
Services business offers portfolio management and information services for
fee-based money managers and financial planners within investment advisory
firms, brokerage firms, banks and insurance companies. 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 software products for
automated clearinghouse, or ACH, processing, reconciliation and regulatory
compliance.
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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) 375-3387. We
maintain a web site at www.checkfree.com. This reference to our web site address
does not constitute incorporation by reference of the information contained on
our web site.
RECENT DEVELOPMENTS
We did not experience any material problems or issues with the Year
2000 rollover and began the year with fully operational systems and
infrastructure. The Year 2000 transition was non-eventful for all of our
operating divisions. Our systems generally remained available throughout the
course of the Year 2000 rollover and, to date, continue to be available within
historical operating parameters. Our management team believes that any future
Year 2000-related problems are unlikely and would not be material to our
business, financial condition and results of operations. See "Risk Factors" and
"Forward-Looking Statements."
Our Year 2000 costs remained in-line with our projections and no
incremental funding was required to successfully complete the effort. Continuing
costs are related only to administrative program wrap up work and are not
material to our financial condition and results of operations.
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THE NOTES
Issuer........................ CheckFree Holdings Corporation
4411 East Jones Bridge Road
Norcross, Georgia 30092
(678) 375-3387
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 has fully and
unconditionally guaranteed the notes on a
subordinated basis. Future subsidiaries also may
be required to guarantee the notes. 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 September
30, 1999, we had no senior indebtedness
outstanding, and our subsidiaries had $7.2
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 our Company 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, (i) have been registered and sold
pursuant to the shelf registration, (ii)
have been distributed to the public
pursuant to Rule 144 under the Securities
Act of 1933 or (iii) 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.
THE MARKET FOR OUR ELECTRONIC COMMERCE SERVICES IS EVOLVING AND MAY NOT CONTINUE
TO DEVELOP OR GROW RAPIDLY ENOUGH FOR US TO REMAIN CONSISTENTLY PROFITABLE.
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. 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.
OUR FUTURE PROFITABILITY IS DEPENDENT UPON 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 substantial investments 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.
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.
WE MAY BE UNABLE TO REMAIN CONSISTENTLY PROFITABLE.
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 $6.4 million and a net loss of $3.9 million
for the three months ended September 30, 1999.
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We intend to continue to make significant investments in our research and
development, sales and marketing and customer care operations. As a result, 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.
COMPETITIVE PRESSURES WE FACE MAY HAVE A MATERIAL ADVERSE EFFECT ON US.
The electronic commerce market is new and evolving rapidly, resulting
in a dynamic competitive environment. We face significant competition in all of
our customer markets. Increased competition or other competitive pressures may
result in price reductions, reduced margins or loss of market share, 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. A number of financial institutions have developed,
and others in the future may develop, in-house home banking services similar to
ours. For example, Chase Manhattan Corporation, First Union Corporation and
Wells Fargo & Co. recently announced the formation of a new venture called
Spectrum that will allow individuals and businesses to receive and pay bills
electronically. Additionally, TransPoint LLC, a joint venture among Microsoft
Corporation, First Data Corporation and Citibank N.A., has announced its own
agreements with financial institutions to offer on-line home banking and
electronic billing and payment services to consumers. We also face increased
competition from new competitors offering billing and payment services utilizing
scan and pay technology. We cannot assure you that we will be able to compete
effectively against financial institutions, Spectrum, TransPoint, scan and pay
companies or other current and future electronic commerce competitors.
The markets for our investment services and software products are also
highly competitive. In Investment Services, our competition comes from service
bureaus and 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. We
cannot assure you that we will be able to compete effectively against current
and future competitors in these markets.
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 significant market share, it could
have a material adverse effect on our business, financial condition and results
of operations.
SECURITY AND PRIVACY BREACHES IN OUR ELECTRONIC TRANSACTIONS MAY DAMAGE CUSTOMER
RELATIONS AND INHIBIT OUR GROWTH.
If 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
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changing market conditions or the security and privacy concerns of existing and
potential subscribers. Any failures in our security and privacy measures could
have a material adverse effect on our business, financial condition and results
of operations.
