UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a)
of
the Securities Exchange Act of 1934
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant ¨
Check
the
appropriate box:
|
x Preliminary
Proxy Statement
¨ Definitive
Proxy Statement
¨ Definitive
Additional Materials
¨ Soliciting
Material Under Rule 14a-12
|
|
¨ Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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ELECTRONIC
CLEARING HOUSE, INC.
(Name
of Registrant as Specified in its Charter)
Payment
of Filing Fee (Check the appropriate box):
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¨
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No
fee required.
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| x |
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
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(1)
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Title
of each class of securities to which transaction applies:
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Common
stock, par value $0.01 per share
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(2)
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Aggregate
number of securities to which transaction applies:
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6,836,064
shares of ECHO common stock outstanding as of December 31, 2006
937,275
options to purchase shares of ECHO common stock outstanding as of December
31, 2006 with exercise prices below $18.75
105,000
shares of common stock issuable or deemed issuable pursuant to long-term
restricted stock grants and phantom stock grants
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was determined):
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The
filing fee was based on the sum of (A) the product of 6,836,064 shares of ECHO
common stock multiplied by the merger consideration of $18.75 per share, (B)
the
product of 937,275 options to purchase shares of ECHO common stock multiplied
by
the merger consideration of $18.75 per share less $5,303,225 (the aggregate
option exercise price) and (C) the product of 105,000 issuable or deemed
issuable shares of ECHO common stock multiplied by the merger consideration
of
$18.75 per share. In accordance with Section 14(g) of the Securities Exchange
Act of 1934, as amended, the filing fee was determined by multiplying 0.000107
by the sum of the preceding sentence.
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(4)
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Proposed
maximum aggregate value of transaction:
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$142,415,631.25
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(5)
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Total
fee paid:
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$15,238.48
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¨
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Fee
paid previously with preliminary materials.
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| ¨ |
Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the form or schedule and the date of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
party:
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(4)
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Date
Filed:
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SPECIAL
MEETING OF STOCKHOLDERS
MERGER
PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear
Electronic Clearing House, Inc. Stockholder:
You
are
cordially invited to attend the special meeting of stockholders of Electronic
Clearing House, Inc. (“ECHO”), which will be held at its executive offices
located at 730 Paseo Camarillo, Camarillo, California, 93010, on [●], 2007 at
9:00 a.m., local time.
At
the
special meeting, you will be asked to consider and vote on a proposal to
approve
a merger agreement that ECHO has entered into with Intuit Inc. and a wholly
owned subsidiary of Intuit. If ECHO stockholders approve the merger agreement,
and the merger is subsequently completed, ECHO will become a wholly owned
subsidiary of Intuit, and you will be entitled to receive $18.75 in cash,
without interest, for each share of ECHO common stock that you own. A copy
of
the merger agreement is attached as Annex
A
to the
accompanying proxy statement, and you are encouraged to read it in its entirety.
After
careful consideration, the Board of Directors of ECHO, by unanimous vote,
determined that the merger is advisable and fair to, and in the best interests
of, ECHO and its stockholders, and approved the merger agreement, the merger
and
the other transactions contemplated by the merger agreement. The Board of
Directors unanimously recommends that you vote "FOR" the approval of the
merger
agreement. In reaching its determination, the Board of Directors considered
a
number of factors that are described more fully in the accompanying proxy
statement.
You
are
also being asked to expressly grant the persons named as proxies authority
to
vote your shares to approve the adjournment of the special meeting, if necessary
or appropriate, to permit the further solicitation of proxies in the event
there
are not sufficient votes at the time of the special meeting to approve the
merger agreement.
The
accompanying document provides a detailed description of the proposed merger,
the merger agreement and related matters. I urge you to read these materials
carefully.
Your
vote is very important.
Because
approval of the merger agreement requires the affirmative vote of the holders
of
a majority of the voting power of the outstanding shares of ECHO common stock
entitled to vote on the merger agreement, if you fail to vote it will have
the
same effect as if you voted against the approval of the merger agreement.
Whether
or not you are able to attend the special meeting in person, please complete,
sign and date the enclosed proxy card and return it in the envelope provided
as
soon as possible or submit a proxy through the Internet or by telephone as
described in these materials. These actions will not limit your right to
vote in
person if you wish to attend the special meeting and vote in person.
If
your
shares are held in the name of your broker, bank or other nominee, please
instruct your broker, bank or other nominee on how to vote your shares in
accordance with the voting directions provided by your broker, bank or other
nominee.
Thank
you
for your cooperation and your continued support of ECHO.
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Sincerely,
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||
 Joel
M. Barry
Chairman
of the Board and Chief Executive
Officer
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This
proxy statement is dated [●], 2007, and is first being mailed to stockholders on
or about [●], 2007.
Neither
the Securities and Exchange Commission nor any state securities regulatory
agency has approved or disapproved the merger, passed upon the merits or
fairness of the merger or passed upon the adequacy or accuracy of the disclosure
in the proxy statement. Any representation to the contrary is a criminal
offense.
ELECTRONIC
CLEARING HOUSE, INC.
____________________________
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
[●],
2007
____________________________
To
the
Stockholders of Electronic Clearing House, Inc.:
You
are
cordially invited to attend a special meeting of the stockholders of Electronic
Clearing House, Inc. to be held at our offices located at 730 Paseo Camarillo,
Camarillo, California, 93010 on [●], 2007 at 9:00 a.m. local time, for the
following purposes:
1. To
consider and vote on a proposal to approve the Agreement and Plan of Merger,
dated as December 14, 2006, by and among Electronic Clearing House, Inc., Intuit
Inc., and Elan Acquisition Corporation (a wholly-owned subsidiary of
Intuit);
2. To
approve the adjournment of the special meeting, if necessary or appropriate,
to
solicit additional proxies if there are insufficient votes at the time of the
special meeting to approve the merger agreement; and
3. To
transact any other business as may properly come before the special meeting
or
any adjournment of the special meeting.
Only
holders of record of our common stock at the close of business on [●], 2007, the
record date for the special meeting, are entitled to receive notice of and
to
attend and vote or submit a proxy to vote at the special meeting or any
adjournment of the special meeting. As of the record date we had [●] shares of
common stock outstanding. Each share of our common stock is entitled to one
vote
on each matter to be voted upon at the special meeting. The affirmative vote
of
a majority of the shares of our outstanding common stock is required to approve
the merger agreement. In connection with the merger, each of our directors
and
our executive officers have entered into voting agreements to, among other
matters, vote their shares in favor of the approval of the merger , and have
granted to the directors of Intuit an irrevocable proxy to vote their shares
in
favor of the merger, at the special meeting.
After
careful consideration, our Board of Directors, by unanimous vote, determined
that the merger is advisable and fair to, and in the best interests of, us
and
our stockholders and approved the merger agreement, the merger and the other
transactions contemplated by the merger agreement. Our Board of Directors
unanimously recommends that you vote "FOR" the approval of the merger
agreement.
For more
information about the merger described above and the other transactions
contemplated by the merger agreement, please review the accompanying proxy
statement and the merger agreement attached to it as Annex A. Our
Board
of Directors also recommends that you expressly grant the authority to the
persons named as proxies to vote your shares to approve the adjournment of
the
special meeting, if necessary or appropriate, to permit the further solicitation
of proxies if there are not sufficient votes at the time of the special meeting
to approve the merger agreement. We are not aware of any other business to
come
before the special meeting.
