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As filed with the Securities and Exchange Commission on December 27, 2000.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ONLINE RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-1623052
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
7600 Colshire Drive
McLean, Virginia 22102
(703) 394-5100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MATTHEW P. LAWLOR
Chief Executive Officer and
Chairman of the Board
Online Resources Corporation
7600 Colshire Drive
McLean , Virginia 22102
(703) 394-5100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Mark J. Wishner, Esquire
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
1911 Freedom Drive
Reston, Virginia 20190
(703) 464-4800
Approximate date of commencement of proposed sale to the public: As soon as
practical 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 of the 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, 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, 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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CALCULATION OF REGISTRATION FEE
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Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Price Aggregate Registration Fee
Registered Per Unit Offering
Price (1)
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8.0% Convertible $ 20,000,000 100% $20,000,000 $5,000
Subordinated
Notes due 2005
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Common Stock,
$.0001 par value(2) 4,210,526 (2) (3) (3) (3)
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/(1)/ Equals the aggregate principal amount of the securities being registered.
/(2)/ Such number represents the number of shares of common stock that are
currently issuable upon conversion of the convertible notes. Pursuant to Rule
416 under the Securities Act, we are also registering such indeterminate number
of shares of common stock as may be issued from time to time upon conversion of
the convertible notes as a result of the antidilution protections of the
convertible notes.
/(3)/ No additional consideration will be received for the common stock, and,
therefore, no registration fee is required pursuant to Rule 457(i).
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE +
+ SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION +
+ STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS +
+ PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN +
+ OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT +
+ PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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PROSPECTUS
Subject to Completion, dated December 27, 2000
ONLINE RESOURCES CORPORATION
$20,000,000 8% Convertible Subordinated Notes Due 2005
4,210,526 Shares of Common Stock issuable upon conversion of the Convertible
Notes.
This prospectus covers the sale by selling holders of:
. our 8% Convertible Subordinated Notes due 2005; and
. our common stock into which the convertible notes are convertible.
Interest on the convertible notes is payable on April 1 and October 1 of each
year, commencing on April 1, 2001. The notes will mature on September 30, 2005,
unless earlier redeemed, repurchased or converted.
The convertible notes are convertible by the holders of the convertible notes
into our common stock at any time prior to the close of business on the maturity
date of the convertible notes, unless previously redeemed or repurchased, at a
conversion price of $4.75 per share, subject to adjustment under certain
circumstances.
The convertible notes may be redeemed by us prior to October 1, 2003 at a
redemption price equal to 103% of the principal amount of the convertible notes,
plus interest accrued to the redemption date and an interest make-whole payment
equal to the sum of the present value of interest that would have accrued
through October 1, 2003 and possible additional interest payments if we have
defaulted in our registration obligations. On or after October 1, 2003, we may
redeem the convertible notes at the redemption prices specified in this
prospectus under "Description of the Convertible Notes--Optional Redemption by
Online Resources--Non-provisional Redemption." Upon a change of control of
Online Resources, holders of the convertible notes may require us to repurchase
their convertible notes.
Our common stock is traded on the NASDAQ National Market under the symbol
"ORCC". On December 21, 2000, the closing sale price of our common stock was
$2.125.
We have not applied for listing of the convertible notes on any securities
exchange or for quotation through any automated quotation system. The
convertible notes are eligible for trading in the Private Offerings, Resales and
Trading Through Automated Linkages ("PORTAL") Market of the NASDAQ Stock Market.
The convertible notes are unsecured general obligations of Online Resources and
rank subordinate in right of payment to all of our existing and future senior
debt.
The selling holders may sell the convertible notes or common stock at any time
at market prices or at privately negotiated prices. We may issue shares under
this prospectus in settlement of the make-whole payment described under
"Description of the Notes - Provisional Redemption." Sales by the selling
holders may be made directly to purchasers or through underwriters,
broker-dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions. The selling holders will be responsible for any
commission or discounts due to brokers or dealers. The amount of those
commissions or discounts cannot be known now because they will be negotiated at
the time of the sales. We will pay all other offering expenses. We will not
receive any of the proceeds from the sale of the notes or shares by the selling
holders.
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INVESTING IN THE CONVERTIBLE NOTES OR OUR
COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF 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 , 2001.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 6
Risk Factors.......................... 10
Forward-Looking Statements............ 15
Ratio of Earnings to Fixed Charges ... 16
Use of Proceeds....................... 16
Description of the Convertible Notes.. 17
Certain United States Federal Income
Tax Considerations.................. 32
Description of Capital Stock.......... 36
Selling Holders ...................... 41
Plan of Distribution.................. 42
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Incorporation of Documents by
Reference........................... 43
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SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus and does not contain all the information you need to consider in
making your investment decision. You should read carefully this entire
prospectus.
THE COMPANY
Online Resources Corporation is a leading Internet banking, bill payment
and e-finance application service provider to financial institutions. We provide
our clients, primarily regional and community banks, thrifts and credit unions,
with an end-to-end outsourced service, which is branded in their name. This
enables cost-effective delivery of Internet-based financial services to
consumer, small business and other retail customers of our clients. By packaging
our transaction services with our call center, database and support services, we
offer an integrated financial hub and a single point of accountability for our
clients and their retail customers.
We primarily target regional and community financial institutions with
assets of $10 billion or less. These institutions serve approximately two-thirds
of the nation's retail checking accounts, and often lack the internal resources
to build, operate, market and support new Internet-based delivery technology,
related products and services, and supporting infrastructure.
Through our integrated financial hub, retail customers of our clients may
access our proprietary banking service, which allows them to view account
statements and balances obtained from our clients, and perform funds transfers
and certain cash management functions. Retail customers may also use our
proprietary bill payment services, enabling them to pay any bill online. Our
transaction services are complemented by our call center, database, consumer
marketing and other support services. In addition, we aggregate e-finance
services provided by third-party partners such as Internet-based securities
trading, loan applications, insurance, shopping, investment analysis and credit
reports, and personalized Internet start-pages.
Our client financial institutions typically pay us a one-time
implementation fee to link our respective computer systems, thus giving us
access to their customer accounts. In addition, we are typically paid a
recurring monthly fee based on the number of retail customers of the client
financial institution using our services or fees based on the number of
transactions we process for a client's customers. As of September 30, 2000, we
provided our services to 294,000 retail customers of our client financial
institutions, many of which have recently launched our services. Our 480
financial institution clients collectively maintain an aggregate of
approximately 8.6 million retail checking accounts.
Our objective is to become the primary vendor of choice to our targeted
client base. Our strategy to achieve this objective has the following
components:
- Continuing the rapid expansion of our financial institution client base.
- Increasing retail customer usage.
- Enhancing our e-commerce product offering.
- Maintaining superior service quality and support services.
- Providing target marketing through the integration of customer data and
the services we provide.
Our solution, in part, is founded upon proprietary technology we have
developed for which we have obtained two patents and have applied for another.
We believe our patents provide us with a competitive advantage as well as offer
us additional opportunities to leverage our technology for other revenue
opportunities. In this latter regard, we have recently launched an initiative
that seeks to capitalize on our proprietary processes for Internet point of
sales debit transactions.
In June 1999, we closed our initial public offering from which we raised
net of expenses approximately $39 million. As of September 30, 2000, we used
$9.4 million of these net proceeds to repay our outstanding indebtedness, $22.9
million for working capital and $6.7 million were held in cash and temporary
investments. We had $20 million in convertible subordinated notes and $487,818
in capital leases outstanding as of September 30, 2000. On September 28, 2000,
we received proceeds of $18.8 million net of $1.2 million issuance costs. From
our IPO through September 30, 2000 our clients increased by 42% and the number
of customer of our clients that we serve increased 263%. We believe we will
continue to experience growth in the customers and retail customer usage as
adoption of online banking services increase.
Our principal executive offices are located at 7600 Colshire Drive,
McLean, Virginia 22102. Our telephone number is (703) 394-5100. We maintain a
web site on the Internet at http://www.orcc.com. The contents of our web site
are not a part of this prospectus.
RECENT DEVELOPMENT
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements," which provides guidance related to revenue
recognition. The SEC delayed the required effective date of SAB 101 until the
fourth fiscal quarter of fiscal years beginning after December 15, 1999, which
is our fourth quarter of 2000. SAB 101 requires companies to report any changes
in revenue recognition as a cumulative change in accounting principle at the
time of implementation in accordance with APB Opinion No. 20, "Accounting
Changes."
We generate revenue from implementation of our systems to our financial
institution clients. Implementation fees are paid on a one-time basis at
signing and we historically recognized implementation fees as revenue using the
percentage of completion method. However, SAB 101 provides guidance that
indicates revenue recognition over the collaboration term is generally the
preferred treatment for all fees, regardless of the significance of remaining
performance obligations. We are currently in the process of evaluating the
impact SAB 101 will have on our financial position, results of operations and
cash flows and have not quantified the impact of the SAB 101. We will record a
cumulative effect of a change in accounting principle during the fourth quarter
of 2000, retroactive to Jan. 1, 2000.
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THE OFFERING
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Securities Offered........................ The resale by selling holders of $20,000,000 principal amount of
8.0% convertible subordinated notes due 2005 and the 4,210,526
shares of common stock into which they are convertible.
Maturity. ................................ September 30, 2005, unless earlier redeemed, repurchased or
converted.
Interest Payment Dates.................... April 1 and October 1, beginning April 1, 2001.
Interest Rate. ........................... 8.0% per year, subject to adjustment under certain circumstances.
See "Description of the Convertible Notes-- Interest".
Optional Conversion by Holders ........... Holders may convert the convertible notes at any time prior to or
on September 30, 2005, unless previously redeemed or repurchased,
into shares of common stock initially at a conversion price of
$4.75 per share (equal to a conversion rate of approximately 210.5
shares per $1,000 principal amount of convertible notes), subject
to an annual adjustment and other adjustments under certain
circumstances. See "Description of the Convertible
Notes--Conversion Rights".
Optional Redemption by Online Resources... Prior to October 1, 2003, we may redeem some or all of the
convertible notes at a redemption price equal to 103.00% of the
principal amount of the convertible notes, plus accrued and unpaid
interest to but excluding the provisional redemption date, if:
- the market price of our common stock equals or exceeds the
applicable following thresholds:
TRIGGER
DURING THE TWELVE MONTHS COMMENCING PERCENTAGE
----------------------------------------------------
October 1, 2000 200%
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October 1, 2001 175%
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October 1, 2002 150%
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and
- we have caused to become effective a shelf registration
statement with respect to the resale of the convertible
notes and the common stock issuable upon conversion of the
convertible notes, and expect the registration statement
to remain effective and available for use for the 30 days
following the provisional redemption date.
In addition to the interest accrued and unpaid to but excluding
the provisional redemption date, we will make an interest make-whole
payment equal to the sum of:
- the present value of the aggregate amount of the interest
that would otherwise have accrued from the provisional
redemption date through October 1, 2003; and
- unpaid Additional Amounts (as defined in "Description of
the Convertible Notes--Registration Rights "), if any.
We are obligated to pay you any accrued and unpaid interest as well
as the
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interest make-whole payment on the convertible notes called for the
provisional redemption, regardless of whether those convertible
notes are converted prior to the date of the provisional
redemption.
We will pay the provisional redemption price and the interest
make-whole payment in cash or, at our option, in common stock. The
number of shares of common stock a holder will receive is set forth
under "Description of the Convertible Notes--Optional Redemption by
Online Resources--Provisional Redemption".
On or after October 1, 2003, we may redeem some or all of the
convertible notes at the redemption prices, plus accrued and unpaid
interest to but excluding the non-provisional redemption date, set
forth under "Description of the Convertible Notes--Optional
Redemption by Online Resources--Non-provisional Redemption".
Right of Holders to Require Repurchase.... Each holder of the convertible notes may require us to repurchase all
of the holder's convertible notes at 100% of their principal amount
plus accrued and unpaid interest in certain circumstances involving
a change of control. The repurchase price is payable in
- cash; or
- at our option, subject to the satisfaction of certain
conditions, in common stock. The number of shares of
common stock will equal the repurchase price divided by
95% of the average closing sale price for the five
consecutive trading days ending on and including the third
day prior to the repurchase date.
See "Description of the Convertible Notes--Repurchase at Option of
Holders Upon a Change of Control of Online Resources".
Subordination............................ The convertible notes are our unsecured subordinated obligations.
The convertible notes rank junior in right of payment to all of our
existing and future Senior Debt (as defined in "Description of the
Convertible Notes--Subordination"). As of September 30, 2000, we
had $487,818 of Senior Debt outstanding. See "Description of the
Convertible Notes--Subordination".
Ratio of Earnings to Fixed Charges....... For the periods indicated, our earnings were inadequate to cover our
fixed charges. See "Ratio of Earnings to Fixed charges".
Form, Denomination and Registration....... The convertible notes were issued in fully registered form. The
convertible notes were issued in denominations of $1,000.
The convertible notes sold to "qualified institutional buyers", as
defined in Rule 144A, were represented by a global note deposited
with the trustee as custodian for The Depository Trust Company and
registered in the name of Cede & Co., DTC's nominee. Beneficial
interests in the global note were shown on, and any transfers will
be effected only through, records maintained by DTC and its
participants.
The convertible notes sold to "accredited investors" as defined in
Rule 501 under the Securities Act were issued and sold and
transferred only in definitive form.
See "Description of the Convertible Notes--Form, Denomination and
Registration".
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Use of Proceeds. ......................... We will not receive any proceeds from the sale by selling holders
of the convertible notes and the common stock into which the
convertible notes are convertible.
Trading................................... The convertible notes are eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages market,
known as PORTAL.
Nasdaq Symbol for our common stock........ Our common stock is traded on the Nasdaq National Market under the
symbol "ORCC".
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RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to purchase the convertible notes. Any of
these risks could materially adversely affect our business, financial condition,
results of operations and prospects which could in turn materially adversely
affect the price of the convertible notes and the common stock issuable upon
conversion.
THE CONVERTIBLE NOTES ARE SUBORDINATED TO OUR EXISTING AND FUTURE SENIOR DEBT.
Our obligations under the convertible notes are unsecured and are
subordinated in right of payment to all our existing and future senior debt as
that term is defined in the indenture governing the convertible notes. This
means that we cannot make any payments on the convertible notes if we default on
a payment of any of those senior debts. In the event of the bankruptcy,
liquidation or dissolution of Online Resources, our assets would be available to
pay our obligations under the convertible notes only after all payments have
been made on our senior debt. Because our available assets may be insufficient
to pay all of our creditors upon bankruptcy or the occurrence of a similar
event, you may receive nothing and are likely to receive proportionately less
than the holders of our senior debt.