WE RELY ON THIRD PARTIES TO DISTRIBUTE OUR ELECTRONIC COMMERCE SERVICES, WHICH
MAY NOT RESULT IN WIDESPREAD ADOPTION.
We rely on our relationships 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. These relationships are an important source of the growth in
demand for our electronic commerce services. If any of these parties abandons,
curtails or insufficiently increases 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;
- Market share, 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.
WE ARE DEPENDENT UPON A SMALL NUMBER OF FINANCIAL INSTITUTION CUSTOMERS FOR A
SIGNIFICANT PERCENTAGE OF OUR SUBSCRIBERS.
We rely on our relationships with three key financial institutions for
a substantial portion of our subscriber base and the volume of electronic
transactions that we process. As of September 30, 1999, these three financial
institutions accounted for approximately 1.3 million subscribers, or
approximately 43% of our total subscriber base. No single customer, however,
accounts for more than 10% of our revenues. The loss of the relationship 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. In the event that 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 IS DEPENDENT UPON AN INCREASE IN THE PROPORTION OF
TRANSACTIONS WE PROCESS ELECTRONICALLY.
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:
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- 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.
Accordingly, 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.
THE TRANSACTIONS WE PROCESS EXPOSE US TO CREDIT RISKS.
The electronic and conventional paper-based transactions we process
expose us to credit risks. These credits risks 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 attempt to manage all of these risks through our sophisticated
risk management systems, which include our patented billing and payment
processing system and agreements with some customers to guarantee our losses or
to grant us reversal rights. There can be no assurance, however, that these
efforts will be successful. 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.
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 systems from interruption by events that are beyond our control. Events
that could cause system interruptions include:
- Fire; - Telecommunications failure;
- Natural disaster; - Unauthorized entry; and
- Power loss; - Computer viruses.
Although we completed the initial migration of 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 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 data from our
operations and 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. As a precautionary measure, we have entered into disaster
recovery agreements for the
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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, there can be no assurance that these
measures will be successful in limiting our liability.
OUR QUARTERLY OPERATING RESULTS FLUCTUATE AND MAY NOT ACCURATELY PREDICT OUR
FUTURE PERFORMANCE.
Our quarterly results of operations have varied significantly and
probably will continue to do so in the future as a result of a variety of
factors, many of which are outside our control. These factors include:
- Changes in our pricing policies or those of our competitors;
- Relative rates of acquisition of new customers;
- Seasonal patterns;
- Delays in the introduction of new or enhanced services, software and
related products by us or our competitors or market acceptance of
these products and services; and
- Other changes in operating expenses, personnel and general economic
conditions.
As a result, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful, and you should not rely on them as an
indication of our future performance. In addition, our operating results in a
future quarter or quarters may fall below expectations of securities analysts or
investors and, as a result, the price of our common stock may fluctuate.
WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR NET SALES CAUSING OUR OPERATING
RESULTS TO FLUCTUATE.
We have historically experienced and expect to continue to experience
seasonal fluctuations in our net sales. 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 such as 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
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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.
OUR INABILITY TO MANAGE GROWTH COULD ADVERSELY AFFECT OUR BUSINESS.
We have experienced rapid growth in our revenues, from $76.8 million in
the twelve months ended June 30, 1996 to $250.1 million in the fiscal year ended
June 30, 1999, and we intend to continue to grow our business significantly. To
support our growth plans, we will have to expand significantly our existing
management, operational, financial and human resources and management
information systems and controls. If we are not able to manage our growth
successfully, we will not grow as planned, which could have a material adverse
effect on our business, financial condition and results of operations.
IF WE ARE UNABLE TO RECRUIT AND RETAIN ADDITIONAL SKILLED PERSONNEL, OUR
BUSINESS COULD BE ADVERSELY AFFECTED.