Stockholders
who do not vote in favor of the approval of the merger agreement will not have
the right to seek appraisal of the fair value of their shares if the merger
is
completed, but will receive the same per share merger consideration as those
stockholders who do vote in favor of the approval of the merger agreement.
Your
vote
is very important. Even if you do not expect to attend the meeting in person,
it
is important that your shares be represented. Please use the enclosed proxy
card
to vote on the matters to be considered at the special meeting by signing and
dating the proxy card and mailing it promptly in the enclosed envelope, or
appoint a proxy over the Internet or by telephone as instructed in these
materials. If your shares are held in the name of your broker, bank or other
nominee, please instruct your broker, bank or other nominee on how to vote
your
shares in accordance with the voting directions provided by your broker, bank
or
other nominee, to ensure that your shares will be represented at the special
meeting. You may revoke your proxy at any time prior to its exercise in the
manner described in this proxy statement. Returning a signed proxy card or
appointing a proxy over the Internet or by telephone will not prevent you from
attending the meeting and voting in person if you wish to do so. If your shares
are held in the name of your broker, bank or other nominee, you must obtain
a
proxy, executed in your favor, from the holder of record to be able to vote
in
person at the special meeting.
Executed
proxies with no instructions indicated thereon will be voted “FOR” the approval
of the merger agreement and, if applicable, “FOR” the adjournment of the special
meeting, provided that no proxy that is specifically marked “AGAINST” the
proposal to approve the merger agreement will be voted in favor of the
adjournment proposal, unless it is specifically marked “FOR” the adjournment
proposal. If you fail to return your proxy or to vote in person at the special
meeting, your shares will not be counted for purposes of determining whether
a
quorum is present at the special meeting, and will effectively be counted as
a
vote "AGAINST" the proposal to approve the merger agreement.
You
should not send any certificates representing shares of our common stock with
your proxy card. Upon completion of the merger, you will receive
instructions regarding the procedure to exchange your stock certificates
for the cash merger consideration.
No
person
has been authorized to give any information or to make any representations
other
than those set forth in the proxy statement in connection with the solicitation
of proxies made hereby, and, if given or made, such information must not be
relied upon as having been authorized by us or any other person.
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By
Order of the Board of Directors,
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 |
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DONNA
L. REHMAN
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Corporate
Secretary
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Camarillo,
California
Dated:
[●], 2007
TABLE
OF CONTENTS
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Annexes
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Annex
A-
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Agreement
and Plan of Merger dated December 14, 2006 by and among Intuit
Inc., Elan
Acquisition Corporation and Electronic Clearing House,
Inc.
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A-1
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Annex
B-
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Form
of Voting Agreement between Intuit Inc. and the Officers and Directors
of
Electronic Clearing House, Inc.
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B-1
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Annex
C-
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Opinion
of Wedbush Morgan Securities Inc.
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C-1
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QUESTIONS
AND ANSWERS ABOUT THE
MERGER
The
following questions and answers address briefly some questions you may have
regarding the special meeting and the proposed merger. These questions and
answers may not address all questions that may be important to you as a
stockholder of Electronic Clearing House, Inc. Please refer to the more detailed
information contained elsewhere in this proxy statement, the annexes to this
proxy statement and the documents referred to or incorporated by reference
in
this proxy statement. In this proxy statement, the terms “ECHO,” “Company,”
“we,” “our,” “ours,” and “us” refer to Electronic Clearing House, Inc. We refer
to Intuit Inc. as Intuit and Elan Acquisition Corporation as Merger Sub.
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Q:
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Why
am I receiving this proxy statement?
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A:
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We
have entered into a merger agreement with Intuit. Upon completion
of the
merger, we will become a wholly-owned subsidiary of Intuit and our
common
stock will no longer be listed on the NASDAQ Capital Market. A copy
of the
merger agreement is attached to this proxy statement as Annex A.
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In
order to complete the merger, our stockholders must vote to approve
the
merger agreement. We are providing this proxy statement to give you
information for use in determining how to vote on the proposals submitted
to the stockholders at the special meeting of our stockholders or
any
adjournment of the special meeting. You should read this proxy statement
and the annexes carefully. The enclosed proxy card allows you, as
our
stockholder, to vote your shares without attending the special meeting.
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Q:
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When
and where is the special meeting?
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A:
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The
special meeting of stockholders will take place at our offices located
at
730 Paseo Camarillo, Camarillo, California, 93010 on [●], 2007, at 9:00
a.m. local time.
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|
Q:
|
What
matters will be voted on at the special meeting?
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A:
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You
will vote on a proposal to approve the merger agreement and a proposal
to
adjourn the special meeting for the purpose of soliciting additional
proxies, if necessary or appropriate, if there are not sufficient
votes at
the time of the special meeting to approve the merger agreement.
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Q:
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Who
can vote or submit a proxy to vote and attend the special meeting?
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A:
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Only
stockholders of record at of the close of business on [●], 2007, the
record date for the special meeting, are entitled to receive notice
of and
to attend and vote or submit a proxy to vote at the special meeting
or any
adjournment of the special meeting.
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Q:
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As
a stockholder, what will I be entitled to receive in the merger?
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A:
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At
the effective time of the merger, each share of our common stock
outstanding immediately prior to the effective time of the merger
(including any shares of common stock issued prior to the effective
time
upon the exercise of options), other than shares held by us, Intuit
or
Merger Sub or any of our or their wholly-owned subsidiaries, will
be
automatically converted into the right to receive $18.75 in cash,
without
interest and less any applicable withholding taxes.
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Q:
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Will
I own any shares of ECHO common stock or Intuit common stock after
the
merger?
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A:
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No.
You will be paid cash for your shares of our common stock. You will
not
receive or have the option to receive any Intuit common stock in
exchange
for your shares.
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Q:
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How
will my options to purchase shares of common stock be treated in
the
merger?
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A:
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Prior
to the effective time of the merger, we will cause any unvested options
to
vest immediately prior to the effective time of the merger. All
outstanding options to purchase shares of our common stock will then
be
cancelled at the effective time of the merger and the holder will
receive
a cash payment, without interest and less any applicable withholding
taxes, equal to the product of (i) the excess, if any, of $18.75
over the
applicable option exercise price and (ii) the number of shares of
common
stock subject to the option.
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Q:
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What
will happen to my shares of restricted stock in the
merger?
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A:
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Prior
to the effective time of the merger, we will cause any unvested restricted
stock to be fully vested immediately prior to the effective time
of the
merger. Holders of then-vested restricted stock will receive the
same
consideration as all other holders of our common stock, $18.75 per
share
in cash, without interest and less any applicable withholding
taxes.
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Q:
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How
does our Board of Directors recommend that I vote?
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A:
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Our
Board of Directors recommends that you vote “FOR” the proposal to approve
the merger agreement and “FOR” the proposal to adjourn the special meeting
for the purpose of soliciting additional proxies, if necessary or
appropriate, if there are not sufficient votes at the time of the
special
meeting to approve the merger agreement.
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See
“The Merger—Recommendation of Our Board of Directors; Our Reasons for the
Merger.”
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Q:
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What
vote of our stockholders is required to approve the merger agreement?
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A:
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Holders
of a majority of the voting power of the outstanding shares of our
common
stock entitled to vote on the merger agreement must vote to approve
the
merger agreement. Approval of the adjournment proposal requires a
majority
of the voting power present at the special meeting, in person or
represented by proxy.
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| Q: |
How
many votes am I entitled to cast for each share of ECHO stock I own?