IN CIRCUMSTANCES INVOLVING A CHANGE OF CONTROL, ONLINE RESOURCES MAY BE REQUIRED
TO REPURCHASE THE CONVERTIBLE NOTES-- IF THIS OCCURS, ONLINE RESOURCES MAY NOT
HAVE THE FINANCIAL RESOURCES NECESSARY TO MAKE THOSE REPURCHASES.
Online Resources may under some circumstances involving a change of
control be obligated to offer to repurchase the convertible notes before
maturity. We cannot assure you that we will have available financial resources
or be able to arrange financing necessary to repurchase the convertible notes in
those circumstances. If we cannot repurchase the convertible notes in the event
of a change of control, the failure to repurchase would constitute an event of
default under the indenture under which the convertible notes are issued and
could result in a cross-default under other indebtedness we may possess.
WE MAY BE UNABLE TO PAY DEBT SERVICE ON THE CONVERTIBLE NOTES.
We had an operating loss and negative cash flow from operating activities
during the nine-month period ended September 30, 2000 and project that we will
continue to incur losses and negative cash flows for the foreseeable future.
Accordingly, cash generated by our operations may be insufficient to pay the
amount of interest payable semi-annually on the convertible notes. We cannot
assure you that we will be able to pay interest and other amounts due on the
convertible notes on the scheduled dates or at all. If our cash flow and cash
balances are inadequate to meet our obligations, we could face substantial
liquidity problems. If we are unable to generate sufficient cash flow or
otherwise obtain funds necessary to make required payments, or if we otherwise
fail to comply with any covenants regarding the convertible notes, we would be
in default under the notes which could cause any other lenders we have along
with our noteholders to accelerate the maturity of our obligations. Any such
defaults could have a material adverse effect on our business, results of
operations and financial condition. We cannot assure you that we would be able
to repay amounts due on the convertible notes if payment of the convertible
notes were accelerated following the occurrence of an event of default under the
indenture for the convertible notes.
WE HAVE A HISTORY OF LOSSES AND COULD CONTINUE TO LOSE MONEY.
We have not yet had an operating profit for any quarterly or annual
period and are unsure when we will become profitable, if ever. We may not be
able to attract and retain enough financial institutions and retail customers to
reach profitable levels. We were established in 1989 and a significant portion
of our existence has been devoted to developing the proprietary systems and
infrastructure needed to implement our business. Profitability in the future
will depend upon a number of factors, including our ability to continue to
contract with new financial institution clients and to develop and retain a
larger retail customer base that uses our services on a regular basis.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
Our quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. As a result, our operating results may fall below market
analysts' expectations in some future quarters, which could have a material
adverse effect on the market price of our stock.
WE MAY NEED TO RAISE CAPITAL TO STAY IN BUSINESS.
We may not achieve cash flow break-even and may require additional
infusions of capital to sustain operations. This capital may not be available.
We may need to raise additional funds sooner than we expect if we incur
unforeseen required capital expenditures or substantial operating losses. If
adequate funds are not available or are not available on acceptable terms, we
may not be able to
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develop or enhance our services, take advantage of future opportunities or
respond to competitive pressures, which could have a material adverse effect on
our business.
WE RELY ON THIRD PARTIES FOR THE SUCCESS OF OUR MARKETING EFFORTS.
We depend upon the assistance of marketing partners who include some or
all of our services and related products as a part of their offerings to
financial institutions. Failure by these marketing partners to continue to offer
our services and related products could have a material adverse effect on our
business.
WE DEPEND UPON OUR FINANCIAL INSTITUTION CLIENTS TO MARKET OUR SERVICES.
To market our services to retail customers, we depend primarily upon our
financial institution clients. We generally charge our clients fees based on the
number of their retail customers who have enrolled with our clients for online
bill paying services and, in some cases, online banking services. Therefore,
retail customer enrollment affects our revenue and is important to us. Because
our clients offer our services under their name, we must depend on those clients
to get their customers to use our services. Our financial institution clients
may not effectively market our services to their retail customers. Any failure
of our clients to effectively market our services could have a material adverse
effect on our business.
OUR CO-MARKETING EFFORTS MAY NOT BE SUCCESSFUL.
We have recently spent substantial financial and human resources to
co-market our services and related products with our financial institution
clients to their retail customers. These marketing efforts may not result in an
increase in acceptance by retail customers necessary for the development of our
business.
WE MAY NOT BE ABLE TO EXPAND TO MEET INCREASED DEMAND.
We may not be able to expand or adapt our services and related products
to meet the demands of our financial institution clients and their retail
customers quickly or at a reasonable cost. The type and volume of transactions
processed through our system and the number of financial institution clients
connected to it have been relatively limited to date. We will need to continue
to expand and adapt our infrastructure, services and related products to
accommodate additional financial institution clients and their retail customers,
increased transaction volumes and changing customer requirements. This will
require substantial financial, operational and management resources. In the past
as we have developed our infrastructure, clients have experienced periods when
they were unable to utilize our services. If we are unable to scale our system
and processes to support the variety and number of transactions and retail
customers who ultimately use our services, our business may be materially
adversely affected.
IF WE LOSE A MATERIAL CLIENT, OUR BUSINESS MAY BE ADVERSELY IMPACTED.
One of our financial institution clients, California Federal Bank,
accounted for 14% of revenue for the year ended December 31, 1999 and 13% of
revenue for the nine months ended September 30, 2000. The loss of this contract
in the near term, or the loss of any other material contracts in the future,
either directly to a competitor, or indirectly in the event that a financial
institution client is acquired by an institution not utilizing our services, or
decides to provide these services in-house, could have a material adverse effect
on revenues. Loss of any material financial institution contract in the future
could also negatively impact our ability to attract and retain other financial
institution clients.
WE MAY NOT BE ABLE TO COMPETE WITH LARGER, MORE ESTABLISHED BUSINESSES OFFERING
SIMILAR PRODUCTS OR SERVICES.
We may not be able to compete with current and potential competitors,
many of whom have longer operating histories, greater name recognition, larger,
more established customer bases and significantly greater financial, technical
and marketing resources. Further, some of our competitors provide or have the
ability to provide the same range of services we offer. They could market to our
targeted regional and community financial institution client base. Other
competitors, such as core banking processors, have broad distribution channels
that bundle competing products directly to financial institutions. Also,
competitors may compete directly with us by adopting a similar business model or
through the acquisition of companies, such as resellers, who provide
complimentary products or services.
A significant number of companies offer portions of the services we
provide and compete directly with us. For example, the Web servers of some
companies compete with our front-end Internet access capabilities. Other
software providers have created units to provide on an outsource basis a portion
of services like ours. These companies may use billpayers who team with access
providers. Also, certain services may be available to retail customers
independent of financial institutions such as Intuit's Quicken.com and Yahoo!
Finance. Finally, there are some ATM and other networks who provide similar
services in addition to connecting to financial institutions.
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Many of our competitors may be able to afford more extensive marketing
campaigns and more aggressive pricing policies in order to attract financial
institutions. Our failure to compete effectively in our markets would have a
material adverse effect on our business.
FAILURE TO SUCCESSFULLY IMPLEMENT A SYSTEMS UPGRADE OR CONVERSION MAY ADVERSELY
AFFECT OUR REPUTATION AND OUR BUSINESS.
A failure to implement a systems upgrade or conversion would delay
implementation of some of our financial institution clients, could cause us to
divert significant resources and could negatively impact our reputation in the
banking industry. We may be unable to successfully complete any future systems
upgrades or conversions.
WE DEPEND ON OUR OFFICERS AND SKILLED EMPLOYEES DUE TO OUR COMPLEX BUSINESS.
If we fail to attract, assimilate or retain highly qualified managerial
and technical personnel and, in particular, software developers for whom demand
is high in all industry markets, our business could be materially adversely
affected. Our performance is substantially dependent on the performance of our
executive officers and key employees who must be knowledgeable and experienced
in both banking and technology. We are also dependent on our ability to retain
and motivate high quality personnel, especially management and highly skilled
technical teams. The loss of the services of any executive officers or key
employees could have a material adverse effect on our business. Our future
success also depends on the continuing ability to identify, hire, train and
retain other highly qualified managerial and technical personnel. Competition
for such personnel is intense.
SYSTEM FAILURES COULD HURT OUR BUSINESS -- WE COULD BE LIABLE FOR SOME TYPES OF
FAILURES.
Like other system operators, our operations are dependent on our ability
to protect our system from interruption caused by damage from fire, earthquake,
power loss, telecommunications failure, unauthorized entry or other events
beyond our control. Our back-up site is located approximately one mile from our
headquarters, where most of our computer systems, including processing
equipment, is currently operated and maintained. In the event of major
disasters, both locations could be equally impacted. We could also experience
system interruptions due to the failure of our systems to function as intended
or the failure of the systems we rely upon to deliver our services such as ATM
networks or the systems of financial institutions and processors that integrate
with our systems. Loss of all or part of our systems for a period of time could
have a material adverse effect on our business. We may be liable to our clients
for breach of contract for interruptions in service. Due to the numerous
variables surrounding system disruptions, we cannot predict the extent or amount
of any potential liability.
SECURITY BREACHES COULD DISRUPT OUR BUSINESS.
Like other system operators, our computer systems may also be vulnerable
to computer viruses, hackers, and other disruptive problems caused by
unauthorized parties entering our system. Computer attacks or disruptions may
jeopardize the security of information stored in and transmitted through the
computer systems of our financial institution clients and their retail customers
using our services, which may result in significant losses or liability. This,
or the perception that our systems may be vulnerable to such attacks or
disruptions, also may deter retail customers from using our services.
Data networks are also vulnerable to attacks and disruptions. For
example, in a number of public networks, hackers have bypassed firewalls and
misappropriated confidential information. It is possible, that despite existing
safeguards, an employee could divert retail customer funds while these funds are
in our control, exposing us to a risk of loss or litigation and possible
liability. In dealing with numerous consumers, it is possible that some level of
fraud or error will occur, which may result in erroneous external payments.
Losses or liabilities that we incur as a result of any of the foregoing could
have a material adverse effect on our business.
WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY INFORMATION.
We rely on patent and trade secret laws to protect our intellectual
property, such as the software and processes which we have developed in
connection with our business. If we fail to adequately protect our intellectual
property rights and proprietary information or if we become involved in
litigation relating to our intellectual property rights, our business could be
harmed. Any actions we take may not be adequate to protect our intellectual
property rights and other companies may develop technologies that are similar or
superior to our intellectual property. Although we believe that our services do
not infringe on the intellectual property rights of others and that we have all
rights needed to use the intellectual property employed in our business, it is
possible that we could become subject to claims alleging infringement of
third-party intellectual property rights. Any claims could subject us to
litigation, and could require us to pay damages or develop non-infringing
intellectual property, any of which could be expensive, or require us to acquire
licenses to the intellectual property that is the subject of the alleged
infringement.
OUR CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS MAY PREVENT OR DELAY THIRD
PARTIES FROM BUYING YOUR STOCK.
Our Restated Certificate of Incorporation authorizes the Board of
Directors to issue up to 3,000,000 shares of preferred stock and to determine
the price, rights, preferences and privileges, including voting rights, of those
shares without any further vote or action by
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<PAGE> 13
the stockholders. The rights of the holders of common stock will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The Certificate of Incorporation
provides for staggered terms for the members of the Board of Directors. In
addition, the Certificate of Incorporation provides that directors can be
removed only for cause and only by a majority of the other directors or by vote
of stockholders owning 80% or more of the voting power. Some provisions of our
Certificate of Incorporation and Bylaws could have a depressive effect on our
stock price or make it more difficult for a third party to acquire a majority of
our outstanding voting stock or delay, prevent or deter a merger, acquisition,
tender offer or proxy contest.
OUR SERVICES MAY NOT BE BROADLY USED AND ACCEPTED BY CONSUMERS.
There is no established history of broad acceptance by retail customers
of services like ours and those services may not be accepted in the future.
Because our fee structure is designed to establish recurring revenues through
monthly usage by retail customers of our financial institution clients, our
recurring revenues are dependent on the acceptance of our services by retail
customers and their continued use of online banking, bill paying and other
financial services.
CONSUMER DEMAND FOR LOW-COST OR FREE ONLINE FINANCIAL SERVICES MAY FORCE US TO
REDUCE OR ELIMINATE THE FEES WE CHARGE FOR SOME SERVICES.
Consumers of many of the online services we offer, including
home-banking, bill payment and bill presentment, may demand that these services
be offered for lower cost or even for free. Consumers may therefore reject our
services in favor of companies that can offer more competitive prices. Thus,
consumer demand and competition may place significant pressure on our pricing
structure and revenues, and may have an adverse effect on our financial
condition.
CONSOLIDATION OF THE BANKING AND FINANCIAL SERVICES INDUSTRY COULD NEGATIVELY
IMPACT OUR BUSINESS.
The continuing consolidation of the banking and financial services
industry could result in a smaller market for our services. Consolidation
frequently results in a complete change in the electronic infrastructure of the
combined entity. This could result in the termination of our services and
related products if the acquiring institution has its own in-house system or
outsources to competitive vendors. This would also result in the loss of revenue
from actual or potential retail customers of the acquired financial institution.
GOVERNMENT REGULATION COULD INTERFERE WITH OUR BUSINESS.
Federal or state agencies may attempt to regulate our activities. In
addition, Congress could enact legislation that would require us to comply with
data, record keeping, processing and other requirements. We may be subject to
additional regulation as the market for our business continues to evolve. The
Federal Reserve Board or other Federal or state agencies may adopt new rules and
regulations for electronic funds transfers that could lead to increased
operating costs and could also reduce the convenience and functionality of our
services, possibly resulting in reduced market acceptance.
MANAGEMENT AND DIRECTORS MAY CONTROL OUR MANAGEMENT AND AFFAIRS.
As of November 30, 2000, management and directors beneficially owned
approximately 23.4% of our outstanding common stock. As a result, they may have
the ability to effectively control us and direct our affairs and business,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of Online Resources, and
make some transactions more difficult or impossible without the support of such
stockholders, including proxy contests, mergers involving Online Resources,
tender offers, open-market purchase programs or other purchases of common stock
that could give our stockholders the opportunity to realize a premium over the
then-prevailing market price for shares of common stock.
OUR STOCK PRICE IS VOLATILE.
The trading price of our common stock has been subject to significant
fluctuations and may continue to be volatile in response to:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations;
- new products or services offered by Online Resources or our
competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and online commerce
industries;
- changes in the economic performance and/or market valuations of
other Internet, online service industries;
- announcements by Online Resources of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of common stock; and
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<PAGE> 14
- other events or factors, many of which are beyond our control.