Our future success depends upon our ability to attract, train,
assimilate and retain additional skilled personnel. Competition for qualified
employees in all of our business segments is intense. A significant increase in
our customer base would necessitate the hiring of a significant number of
additional customer care and technical support personnel, as well as software
developers and technicians, qualified candidates for which are currently in
short supply. We cannot assure you that we will be able to retain our key
employees or that we can attract, train, assimilate or retain other skilled
personnel in the future, and the failure to do so could have a material adverse
effect on our business, financial condition and results of operations.
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.
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. 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.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, PERMITTING COMPETITORS
TO DUPLICATE OUR PRODUCTS AND SERVICES.
Our success and ability to compete in our markets are dependent, in
part, upon our proprietary 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 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
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<PAGE> 14
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.
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 September 30,
1999, we had no senior indebtedness, and our subsidiaries had approximately $7.2
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. See "Description of Notes--Subordination of the Notes," and
"--Subsidiary Guarantee" and "Description of Certain Indebtedness."
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
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<PAGE> 15
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.
WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO IMPLEMENT OUR GROWTH
STRATEGY.
Successful implementation of our growth strategy will likely require
continued access to capital. If we do not generate sufficient cash from
operations, our growth could be limited unless we are able to obtain capital
through additional debt or equity financings. We cannot assure you that debt or
equity financings will be available as required for acquisitions or other needs.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our then current stockholders may be reduced. In
addition, we may issue equity securities that have rights, preferences or
privileges senior to those of the holders of our common stock. Even if financing
is available, it may not be on terms that are favorable to us or sufficient for
our needs. If we are unable to obtain sufficient financing, we may be unable to
fully implement our growth strategy.
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<PAGE> 16
OUR COMMON STOCK PRICE IS VOLATILE.
The market price of our common stock has been volatile in the past and
may change rapidly in the future. The following factors, among others, may cause
significant volatility in our stock price:
- 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.
Historically, the stock market has experienced significant price and
volume fluctuations, which have particularly affected the trading prices of
equity securities of many technology companies. These price and volume
fluctuations often have been unrelated to the operating performance of the
affected companies. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against that company. This type of litigation, regardless of the
outcome, could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on our
business, financial condition and results of operations.
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 November 10,
1999, we had outstanding 52,211,714 shares of our common stock, of which
34,310,346 shares of our issued and outstanding common stock were held by
nonaffiliates and the holders of the remaining 17,901,368 shares were entitled
to resell them only pursuant to a registration statement under the Securities
Act of 1933 or an applicable exemption from registration thereunder such as an
exemption provided by Rule 144, Rule 145 or Rule 701 under the Securities Act of
1933. As of November 10, 1999, we had outstanding options to purchase 5,162,098
shares of our common stock, of which options for 1,452,193 shares were fully
vested and exercisable at an average weighted exercise price of approximately
$9.11 per share. As of November 10, 1999, we had issued warrants to purchase
11,700,000 shares of our common stock, of which warrants for 3,025,000 shares
were fully vested and exercisable at a weighted exercise price of approximately
$20.87 per share. We may also issue up to an additional 2,000,000 warrants
pursuant to our recent agreement with Bank One. In addition, our employees are
entitled to purchase up to 756,538 shares under our Associate Stock Purchase
Plan and receive up to 799,943 shares under our 401(k) Plan. Any shares
purchased thereunder will be eligible for future sale following the expiration
of applicable holding periods. In addition, up to 2,356,557 shares of our common
stock may be issued upon conversion of the notes.
Intuit Inc., which holds 10,175,000 shares of our common stock,
Integrion Financial Network, L.L.C., its members and former members, which
collectively hold warrants to purchase up to 10,000,000 shares of our common
stock, of which warrants for 3,000,000 shares are fully vested and exercisable,
and Bank One, which holds warrants to purchase 1,000,000 shares of our common
stock and may be entitled to receive warrants to purchase up to an additional
16
<PAGE> 17
2,000,000 of our common stock, none of which are currently vested or
exercisable, are entitled to "piggy-back" and demand registration rights subject
to specified conditions and restrictions. 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, such sales may have an adverse effect
on the market price of our common stock.
THE LOSS OF KEY EXECUTIVES COULD ADVERSELY AFFECT OUR BUSINESS.