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A:
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For
each share of our common stock that you own at the close of business
on
[●], 2007, the record date for the special meeting, you are entitled
to
cast one vote on each matter voted upon at the special
meeting.
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Q:
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What
is the difference between holding shares as a stockholder of record
and in
“street name”?
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A:
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Most
of our stockholders hold their shares through a broker, bank or other
nominee rather than directly in their own name. As summarized below,
there
are some distinctions between shares held of record and those held
in
“street name”:
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Stockholder
of Record.
If your
shares are registered directly in your name with our transfer agent, you are
considered the stockholder of record with respect to those shares, and these
proxy materials are being sent directly to you by us. As the stockholder of
record, you have the right to grant your voting proxy directly to us or to
vote
in person at the meeting. We have enclosed or sent a proxy card for you to
use.
“Street
Name.”
If your
shares are held by a broker, bank or other nominee, you are considered the
beneficial owner of shares held in “street name”, and these proxy materials are
being forwarded to you by your broker, bank or other nominee which is
considered, with respect to those shares, the stockholder of record. As the
beneficial owner of these shares, you have the right to direct your broker,
bank
or other nominee how to vote and are also invited to attend the special meeting
in person. However, since you are not the stockholder of record, you may not
vote these shares in person at the special meeting unless you obtain a signed
proxy from the record holder giving you the right to vote the shares. Your
broker, bank or other nominee has enclosed or provided voting directions for
you
to use in directing the broker, bank or other nominee how to vote your shares.
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Q:
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How
do I cast my vote if I am a stockholder of record?
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A:
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Before
you vote, you should read this proxy statement in its entirety, including
its annexes and the documents referred to or incorporated by reference
in
this proxy statement, and carefully consider how the merger affects
you.
Then, if you were a holder of record at the close of business on
[●],
2007, you may vote by submitting a proxy for the special meeting.
You can
submit your proxy by completing, signing, dating and returning the
enclosed proxy card in the accompanying pre-addressed envelope or
by
appointing a proxy over the Internet or by telephone as instructed
in
these materials. You may also attend the special meeting and vote
your
shares in person whether or not you sign and return your proxy card.
However, even if you plan to attend the special meeting in person,
we
encourage you to return your signed proxy card, or appoint a proxy
over
the Internet or by telephone, to ensure that your shares are represented
and voted at the special meeting.
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If
you
sign, date and send your proxy card and do not indicate how you want to vote,
your proxy will be voted “FOR” the approval of the merger agreement and “FOR”
the proposal to adjourn the special meeting for the purpose of soliciting
additional proxies, if necessary. However, no proxy that is
specifically marked “AGAINST” the proposal to approve the merger agreement will
be voted in favor of the adjournment proposal, unless it is specifically marked
“FOR” the adjournment proposal.
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Q:
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How
do I cast my vote if my ECHO shares are held in “street name” by my bank,
broker or other nominee?
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A:
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If
you hold your shares in “street name,” you must provide the record holder
of your shares with instructions on how to vote your shares in accordance
with the voting directions provided by your broker, bank or other
nominee.
Before you provide the record holder of your shares with instructions
on
how to vote your shares, you should read this proxy statement in
its
entirety, including its annexes and the documents referred to or
incorporated by reference in this proxy statement, and carefully
consider
how the merger affects you. If you do not provide your broker, bank
or
other nominee with instructions on how to vote your shares, it will
not be
permitted to vote your shares. This will have the same effect as
voting
against the proposal to approve the merger agreement and the adjournment
proposal. Please refer to the voting instructions provided by your
broker,
bank or other nominee to see if you may submit voting instructions
using
the Internet or telephone.
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|
Q:
|
How
can I attend the special meeting if my ECHO shares are held in “street
name” by my bank, broker or other nominee?
|
|
A:
|
If
you want to attend the special meeting or any adjournment of the
special
meeting and your shares are held in an account at a brokerage firm,
bank
or other nominee, you will need to bring a copy of your brokerage
statement or the voting directions provided by your broker, bank
or other
nominee reflecting your stock ownership as of the record date.
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|
Q:
|
Can
I change my vote after I have delivered my proxy?
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A:
|
Yes,
you may revoke and change your vote on a proposal at any time before
the
conclusion of voting on such proposal. If you are a stockholder of
record,
you can do this in one of three ways:
|
|
§
|
first,
you can provide a written notice to our corporate secretary prior
to 11:59
p.m. Pacific Time on [●], 2007 stating that you would like to revoke your
proxy;
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|
§
|
second,
you can complete and submit a later dated proxy in writing, provided
the
new proxy is received by 11:59 p.m. Pacific Time on [●], 2007. If you
submitted the proxy you are seeking to revoke via the Internet or
telephone, you may submit this later-dated new proxy using the same
method
of transmission (Internet or telephone) as the proxy being revoked,
provided that the new proxy is received by 11:59 p.m. Pacific Time
on [●],
2007; or
|
|
§
|
third,
you can attend the special meeting and vote in person, which will
automatically cancel any proxy previously given, or you may revoke
your
proxy in person; your attendance alone, however, will not revoke
any proxy
that you have previously given.
|
Any
written notice of revocation or subsequent proxy should be delivered to our
corporate secretary at 730 Paseo Camarillo, Camarillo, California, 93010,
Attention: Corporate Secretary, at or before the time and date specified above.
If
you
have instructed a broker, bank or other nominee to vote your shares, you must
follow the directions received from your broker, bank or other nominee to change
those instructions.
|
Q:
|
What
will happen if I abstain from voting or fail to vote?
|
|
A:
|
If
you abstain from voting, fail to cast your vote in person or by proxy
or
fail to give voting instructions to your broker, bank or other nominee,
it
will have the same effect as a vote against the proposal to approve
the
merger agreement and a vote against the proposal to adjourn the special
meeting for the purpose of soliciting additional proxies, if such
a
proposal to adjourn the special meeting is necessary or appropriate,
if
there are not sufficient votes at the time of the special meeting
to
approve the merger agreement.
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Q:
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What
rights do I have if I oppose the merger?
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A:
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Under
applicable Nevada law, ECHO stockholders are not entitled to any
dissenters’ rights with respect to the merger.
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Q:
|
Is
the merger contingent upon Intuit obtaining financing?
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A:
|
No.
The completion of the merger is not contingent upon Intuit obtaining
financing.
|
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Q:
|
Is
the merger expected to be taxable to me?
|
|
A:
|
Generally,
yes. The receipt of cash for each share of our common stock pursuant
to
the merger will be a taxable transaction for U.S. federal income
tax
purposes. For U.S. federal income tax purposes, you will generally
recognize gain or loss as a result of the merger measured by the
difference, if any, between the amount of cash per share that you
receive
and your adjusted tax basis in that share.
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You
should read “The Merger—Material U.S. Federal Income Tax Consequences” for a
more complete discussion of the U.S. federal income tax consequences of the
merger. Tax matters can be complicated, and the tax consequences of the merger
to you will depend on your particular tax situation. We urge you to consult
your
tax advisor on the tax consequences of the merger to you.
|
Q:
|
Should
I send in my share certificates now?
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A:
|
No.
After the merger is completed, you will be sent a letter of transmittal
with written instructions for exchanging your share certificates
for the
cash consideration. These instructions will tell you how and where
to send
in your certificates for your cash consideration. You will receive
your
cash payment after the paying agent receives your stock certificates
and
any other documents requested in the instructions included with the
letter
of transmittal.
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Q:
|
When
do you expect the merger to be completed?