The stock market has experienced extreme price and volume fluctuations
and volatility that has particularly affected the market prices of many
technology, emerging growth and developmental stage companies. Such fluctuations
and volatility have often been unrelated or disproportionate to the operating
performance of such 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 a company. Litigation, if instituted, whether
or not successful, could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse effect
on our business.
WE HAVE A SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK THAT MAY BE SOLD, WHICH
COULD AFFECT THE TRADING PRICES OF OUR COMMON STOCK AND THE CONVERTIBLE NOTES.
We have a substantial number of shares of common stock subject to stock
options and warrants and the convertible notes may be converted into shares of
common stock. We cannot predict the effect, if any, that future sales of shares
of common stock or convertible notes, or the availability of shares of common
stock or convertible notes for future sale, will have on the market price of our
common stock or convertible notes. Sales of substantial amounts of common stock
(including shares issued upon the exercise of stock options or warrants or the
conversion of the convertible notes), or the perception that such sales could
occur, may adversely affect prevailing market prices for our common stock and
convertible notes.
THE CONVERTIBLE NOTES HAVE NOT BEEN RATED, WHICH POSES VARIOUS INVESTMENT RISKS.
The convertible notes have not been rated. As a result, holders of the
convertible notes will bear the risks associated with an investment in unrated
debt. Historically, the market for unrated debt has been subject to disruptions
that have caused substantial volatility in the prices of such securities and
greatly reduced liquidity. If the convertible notes are traded, they may trade
at a discount from their initial offering price, depending upon prevailing
interest rates, the market for similar securities, our performance and certain
other factors. The liquidity of, and trading markets for, the convertible notes
may also be adversely affected by general declines in the market for unrated
debt. Such declines may adversely affect the liquidity of, and trading markets
for, the convertible notes, independent of our financial performance or our
prospects. In addition, certain regulatory restrictions prohibit certain types
of financial institutions from investing in unrated debt, which may further
suppress demand for these securities. We cannot assure you that the market for
the convertible notes will not be subject to similar disruptions. Any such
disruptions may have an adverse effect on holders of the convertible notes.
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<PAGE> 15
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus and the documents
incorporated by reference herein contain some forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. Such statements may include words such
as "anticipate", "estimate", "expect", "project", "intend", "plan", "believe"
and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. In particular, these statements
include, among other things, statements relating to:
- our business strategy;
- the development of our products;
- the use of proceeds from this offering;
- our projected capital expenditures; and
- our liquidity.
These forward looking statements speak only as of the date of this
prospectus. Any or all of our forward-looking statements in this prospectus may
turn out to be wrong. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. These risks and
uncertainties include, among others, general economic and business conditions,
competition, changes in political, social and economic conditions and compliance
with government regulations, and various other events, conditions and
circumstances, many of which are beyond our control and the control of the
placement agent. Many factors mentioned in our discussion in this prospectus
will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any additional disclosures we make in our
Form 10-K, 10-Q and 8-K reports to the SEC. Also note that we provide a
cautionary discussion of risks and uncertainties under "Risk Factors" on page 10
of this prospectus. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors besides those
listed here could also adversely affect us. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
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<PAGE> 16
RATIO OF EARNINGS TO FIXED CHARGES
We present below the ratio of our earnings to our fixed charges. Earnings
consist of net loss plus fixed charges. Fixed charges consist of interest
expense, amortization of debt issuance costs, that portion of rental expense we
believe to be representative of interest and preference dividends. The "pro
forma" information for the nine months ended September 30, 2000 reflects our
issuance of $20,000,000 of 8% Convertible Subordinated Notes Due 2005, as if the
issuance had occurred as of January 1, 2000.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------- As of September 30, 2000
1995 1996 1997 1998 1999 (Actual) (Pro forma)
---- ---- ---- ---- ---- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)........... - - - - - - -
</TABLE>
(1) Earnings were insufficient to cover fixed charges by $5.2 million, $7.0
million, $11.0 million, $11.6 million, and $13.9 million for the one-year
periods ended December 31, 1995, 1996, 1997, 1998, and 1999, respectively, and
$14.1 million for the nine months ended September 30, 2000. Pro forma earnings
were insufficient to cover pro forma fixed charges by $15.5 million for the nine
months ended September 30, 2000. For this reason, no ratios are provided.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the convertible
notes or the common stock into which the convertible notes are convertible.
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<PAGE> 17
DESCRIPTION OF THE CONVERTIBLE NOTES
We issued the convertible notes under an indenture, dated September 28,
2000, between us and Bankers Trust Company, as trustee. The terms of the
convertible notes include those provided in the indenture and those provided in
the registration rights agreement that we executed in connection with the
issuance of convertible notes.
The following description is only a summary of the material provisions of
the convertible notes, the indenture and the registration rights agreement. We
urge you to read these documents in their entirety because they, and not this
description, define your rights as holders of these convertible notes. You may
request copies of these documents at our address set forth under the caption
"Offering Memorandum Summary."
When we refer to Online Resources in this section, we refer only to
Online Resources Corporation, a Delaware corporation, and not its future
subsidiaries.
BRIEF DESCRIPTION OF THE CONVERTIBLE NOTES
The convertible notes are:
- limited to $20,000,000 aggregate principal amount;
- general unsecured obligations, junior in right of payment
to all of our existing and future Senior Debt;
- convertible into our common stock at a conversion price of
$4.75 per share, subject to an annual adjustment and other
adjustments as described under "Conversion Rights";
- redeemable at our option at the redemption prices set forth
under "Optional Redemption by Online Resources";
- subject to repurchase by us at your option if a change of
control occurs; and
- due on September 30, 2005, unless earlier redeemed by us at
our option, converted or repurchased by us at your option.
The indenture does not contain any financial covenants and does not
restrict us from paying dividends, incurring Senior Debt or any other
indebtedness or issuing or repurchasing our other securities. The indenture also
does not protect you in the event of a highly leveraged transaction or a change
in control of Online Resources except to the extent described under " --
Repurchase at Option of Holders" below.
You may present definitive convertible notes for conversion, registration
of transfer and exchange, without service charge, at our office or agency in New
York City, which shall initially be the office or agency of the trustee in New
York City. For information regarding conversion, registration of transfer and
exchange of global notes, see "-- Form, Denomination and Registration."
INTEREST
The convertible notes will bear interest from September 28, 2000 at the
rate of 8.0% per year. We will pay interest semiannually on October 1 and April
1 of each year to the holders of record at the close of business on the
preceding September 15 and March 15, respectively, beginning April 1, 2001.
There are two exceptions to the preceding sentence:
(1) In general, we will not pay interest accrued and unpaid on
any convertible note that is converted into our common
stock. See "-- Conversion Rights." Consequently, if a
holder of convertible notes converts after a record date
for an interest payment but prior to the corresponding
interest payment date, it will receive on the interest
payment date interest accrued and paid on such convertible
notes, notwithstanding the conversion of such convertible
notes prior to such interest payment date, because such
holder will have been the holder of record on the
corresponding record date. However, at the time such holder
surrenders such convertible notes for conversion, it must
pay us an amount equal to the interest that has accrued and
will be paid on the interest payment date. The preceding
sentence does not apply, however, to a holder that
converts, after a record date for an interest payment but
prior to the corresponding interest payment date,
convertible notes that are called by us for redemption.
Accordingly, if we redeem convertible notes on a date after
a record date for an interest payment, but prior to the
corresponding interest payment date, and prior to the
redemption date the holder of such convertible notes
chooses to convert such convertible notes, the
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<PAGE> 18
holder will not be required to pay us, at the time it
surrenders such convertible notes for conversion, the
amount of interest on such convertible notes it will
receive on the interest payment date.
(2) We will pay interest to a person other than the holder of
record on the record date if we redeem the convertible
notes on a date that is after the record date and prior to
the corresponding interest payment date. In this instance,
we will pay interest accrued and unpaid on the convertible
notes being redeemed to, but not including, the redemption
date to the same person to whom we will pay the principal
of such convertible notes.
Except as provided below, we will pay interest on:
- the global notes to DTC in immediately available funds;
- any definitive convertible notes having an aggregate
principal amount of $5,000,000 or less by check mailed to
the holders of these convertible notes; and
- any definitive convertible notes having an aggregate
principal amount of more than $5,000,000 by wire transfer
in immediately available funds at the election of the
holders of these convertible notes.
At maturity, we will pay interest on the definitive convertible notes at
our office or agency in New York City, which initially will be the office or
agency of the trustee in New York City.
We will pay principal and premium, if any, on:
- the global notes to DTC in immediately available funds;
- any definitive convertible notes at our office or agency in
New York City, which initially will be the office or agency
of the trustee in New York City.
- Interest generally will be computed on the basis of a
360-day year comprised of twelve 30-day months.
CONVERSION RIGHTS
You may convert any outstanding convertible notes (or portions of
outstanding convertible notes) into our common stock, initially at the
conversion price of $4.75 per share (equal to a conversion rate of approximately
210.5 shares per $1,000 principal amount of convertible notes). The conversion
price is, however, subject to adjustment as described below. We will not issue
fractional shares of common stock upon conversion of convertible notes. Instead,
we will pay a cash adjustment based upon the closing sale price of our common
stock on the business day immediately preceding the conversion date. You may
convert convertible notes only in denominations of $1,000 and whole multiples of
$1,000.
You may exercise conversion rights at any time prior to the close of
business on the business day preceding the maturity date of the convertible
notes. However, if you are a holder of convertible notes that have been called
for redemption, you must exercise your conversion rights prior to the close of
business on the second business day preceding the redemption date, unless we
default in payment of the redemption price. In addition, if you have exercised
your right to require us to repurchase your convertible notes because a change
of control has occurred, you may convert your convertible notes into our common
stock only if you withdraw your notice and convert your convertible notes prior
to the close of business on the business day immediately preceding the change of
control repurchase date.
Except as provided below, if you convert your convertible notes into our
common stock on any day other than an interest payment date, you will not
receive any interest that has accrued on these convertible notes. By delivering
to the holder the number of shares issuable upon conversion, determined by
dividing the principal amount of the convertible notes being converted by the
conversion price, together with a cash payment, if any, in lieu of fractional
shares, we will satisfy our obligation with respect to the convertible notes.
That is, accrued but unpaid interest will be deemed to be paid in full rather
than canceled, extinguished or forfeited. If you convert after a record date for
an interest payment but prior to the corresponding interest payment date, you
will receive on the interest payment date interest accrued and paid on such
convertible notes, notwithstanding the conversion of such convertible notes
prior to such interest payment date, because you will have been the holder of
record on the corresponding record date. However, at the time you surrender such
convertible notes for conversion, you must pay us an amount equal to the
interest that has accrued and will be paid on the convertible notes being
converted on the interest payment date. However, the preceding sentence does not
apply to convertible notes that are converted after being called by us for
redemption. Accordingly, if we call your convertible notes for redemption on a
date that is after a record date for an interest payment but prior to the
corresponding interest payment date, and prior to the redemption date you choose
to convert your convertible notes, you will not be required to pay us at the
time you surrender such convertible notes
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for conversion the amount of interest on such convertible notes you will receive
on the date that has been fixed for redemption. Furthermore, if we call your
convertible notes for redemption on a date that is prior to a record date for an
interest payment date, and prior to the redemption date you choose to convert
your convertible notes, you will receive on the date that has been fixed for
redemption the amount of interest you would have received if you had not
converted your convertible notes.
You will not be required to pay any taxes or duties relating to the
issuance or delivery of our common stock if you exercise your conversion rights,
but you will be required to pay any tax or duty which may be payable relating to
any transfer involved in the issuance or delivery of the common stock in a name
other than yours. (If you convert any convertible note within two years after
its original issuance, the common stock issuable upon conversion will not be
issued or delivered in a name other than yours unless the applicable
restrictions on transfer have been satisfied.) Certificates representing shares
of common stock will be issued or delivered only after all applicable taxes and
duties, if any, payable by you have been paid.
To convert interests in the global note, you must deliver to DTC the
appropriate instruction form for conversion pursuant to DTC's conversion program
after application has been made to make the underlying common stock eligible for
trading on DTC. To convert a definitive convertible note, you must:
- complete the conversion notice on the back of the
convertible note (or a facsimile thereof);
- deliver the completed conversion notice and the convertible
notes to be converted to the specified office of the
conversion agent;
- pay all funds required, if any, relating to interest on the
convertible notes to be converted to which you are not
entitled, as described in the second preceding paragraph;
and
- pay all taxes or duties, if any, as described in the
preceding paragraph.
The conversion date will be the date on which all of the foregoing
requirements have been satisfied. The convertible notes will be deemed to have
been converted immediately prior to the close of business on the conversion
date. A certificate for the number of shares of common stock into which the
convertible notes are converted (and cash in lieu of any fractional shares) will
be delivered as soon as practicable on or after the conversion date.
Annual Adjustment of Conversion Price
On the twenty-first trading day in October, starting October 2001, we
will adjust the conversion price per share to the lower of the following:
(1) $4.75; or
(2) the average of the last reported price of a share of our
common stock on the Nasdaq National Market for the first
twenty trading days in October of that year (if such
average price cannot be obtained from the Nasdaq National
Market, the price will be determined as specified in the
indenture).
However, the conversion price shall not be adjusted to a price lower than
$4.00 per share. The $4.75 maximum and $4.00 minimum prices described above will
be adjusted to reflect dilution, if any, from the date of issue as described
under "Other Adjustments".
We are currently attempting to amend the indenture by changing the annual
adjustment of the conversion price discussed above to a one-time adjustment on
the twenty-first trading day in October 2001. The document executed in
conjunction with the issuance of the convertible notes incorrectly made this
adjustment on an annual basis as opposed to a one-time adjustment in October
2001.