Our success depends to a significant degree upon the continued
contributions of our key management, including:
- Peter J. Kight, our founder, Chairman and Chief Executive Officer;
- Mark A. Johnson, our Vice Chairman, Corporate Development;
- Peter F. Sinisgalli, our President; and
- Ravi Ganesan, our Executive Vice President and Chief Technology
Officer.
If for any reason any of these officers ceased to be active in our
management, it could have a material adverse effect on our business, financial
condition and results of operations.
WE MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS AND, EVEN IF WE ARE, RISKS
ARISING FROM THOSE ACQUISITIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
We have expanded, and plan to continue to expand, our operations
through the acquisition of additional businesses that complement our core skills
and have the potential to increase our overall value. We may not be able to
identify and acquire compatible businesses. Acquisitions involve many risks,
which could have a material adverse effect on our business, financial condition
and results of operations, including:
- Acquired businesses may not achieve anticipated revenues, earnings or
cash flow;
- Integration of acquired businesses and technologies may not be
successful and we may not realize anticipated economic, operational
and other benefits in a timely manner, particularly if we acquire a
business in a market in which we have limited or no current expertise
or with a corporate culture different from our own;
- Financing of future acquisitions may require issuing common stock or
debt for some or all of the purchase price, which could result in
dilution of the ownership interests of our stockholders or
recognizing amortization expense related to goodwill and other
intangible assets;
- Competing with other companies, many of which have greater financial
and other resources, to acquire attractive companies makes it more
difficult to acquire suitable companies on acceptable terms; and
- Disruption of our existing business, distraction of management and
other resources and difficulty in maintaining our current business
standards, controls and procedures.
WE ARE SUBJECT TO SIGNIFICANT INFLUENCE BY SOME STOCKHOLDERS THAT MAY HAVE THE
EFFECT OF DELAYING OR PREVENTING A CHANGE IN CONTROL.
At November 10, 1999, our directors, executive officers and principal
stockholders and their affiliates collectively owned approximately 34% of the
outstanding shares of our common stock. As a result, these stockholders are able
to exercise significant influence over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying or
preventing a change in control.
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<PAGE> 18
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:
- 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 have also adopted 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.
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. 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.
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.
ALTHOUGH WE HAVE NOT EXPERIENCED ANY MATERIAL PROBLEMS RELATED TO THE YEAR 2000
ISSUE, WE MAY EXPERIENCE DELAYED EFFECTS OF THE YEAR 2000 ISSUE IN THE NEXT
SEVERAL MONTHS WHICH MAY ADVERSELY AFFECT OUR INFORMATION TECHNOLOGY SYSTEMS OR
CAUSE OUR CURRENT OR POTENTIAL CUSTOMERS TO DELAY IMPLEMENTING OUR PRODUCTS AND
SERVICES.
To date, we have not experienced any material problems related to the
Year 2000 issue. We may, however, experience delayed effects of Year 2000 issue
due to degradation in the next several months which may adversely affect our
information technology systems. If our efforts or the efforts of our customers
and suppliers, failed to address adequately the Year 2000 issue, we will likely
incur a substantial loss of revenue and suffer irreparable harm to our
reputation. We use computer software, operating systems and embedded
micro-processors containing date-related programs in the development and
delivery of our products and services and in our own internal information
technology systems. In order to process transactions accurately, we also rely on
technologies provided by our customers and suppliers. Transaction processing
relies on transmissions of data from PCs, through financial institutions and
business web servers and the Internet, over third-party data and voice
communication lines and through the Federal Funds System. The software we use in
our products and in the delivery of our services contains, in addition to code
written by our programmers, some software that we license from third parties.
We have completed testing our internal management information and other
critical business systems to identify any Year 2000 issues. We also have
inquired of our resellers, vendors and key suppliers about their Year 2000
readiness. To date, we are not aware of any significant resellers, vendors or
key suppliers with Year 2000 issues that would materially adversely affect us.
We cannot guarantee, however, that our information technology systems or those
of other companies on which we rely will successfully address the Year 2000
issue. Any failure by us or other third parties that we rely on to address the
Year 2000 issue could have a material adverse effect on our business, financial
condition and results of operations.