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A:
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We
currently expect to complete the merger as promptly as practicable
after
the special meeting and after all the conditions to the merger are
satisfied or waived, including stockholder approval of the merger
agreement at the special meeting and the expiration or termination
of the
waiting period under U.S. antitrust laws. However, we cannot assure
you
that all conditions to the merger will be satisfied or, if satisfied,
as
to the date by which they will be satisfied.
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Q:
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What
should I do if I receive more than one set of voting materials?
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A.
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You
may receive more than one set of voting materials, including multiple
copies of this proxy statement and multiple proxy cards or voting
instruction cards. For example, if you hold your shares in more than
one
brokerage account, you will receive a separate voting instruction
card for
each brokerage account in which you hold shares. If you are a holder
of
record and your shares are registered in more than one name, you
will
receive more than one proxy card. Please complete, sign, date and
return
each proxy card and voting instruction card that you receive.
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Q:
|
Who
can help answer my questions?
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A:
|
If
you have any questions about the merger or how to submit your proxy,
or if
you need additional copies of this proxy statement or the enclosed
proxy
card, please call our proxy solicitor, Morrow & Company, Inc.
at:
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Morrow
& Company, Inc.
470
West
Avenue, 3rd Floor
Stamford,
CT 06902
[●]
[●]
Attn:
Gerard J. Mucha or Fred Marquardt
If
you
would like additional copies, without charge, of this proxy statement, you
should contact:
Electronic
Clearing House, Inc.
Corporate
Secretary and Investor Relations
730
Paseo
Camarillo,
Camarillo,
CA 93010
(800)
233-0406 ext. 8533
corp@ECHO-inc.com
SUMMARY
TERM
SHEET
This
summary term sheet, together with the section of this proxy statement entitled
“Questions and Answers About the Merger”, highlights selected information from
this proxy statement and may not contain all of the information that may be
important to you as an ECHO stockholder or that you should consider before
voting on the proposal to approve the merger agreement. To better understand
the
merger, you should read carefully this entire proxy statement and all of its
annexes, including the merger agreement, which is attached as Annex A and the
documents referred to or incorporated by reference in this proxy statement,
before voting on the proposal to approve the merger agreement. Each item in
this
summary includes a reference directing you to a more complete description of
that item.
Information
about Electronic Clearing House, Inc., Intuit
Inc. and Elan Acquisition Corporation
Electronic
Clearing House, Inc.
730
Paseo
Camarillo,
Camarillo,
CA 93010
(800)
262-3246
ECHO
provides a complete solution for the payment processing needs of merchants,
banks and collection agencies. ECHO's services include debit and credit card
processing, check guarantee, check verification, check conversion, check
re-presentment and check collection. See “The Companies - Electronic Clearing
House, Inc.”
Intuit
Inc.
2700
Coast Avenue
Mountain
View, CA 94043
(650)
944-6000
Founded
in 1983, Intuit Inc. is a leading provider of business, financial management
and
tax solutions for small businesses, consumers and accountants. Intuit’s flagship
products and services, including QuickBooks, TurboTax, Lacerte, ProSeries and
Quicken, simplify small business management, tax preparation and filing, and
personal finance. Intuit is publicly traded on the NASDAQ Global Select Market
under the symbol “INTU.” See “The Companies - Intuit Inc.”
Elan
Acquisition Corporation
c/o
Intuit Inc.
2700
Coast Avenue
Mountain
View, CA 94043
(650)
944-6000
Merger
Sub is a Nevada corporation and a wholly-owned subsidiary of Intuit. Merger
Sub
was organized solely for the purpose of entering into the merger agreement
with
Intuit and completing the merger and has not conducted any business operations
other than those incident to its formation. If the merger is completed, Merger
Sub will cease to exist following its merger with and into ECHO. See “The
Companies - Elan Acquisition Corporation.”
We
have
agreed to be acquired by Intuit pursuant to the terms of the merger agreement
that is described in this proxy statement and attached as Annex A. We encourage
you to read the merger agreement carefully and in its entirety. It is the
principal document governing the merger.
The
merger agreement provides that Merger Sub will merge into ECHO, with ECHO
continuing as the surviving corporation and a wholly-owned subsidiary of Intuit.
At the effective time of the merger, each share of our common stock outstanding
immediately prior to the effective time of the merger (including any shares of
common stock issued prior to the effective time upon exercise of options),
other
than shares held by us, Intuit or Merger Sub or any of our or their wholly-owned
subsidiaries, will be automatically converted into the right to receive $18.75
in cash, without interest and less any applicable withholding
taxes.
Upon
completion of the merger, we will be a wholly-owned subsidiary of Intuit and
will no longer be a public company. You will cease to have any ownership
interest in ECHO and will not participate in any future earnings and growth
of
ECHO.
See
“The
Merger Agreement.”
Recommendation
of Our Board of
Directors
Our
Board
of Directors, by the unanimous vote of all directors:
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·
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declared
the merger to be advisable and fair to, and in the best interests
of, us
and our stockholders; and
|
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·
|
approved
the merger agreement, the merger and the other transactions contemplated
by the merger agreement on the terms and conditions set forth in
the
merger agreement.
|
Our
Board
of Directors recommends that our stockholders vote “FOR” the proposal to approve
the merger agreement and “FOR” the proposal to adjourn the special meeting for
the purpose of soliciting additional proxies, if necessary or appropriate,
if
there are not sufficient votes at the time of the special meeting to approve
the
merger agreement. To review the background of the merger and the factors that
our Board of Directors considered when deciding whether to approve the merger
agreement, the merger and the other transactions contemplated by the merger
agreement, see “The Merger - Recommendation of Our Board of Directors; Our
Reasons for the Merger.”
Interests
of Our Directors and Executive Officers in the
Merger
When
considering our Board of Directors’ recommendation that you vote in favor of the
proposal to approve the merger agreement, you should be aware that members
of
our Board of Directors and our executive officers may have interests in the
merger that differ from, or are in addition to, those of our other stockholders.
For example:
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·
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with
the exception of Mr. Joel Barry and Ms. Alice Cheung, all of our
executive
officers are expected to take employment positions with Intuit pursuant
to
offer letters entered into with Intuit;
|
|
·
|
Ms.
Cheung is expected to take on a consulting role for a period of time
following consummation of the
merger;
|
|
·
|
pursuant
to separation agreements previously entered into with us in May 2006,
certain executives will receive accelerated vesting of all outstanding
equity awards, and may become entitled to certain payments or benefits,
including, payment of a portion of anticipated bonuses and a potential
lump-sum in the event such executive is terminated without cause
(as
defined in each agreement), or ceases to provide services to us or
Intuit
as a result of an involuntary termination (as defined in each agreement)
within the two year period following the consummation of the merger;
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·
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certain
executives will receive accelerated vesting of certain long-term
incentive
equity grants; and
|
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·
|
our
directors and officers will continue to have the benefit of liability
insurance for six years after completion of the
merger.
|
See
“The
Merger - Interests of Our Directors and Executive Officers in the
Merger.”
Shares
Owned by Our Directors and Executive
Officers
As
of the
close of business on [●], 2007, our directors and executive officers
beneficially owned [●] shares of common stock (excluding options exercisable
within 60 days) entitled to vote at the meeting, or approximately [●]% of our
total voting power outstanding on that date.
See
“The
ECHO Special Meeting - Shares Owned by Our Directors and Executive
Officers.”
Reasons
for the Merger
In
the
course of reaching its decision to approve the merger, the merger agreement
and
the transactions contemplated by the merger agreement, our Board of Directors
considered a number of factors in its deliberations.