Other Adjustments
We will adjust the initial conversion price for certain events occurring
since the date of the most recent downward annual adjustment described under
"Annual Adjustment of Conversion Price", including:
(1) issuances of our common stock as a dividend or distribution
on our common stock;
(2) certain subdivisions and combinations of our common stock;
(3) issuances to all holders of our common stock of certain
rights or warrants to purchase our common stock (or
securities convertible into our common stock) at less than
(or having a conversion price per share less than) the
current market price of our common stock;
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(4) distributions to all holders of our common stock of shares
of our capital stock (other than our common stock),
evidences of our indebtedness or assets (including
securities, but excluding:
(a) the rights and warrants referred to in clause (3),
(b) any dividends and distributions in connection with a
reclassification, change, consolidation, merger,
combination, sale or conveyance resulting in a
change in the conversion consideration pursuant to
the second succeeding paragraph, or
(c) any dividends or distributions paid exclusively in
cash);
(5) distributions consisting exclusively of cash to all holders
of our common stock to the extent that such distributions,
combined together with:
(d) all other such all-cash distributions made within
the preceding 12 months for which no adjustment has
been made, plus
(a) any cash and the fair market value of other
consideration paid for any tender offers by us or
any of our subsidiaries for our common stock
expiring within the preceding 12 months for which no
adjustment has been made,
exceeds 10% of our market capitalization on the record date
for such distribution; market capitalization is the product
of the then current market price of our common stock times
the number of shares of our common stock then outstanding;
and
(6) purchases of our common stock pursuant to a tender offer
made by us or any of our subsidiaries to the extent that
the same involves an aggregate consideration that, together
with:
(a) any cash and the fair market value of any other
consideration paid in any other tender offer by us
or any of our subsidiaries for our common stock
expiring within the 12 months preceding such tender
offer for which no adjustment has been made, plus
(b) the aggregate amount of any all-cash distributions
referred to in clause (5) above to all holders of
our common stock within 12 months preceding the
expiration of tender offer for which no adjustments
have been made,
exceeds 10% of our market capitalization on the expiration
of such tender offer.
We will not make any of the above adjustments in the conversion price
unless such adjustment would require a change of at least 1% in the conversion
price then in effect at such time.
Adjustments in General
We will carry forward and take into account in any subsequent adjustment
any adjustment that would otherwise be required to be made, except that dilution
adjustments occurring prior to a downward annual adjustment will be disregarded
after being taken into account in such annual adjustment. Except as stated
above, we will not adjust the conversion price for the issuance of our common
stock or any securities convertible into or exchangeable for our common stock or
carrying the right to purchase any of the foregoing.
If we:
- reclassify or change our common stock (other than changes
resulting from a subdivision or combination); or
- consolidate or combine with or merge into any person or
sell or convey to another person all or substantially all
of our property and assets,
and the holders of our common stock receive stock, other securities or other
property or assets (including cash or any combination thereof) with respect to
or in exchange for their common stock, the holders of the convertible notes may
convert the convertible notes into the consideration they would have received if
they had converted their convertible notes immediately prior to such
reclassification, change, consolidation, combination, merger, sale or
conveyance. We may not become a party to any such transaction unless its terms
are consistent with the foregoing.
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<PAGE> 21
If a taxable distribution to holders of our common stock or other
transaction occurs which results in any adjustment of the conversion price, you
may, in certain circumstances, be deemed to have received a distribution subject
to U.S. income tax as a dividend. In certain other circumstances, the absence of
an adjustment may result in a taxable dividend to the holders of our common
stock. See "Certain United States Federal Income Tax Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the convertible notes by any amount for any period of at
least 20 days. In that case, we will give at least 15 days' notice of such
decrease. We may make such reductions in the conversion price, in addition to
those set forth above, as our board of directors deems advisable to avoid or
diminish any income tax to holders of our common stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.
OPTIONAL REDEMPTION BY ONLINE RESOURCES
Provisional Redemption
At any time prior to October 1, 2003, we may redeem some or all of the
convertible notes on at least 20 but not more than 60 days' notice at a
provisional redemption price equal to 103.00% of the principal amount of
convertible notes if:
(1) the shelf registration statement covering resales of
convertible notes and the common stock issuable upon
conversion of the convertible notes is effective and
available for use and is expected to remain effective and
available for use for the 30 days following the provisional
redemption date; and
(2) the Current Market Value of our common stock equals or
exceeds the following triggering percentages of the
conversion price then in effect for at least 20 trading
days in any consecutive 30 day trading period ending on the
trading day prior to the date the notice of the provisional
redemption is mailed. The "Current Market Value" means the
average of the high and low sale prices of our common
stock, as reported on the Nasdaq National Market or any
national securities exchange on which our common stock is
then listed, on such trading day.
<TABLE>
<CAPTION>
TRIGGER
DURING THE TWELVE MONTHS COMMENCING PERCENTAGE
----------------------------------- ----------
<S> <C>
October 1, 2000 ...........................................................200%
October 1, 2001 ...........................................................175%
October 1, 2002 ...........................................................150%
</TABLE>
Upon any provisional redemption, we will make an additional payment (the
"interest make-whole payment") with respect to the convertible notes we call for
provisional redemption. The interest make-whole payment will equal the sum of
(1) the present value of the aggregate amount of the interest
that would otherwise have accrued from the provisional
redemption date through October 1, 2003 (the "interest
make-whole period"); and
(2) unpaid Additional Amounts (as defined in "-- Registration
Rights"), if any.
We will calculate the present value by using the bond equivalent yield on
U.S. Treasury notes or bills having a term nearest in length to that of the
interest make-whole period, as of the date the notice of the provisional
redemption is mailed. We will pay the interest make-whole payment on all
convertible notes we call for provisional redemption, including those
convertible notes which are converted into our common stock after the date the
notice of the provisional redemption is mailed and prior to the provisional
redemption date.
We will pay the provisional redemption price and the interest make-whole
payment in cash or, at our option, in common stock. The number of shares of
common stock a holder will receive will equal the sum of the provisional
redemption price and the interest make-whole payment divided by the average of
the Trading Prices of our common stock for the five trading days immediately
preceding and including the third day prior to the date of the provisional
redemption. However, we may not pay you in common stock unless we satisfy
certain conditions described in the indenture.
In addition, we will pay interest on the convertible notes being
redeemed, including those convertible notes which are converted into our common
stock after the date the notice of the provisional redemption is mailed and
prior to the provisional redemption date. This interest will include interest
accrued and unpaid to, but excluding, the provisional redemption date. If the
provisional redemption date is an interest payment date, we will pay the
interest to the holder of record on the corresponding record date, which may or
may
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<PAGE> 22
not be the same person to whom we will pay the provisional redemption price.
Non-provisional Redemption
At any time on or after October 1, 2003, we may redeem some or all of the
convertible notes on at least 20 but not more than 60 days' notice, at the
following redemption prices (expressed in percentages of the principal amount).
<TABLE>
<CAPTION>
DURING THE TWELVE MONTHS COMMENCING REDEMPTION PRICE
----------------------------------- ----------------
<S> <C>
October 1, 2003 ....................................................102.000%
October 1, 2004 ....................................................101.000%
</TABLE>
In addition, we will pay interest on the convertible notes being
redeemed, including those convertible notes which are converted into our common
stock after the date the notice of the redemption is mailed and prior to the
redemption date. This interest will include interest accrued and unpaid to, but
excluding, the redemption date. If the redemption date is an interest payment
date, we will pay the interest to the holder of record on the corresponding
record date, which may or may not be the same person to whom we will pay the
redemption price.
REPURCHASE AT THE OPTION OF HOLDERS
If a change of control occurs, you will have the right to require us to
repurchase all of your convertible notes not previously called for redemption,
or any portion of those convertible notes that is equal to $1,000 or a whole
multiple of $1,000. The repurchase date is 45 days after the date we give notice
of a change of control. The repurchase price is equal to 100% of the principal
amount of the convertible notes to be repurchased. We will also pay interest
accrued and unpaid to, but excluding, the repurchase date.
Instead of paying the repurchase price in cash, we may pay the repurchase
price in common stock. The number of shares of common stock a holder will
receive will equal the repurchase price divided by 95% of the average of the
closing sale prices of our common stock for the five trading days immediately
preceding and including the third day prior to the repurchase date. However, we
may not pay in common stock unless we satisfy certain conditions prior to the
repurchase date as provided in the indenture.
Within 30 days after the occurrence of a change of control, we are
required to give you notice of the occurrence of the change of control and of
your resulting repurchase right. To exercise the repurchase right, you must
deliver prior to or on the 30th day after the date of our notice written notice
to the trustee of your exercise of your repurchase right, together with the
convertible notes with respect to which your right is being exercised. Your
notice will be irrevocable, except with respect to conversion rights. You may
withdraw this otherwise irrevocable notice by delivering to the paying agent a
notice of withdrawal prior to the close of business on the business day
immediately preceding the repurchase date, so long as you also convert these
convertible notes prior to the close of business on the business day immediately
preceding the repurchase date. We will not pay interest accrued and unpaid on
any of the convertible notes you convert.
A "change of control" will be deemed to have occurred at such time after
the original issuance of the convertible notes when either of the following has
occurred:
- the acquisition by any person, including any syndicate or
group deemed to be a "person" under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, of beneficial
ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of
transactions of shares of our capital stock entitling that
person to exercise 50% or more of the total voting power of
all shares of our capital stock entitled to vote generally
in elections of directors, other than any acquisition by
us, any of our subsidiaries or any of our employee benefit
plans; or
- our consolidation or merger with or into any other person,
any merger of another person into us, or any conveyance,
transfer, sale, lease or other disposition of all or
substantially all of our properties and assets to another
person, other than:
(1) any transaction (A) that does not result in any
reclassification, conversion, exchange or
cancellation of outstanding shares of our capital
stock and (B) pursuant to which holders of our
capital stock immediately prior to the transaction
have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of
all shares of the capital stock entitled to vote
generally in the election of directors of the
continuing or surviving person immediately after the
transaction; and
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<PAGE> 23
(2) any merger solely for the purpose of changing our
jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of
outstanding shares of common stock solely into
shares of common stock of the surviving entity.
However, a change of control will be deemed not to have occurred if the
closing sale price per share of our common stock for any five trading days
within:
- the period of 10 consecutive trading days ending
immediately after the later of the change of control or the
public announcement of the change of control, in the case
of a change of control under the first clause above, or
- the period of 10 consecutive trading days ending
immediately before the change of control, in the case of a
change of control under the second clause above,
equals or exceeds 110% of the conversion price of the convertible notes in
effect on each such trading day. The beneficial owner shall be determined in
accordance with Rule l3d-3 promulgated by the SEC under the Exchange Act. The
term "person" includes any syndicate or group which would be deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders if an issuer tender offer occurs and may apply
if the repurchase option becomes available to holders of the convertible notes.
We will comply with this rule to the extent applicable at that time.
We may, to the extent permitted by applicable law, at any time purchase
the convertible notes in the open market or by tender at any price or by private
agreement. Any convertible note so purchased by us may, to the extent permitted
by applicable law, be reissued or resold or may be surrendered to the trustee
for cancellation. Any convertible notes surrendered to the trustee may not be
reissued or resold and will be canceled promptly.
The change of control feature of the convertible notes may in certain
circumstances make more difficult or discourage a takeover of Online Resources
and thus, the removal of incumbent management. The repurchase right is not the
result of our knowledge of any effort to accumulate any common stock or to
obtain control of Online Resources by means of a merger, tender offer,
solicitation, or otherwise, or part of a plan by us to adopt a series of
anti-takeover provisions. Instead, this right is the result of negotiations
between us and the initial purchasers.
The foregoing provisions would not necessarily protect holders of the
convertible notes if highly leveraged or other transactions involving us occur
that may adversely affect holders.
Our ability to repurchase convertible notes upon the occurrence of a
change in control is subject to important limitations. The occurrence of a
change in control could cause an event of default under, or be prohibited or
limited by, the terms of Senior Debt that we may incur in the future. As a
result, any repurchase of the convertible notes would, absent a waiver, be
prohibited under the subordination provisions of the indenture until the Senior
Debt is paid in full. Further, we cannot assure you that we would have the
financial resources, or would be able to arrange financing, to pay the
repurchase price for all the convertible notes that might be delivered by
holders of convertible notes seeking to exercise the repurchase right. Any
failure by us to repurchase the convertible notes when required following a
change in control would result in an event of default under the indenture,
whether or not such repurchase is permitted by the subordination provisions of
the indenture. Any such default may, in turn, cause a default under Senior Debt
that we may incur in the future. See "-- Subordination" below.
SUBORDINATION
The convertible notes are subordinated in right of payment to the prior
payment in full of all our existing and future Senior Debt. The indenture
provides that in the event of any distribution of our assets upon our
dissolution, winding up, liquidation or reorganization, the holders of our
Senior Debt will first be paid in respect of all Senior Debt in full in cash or
other payment satisfactory to the holders of Senior Debt before we make any
payments of principal of, or premium, if any, and interest (including Additional
Amounts or interest make-whole payments, if any) on the convertible notes. In
addition, if the convertible notes are accelerated because of an event of
default, the holders of any Senior Debt would be entitled to payment in full in
cash or other payment satisfactory to the holders of Senior Debt of all
obligations in respect of Senior Debt before the holders of the convertible
notes are entitled to receive any payment or distribution. Under the indenture,
we must promptly notify holders of Senior Debt if payment of the convertible
notes is accelerated because of an event of default.
The indenture further provides if any default by us has occurred and is
continuing in the payment of principal of or premium, if any, or interest on,
rent or other payment obligations in respect of, any Senior Debt, no payment may
be made on account of principal of, premium, if any, or interest on the
convertible notes (including Additional Amounts or interest make-whole payments,
if any), until all such payments due in respect of that Senior Debt have been
paid in full in cash or other payment satisfactory to the holders of that
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<PAGE> 24
Senior Debt. During the continuance of any event of default with respect to any
Designated Senior Debt (other than a default in payment of the principal of or
premium, if any, or interest on, rent or other payment obligations in respect of
any Designated Senior Debt), permitting the holders thereof to accelerate the
maturity thereof (or, in the case of any lease, permitting the landlord either
to terminate the lease or to require us to make an irrevocable offer to
terminate the lease following an event of default thereunder), no payment may be
made by us, directly or indirectly, with respect to principal of or premium, if
any, or interest on the convertible notes (including Additional Amounts or
interest make-whole payments, if any) for 179 days following written notice to
us, from any holder, representative or trustee under any agreement pursuant to
which that Designated Senior Debt may have been issued, that such an event of
default has occurred and is continuing, unless such event of default has been
cured or waived or that Designated Senior Debt has been paid in full in cash or
other payment satisfactory to the holders of that Designated Senior Debt.
However, if the maturity of that Designated Senior Debt is accelerated (or, in
the case of a lease, as a result of such events of default, the landlord under
the lease has given us notice of its intention to terminate the lease or to
require us to make an irrevocable offer to terminate the lease following an
event of default thereunder), no payment may be made on the convertible notes
until that Designated Senior Debt has been paid in full in cash or other payment
satisfactory to the holders of that Designated Senior Debt or such acceleration
(or termination, in the case of the lease) has been cured or waived.
By reason of such subordination provisions, in the event of insolvency,
funds which we would otherwise use to pay the holders of convertible notes will
be used to pay the holders of Senior Debt to the extent necessary to pay Senior
Debt in full in cash or other payment satisfactory to the holders of Senior
Debt. As a result of these payments, our general creditors may recover less,
ratably, than holders of Senior Debt and such general creditors may recover
more, ratably, than holders of convertible notes.