We believe that the adoption of our products and services by existing
and potential customers and subscribers may be adversely affected by the Year
2000 issue. As companies expend significant resources to correct or upgrade
their current software systems for Year 2000 compliance, they may delay or
cancel decisions to adopt our products and services. If this occurs, it could
have a material adverse effect on our business, financial condition and results
of operations.
A significant number of subscribers to our electronic bill payment
service use personal financial management software which is not, or may not be,
suitable for further use due to the Year 2000 issue. Although steps are being
taken by the software publisher, and by our customers, to encourage upgrading to
a Year 2000 compliant version of the software, in some cases, the subscriber
will not upgrade and will instead have his account deleted. These circumstances
will result in some loss of subscriber count and of revenue to us, and may also
subject us to claims by subscribers whose access to the service is interrupted.
We estimate that many of our subscribers are currently using software that was
not originally Year 2000 compliant, and that about 200,000 of our subscribers
may not upgrade their software and will subsequently be deleted as accounts. If
these deleted subscriber accounts do not reapply for service, we would lose
their associated revenue, which could have a material adverse effect on our
business, financial condition and results of operations.
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<PAGE> 19
FORWARD-LOOKING STATEMENTS
This prospectus, including the documents we incorporate by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements often, although not always, include words or phrases
such as "will likely result," "expect," "will continue," "anticipate,"
"estimate," "intend," "plan," "project," "outlook" or similar expressions. We
have based these forward-looking statements on our current expectations and
assumptions about future events. These forward-looking statements are subject to
various risks and uncertainties that could cause actual results to differ
materially from those statements. These risks and uncertainties include those
set forth under "Risk Factors." The forward-looking statements contained in this
prospectus include statements about the following:
- 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; and
- Anticipated levels of adoption of electronic billing and payment.
We have no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
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 for the year ended June 30, 1999 and Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, 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 Three months
Year ended months Year ended ended
December 31, ended June 30, September 30,
------------- June 30, ----------------------------- -------------
1994 1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficiency N/A $175 $146,165 $173,830 $4,344 $1,552 $2,669 $6,120
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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<PAGE> 20
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
The notes were issued under an indenture between us and Fifth Third
Bank, as trustee (the "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 (together, 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 certain
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, including the definitions therein of
certain terms which are not otherwise defined in this prospectus. Wherever
particular provisions or defined terms of the Indenture (or of the form of note
that is a part thereof) are referred to, the provisions or defined terms are
incorporated herein by reference. 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 Issue Date, 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 certain circumstances, conversion) and semiannually on June 1 and December 1
of each year (each an "Interest Payment Date"), commencing on June 1, 2000, to
holders of record at the close of business on May 15 or November 15 (whether or
not a business day) immediately preceding each Interest Payment Date (each a
"Regular Record 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 certain
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 (except for registration of transfer, exchange or replacement
thereof).
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.
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 ("DTC") is the initial depositary.
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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 certain 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 such 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.
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
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- 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 such 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
All subsidiaries have jointly and severally 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 (as that term is defined below) of that subsidiary. The
subordination provisions applicable to the subsidiary guarantee will be
substantially similar to the subordination provisions applicable to the notes as
set forth below under "--Subordination of 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. See "Risk Factors--The subsidiary guarantee may be
unenforceable due to fraudulent conveyance statutes."
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
(whether or not the subsidiary is the surviving person), 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 such sale or disposition or
the person formed by or surviving any such 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 (including by way
of merger or consolidation), 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 filing.
SUBORDINATION OF THE NOTES
The notes and the subsidiary guarantee are unsecured obligations of our
Company 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 September 30, 1999, we had no Senior Indebtedness outstanding and
our subsidiaries had $7.2 million of Senior Indebtedness outstanding. The
Indenture does not restrict the incurrence by us or our subsidiaries of Senior
Indebtedness or other obligations.