See
“The
Merger—Recommendation of Our Board of Directors; Our Reason for the
Merger.”
Opinion
of
ECHO’s Financial Advisor
In
connection with the merger, our Board of Directors received a written opinion
from Wedbush Morgan Securities Inc., our financial advisor, as to the fairness,
from a financial point of view, of the merger consideration to be received
by
the public holders of our common stock. The full text of the written opinion
of
Wedbush Morgan, dated as of December 14, 2006, is attached to this proxy
statement as Annex C. Holders of our equity securities are encouraged to read
this opinion carefully in its entirety for a description of the procedures
followed, assumptions made, matters considered and qualifications and
limitations of the review undertaken. Wedbush
Morgan's opinion was intended for the use and benefit of our Board of Directors
in connection with their evaluation of the merger, does not address our
underlying business decision to enter into the merger agreement or complete
the
merger or the relative merits of the merger compared to any alternative business
strategies that may exist for us and does not constitute a recommendation to
the
Board of Directors or any stockholders as to how that person should vote on
the
merger or any related matter. Wedbush Morgan has acted as financial advisor
to
us and has received a customary fee from us for its services, the payment of
which is not contingent upon the conclusions reached in its opinion, and will
also receive an additional fee if the proposed merger is consummated.
See
“The
Merger - Opinion of ECHO’s Financial Advisor.”
Delisting
and Deregistration of Our Common
Stock
If
the
merger is completed, our common stock will no longer be listed on the NASDAQ
Capital Market and will be deregistered under the Securities Exchange Act of
1934 (or Exchange Act), and we will no longer file periodic reports with the
Securities and Exchange Commission.
See
“The
Merger - Delisting and Deregistration of Our Common Stock.”
The
Merger Agreement
Conditions
to the Completion of the Merger.
Each
party’s obligation to effect the merger is subject to the satisfaction or waiver
of specified conditions set forth in the merger agreement.
Limitation
on Considering Other Acquisition Proposals.
We have
agreed that, except under specified circumstances set forth in the merger
agreement, we and our subsidiaries will not, and will not knowingly authorize
or
permit any of our respective officers, directors, affiliates or employees or
any
of our investment bankers, attorneys, accountants or other advisors or
representatives to, and they will direct their respective representatives not
to, directly or indirectly,
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·
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solicit,
initiate, knowingly encourage, support, facilitate or induce the
making,
submission or announcement of, any acquisition proposal;
|
|
·
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participate
in any negotiations or discussions regarding, or furnish to any person
any
non-public information with respect to any acquisition proposal or
any
proposal or inquiry that could reasonably be expected to lead to,
any
acquisition proposal;
|
|
·
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approve,
endorse or recommend any acquisition proposal;
or
|
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·
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enter
into any letter of intent or similar document or any contract
contemplating or otherwise relating to any acquisition
transaction.
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Change
of Recommendation.
Our
Board of Directors may withdraw, amend, change or modify its recommendation
in
favor of approval of the merger agreement or approve or recommend an acquisition
proposal only under certain circumstances set forth in the merger agreement,
but
our Board of Directors may terminate the merger agreement only if specified
conditions set forth in the merger agreement are met.
Termination
of the Merger Agreement.
Each
party can terminate the merger agreement under specified circumstances set
forth
in the merger agreement.
Termination
Fee.
The
merger agreement requires us to pay Intuit a termination fee of $4,271,000
if
the merger agreement is terminated under certain circumstances described in
the
merger agreement.
See
“The
Merger Agreement.”
All
executive officers and directors of ECHO, in their capacity as stockholders
of
the Company, have entered into voting agreements in substantially the form
attached hereto as Annex B, pursuant to which each such stockholder has agreed,
among other things, to vote their shares in favor of the merger, and have
granted irrevocable proxies to the directors of Intuit to vote their shares
in
favor of approval of the merger. These officers and directors own in the
aggregate, [●] shares of our common stock, representing [●]% of the votes
entitled to be cast at the special meeting.
See
“Voting Agreements.”
Regulatory
Matters
Under
the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (referred to in this proxy
statement as the HSR Act), we cannot complete the merger until we and Intuit
have notified the Antitrust Division of the U.S. Department of Justice (referred
to in this proxy statement as the Antitrust Division) and the U.S. Federal
Trade
Commission (referred to in this proxy statement as the FTC), of the merger,
furnished them with certain information and materials and allowed the applicable
waiting period to terminate or expire. We and Intuit filed notification and
report forms under the HSR Act with the Antitrust Division and the FTC on [●],
2007.
See
“The
Merger - Regulatory Matters.”
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This
proxy statement and the documents to which we refer you in this proxy statement
contain “forward-looking statements” within the meaning of the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934, as amended.
Statements other than statements of historical fact are forward-looking
statements for purposes of federal and state securities laws, including
projections of earnings, revenue or other financial items; statements regarding
future economic conditions or performance; statements regarding the expected
completion and timing of the merger; statements of belief; and statements of
assumptions. Forward-looking statements may include the words “may,” “could,”
“will,” “should,” “would,” “estimate,” “intend,” “continue,” “believe,” “expect”
or “anticipate” or other similar words.
These
forward-looking statements are expressed in good faith and believed to have
a
reasonable basis but present our estimates and assumptions only as of the date
of this proxy statement. Except for our ongoing reporting obligations under
any
securities law, we do not intend, and undertake no obligation, to update any
forward-looking statement. Actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to change and to inherent risks and uncertainties.
Risks
and uncertainties pertaining to the following factors, among others, could
cause
actual results to differ materially from those described in the forward-looking
statements:
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·
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our
ability to obtain the stockholder and regulatory approvals required
for
the merger;
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·
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the
occurrence or non-occurrence of the other conditions to the closing
of the
merger;
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·
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the
occurrence of any event, change or other circumstance that could
give rise
to the termination of the merger
agreement;
|
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·
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the
timing of the closing of the merger and receipt by stockholders of
the
merger consideration;
|
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·
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legislative
or regulation developments that could have the effect of delaying
or
preventing the merger;
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·
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our
ability to retain our significant customers and vendors;
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·
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potential
litigation regarding the merger;
|
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·
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uncertainty
concerning the effects of our pending transaction with Intuit; and
|
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·
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additional
risks and uncertainties not presently known to us or that we currently
deem immaterial.
|
You
should consider the cautionary statements contained or referred to in this
section in connection with any subsequent written or oral forward-looking
statements that may be issued by us or persons acting on our behalf. We do
not
undertake any obligation to release publicly any revisions to any
forward-looking statements contained herein to reflect events or circumstances
that occur after the date of this proxy statement or to reflect the occurrence
of unanticipated events, except as we are required to do by law.
THE
ECHO SPECIAL MEETING
We
are
furnishing this proxy statement to our stockholders as part of the solicitation
of proxies by our Board of Directors for use at the special meeting.
We
will
hold the special meeting at our offices located at 730 Paseo Camarillo,
Camarillo, California, 93010 on [●], 2007, at 9:00 a.m. local time.
Purpose
of the Special Meeting
At
the
special meeting, we are asking holders of record of our common stock at the
close of business on [●], 2007, to consider and vote on the following proposals:
1. to
approve the Agreement and Plan of Merger, dated as of December 14, 2006, by
and
among Electronic Clearing House, Inc., Intuit Inc., and Elan Acquisition
Corporation, a wholly-owned subsidiary of Intuit, Inc;
2. to
approve the adjournment of the special meeting, if necessary or appropriate,
to
solicit additional proxies if there are insufficient votes at the time of the
special meeting to approve the merger agreement; and
3. to
transact any other business as may properly come before the special meeting
or
any adjournment of the special meeting.