"Senior Debt" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
termination payment with respect to or in connection with, and all fees, costs,
expenses and other amounts accrued or due on or in connection with, our
Indebtedness, whether outstanding on the date of the indenture or subsequently
created, incurred, assumed, guaranteed or in effect guaranteed by us (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless in the case of any
particular Indebtedness, the instrument creating or evidencing such Indebtedness
or the assumption or guarantee thereof expressly provides that that Indebtedness
shall not be senior in right of payment to the convertible notes or expressly
provides that such Indebtedness is equal with or junior to the convertible
notes. However, the term "Senior Debt" does not include our Indebtedness to any
of our subsidiaries of which we own, directly or indirectly, a majority of the
voting stock.
"Indebtedness" means, with respect to any person:
(1) all indebtedness, obligations and other liabilities
(contingent or otherwise) of that person for borrowed money
(including obligations in respect of overdrafts, foreign
exchange contracts, currency exchange agreements, interest
rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, convertible notes,
notes or other instruments for the payment of money, or
incurred in connection with the acquisition of any
property, services or assets (whether or not the recourse
of the lender is to the whole of the assets of such person
or to only a portion thereof), other than any account
payable or other accrued current liability or obligation to
trade creditors incurred in the ordinary course of business
in connection with the obtaining of materials or services;
(2) all reimbursement obligations and other liabilities
(contingent or otherwise) of that person with respect to
letters of credit, bank guarantees, bankers' acceptances,
surety bonds, performance bonds or other guaranty of
contractual performance;
(3) all obligations and liabilities (contingent or otherwise)
in respect of (A) leases of such person required, in
conformity with generally accepted accounting principles,
to be accounted for as capitalized lease obligations on the
balance sheet of such person, and (B) any lease or related
documents (including a purchase agreement) in connection
with the lease of real property which provides that such
person is contractually obligated to purchase or cause a
third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property
to the landlord and the obligations of such person under
such lease or related document to purchase or to cause a
third party to purchase the leased property;
(4) all obligations of such person (contingent or otherwise)
with respect to an interest rate or other swap, cap or
collar agreement or other similar instrument or agreement
or foreign currency hedge, exchange, purchase or similar
instrument or agreement;
(5) all direct or indirect guaranties or similar agreements by
that person in respect of, and obligations or liabilities
(contingent or otherwise) of that person to purchase or
otherwise acquire or otherwise assure a creditor against
loss
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in respect of, indebtedness, obligations or liabilities of
another person of the kind described in clauses (1) through
(4);
(6) any indebtedness or other obligations described in clauses
(1) through (4) secured by any mortgage, pledge, lien or
other encumbrance existing on property which is owned or
held by such person, regardless of whether the indebtedness
or other obligation secured thereby shall have been assumed
by such person; and
(7) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any
indebtedness, obligation or liability of the kind described
in clauses (1) through (6).
"Designated Senior Debt" means our Senior Debt which, at the date of
determination, has an aggregate amount outstanding of, or under which, at the
date of determination, the holders thereof are committed to lend up to, at least
$5 million and is specifically designated in the instrument evidencing or
governing that Senior Debt as "Designated Senior Debt" for purposes of the
indenture. However, the instrument may place limitations and conditions on the
right of that Senior Debt to exercise the rights of Designated Senior Debt. As
of September 30, 2000, we had approximately $487,818 of Senior Debt and no
Designated Senior Debt. The indenture does not restrict the creation of Senior
Debt or any other indebtedness in the future. For information concerning our
potential incurrence of additional Senior Debt, see "Management's Discussion of
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
The convertible notes are our obligations exclusively and will be, in
effect, subordinated to all Indebtedness (including trade payables) of any
subsidiaries that we own in the future. The indenture does not limit the amount
of Indebtedness or other liabilities any future subsidiaries may incur. Our
ability to make required interest, principal, repurchase, cash conversion or
redemption payments on the convertible notes may be impaired as a result of the
obligations of any future subsidiaries. Any future subsidiaries would be
separate and distinct legal entities and would have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the convertible notes or to make
any funds available therefor, whether by dividends, loans or other payments. Any
right we have to receive assets of any of our future subsidiaries upon the
latter's liquidation or reorganization (and the consequent right of the holders
of the convertible notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors, except to the extent
that we are ourselves recognized as a creditor of that subsidiary, in which case
our claims would still be subordinate to any security interests in the assets of
that subsidiary and any indebtedness of that subsidiary senior to that held by
us.
In the event that, notwithstanding the foregoing, the trustee or any
holder of convertible notes receives any payment or distribution of assets of
any kind in contravention of any of the subordination provisions of the
indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the convertible notes
before all Senior Debt is paid in full, then such payment or distribution will
be held by the recipient in trust for the benefit of the holders of the Senior
Debt or their representative or representatives to the extent necessary to make
payment in full of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Debt.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against any losses, liabilities or expenses incurred by it
in connection with its duties relating to the convertible notes. The trustee's
claims for such payments will be senior to those of holders of the convertible
notes in respect of all funds collected or held by the trustee.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the
indenture:
(1) our failure to pay when due the principal of or premium, if
any, on any of the convertible notes at maturity, upon
redemption or exercise of a repurchase right or otherwise,
whether or not such payment is prohibited by the
subordination provisions of the indenture;
(2) our failure to pay an installment of interest (including
Additional Amounts, if any) on any of the convertible notes
for 30 days after the date when due, whether or not such
payment is prohibited by the subordination provisions of
the indenture;
(3) our failure to perform or observe any other term, covenant
or agreement contained in the convertible notes or the
indenture for a period of 60 days after written notice of
such failure, requiring us to remedy the same, shall have
been given to us by the trustee or to us and the trustee by
the holders of at least 25% in aggregate principal amount
of the convertible notes then outstanding;
(4) our default under any Indebtedness for money borrowed by
us, the aggregate outstanding principal amount of which is
in an amount in excess of $5 million, for a period of 30
days after written notice to us by the trustee or to us and
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<PAGE> 26
the trustee by holders of at least 25% in aggregate
principal amount of the convertible notes then outstanding,
which default:
- is caused by our failure to pay when due principal
or interest on such Indebtedness by the end of the
applicable grace period, if any, unless such
Indebtedness is discharged; or
- results in the acceleration of such Indebtedness,
unless such acceleration is waived, cured, rescinded
or annulled; and
(5) certain events of our bankruptcy, insolvency or
reorganization.
The indenture provides that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the convertible notes
notice of all uncured defaults known to it, but the trustee shall be protected
in withholding such notice if it, in good faith, determines that the withholding
of such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the convertible notes when due or in the payment of any
redemption or repurchase obligation.
If an event of default specified in clause (5) above occurs and is
continuing, then automatically the principal of all the convertible notes and
the interest thereon shall become immediately due and payable. If an event of
default shall occur and be continuing, other than with respect to clause (5)
above (the default not having been cured or waived as provided under "--
Modifications, Amendments and Meetings" below), the trustee or the holders of at
least 25% in aggregate principal amount of the convertible notes then
outstanding may declare the convertible notes due and payable at their principal
amount together with accrued interest, and thereupon the trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of
convertible notes by appropriate judicial proceedings. Such declaration may be
rescinded or annulled either with the written consent of the holders of a
majority in aggregate principal amount of the convertible notes then outstanding
or a majority in aggregate principal amount of the convertible notes represented
at a meeting at which a quorum (as specified under "-- Modifications, Amendments
and Meetings" below) is present, in each case upon the conditions provided in
the indenture.
The indenture contains a provision entitling the trustee, subject to the
duty of the trustee during default to act with the required standard of care, to
be indemnified by the holders of convertible notes before proceeding to exercise
any right or power under the indenture at the request of such holders. The
indenture provides that the holders of a majority in aggregate principal amount
of the convertible notes then outstanding through their written consent, or the
holders of a majority in aggregate principal amount of the convertible notes
then outstanding represented at a meeting at which a quorum is present by a
written resolution, may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred upon the trustee.
We are required to furnish annually to the trustee a statement as to the
fulfillment of our obligations under the indenture.
CONSOLIDATION, MERGER OR ASSUMPTION
We may, without the consent of the holders of convertible notes,
consolidate with, merge into or transfer all or substantially all of our assets
to any other corporation organized under the laws of the United States or any of
its political subdivisions provided that:
- the surviving corporation assumes all our obligations under
the indenture and the convertible notes;
- at the time of such transaction, no event of default, and
no event which, after notice or lapse of time, would become
an event of default, shall have happened and be continuing;
and
- certain other conditions are met.
MODIFICATIONS, AMENDMENTS AND MEETINGS
Changes Requiring Approval of Each Affected Holder
The indenture (including the terms and conditions of the convertible
notes) cannot be modified or amended without the written consent or the
affirmative vote of the holder of each convertible note affected by such change
to:
- change the maturity of the principal of or any installment
of interest on that convertible note (including any payment
of Additional Amounts);
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- reduce the principal amount of, or any premium or interest
on (including any payment of Additional Amounts), that
convertible note;
- change the currency of payment of that convertible note or
interest thereon;
- impair the right to institute suit for the enforcement of
any payment on or with respect to that convertible note;
- modify our obligations to maintain an office or agency for
payments on the convertible notes in New York City;
- except as otherwise permitted or contemplated by provisions
concerning corporate reorganizations, adversely affect the
repurchase option of holders upon a change of control or
the conversion rights of holders of the convertible notes;
- modify the subordination provisions of the indenture in a
manner adverse to the holders of convertible notes;
- modify the redemption provisions of the indenture in a
manner adverse to the holders of convertible notes;
- reduce the percentage in aggregate principal amount of
convertible notes outstanding necessary to modify or amend
the indenture or to waive any past default; or
- reduce the percentage in aggregate principal amount of
convertible notes outstanding required for the adoption of
a resolution or the quorum required at any meeting of
holders of convertible notes at which a resolution is
adopted.
Changes Requiring Majority Approval
- The indenture (including the terms and conditions of the
convertible notes) may be modified or amended either:
- with the written consent of the holders of at least a
majority in aggregate principal amount of the convertible
notes at the time outstanding; or
- by the adoption of a resolution at a meeting of holders by
at least a majority in aggregate principal amount of the
convertible notes represented at such meeting.
Changes Requiring No Approval
The indenture (including the terms and conditions of the convertible
notes) may be modified or amended by us and the trustee, without the consent of
the holder of any convertible note, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of
convertible notes;
- surrendering any right or power conferred upon us;
- providing for conversion rights of holders of convertible
notes if any reclassification or change of our common stock
or any consolidation, merger or sale of all or
substantially all of our assets occurs;
- providing for the assumption of our obligations to the
holders of convertible notes in the case of a merger,
consolidation, conveyance, transfer or lease;
- reducing the conversion price, provided that the reduction
will not adversely affect the interests of the holders of
convertible notes;
- complying with the requirements of the SEC in order to
effect or maintain the qualification of the indenture under
the Trust Indenture Act of 1939, as amended;
- making any changes or modifications necessary in connection
with the registration of the convertible notes under the
Securities Act as contemplated in the registration rights
agreement; provided that such change or modification does
not, in the good faith opinion of our board of directors
and the trustee, adversely affect the interests of the
holders of convertible notes in any material respect;
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<PAGE> 28
- curing any ambiguity or correcting or supplementing any
defective provision contained in the indenture; provided
that such modification or amendment does not, in the good
faith opinion of our board of directors and the trustee,
adversely affect the interests of the holders of
convertible notes in any material respect;
- adding or modifying any other provisions which we and the
trustee may deem necessary or desirable and which will not
adversely affect the interests of the holders of
convertible notes; or
- make provision for the establishment of a book-entry
system, in which holders of convertible notes would have
the option to participate, for the clearance and settlement
of transactions in securities originally issued in
definitive form.
Meetings
The indenture contains provisions for convening meetings of the holders
of convertible notes to consider matters affecting their interests.
Quorum
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the
convertible notes at the time outstanding and, at any reconvened meeting
adjourned for lack of a quorum, 25% of the aggregate principal amount.
SATISFACTION AND DISCHARGE
We may satisfy and discharge our obligations under the indenture while
convertible notes remain outstanding, subject to certain conditions, if-
- all outstanding convertible notes will become due and
payable at their scheduled maturity within one year; or
- all outstanding convertible notes are scheduled for
redemption within one year,
and, in either case, we have deposited with the trustee an amount sufficient to
pay and discharge all outstanding convertible notes on the date of their
scheduled maturity or the scheduled date of redemption.
GOVERNING LAW
The indenture and the convertible notes are governed by, and construed in
accordance with, the law of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
Bankers Trust Company, as trustee under the indenture, has been appointed
by us as paying agent, conversion agent, registrar and custodian with regard to
the convertible notes. American Stock Transfer is the transfer agent and
registrar for our common stock. The trustee or its affiliates may from time to
time in the future provide banking and other services to us in the ordinary
course of their business.
REGISTRATION RIGHTS
When we issued the convertible notes, we entered into a registration
rights agreement with the placement agent for the benefit of the holders of the
convertible notes. As required under the agreement, we have filed with the SEC,
at our expense, a shelf registration statement, of which this prospectus forms a
part, covering the resale by holders of convertible notes and the common stock
issuable upon conversion of the convertible notes. Pursuant to the agreement, we
will, at our expense:
- use our reasonable efforts to keep the registration
statement effective until the earliest of
- two years after the last date of original issuance
of any of the convertible notes;
- the date when the holders of the convertible notes
and the common stock issuable upon conversion of the
convertible notes are able to sell all such
securities immediately without restriction pursuant
to the volume limitation provisions of Rule 144
under the Securities Act; and
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- the date when all of the convertible notes and the
common stock into which the convertible notes are
convertible that are owned by the holders who
complete and deliver in a timely manner the selling
security holder election and questionnaire described
below are registered under the shelf registration
statement and disposed of in accordance with the
shelf registration statement.
Each holder must notify us not later than three business days prior to
any proposed sale by that holder pursuant to the shelf registration statement.
This notice will be effective for five business days. We may suspend the
holder's use of the prospectus for a reasonable period not to exceed 45 days in
any 90-day period, and not to exceed an aggregate of 90 days in any 360-day
period, if:
- the prospectus would, in our judgment, contain a material
misstatement or omission as a result of an event that has
occurred and is continuing; and
- we reasonably determine that the disclosure of this
material non-public information would have a material
adverse effect on us and our subsidiaries taken as a whole.
However, if the disclosure relates to a previously undisclosed proposed
or pending material business transaction, the disclosure of which would impede
our ability to consummate such transaction, we may extend the suspension period
from 45 days to 60 days. Each holder, by its acceptance of a convertible note,
agrees to hold any communication by us in response to a notice of a proposed
sale in confidence.