The term "Senior Indebtedness" means:
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(1) The principal, premium, if any, interest and all other
amounts owed in respect of all our (A) indebtedness
for money borrowed and (B) indebtedness 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 (but excluding trade accounts
payable arising in the ordinary course of business);
(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 such
obligation is assumed by us), except for (x) any such
indebtedness that is by its terms subordinated to or
pari passu with the notes and (y) 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 such trust, partnership or other entity affiliated
with us that is, directly or indirectly, a financing
vehicle of ours (a "Financing Entity") in connection
with the issuance by such Financing Entity 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 such 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 such
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.
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 notice of the default (a
"Senior Indebtedness Default Notice").
Notwithstanding the foregoing, payments with respect to the notes may resume and
we may acquire the notes for cash when:
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- 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 such 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 (as defined below) exercising the holder's option to
require us to purchase the holder's note may be converted only if such 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 (equivalent to a conversion price of
$73.20 per share of our common stock) subject to adjustment upon the occurrence
of certain 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.
To convert a note, a holder must:
(1) Complete and manually sign the conversion notice on the
back of the note (or complete and manually sign a facsimile
thereof) and deliver the notice to the Conversion Agent
(initially the Trustee) at the office maintained by the
Conversion Agent for that purpose;
(2) Surrender the note to the Conversion Agent;
(3) If required, furnish appropriate endorsements and transfer
documents; and
(4) 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.
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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 described under "--Events of Default; Notice and
Waiver" below. 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. For a summary of the U.S. Federal
income tax treatment of a holder receiving our common stock upon conversion, see
"Certain Federal Income Tax Considerations--Conversion of the Notes."
The Conversion Rate is subject to adjustment in certain 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 (for a period not exceeding 45 days) to subscribe for
shares of our common stock at less than the then Market Price (as
defined below) of our common stock;
- The distribution to holders of our common stock of evidences of our
indebtedness, securities or capital stock, cash or assets (including
securities, but excluding those rights, warrants, dividends and
distributions referred to above and dividends and distributions paid
exclusively in cash);
- 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 (1) other all-cash
distributions made within the preceding 12 months not triggering a
Conversion Rate adjustment and (2) 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 (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 (1) 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 (2) 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.
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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 certain
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 certain 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 (each of the foregoing being referred to as a
"Transaction"), 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 the 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 which holders
otherwise participate) or in the event the Conversion Rate is increased at our
discretion, the holders of the notes may, in certain circumstances, be deemed to
have received a distribution subject to United States Federal income tax as a
dividend. Moreover, in certain other circumstances, the absence of an adjustment
to the Conversion Rate may result in a taxable dividend to holders of our common
stock. See "Certain Federal Income Tax Considerations--Constructive Dividends."
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.
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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 (as defined below) of our
Company, 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 (provided that the principal amount must be $1,000 or an
integral multiple thereof) of the holder's notes on the date that is 30 business
days after the occurrence of the Change in Control (the "Change in Control
Purchase Date") 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
(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 (and to beneficial owners as required by
applicable law) 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 (as defined
below) 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.
To exercise the purchase right, the holder must deliver written notice
of the exercise of the right (a "Change in Control Purchase Notice") to the
Paying Agent or an office or agency maintained by us for that purpose 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
state:
- The certificate numbers of the notes to be delivered by the holder
thereof for purchase by us;
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- 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 (together with necessary endorsements) 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 (whether prior to, on or
after the Change in Control Purchase Date) after the delivery of such 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" (as such terms are used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934), other than Permitted
Holder, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, except
that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
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 such transaction where:
- 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 is converted into or exchanged for (i) voting
stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (ii) voting stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation; and
- Immediately after such transaction, no "person" or "group" (as
these terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a person shall be deemed to have "beneficial ownership"
of all securities that the person has the right to acquire, whether
that right is exercisable immediately or only after the passage of
time), 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
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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
- 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 which complies with the provisions
described under "--Consolidation, Merger and Sale or Lease of
Assets."
"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 certain
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 provisions of Rule 13e-4, Rule 14e-1 and any
other 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 certain
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 certain
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 such
indebtedness. In that case, the holders of the notes, would be subordinated to
the prior claims of the holders of such 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 described under "--Events of Default; Notice and Waiver" below (other
than a default in the payment of the Change in Control Purchase Price with
respect to the notes).