Recommendation
of Our Board of
Directors
Our
Board
of Directors has unanimously determined that the merger is advisable and fair
to, and in the best interests of, us and our stockholders, and approved the
merger agreement, the merger and the transactions contemplated by the merger
agreement.
Our
Board of Directors unanimously recommends that our stockholders vote “FOR” the
approval of the merger agreement and “FOR” the proposal to adjourn the special
meeting for the purpose of soliciting additional proxies, if necessary or
appropriate, if there are not sufficient votes at the time of the special
meeting to approve the merger agreement. See “The Merger—Recommendation of Our
Board of Directors; Our Reasons for the Merger.”
Quorum;
Record Date; Stockholders Entitled to Vote; Vote
Required
A
quorum
of stockholders is necessary to hold the special meeting. The required quorum
for the transaction of business at the special meeting is the presence, either
in person or represented by proxy, of the holders of a majority of the voting
power of our outstanding common stock entitled to vote on the merger agreement.
Abstentions and “broker non-votes”, discussed below, count as present for
establishing a quorum.
You
are
entitled to notice of, and to attend and vote or submit a proxy to vote at,
the
special meeting or any adjournment of the special meeting if you owned shares
of
our common stock at the close of business on [●], 2007, the record date for the
special meeting. For each share of our common stock that you owned on the record
date, you are entitled to cast one vote on each matter voted upon at the special
meeting.
Approval
of the merger agreement requires the affirmative vote of the holders of a
majority of the voting power of the outstanding shares of our common stock
entitled to vote on the merger agreement.
Because
the vote on the proposal to approve the merger agreement is based on the voting
power of the total number of shares outstanding, failure to vote your
shares and broker non-votes will have the same effect as voting against the
approval of the merger agreement.
Approval
of the adjournment proposal requires a majority of the voting power present
at
the special meeting, in person or represented by proxy. Because the vote on
the
adjournment proposal is based on the voting power present at the meeting,
failure to vote your shares and broker non-votes will have the same effect
as
voting against the adjournment proposal.
Shares
Owned by Our Directors and Executive
Officers
As
of the
close of business on [●], 2007, our directors and executive officers,
beneficially owned [●] shares of common stock (excluding options exercisable
within 60 days) entitled to vote at the meeting, or approximately [●]% of our
total voting power outstanding on that date.
All
executive officers and directors of ECHO, in their capacity as stockholders
of
the Company, have entered into voting agreements in substantially the form
attached hereto as Annex B, pursuant to which each such stockholder has agreed,
among other things, to vote their shares in favor of the merger, and have
granted irrevocable proxies to the directors of Intuit to vote their shares
in
favor of the merger. These officers and directors own in the aggregate, [●]
shares of our common stock, representing [●]% of the votes entitled to be cast
at the special meeting.
If
you
plan to attend the special meeting and wish to vote in person, you will be
given
a ballot at the special meeting. Please note, however, that if your shares
are
held in “street name,” which means your shares are held of record by a broker,
bank or other nominee, and you wish to vote at the special meeting or any
adjournment of the special meeting, you must bring to the special meeting a
proxy from the record holder of the shares (your broker, bank or nominee)
authorizing you to vote in person at the special meeting or adjournment of
the
special meeting.
All
shares held by record holders of our common stock represented by properly
executed proxies received in time for the special meeting will be voted at
the
special meeting in the manner specified by the stockholders giving those
proxies. Properly executed proxies that do not contain voting instructions
will
be voted “FOR” the proposal to approve the merger agreement and “FOR” the
proposal to adjourn the special meeting for the purpose of soliciting additional
proxies, if necessary or appropriate, if there are not sufficient votes at
the
time of the special meeting to approve the merger agreement, provided that
no
proxy that is specifically marked “AGAINST” the proposal to approve the merger
agreement will be voted in favor of the adjournment proposal, unless it is
specifically marked “FOR” the adjournment proposal.
To
vote,
please complete, sign, date and return the enclosed proxy card.
Only
shares affirmatively voted for the proposal to approve the merger agreement
and
the adjournment proposal, and properly executed proxies that do not contain
voting instructions, will be counted as votes “FOR” the proposals. Shares of our
stock held by persons attending the special meeting but abstaining from voting,
and shares of our stock for which we received proxies directing an abstention,
will have the same effect as votes against the approval of the merger agreement
and the adjournment proposal.
Shares
represented by proxies that reflect a “broker non-vote” will be counted for
purposes of determining whether a quorum exists, but those proxies will have
the
same effect as votes against the proposal to approve the merger agreement and
the adjournment proposal. A “broker non-vote” occurs when a nominee holding
shares for a beneficial owner has not received instructions from the beneficial
owner and does not have discretionary authority to vote the shares. If you
hold
your shares in “street name,” which means your shares are held of record by a
broker, bank or other nominee, you must provide the record holder of your shares
with instructions on how to vote your shares in accordance with the voting
directions provided by your broker, bank or other nominee. If you do not provide
your broker, bank or other nominee with instructions on how to vote your shares,
it will not be permitted to vote your shares and will result in a broker
non-vote.
You
should not send any certificates representing shares of our common stock with
your proxy card. Upon completion of the merger, you will receive instructions
regarding the procedure to exchange your stock certificates for the cash merger
consideration.
Voting
over the Internet or by
Telephone
You
may
also grant a proxy to vote your shares over the Internet or by telephone.
Stockholders granting a proxy to vote over the Internet or by telephone should
understand that there may be costs associated with electronic access, such
as
usage charges from Internet access providers and telephone companies, which
must
be borne by the stockholder.
For
Shares Registered in Your Name. Stockholders
of record who own shares directly in their own name may go to the website
www.proxyvote.com
to grant
a proxy to vote their shares over the Internet. Have your proxy card in hand
when you access the web site and follow the instructions to obtain your records
and to create an electronic voting instruction form. Any stockholder using
a
touch-tone telephone may also grant a proxy to vote shares by calling the
telephone number on your voting instruction form or proxy card and following
the
recorded instructions.
For
Shares Registered in the Name of a Broker, Bank or Other Nominee
Beneficial
owners whose stock is held in “street name” through a broker, bank or other
nominee must provide the record holder of their shares with instructions on
how
to vote their shares. Please check the voting directions provided by your
broker, bank or other nominee (rather than from our proxy card) to see if you
may use the Internet or the telephone to provide instructions on how to vote
your shares.
General
Information for All Shares Voted over the Internet or by Telephone.
Votes
submitted over the Internet or by telephone must be received by 11:59 p.m.,
Pacific Time, on [●], 2007. Submitting your proxy over the Internet or by
telephone will not affect your right to vote in person should you decide to
attend the special meeting.
Adjournment
Although
it is not currently expected, if the proposal to approve the adjournment of
the
special meeting, if necessary or appropriate, to permit the further solicitation
of proxies if there are not sufficient votes at the time of the special meeting
to approve the merger agreement, is approved, the special meeting may be
adjourned for the purpose of soliciting additional proxies to approve the
proposal to approve the merger agreement. Other than for the purposes of
adjournment to solicit additional proxies, whether or not a quorum exists,
holders of a majority of the outstanding voting power of our common stock
entitled to vote on the merger agreement, present in person or represented
by
proxy at the special meeting and entitled to vote thereat may adjourn the
special meeting. Any signed proxies received by us in which no voting
instructions are provided on such matter will be voted in favor of an
adjournment in these circumstances.