Upon the initial sale of convertible notes or common stock issued upon
conversion of the convertible notes, each selling holder will be required to
deliver a notice of such sale, to the trustee and us. The notice will, among
other things:
- identify the sale as a transfer pursuant to the shelf
registration statement;
- certify that the prospectus delivery requirements, if any,
of the Securities Act have been complied with;
- certify that the selling holder and the aggregate principal
amount of convertible notes or number of shares, as the
case may be, owned by such holder are identified in the
related prospectus in accordance with the applicable rules
and regulations under the Securities Act;
If:
- we have not filed the shelf registration statement with the
SEC prior to or on the 90th day following the earliest date
of original issuance of any of the convertible notes;
- the shelf registration statement has not been declared
effective prior to or on the 180th day following the
earliest date of original issuance of any of the
convertible notes; or
- the registration statement ceases to be effective or fails
to be usable and (1) we do not cure the registration
statement within five business days by a post-effective
amendment or a report filed pursuant to the Exchange Act or
(2) if applicable, we do not terminate the suspension
period, described in the preceding paragraph, by the 45th
or 60th day, as the case may be (each, a "registration
default"),
then additional interest (the "Additional Amounts") will accrue on the
convertible notes, from and including the day following the registration default
to but excluding the day on which the registration default has been cured.
Additional Amounts will be paid semiannually in arrears, with the first
semiannual payment due on the first interest payment date, as applicable,
following the date on which such Additional Amounts begin to accrue, and will
accrue at a rate per year equal to:
- an additional 0.25% of the principal amount to and
including the 90th day following such registration default;
and
- an additional 0.5% of the principal amount from and after
the 91st day following such registration default.
In no event will Additional Amounts accrue at a rate per year exceeding
0.5%. If a holder has converted some or all of its convertible notes into common
stock, the holder will be entitled to receive equivalent amounts based on the
principal amount of the convertible notes converted. A holder will not be
entitled to Additional Amounts unless it has provided all information requested
by the questionnaire prior to the twenty business day deadline.
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FORM, DENOMINATION AND REGISTRATION
Denomination and Registration. The convertible notes were issued in fully
registered form, without coupons, in minimum denominations of $250,000 principal
amount and whole multiples of $1,000.
Global Notes; Book-Entry Form. The convertible notes issued initially to
QIBs are represented by a single, permanent global note in definitive,
fully-registered form without interest coupons. The global note was deposited
with the trustee as custodian for DTC and registered in the name of a nominee of
DTC in New York, New York for the accounts of participants in DTC.
Investors who are QIBs and who purchase convertible notes in reliance on
an exemption pursuant to Section 4 of the Securities Act may hold their
interests in the global note directly through DTC if they are DTC participants,
or indirectly through organizations that are DTC participants.
Convertible notes issued or transferred to accredited investors (as
defined in Rule 501 under the Securities Act) were issued and physically
delivered in fully registered, definitive form and may not be represented by
interests in the global note.
Upon transfer of a definitive convertible note to a QIB pursuant to Rule
144A, the definitive convertible note may be exchanged for an interest in the
global note, and the transferee may hold its interest through a participant in
DTC. All transfers described in this paragraph are subject to certain
restrictions set forth in the indenture, including a requirement for the
delivery of certain certifications and other documents.
Except as set forth below, the global note may be transferred, in whole
or in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of
the State of New York;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
- a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act.
DTC was created to hold securities of institutions that have accounts
with DTC and to facilitate the clearance and settlement of securities
transactions among its participants in securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. DTC's participants include:
- securities brokers and dealers;
- banks;
- trust companies;
- clearing corporations; and
- certain other organizations.
Access to DTC's book-entry system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Upon the issuance of the global note, DTC credited, on its book-entry
registration and transfer system, the respective principal amounts of the
individual beneficial interests represented by the global note to the accounts
of participants. The accounts credited were be designated by the initial
purchasers of the beneficial interests. Ownership of beneficial interests in the
global note is limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in the global note is
shown on, and the transfer of those ownership interests will be effected only
through, records maintained by DTC (with respect to participants' interests) and
the participants (with respect to the owners of beneficial interests in the
global note other than participants).
So long as DTC or its nominee is the registered holder and owner of the
global note, DTC or its nominee, as the case may be, will be considered the sole
legal owner of the convertible notes represented by the global note for all
purposes under the indenture and the
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convertible notes. Except as set forth below, owners of beneficial interests in
the global note will not be entitled to receive definitive convertible notes and
will not be considered to be the owners or holders of any convertible notes
under the global note. We understand that under existing industry practice, in
the event an owner of a beneficial interest in the global note desires to take
any action that DTC, as the holder of the global note, is entitled to take, DTC
would authorize the participants to take the action, and that participants would
authorize beneficial owners owning through the participants to take the action
or would otherwise act upon the instructions of beneficial owners owning through
them. No beneficial owner of an interest in the global note will be able to
transfer the interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the indenture.
We will make payments of the principal, premium, if any and interest
(including Additional Amounts and interest make-whole payments, if any) on the
convertible notes represented by the global note registered in the name of and
held by DTC or its nominee to DTC or its nominee, as the case may be, as the
registered owner and holder of the global note.
We expect that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the global note, will credit 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
DTC or its nominee. We also expect that payments by participants and indirect
participants to owners of beneficial interests in the global note held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for accounts of customers
registered in the names of nominees for these customers. The payments, however,
will be the responsibility of the participants and indirect participants, and
neither we, the trustee nor any paying agent or conversion agent will have any
responsibility or liability for:
- any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in the global
note;
- maintaining, supervising or reviewing any records relating
to the beneficial ownership interests;
- any other aspect of the relationship between DTC and its
participants; or
- the relationship between the participants and indirect
participants and the owners of beneficial interests in the
global note.
Unless and until it is exchanged in whole or in part for definitive
convertible notes, the global note may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC.
Participants in DTC will effect transfers with other participants in the
ordinary way in accordance with DTC rules and will settle transfers in same-day
funds. If a holder requires physical delivery of a definitive convertible note
for any reason, including to sell convertible notes to persons in jurisdictions
which require physical delivery or to pledge convertible notes, the holder must
transfer its interest in the global note in accordance with the normal
procedures of DTC and the procedures set forth in the indenture.
We expect that DTC will take any action permitted to be taken by a holder
of convertible notes (including the presentation of convertible notes for
exchange as described below) only at the direction of one or more participants
to whose accounts at DTC interests in the global note are credited and only in
respect of the portion of the aggregate principal amount of the convertible
notes as to which the participant or participants has or have given direction.
However, if there is an event of default under the convertible notes, DTC will
exchange the global note for definitive convertible notes, which it will
distribute to its participants. These definitive convertible notes are subject
to certain restrictions on registration of transfers and will bear appropriate
legends restricting their transfer.
Although we expect that DTC will agree to the foregoing procedures in
order to facilitate transfers of interests in the global note among participants
of DTC, DTC is under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither we nor
the trustee have any responsibility for the performance by DTC or its
participants or indirect participants of their obligations under the rules and
procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the global note or ceases to be a clearing agency registered under the Exchange
Act and we do not appoint a successor depositary within 90 days, we will issue
definitive convertible notes in exchange for the global note. The definitive
convertible notes will be subject to certain restrictions on registration of
transfers and will bear appropriate legends concerning these restrictions.
Definitive Convertible Notes. A QIB may request that its convertible note
be issued in definitive form, and may request at any time that its interest in a
global note be exchanged for a convertible note in definitive form. Definitive
convertible notes may also be issued in exchange for convertible notes
represented by the global notes if we do not appoint a successor depositary as
set forth above under " - Global Notes; Book-Entry Form" or in certain other
circumstances set forth in the indenture.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax
consequences of the purchase, ownership, disposition and conversion of the
convertible notes and the common stock into which convertible notes may be
converted, but does not purport to be a complete analysis of all the potential
tax considerations relating thereto. This summary is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), U.S. Treasury Regulations,
Internal Revenue Service ("IRS") rulings, and judicial decisions currently in
effect, all of which are subject to change (possibly with retroactive effect) or
different interpretations.
This summary does not deal with all aspects of U.S. federal income
taxation that may be relevant to holders of the convertible notes or common
stock and does not deal with tax consequences arising under the laws of any
state, local or foreign jurisdiction or with any estate or gift tax
considerations. This summary deals only with holders that will hold convertible
notes and common stock as capital assets and does not address tax considerations
applicable to investors that may be subject to special tax rules such as banks,
insurance companies, tax-exempt organizations, dealers in securities or
currencies, traders in securities that elect mark-to-market treatment, persons
that will hold convertible notes or common stock as part of an integrated
investment (including a "straddle") comprised of convertible notes or shares of
common stock and one or more other positions, persons that have a "functional
currency" other than the U.S. dollar or holders of convertible notes that did
not acquire the convertible notes in the initial distribution thereof at their
original issue price.
For the purpose of this discussion, a "U.S. Holder" refers to (a) an
individual who is a citizen or resident of the United States, (b) a U.S.
domestic corporation or (c) any other person that is subject to U.S. federal
income tax on a net income basis in respect of its investment in the convertible
notes.
PROSPECTIVE HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR OWNERSHIP AND
DISPOSITION OF THE CONVERTIBLE NOTES, INCLUDING CONVERSION OF THE CONVERTIBLE
NOTES, AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX
CONSEQUENCES.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS
Interest on Convertible Notes
Stated interest on the convertible notes generally will be taxable to a
U.S. Holder as ordinary interest income at the time that such interest is
accrued or received in accordance with the holder's regular method of accounting
for U.S. federal income tax purposes.
Sale, Exchange, Redemption or Retirement of Convertible Notes
In general, a U.S. Holder of convertible notes will recognize gain or
loss upon the sale, exchange, redemption, retirement or other disposition of the
convertible notes (other than a conversion into common stock or a repurchase for
common stock) measured by the difference between (a) the amount realized (except
to the extent attributable to accrued but unpaid interest which will be treated
as such) and (b) the U.S. Holder's adjusted tax basis in the convertible notes.
Any such gain or loss recognized on the sale, exchange, redemption, retirement
or other disposition of a convertible note will be capital gain or loss, and
generally will be long-term capital gain or loss if the convertible note has
been held for more than one year at the time of the sale or exchange.
Conversion or Repurchase for Common Stock
In general, a holder of convertible notes will not recognize gain or loss
on the conversion of the convertible notes into shares of common stock or a
repurchase of a convertible note for common stock, except upon the receipt of
cash in lieu of a fractional share. The holder's tax basis in the shares of
common stock received upon conversion or repurchase of the convertible notes
will equal the holder's aggregate basis in the convertible notes exchanged
therefor (less any portion thereof allocable to a fractional share). The holding
period of the shares of common stock received by the holder upon conversion or
repurchase of convertible notes generally will include the period during which
the holder held the convertible notes prior to conversion or repurchase. Cash
received in lieu of a fractional share of common stock should be treated as a
payment in exchange for such fractional share (rather than a dividend). Gain or
loss recognized on the receipt of cash paid in lieu of a fractional share
generally will equal the difference between the amount of cash received and the
tax basis allocable to the fractional share. Any such gain or loss generally
will result in capital gain or loss, and generally will be long-term capital
gain or loss if the convertible notes were held for more than one year at the
time of conversion or repurchase.
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Registration Rights
The registration of the convertible notes pursuant to our obligations
under "Description of the Convertible Notes--Registration Rights" will not
constitute a taxable event for U.S. federal income tax purposes and will not
affect a U.S. Holder's tax basis in the convertible notes. A U.S. Holder's
holding period for the registered convertible notes will include the holding
period such U.S. Holder had in the convertible notes before such convertible
notes were registered.
Adjustments to Conversion Price-Constructive Dividends
If at any time (a) we make a distribution to our shareholders or purchase
common stock in a tender offer and such distribution or purchase would be
taxable to such stockholders as a dividend for U.S. federal income tax purposes
(e.g., distributions of evidences of indebtedness or assets, but generally not
stock dividends or rights to subscribe for common stock) and, pursuant to the
antidilution provisions in the indenture, the conversion rate of the convertible
notes is increased, (b) the conversion rate of the convertible notes is
increased due to an annual adjustment (as described in the indenture), or (c)
the conversion rate of the convertible notes is increased at our discretion,
such increase may be deemed to be the payment of a taxable dividend to holders
or beneficial owners of convertible notes (pursuant to Section 305 of the Code).
Holders of convertible notes therefore could have taxable income as a result of
an event in which they receive no cash or property. Similarly, a failure to
adjust the conversion rate to reflect a stock dividend or other event increasing
the proportionate interest of the holders of outstanding common stock could, in
some circumstances, give rise to deemed dividend income to U.S. Holders of such
common stock.
Dividends Paid on the Shares
In general, a U.S. Holder will be required to include in gross income as
ordinary dividend income the amount of any distributions paid on the common
stock after a conversion or repurchase for common stock (or deemed distributions
on the convertible notes as described above under "Adjustments to Conversion
Price--Constructive Dividends") to the extent that such distributions are paid
out of our current or accumulated earnings and profits as determined for U.S.
federal income tax purposes. Distributions in excess of such earnings and
profits will be applied against and will reduce the U.S. Holder's tax basis in
its common stock and, to the extent in excess of such tax basis, will be treated
as gain from a sale or exchange of such common stock.
Disposition of Shares
Gain or loss realized on the sale or exchange of common stock will equal
the difference between (a) the amount realized on such sale or exchange and (b)
the holder's adjusted tax basis in such common stock. Such gain or loss will
generally be long-term capital gain or loss if the holder has held or is deemed
to have held (e.g., by reason of ownership of the convertible notes) the common
stock for more than one year.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Convertible Notes
Payment on a convertible note by us or any paying agent to a holder of a
convertible note that is not a U.S. Person (as defined below) (a "Non-U.S.
Holder") will not be subject to withholding of U.S. federal income tax, provided
that, with respect to payments of interest, (a) the holder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of our capital stock and is not a controlled foreign corporation related
to us through stock ownership and (b) the beneficial owner of the convertible
note provides a statement signed under penalties of perjury that includes its
name and address and certifies that it is a Non-U.S. Holder in compliance with
applicable requirements (or, with respect to payments made after December 31,
2000, satisfies certain documentary evidence requirements for establishing that
it is a Non-U.S. Holder).
If these requirements are not satisfied, a thirty percent withholding tax
will apply to interest payments on the convertible notes, unless the interest is
effectively connected with a U.S. trade or business, or an applicable treaty
provides for a lower rate of, or exemption from, withholding tax.
For this purpose, a "U.S. Person" is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any 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 (a) a U.S. court is able to exercise primary
supervision over the trust's administration and (b) one or more United States
persons have the authority to control all of the trust's substantial decisions.