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 our 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 (if other than us) formed by such 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 such transaction no Event of
Default (as defined below), and no event which, after notice or lapse
of time or both, would become an Event of Default, happened and is
continuing; and
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- Certain other conditions described in the Indenture are met.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein
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
principal amount of and accrued interest to the date of such declaration of all
the notes to be immediately due and payable. In the case of certain 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.
See "--Subordination of the Notes" above.
Under certain 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
such 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 (whether or not any
payment is prohibited by the provisions of the Indenture);
- Failure by us to deliver shares of our common stock (together with
cash in lieu of fractional shares) when our common stock (or cash in
lieu of fractional shares) 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 (unless such
default has been cured or waived); or
- Certain 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
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conferred on the Trustee, provided that such direction shall not be in conflict
with any law or the Indenture and subject to certain 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;
- 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 (a) 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, (b) to convert the notes, or (c) 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 certain covenants or provisions in the
Indenture which may not be modified without the consent of the holder
of each Note as described in "--Modification" below.
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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- 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 such 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, as such, 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;
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- 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
- 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 (a) will usually be required to be named as a selling
security holder in the related prospectus and to deliver the prospectus to the
purchasers, (b) will be subject to certain of the civil liability provisions of
the Securities Act of 1933 in connection with those sales, and (c) 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:
- We fail to timely file the shelf registration statement with the
Commission within 60 days of closing;
- 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.
This summary of the certain provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement, a form of which is available upon request to us.
INFORMATION CONCERNING THE TRUSTEE
Fifth Third Bank is the Trustee, Registrar, Paying Agent and Conversion
Agent under the Indenture.
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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 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 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 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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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 "CODE"), THE APPLICABLE TREASURY REGULATIONS PROMULGATED
AND PROPOSED UNDER THE 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 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 (i) a substantial portion of the principal or
interest is required to be paid or converted into the equity, (ii) a substantial
amount of the principal or interest is required to be determined by reference to
the value of the equity, or (iii) the indebtedness is part of an arrangement
which is reasonably expected to result in a transaction in (i) or (ii).
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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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 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 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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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 (i) fails to furnish or certify its correct taxpayer
identification number to the payor in the manner required or establish an
exemption from backup withholding, (ii) is notified by the Internal Revenue
Service that it has failed to report payments of interest and dividends
properly, or (iii) 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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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 to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act). 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.
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 set forth 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 Exchange Act.
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
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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 the Common Stock issuable upon conversion
thereof are no longer registrable securities, as described under "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 Exchange Act 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 Exchange Act 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, 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 25,607 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 for the year ended June 30, 1999 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of BlueGill Technologies, Inc.
incorporated in this prospectus by reference from the Form 8-K of CheckFree
Holdings Corporation filed January 11, 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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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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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);
- Our Proxy Statement for the Annual Meeting of Stockholders held on
November 4, 1999 (filed October 8, 1999);
- Our Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 (filed November 15, 1999);
- Our Current Reports on Form 8-K dated November 29, 1999 (filed
December 2, 1999), December 20, 1999 (filed December 23,
1999), and dated January 11, 2000 (filed January 11, 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) 375-3387
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<PAGE> 42
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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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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(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.)
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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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 between the
Company 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 Arthur Andersen LLP.
24 * Power of Attorney.
- ------------------
* Previously filed with this report.
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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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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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. 1 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 January 25, 2000.
CHECKFREE HOLDINGS CORPORATION
By: /s/Allen L. Shulman
-----------------------------------------
Allen L. Shulman,
Executive Vice President, Chief Financial
Officer and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 Registration Statement has been signed below by the following
persons in the capacities indicated on the 25th day of January, 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 Vice Chairman and Director
- ------------------------------------------------------
Mark A. Johnson
/s/ Allen L. Shulman Executive Vice President, Chief Financial Officer and
- ------------------------------------------------------ General Counsel
Allen L. Shulman (Principal Financial Officer)
/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>
47