Any
adjournment may be made without notice (if the adjournment is not for more
than
thirty days), other than by an announcement made at the special meeting of
the
time, date and place of the adjourned meeting. Any adjournment of the special
meeting for the purpose of soliciting additional proxies will allow our
stockholders who have already sent in their proxies to revoke them at any time
prior to their use at the special meeting as adjourned.
Revocation
of Proxies
Submitting
a proxy on the enclosed form does not preclude a stockholder from voting in
person at the special meeting. If you are a stockholder of record (i.e., your
shares are registered in your name), you may revoke and change your vote on
a
proposal at any time before the conclusion of voting on such proposal. If you
are a stockholder of record, you can do this in one of three ways:
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first,
you can provide a written notice to our corporate secretary prior
to 11:59
p.m. Pacific Time on [●], 2007 stating that you would like to revoke your
proxy;
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second,
you can complete and submit a later dated proxy in writing, provided
the
new proxy is received by 11:59 p.m. Pacific Time on [●], 2007. If you
submitted the proxy you are seeking to revoke via the Internet or
telephone, you may submit this later-dated new proxy using the same
method
of transmission (Internet or telephone) as the proxy being revoked,
provided that the new proxy is received by 11:59 p.m. Pacific Time
on [●],
2007; or
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third,
you can attend the special meeting and vote in person, which will
automatically cancel any proxy previously given, or you may revoke
your
proxy in person; your attendance alone, however, will not revoke
any proxy
that you have previously given.
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Any
written notice of revocation or subsequent proxy should be delivered to our
corporate secretary at 730 Paseo Camarillo, Camarillo, California, 93010,
Attention: Corporate Secretary, at or before the time and date specified above.
If
you
have instructed a broker, bank or other nominee to vote your shares, you must
follow the directions received from your broker, bank or other nominee to change
those instructions.
Solicitation
of Proxies
We
and
our proxy solicitation firm, Morrow & Company, Inc., are soliciting proxies
for the special meeting from our stockholders. We will bear the entire cost
of
soliciting proxies from our stockholders, which includes the payment of
$7,500.00 to Morrow & Company for its services. We will also reimburse
Morrow & Company for its expenses incurred in connection with its engagement
as our proxy solicitor.
In
addition, we may reimburse brokerage firms and other firms representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to the beneficial owners. Proxies may also be solicited by certain
of
our directors, officers and regular employees, without additional compensation,
either personally or by telephone, Internet, telegram, facsimile or special
delivery letter.
No
person
has been authorized to give any information or to make any representations
other
than those set forth in the proxy statement in connection with the solicitation
of proxies made hereby, and, if given or made, such information must not be
relied upon as having been authorized by us or any other person.
We
do not
expect that any matter other than the proposal to approve the merger agreement
and, if required, the proposal to adjourn will be brought before the special
meeting. If, however, other matters are properly presented at the special
meeting, the persons named as proxies will vote in accordance with their best
judgment with respect to those matters.
Under
applicable Nevada law, ECHO stockholders are not entitled to any dissenters’
rights with respect to the merger.
If
you
need assistance in completing your proxy card or have questions regarding the
special meeting, please contact:
Electronic
Clearing House, Inc.
Corporate
Secretary and Investor Relations
730
Paseo
Camarillo,
Camarillo,
CA 93010
(800)
233-0406 ext. 8533
corp@ECHO-inc.com
OR
Morrow
& Company, Inc.
470
West
Avenue, 3rd Floor
Stamford,
CT 06902
[●]
[●]
Attn:
Gerard J. Mucha or Fred Marquardt
PROPOSAL
1—APPROVAL OF THE MERGER
AGREEMENT
THE
MERGER
We
are
asking our stockholders to approve the merger agreement. If we complete the
merger, we will become a wholly-owned subsidiary of Intuit, and our stockholders
will have the right to receive $18.75 in cash, without interest and less any
applicable withholding taxes, for each share of common stock that is outstanding
immediately prior to the effective time of the merger.
Electronic
Clearing House, Inc.
Electronic
Clearing House, Inc. is an electronic payment processor that provides for the
payment processing needs of merchants, banks and collection agencies. We derive
the majority of our revenue from two main business segments: 1) bankcard and
transaction processing services (“bankcard services”), whereby we provide
solutions to merchants and banks to allow them to accept credit and debit card
payments from consumers; and 2) check-related products (“check services”),
whereby we provide various services to merchants and banks to allow them to
accept and process check payments from consumers. The principal services we
offer within these two segments include, debit and credit card processing,
check
guarantee, check verification, check conversion, check re-presentment and check
collection. We operate our services under the following brands:
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MerchantAmerica,
our retail provider of all credit card, debit card and check payment
processing services to both the merchant and bank markets;
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National
Check Network (“NCN”), our proprietary database of negative and positive
check writer accounts (i.e., accounts that show delinquent history
in the
form of non-sufficient funds and other negative transactions), for
check
verification, check conversion capture services, and for membership
to
collection agencies;
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XPRESSCHEX,
Inc. for check collection services;
and
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ECHO,
for wholesale credit card and check processing
services.
|
We
were
incorporated in Nevada in December 1981. Our principal executive office is
located at 730 Paseo Camarillo, Camarillo, California 93010, and our telephone
number is (800) 233-0406.
Intuit
Inc.
Founded
in 1983, Intuit Inc. is a leading provider of business, financial management
and
tax solutions for small businesses, consumers and accountants. Intuit’s flagship
products and services, including QuickBooks, TurboTax, Lacerte, ProSeries and
Quicken, simplify small business management, tax preparation and filing, and
personal finance. Intuit is publicly traded on the NASDAQ Global Select Market
under the symbol “INTU.”
Intuit
was incorporated in California in March 1984. In March 1993, Intuit
reincorporated in Delaware and completed its initial public offering. Intuit’s
principal executive office is located at 2700 Coast Avenue, Mountain View,
California, 94043, and its telephone number at that location is (650)
944−6000.
Merger
Sub is a Nevada corporation and a wholly-owned subsidiary of Intuit. Merger
Sub
was organized solely for the purpose of entering into the merger agreement
with
Intuit and completing the merger and has not conducted any business operations
other than those incident to its formation. If the merger is completed, Merger
Sub will cease to exist following its merger with and into ECHO.
Merger
Sub’s principal office is located at Intuit's principal executive office at c/o
Intuit Inc., 2700 Coast Avenue, Mountain View, CA 94043 and its telephone number
is (650) 944-6000.
Background
of
the Merger
We
continually assess strategic opportunities and potential business transactions
as a part of our ongoing evaluation of our business, technologies and
industries.
We
were
first contacted by Intuit in July 2005 when a representative of
Intuit called Kris Winckler, our Senior Vice President of Strategy
and Marketing. Intuit initially contacted us to discuss potentially establishing
a commercial business relationship where we would provide check processing
related products and/or services to Intuit. In connection with these
conversations, on July 20, 2005, we and Intuit executed a mutual nondisclosure
agreement. On July 25, 2005, Mr. Winckler met with representatives of Intuit
to
discuss the potential commercial relationship. On January 10, 2006, a
representative of Intuit telephoned Mr. Winckler to follow up on those
discussions.
Over
the
following months, there were discussions between our representatives and
representatives of Intuit to discuss the status of Intuit’s interest in a
potential commercial transaction with us.