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Sale, Exchange or Redemption of Convertible Notes or Shares of Common Stock
In general, a Non-U.S. Holder will not be subject to U.S. federal income
tax on gain realized on the sale, exchange or redemption of convertible notes or
shares of common stock received in exchange therefor, unless (a) such gain is
effectively connected with the conduct by the holder of a trade or business in
the United States or (b) in the case of gain realized by an individual holder,
the holder is present in the United States for 183 days or more in the taxable
year of the sale and either (A) such gain or income is attributable to an office
or other fixed place of business maintained in the United States by such holder
or (B) such holder has a tax home in the United States.
Conversion of Convertible Notes
A Non-U.S. Holder generally will not be subject to U.S. federal income
tax on the conversion of a convertible note into shares of common stock.
However, to the extent a Non-U.S. Holder receives cash in lieu of a fractional
share upon conversion, any gain upon the receipt of cash would be subject to the
rules described above regarding the sale or exchange of common shares.
Dividends on Shares of Common Stock
In general, any dividend paid, or deemed paid, on common stock (including
a deemed distribution on the convertible notes described above under "Certain
Federal Income Tax Consequences Applicable to U.S. Holders-Adjustments to
Conversion Price-Constructive Dividends") to a Non-U.S. Holder will be subject
to U.S. federal income tax withholding at a rate of 30%, unless (a) a lower rate
is provided by an applicable tax treaty or (b) the distribution is effectively
connected with the conduct of a trade or business in the United States by the
Non-U.S. Holder. For either of these exceptions to apply, the Non-U.S. Holder
may be required to provide a properly executed certificate claiming the benefit
of a treaty or exemption.
Federal Estate Taxes
A convertible note will not be subject to U.S. federal estate tax as a
result of the death of a holder who is not a citizen or resident of the United
States at the time of death, provided that such holder did not at the time of
death actually or constructively own 10 percent or more of the combined voting
power of all classes of our stock and, at the time of such holder's death,
payments of interest on such convertible note would not have been effectively
connected with the conduct by such holder of a trade or business in the United
States.
Common stock owned or treated as being owned by a Non-U.S. Holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders
Information reporting and backup withholding may apply to payments of
principal, interest, premium or dividends on or the proceeds from the sale or
other disposition (including a payment of cash in lieu of a fractional share
upon conversion) of the convertible notes or common stock with respect to
certain noncorporate U.S. Holders. Such U.S. Holders generally will be subject
to backup withholding at a rate of 31% unless the U.S. Holder provides a correct
taxpayer identification number and certain other information, certified under
penalties of perjury, to the payor, or otherwise establishes an exemption from
backup withholding. Any amount withheld under backup withholding is allowable as
a credit against the U.S. Holder's federal income tax liability, provided the
proper information is provided to the IRS.
Non-U.S. Holders
In general, information reporting will apply to payments of interest
and/or premium (if any) on the convertible notes or dividends on the common
stock, and backup withholding at a rate of 31% may apply unless the payee
certifies that it is not a U.S. person or otherwise establishes an exemption. In
addition, information reporting and backup withholding will apply to payments of
principal on the convertible notes unless the payee certifies that it is not a
U.S. person or otherwise establishes an exemption.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a convertible note or common
stock effected outside the United States by a foreign office of a foreign
"broker" (as defined in applicable
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Treasury regulations), provided that such broker (a) derives less than 50
percent of its gross income for certain periods from the conduct of a trade or
business in the United States, (b) is not a controlled foreign corporation for
U.S. federal income tax purposes and (c) with respect to sales effected after
December 31, 2000, is not a foreign partnership that, at any time during its
taxable year, is 50 percent or more (by income or capital interest) owned by
U.S. persons or is engaged in the conduct of a U.S. trade or business. Payment
of the proceeds of the sale of a convertible note or common stock effected
outside the United States by a foreign office of any other broker will not be
subject to backup withholding tax, but will be subject to information reporting
requirements unless such broker has documentary evidence in its records that the
beneficial owner is a Non-U.S. Holder and certain other conditions are met, or
the beneficial owner otherwise establishes an exemption. Payment of the proceeds
of a sale or other disposition (including a payment of cash in lieu of a
fractional share upon conversion) of a convertible note or common stock by the
United States office of a broker will be subject to information reporting
requirements and backup withholding tax unless the beneficial owner certifies
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption.
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DESCRIPTION OF CAPITAL STOCK
The following summarizes all of the material provisions of the common
stock and preferred stock. It does not purport to be complete, however, and is
subject to, and qualified in its entirety by, the provisions of our Restated
Certificate of Incorporation and our Amended and Restated Bylaws, as they will
be amended at the same time, and by the provisions of applicable law.
The authorized capital stock of Online Resources consists of 35,000,000
shares of common stock, par value $.0001 per share, and 3,000,000 shares of
preferred stock, par value $.001 per share, of which 11,647,098 shares of common
stock (assuming no exercise of outstanding options and warrants to purchase
shares of common stock) and no shares of preferred stock are outstanding.
All of the issued and outstanding shares of common stock are fully paid and
nonassessable. As of September 30, 2000, there were 289 holders of record of
outstanding shares of common stock. In addition, as of September 30, 2000, there
were outstanding options to purchase 2,664,428 shares of common stock.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
for the payment of dividends. If we liquidate, dissolve or wind up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
preferred stock. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of holders of
any series of preferred stock currently outstanding or which we may designate
and issue in the future. Holders of common stock have no preemptive rights or
rights to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock.
Delaware law does not require stockholder approval for any issuance of
authorized shares of common stock. These additional shares may be used for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of unissued and unreserved common stock may be to enable the
Board of Directors to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of Online Resources by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of management and possibly deprive
the stockholders of opportunities to sell their shares of common stock at prices
higher than prevailing market prices.
PREFERRED STOCK
Pursuant to our Certificate of Incorporation, the Board of Directors
has the authority, without further action by the stockholders, to issue up to
3,000,000 shares of preferred stock in one or more series and to fix the
designations, powers, preferences, privileges, and relative, participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. The Board of Directors, without stockholder
approval, can issue preferred stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
common stock. Preferred stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of Online Resources or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock, and may
adversely affect the voting and other rights of the holders of common stock.
WARRANTS
As of January 1, 2001, there were outstanding warrants to purchase
1,693,418 shares of our common stock. These warrants have expiration dates
ranging from March 31, 2001 to December 31, 2003 and have exercise prices that
range from $7.01 per share to $8.42 per share. The number of shares for which
the warrants are exercisable is subject to adjustment for stock splits,
combinations or dividends and reclassifications, exchanges or substitutions.
RESTRICTIONS ON ACQUISITION OF ONLINE RESOURCES
Certain provisions in our Certificate of Incorporation and Bylaws and in
our management remuneration, together with provisions of Delaware corporate law,
may have anti-takeover effects.
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Restrictions in Certificate Of Incorporation and Bylaws
A number of provisions of the Certificate of Incorporation and Bylaws
will deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of the provisions of
our Certificate of Incorporation and Bylaws which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the current Board of
Directors or management more difficult.
Board of Directors
The Board of Directors is divided into three classes, each of which
shall contain approximately one-third of the whole number of members of the
Board of Directors. Each class shall serve a staggered term, with approximately
one-third of the total number of directors being elected each year. The
Certificate of Incorporation and Bylaws provide that the size of the Board
shall be determined by a majority of the directors. The Certificate of
Incorporation and the Bylaws provide that any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors or
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, may be filled for the remainder of the unexpired term
exclusively by a majority vote of the directors then in office. The classified
Board is intended to provide for continuity of the Board of Directors and to
make it more difficult and time consuming for a stockholder group to fully use
its voting power to gain control of the Board of Directors without the consent
of the incumbent Board of Directors. The Certificate of Incorporation provides
that a director may be removed from the Board of Directors prior to the
expiration of his term only for cause, upon the vote of 80% or more of the
outstanding shares of voting stock. In the absence of these provisions, the
vote of the holders of a majority of the shares could remove the entire Board,
with or without cause, and replace it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent
The Certificate of Incorporation does not provide for cumulative voting
for any purpose. Moreover, special meetings of stockholders may be called only
by the Board of Directors or an appropriate committee designated by the Board of
Directors. The Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders may be taken only at an
annual or special meeting and prohibits stockholder action by written consent in
lieu of a meeting.
Authorized Shares
The Certificate of Incorporation authorizes the issuance of 35,000,000
shares of common stock and 3,000,000 shares of preferred stock. The shares of
common stock and preferred stock will be authorized in an amount greater than
that to be issued in the offering to provide the Board of Directors with as
much flexibility as possible to effect, among other transactions, finances,
acquisitions, stock dividends, stock splits and employee stock options.
However, these additional authorized shares may also be used by the Board of
Directors consistent with its fiduciary duty to deter future attempts to gain
control of Online Resources. The Board of Directors also has sole authority to
determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of preferred stock, the Board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of preferred stock to persons friendly to management in order to attempt to
block a post-tender offer merger or other transaction by which a third party
seeks control, and thereby assist management to retain its position. Other than
this offering, the Board of Directors currently has no plans for the issuance
of additional shares.
Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders
The Certificate of Incorporation requires the approval of the holders
of at least 80% of the outstanding shares of voting stock entitled to vote
thereon to approve certain "Business Combinations" involving a "Ten Percent
Stockholder," each as defined therein, and related transactions. Under Delaware
law, absent this provision, business combinations, including mergers,
consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of common stock and any
other affected class of stock.
Under the Certificate of Incorporation, the approval of the holders of at
least 80% of the shares of capital stock entitled to vote thereon is required
for any business combination involving a Ten Percent Stockholder (as defined
below) except (i) in cases where the proposed transaction has been approved by a
majority of those members of the Board of Directors who are unaffiliated with
the Ten Percent Stockholder and were Directors prior to the time when the
stockholder became a Ten Percent Stockholder or (ii) if the proposed transaction
meets certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
where stockholder approval is required, the approval of only a majority of the
outstanding shares of voting stock is sufficient.
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<PAGE> 38
The term "Ten Percent Stockholder" means, among others, any individual, a
group acting in concert, corporation, partnership, association or other entity
(other than Online Resources or its subsidiary) who or which is the beneficial
owner, directly or indirectly, of 10% or more of the outstanding shares of
voting stock.
This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include:
- any merger or consolidation of Online Resources or any of its
subsidiaries with any Ten Percent Stockholder or Affiliate (as defined in the
Certificate of Incorporation) of a Ten Percent Stockholder or any corporation
which is, or after such merger or consolidation would be, an Affiliate of a Ten
Percent Stockholder;
- any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Ten Percent Stockholder or Affiliate of 25% or more
of the assets of Online Resources or combined assets of Online Resources and its
subsidiary;
- the issuance or transfer to any Ten Percent Stockholder or its
Affiliate by Online Resources (or any subsidiary) of any securities of Online
Resources (or any subsidiary) in exchange for any cash, securities or other
property the value of which equals or exceeds 25% of the fair market value of
the common stock of Online Resources and its subsidiaries;
- the adoption of any plan for the liquidation or dissolution of Online
Resources proposed by or on behalf of any Ten Percent Stockholder or Affiliate
thereof; and
- any reclassification of securities, recapitalization, merger or
consolidation of Online Resources with any of its subsidiaries which has the
effect of increasing the proportionate share of common stock or any class of
equity or convertible securities of Online Resources or subsidiary owned
directly or indirectly, by a Ten Percent Stockholder or Affiliate thereof.
Supermajority Voting Requirement for Amendment of Certain Provisions of the
Certificate of Incorporation
The Certificate of Incorporation provides that specified provisions
contained in the Certificate of Incorporation may not be repealed or amended
except upon the affirmative vote of the holders of not less than 80% of the
outstanding shares of the common stock entitled to vote generally in the
election of directors. This requirement exceeds the majority vote of the
outstanding stock that would otherwise be required by Delaware law for the
repeal or amendment of the Certificate of Incorporation provision. The specific
provisions covered by the supermajority voting requirement for amendment of such
provisions include the following:
- the calling of special meetings of stockholders, the absence of
cumulative voting rights and the requirement that stockholder action be taken
only at annual meetings;
- the number and classification of the Board of Directors;
- removing directors;
- the requirement for the approval of certain Business Combinations
involving Ten Percent Stockholders;
- the indemnification of directors, officers, employees and agents of
Online Resources;
- the limitation of voting rights; and
- the required stockholder vote for amending the Certificate of
Incorporation or Bylaws.
This provision is intended to prevent the holders of less than 80% of the
outstanding stock from circumventing any of the foregoing provisions by amending
the Certificate of Incorporation to delete or modify one of such provisions.
This provision will enable the holders of more than 20% of the voting stock to
prevent amendments to the Certificate of Incorporation or Bylaws even if they
were favored by the holders of a majority of the voting stock.
Certain Bylaw Provisions
Our Bylaws also require a stockholder who intends to nominate a
candidate for election to the Board of Directors, or to raise new business at a
stockholder meeting to give at least 90 days advance notice to the Secretary.
The notice provision requires a stockholder who desires to raise new
business to provide us certain information concerning the nature of the new
business, the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director needs to provide us with certain information concerning the nominee
and the proposing stockholder.
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<PAGE> 39
Anti-Takeover Effects of the Certificate of Incorporation and Bylaws
The Board of Directors believes that the provisions of the Certificate of
Incorporation, Bylaws and management remuneration plans to be established are in
the best interest of Online Resources and its stockholders. An unsolicited
non-negotiated proposal can seriously disrupt the business and management of a
corporation and cause it great expense. Accordingly, the Board of Directors
believes it is in the best interests of Online Resources and its stockholders to
encourage potential acquirors to negotiate directly with Board of Directors and
that these provisions will encourage such negotiations and discourage non-
negotiated takeover attempts. It is also the Board of Directors' view that these
provisions should not discourage persons from proposing a merger or other
transaction at a price that reflects the true value of Online Resources and that
otherwise is in the best interest of all stockholders.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law,
is intended to discourage certain takeover practices by impeding the ability of
a hostile acquiror to engage in certain transactions with the target company.
In general, Section 203 provides that a person who owns 15% or more of
the outstanding voting stock of a Delaware corporation (an "interested
stockholder") may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such Person became an interested stockholder. The term
"business combination" is defined broadly to cover a wide range of corporate
transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203:
- any business combination if, prior to the date a person became an
interested stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder;
- any business combination involving a person who acquired at least 85%
of the outstanding voting stock in the transaction in which he became an
interested stockholder, with the number of shares outstanding calculated without
regard to those shares owned by the corporation's directors who are also
officers and by certain employee stock plans;
- any business combination with an interested stockholder that is
approved by the Board of Directors and by a two-thirds vote of the outstanding
voting stock not owned by the interested stockholder; and
- certain business combinations that are proposed after the corporation
had received other acquisition proposals and which are approved or not opposed
by a majority of certain continuing members of the Board of Directors.
A corporation may exempt itself from the requirements of the statute by
adopting an amendment to its certificate of incorporation or bylaws electing not
to be governed by Section 203. At the present time, the Board of Directors does
not intend to propose any such amendment.
Registration Rights
We have granted registration rights under registration rights agreements
to the purchasers of shares of common stock in 1995, to the recipients of
warrants who purchased 10% notes due June 30, 1999 who did not exchange their
notes into shares of our previously authorized shares of Series C preferred
stock, to the purchasers of Series B preferred stock who did not exchange their
shares of Series B preferred stock into shares of Series C preferred stock, to
the purchasers of Series C preferred stock, including warrants initially
exercisable therefore, and to Sirrom Capital Corporation (now know as Finova
Group Inc.) as to warrants it holds. For any holder of our securities who became
a party to the registration rights agreement executed in connection with our
former Series C preferred stock, such agreement grants registration rights as to
all shares of common stock issued and issuable to such holder and waives and
disclaims any other registration rights the holder possesses.
With the exception of the rights granted in 1995, all holders of
registration rights have demand rights. In all cases, the holders of
registration rights have piggyback rights. No registration rights agreement
restricts our right to grant the registration rights to the purchasers of the
convertible notes with the exception of the agreement relating to the recipients
of warrants who purchased the 10% notes due June 30, 1999. These warrants are
exercisable for 28,513 shares of common stock. All shares of common stock the
holders of registration rights hold that were issued in 1995 or upon conversion
of shares of Series B preferred stock and Series C preferred stock can now be
sold under Rule 144. In addition, all warrants we issued subject to registration
rights have net exercise provisions which if utilized will enable the holders of
these warrants to sell the shares obtained upon exercise of their warrants under
Rule 144. These warrants are exercisable for a total of 1,508,471 shares of
common stock. Therefore, we do not anticipate the need for any of the holders of
registration rights to exercise their rights.
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<PAGE> 40
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is American Stock
Transfer & Trust Company.
40
<PAGE> 41
SELLING HOLDERS
The convertible notes were originally issued by us and sold by
Jefferies & Co., Inc., as the placement agent, in a transaction exempt from
the registration requirements of the Securities Act to persons reasonably
believed by the placement agent to be qualified institutional buyers or
other accredited investors. Selling holders, including their transferees,
pledgees or donees or their successors, may from time to time offer and sell
any or all of the convertible notes and common stock into which the
convertible notes are convertible.
The following table shows information, as of December 20, 2000, with
respect to the selling holders and the principal amounts of convertible
notes and amounts of common stock they beneficially own that may be offered
under this prospectus. The information is based on information provided by
or on behalf of the selling holders.
The selling holders may offer all, some or none of the convertible
notes or common stock into which the convertible notes are convertible.
Thus, we cannot estimate the amount of the convertible notes or the common
stock that will be held by the selling holders upon termination of any
sales. In addition, the selling holders identified below may have sold,
transferred or otherwise disposed of all or a portion of their convertible
notes since the date on which they provided the information about their
convertible notes in transactions exempt from the registration requirements
of the Securities Act. With the exception of Jefferies & Company, Inc. which
acted as placement agent for the benefit of holders of the convertible
notes, none of the selling holders has had any material relationship with us
within the past three years.
This table assumes that other holders of convertible notes or any
future transferee from any holder do not beneficially own any common stock
other than common stock into which the convertible notes are convertible. To
our knowledge, no selling holder named in the table below beneficially owns
one percent or more of our common stock.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF NUMBER OF SHARES OF
NAMES OF SECURITY HOLDER CONVERTIBLE NOTES COMMON STOCK ISSUABLE UPON
BENEFICIALLY CONVERSION OF
OWNED AND OFFERED CONVERTIBLE NOTES
(IN $1,000)
-----------
----------------------------------------------------------------------------------------
<S> <C> <C>
The Bank of New York 4,235,000 891,578
----------------------------------------------------------------------------------------
Bear, Stearns Securities 300,000 63,157
Corp.
----------------------------------------------------------------------------------------
Brown Brothers Harriman & Co. 1,000,000 210,526
----------------------------------------------------------------------------------------
Goldman, Sachs & Co. 1,000,000 210,526
----------------------------------------------------------------------------------------
Mercantile-Safe Deposit & 590,000 124,210
Trust Company
----------------------------------------------------------------------------------------
Morgan Stanley & Co. 700,000 147,368
Incorporated
----------------------------------------------------------------------------------------
The Northern Trust Company 500,000 105,263
----------------------------------------------------------------------------------------
State Street Bank and Trust 5,610,000 1,181,052
Company
----------------------------------------------------------------------------------------
Financial Stocks Private 3,000,000 631,578
Equity Fund
----------------------------------------------------------------------------------------
Jefferies & Company, Inc. 800,000 168,420
----------------------------------------------------------------------------------------
Sunova Long Term Opportunity 250,000 52,631
Fund
----------------------------------------------------------------------------------------
Sunova Partners L P 250,000 52,631
----------------------------------------------------------------------------------------
Morgan Investment Management 1,765,000 371,579
Inc.
----------------------------------------------------------------------------------------
</TABLE>
Information concerning the selling holders may change from time to
time and any changed information will be set forth in supplements to this
prospectus if and when necessary. In addition, the per share conversion
price, and therefore the number of shares of common stock issuable upon
conversion of the convertible notes, is subject to adjustment. As a result,
the aggregate principal amount of convertible notes and the number of shares
of common stock into which the convertible notes are convertible may
increase or decrease.
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<PAGE> 42
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the convertible notes and our
common stock into which the convertible notes are convertible directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling holders or the purchasers. These discounts, concessions or commissions
as to any particular underwriter, broker-dealer or agent may be in excess of
those customary in the types of transactions involved.
The convertible notes and common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at prices related to the prevailing market prices, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer
system of a registered national securities association on
which the convertible notes or our common stock may be
listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or
systems or in the over-the-counter market;
- through the writing of options, whether the options are
listed on an options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the convertible notes and common stock,
the selling holders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
convertible notes or common stock in the course of hedging the positions they
assume. The selling holders may also sell the convertible notes or common stock
short and deliver these securities to close out their short positions, or loan
or pledge the convertible notes or common stock to broker-dealers that in turn
may sell these securities.
The aggregate proceeds to the selling holders from the sale of the
convertible notes or common stock offered by them will be the purchase price of
the convertible notes or common stock less discounts and commissions, if any.
Each of the selling holders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part, any proposed
purchase of convertible notes or common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
Our common stock is listed for trading on the Nasdaq National Market. The
convertible notes are currently eligible for trading on the PORTAL System of the
Nasdaq Stock Market.
In order to comply with the securities laws of some states, if
applicable, the convertible notes and common stock may be sold in these
jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the convertible notes and common stock may not be sold
unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the convertible notes and common stock may be
"underwriters" within the meaning of Section 2(11) of the securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling holders who are "underwriters" within the meaning of Section 2(11) of
the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act. The selling holders have acknowledged that they understand
their obligations to comply with the provisions of the Exchange Act and the
rules thereunder relating to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144, Rule 144A or Regulation S of the Securities Act may
be sold under Rule 144, Rule 144A or Regulation S rather than pursuant to this
prospectus.
To the extent required, the specific convertible notes or shares of our
common stock to be sold, the names of the selling holders, the respective
purchase prices and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
We entered into a registration rights agreement for the benefit of
holders of the convertible notes to register their convertible notes and our
common stock under applicable federal and state securities laws under specific
circumstances and at specific times. The
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<PAGE> 43
registration rights agreement provides for cross-indemnification of the selling
holders and us and our respective directors, officers and controlling persons
against specific liabilities in connection with the offer and sale of the
convertible notes and our common stock, including liabilities under the
Securities Act. We will pay substantially all of the expenses incurred by the
selling holders of incident to the offering and sale of the convertible notes
and our common stock. We estimate that our total expenses of the offering of the
convertible notes and common stock will be approximately $105,000.
LEGAL MATTERS
The validity of the shares of common stock issuable upon conversion
thereof will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. Mintz Levin owns an aggregate of no shares of common stock.
Attorneys of Mintz Levin own an aggregate of approximately 2,673 shares of
common stock.
EXPERTS
Our financial statements incorporated in this prospectus by reference
from our Annual Report on Form 10-K, and amendment thereto on Form 10-K/A for
the year ended December 31, 1999 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report, which is incorporated by
reference in this prospectus. Our financial statements have been incorporated
by reference in reliance upon Ernst & Young LLP's report given on their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may inspect and copy such material at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the SEC's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. You may also obtain copies of such
material from the SEC at prescribed rates by wiring to the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our filings are also available to the public from the SEC's web site at
www.sec.gov.
Our common stock is quoted on the Nasdaq National Market. You may inspect
reports and other information concerning us at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus and information we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934. The
documents we are incorporating by reference are:
Annual Report on Form 10-K, and amendment thereto on Form 10-K/A for
the year ended December 31, 1999, filed on March 30, 2000 and June 30,
2000, respectively; Definitive Proxy Statement, filed on April 18, 2000;
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
filed on May 15, 2000; Quarterly Report for the quarter ended June 30,
2000, filed on August 4, 2000; Quarterly Report for the quarter ended
September 30, 2000, filed on November 14, 2000.
The description of the common stock contained in our Registration
Statement on Form S-1 filed with the SEC on October 16, 1997 including
any amendments or reports filed for the purpose of updating such
description.
You may request, orally or in writing, a copy of these documents, which
will be provided to you at no cost, by contacting:
Investor Relations
Online Resources Corporation
7600 Colshire Drive
McLean, Virginia 22102
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<PAGE> 44
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Company's estimates (other than the SEC and
Nasdaq registration fees) of the expenses in connection with the issuance and
distribution of the shares of common stock being registered. None of the
following expenses are being paid by the selling holders.
<TABLE>
<CAPTION>
Item Amount
------
<S> <C>
SEC registration fee.................................... $5,000
Nasdaq listing fee...................................... 50,000
Legal fees and expenses................................. 30,000
Accounting fees and expenses............................ 5,000
Printing Fees........................................... 5,000
Miscellaneous fees and expenses......................... 10,000
Total................................................... $105,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles TENTH and ELEVENTH of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director
or an Officer of the Corporation or is or was serving at the request of
the Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a Director, Officer, employee
or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than
such law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in
Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity
as a Director or Officer (and not in any other capacity in which service
was or is rendered by such indemnitee, including, without limitation,
services to an employee benefit plan) shall be made only upon delivery to
the Corporation of an undertaking (hereinafter an "undertaking"), by or
on behalf of such indemnitee, to repay all amounts so advanced if it
shall ultimately be determined by final judicial decision from which
there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses
under this Section or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Sections A and B of this Article
TENTH shall be contract rights and such rights shall continue as II-1 to
an indemnitee who has ceased to be a Director, Officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought
by the indemnitee to enforce a right
44
<PAGE> 45
to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense
that, and (ii) in any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking the Corporation shall
be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law,
nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create
a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or
by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under
this Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the Delaware
General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to
the fullest extent of the provisions of this Article TENTH with respect
to the indemnification and advancement of expenses of Directors and
Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to the
Corporation 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 Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
ITEM 16. EXHIBITS
(a) Exhibits.
4.1 Indenture dated as of September 28, 2000 between the Registrant
and Bankers Trust Company, as trustee. (Filed as Exhibit 4.1 to
Online Resources' Quarterly Report on Form 10-Q filed on November
14, 2000 for the quarter ended September 30, 2000, and
incorporated herein by reference.)
4.2 Registration Rights Agreement dated as of September 28, 2000 among
the Registrant and Jefferies & Company, Inc. as the placement
agent. (Filed as Exhibit 4.2 to Online Resources' Quarterly Report
on Form 10-Q filed on November 14, 2000 for the quarter ended
September 30, 2000, and incorporated herein by reference.)
5.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality of securities being registered.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(see Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
25.1* Form T-1 Statement of Eligibility of Bankers Trust Company to act
as trustee under the Indenture.
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* Filed herewith
ITEM 17. UNDERTAKINGS
(a) 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 any decrease in volume of 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; and
(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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference 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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant, 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 Act 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 Act and will be
governed by the final adjudication of such issue.
(c) 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 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.
(d) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the
trustee to act under Subsection (a) of Section 310 of the Trust
Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
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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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of McLean and State of Virginia on the 27th day of
December, 2000.
ONLINE RESOURCES CORPORATION
By: /s/ Carl D. Blandino
------------------------
Carl D. Blandino
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Carl D.
Blandino his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, and
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement on Form S-3 of Online
Resources Corporation, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite or necessary to be done in or
about the premises, as full to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ MATTHEW P. LAWLOR Chairman and Chief Executive Officer December 27, 2000
-------------------------------------- (principal executive officer)
Matthew P. Lawlor
/s/ CARL D. BLANDINO Executive Vice President, Chief December 27, 2000
-------------------------------------- Financial Officer (principal financial
Carl D. Blandino and accounting officer)
/s/ THOMAS S. JOHNSON Director December 27, 2000
--------------------------------------
Thomas S. Johnson
/s/ JOSEPH J. SPALLUTO Director December 27, 2000
--------------------------------------
Joseph J. Spalluto
/s/ DAVID A. O'CONNOR Director December 27, 2000
--------------------------------------
David A. O'Connor
/s/ BARRY D. WESSLER Director December 27, 2000
--------------------------------------
Barry D. Wessler
/s/ GEORGE M. MIDDLEMAS Director December 27, 2000
--------------------------------------
George M. Middlemas
/s/ ERVIN R. SHAMES Director December 27, 2000
--------------------------------------
Ervin R. Shames
</TABLE>
47
<PAGE> 48
<TABLE>
<S> <C> <C>
/s/ MICHAEL H. HEATH Director December 27, 2000
--------------------------------------
Michael H. Heath
</TABLE>
48
<PAGE> 49
EXHIBIT INDEX
Exhibit
Number Exhibit
4.1** Indenture dated as of September 28, 2000, between the Registrant and
Bankers Trust Company, as trustee.
4.2** Registration Rights Agreement dated as of September 28, 2000 among the
Registrant and Jefferies & Company, Inc., as the placement agent.
5.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality of securities being registered.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
25.1* Form T-1 Statement of Eligibility of Bankers Trust Company to act as
trustee under the Indenture.
* Filed herewith
** Previously filed and incorporated by reference
49