On
April
14, 2006, Joe Kaplan, a Vice President of Intuit and Division President of
Intuit’s Innovative Merchant Solutions business, and Randy Tinsley, Intuit’s
Vice President of Corporate Development, met with Charles J. Harris, our
President and Chief Operating Officer, at the offices of Intuit’s Innovative
Merchant Solutions business in Calabasas, California to explore potential
business opportunities between the two companies, including a possible business
combination. During this meeting, Intuit indicated that it may be interested
in
a broader relationship with us. Both parties agreed to consider such strategic
opportunities, although at this time our objectives remained focused on
developing a commercial relationship with Intuit and our Board of Directors
and
management continued to operate ECHO pursuant to our long-term strategy to
grow our business.
On
May
10, 2006, representatives of Intuit met with Mr. Harris and Mr. Winckler at
an
industry conference in San Diego, California and discussed our current and
future products and how we could help to expand Intuit’s current product
offerings.
On
May
17, 2006, the parties entered into a new mutual nondisclosure agreement to
facilitate the expanded scope of the discussions between the parties. After
the
execution of the new nondisclosure agreement, a follow up meeting was held
that
day at our offices in Camarillo, California, to review our capabilities and
Intuit’s corporate objectives and to continue the parties’ discussions regarding
potential business opportunities, including a possible business combination.
Present at this meeting were Mr. Kaplan, Mr. Tinsley and other representatives
of Intuit and Mr. Harris, Alice L. Cheung, our Chief Financial Officer and
Treasurer, William Wied, our Chief Information Officer, Steve Hoofring, Sharat
Shankar, Patricia A. Williams and Mr. Winckler, each Senior Vice Presidents
of
ECHO.
On
June
5, 2006, Mr. Tinsley called Mr. Harris to propose a potential business
combination transaction and to discuss the terms upon which Intuit was prepared
to enter into discussions regarding such a transaction. On June 6, 2006, we
received from Intuit a draft of a proposed exclusivity
agreement, requesting that we would negotiate exclusively with
Intuit, and a draft of a non-binding term sheet outlining terms for a possible
business combination as described on the June 5, 2006 telephone call between
Mr.
Harris and Mr. Tinsley. Between June 7, 2006 and June 12, 2006, all of our
directors were notified that Intuit was interested in entering into discussions
regarding a potential business combination.
Between
June 7, 2006 and June 13, 2006, Messrs. Tinsley and Harris had several
telephonic discussions concerning Intuit’s proposed exclusivity agreement and
non-binding term sheet.
On
June
14, 2006, Mr. Tinsley, on behalf of Intuit, sent Mr. Harris a written
non-binding proposal to acquire 100% of our fully diluted equity on the terms
that were previously discussed between Mr. Tinsley and Mr. Harris. In addition,
Intuit stated that a condition to its proposal was that we agree to negotiate
exclusively with Intuit. Mr. Harris notified the members of our Board of
Directors of the proposal. Thereafter, our Board of Directors began to
evaluate it with our outside counsel and also to consider the possibility
of retaining a financial advisor.
Our
Board
of Directors held a special telephonic meeting on June 21, 2006, for the purpose
of discussing Intuit’s proposal and retaining a financial advisor. Our legal
counsel discussed the Board of Directors' fiduciary duties and our Board of
Directors determined that further financial analysis would be necessary before
they could respond to Intuit’s proposal. After consideration of multiple
candidates, our Board of Directors approved a resolution to engage Wedbush
Morgan as our exclusive financial advisor in connection with any potential
business combination transaction with Intuit. Following the adoption of this
resolution, our Board of Directors directed Wedbush Morgan to analyze Intuit’s
proposal and advise our management and our Board of Directors on the matter.
Wedbush Morgan was formally retained by us pursuant to a letter agreement dated
June 30, 2006.
Our
Board
of Directors held another special telephonic meeting on June 26, 2006 for the
sole purpose of discussing Intuit’s proposal. At this meeting, Wedbush Morgan
presented an analysis and evaluation of Intuit’s proposal, as well as various
alternatives available to us. At that time, our Board of Directors authorized
Wedbush Morgan to initiate discussions with Intuit concerning the consideration
and other terms of a proposed transaction, with the principal goal of obtaining
the highest per share price for shareholders and providing us the ability to
respond to unsolicited alternative acquisition proposals. Our Board of Directors
also directed management and Wedbush Morgan to condition our willingness to
provide confidential information to Intuit on Intuit entering into a standstill
agreement pursuant to which Intuit would agree not to acquire or publicly offer
to acquire our securities without the consent of our Board of Directors.
On
June
30, 2006, Wedbush Morgan provided Intuit with a revised nondisclosure agreement
including standstill provisions as requested by our Board of Directors. Later
that day, representatives of our outside counsel had discussions with members
of
Intuit’s legal department regarding the content of the nondisclosure
agreement.
On
July
7, 2006, Mr. Tinsley had several telephone calls with representatives of Wedbush
Morgan regarding the purchase price. Intuit also advised us that it was not
prepared to enter into a new nondisclosure agreement and provided us with a
proposed amendment to the May 17, 2006 nondisclosure agreement containing
revised standstill provisions. On this day, Intuit also provided us with a
revised non-binding term sheet which indicated Intuit’s willingness to increase
its proposed purchase price.
During
the period between July 7, 2006 and July 21, 2006, Mr. Harris and Wedbush
Morgan continued to engage in discussions with Mr. Tinsley regarding purchase
price and other terms set forth in Intuit’s proposal. In connection with those
discussions, Intuit made certain information requests of us. Our management
and
legal counsel also participated in several informal telephone calls with members
of our Board of Directors during this period, updating our Board of Directors
on
developments in our discussions with Intuit and answering questions posed
regarding various legal requirements.
Between
July 7, 2006 and July 10, 2006, Wedbush Morgan and Mr. Tinsley corresponded
regarding the terms of the standstill provisions to be included in the amendment
to the nondisclosure agreement. On July 10, 2006, Mr. Tinsley proposed that
the
parties focus on the purchase price instead of the amendment to the
nondisclosure agreement and standstill provisions.
On
July
11, 2006 Wedbush Morgan participated in a telephonic meeting with Mr. Tinsley
to
address Intuit’s questions relating to purchase price and valuation.
On
July
21, 2006, Mr. Tinsley provided Wedbush Morgan with a revised exclusivity
agreement, requesting that we would not discuss, negotiate or enter into
another agreement with a third party relating to the acquisition of us
(with specified exceptions to permit our Board of Directors to exercise its
fiduciary duties), and non-binding term sheet reflecting an increased proposed
purchase price.
Wedbush
Morgan presented Intuit’s revised proposal to our Board of Directors informally
at a dinner held on July 23, 2006 and formally at a meeting of our Board of
Directors held on July 24, 2006. At this meeting, our Board of Directors
considered and discussed various factors regarding the transaction, including,
among others, the proposed purchase price relative to our then-current market
price, the comparability of other market valuations, that the transaction
consisted of all cash consideration, that there were no proposed material
contingencies (apart from shareholder approval), and that the proposed purchase
price reflected anticipated synergies between the companies, including Intuit’s
anticipated ability to leverage our products, services and technology through
its more recognizable brand and its extensive distribution network. Our Board
of
Directors also discussed negative aspects of the potential transaction,
including those described in “The Merger—Recommendation of Our Board of
Directors; Our Reasons for the Merger.” Following a substantial discussion, our
Board of Directors directed Wedbush Morgan to continue its negotiations with
Intuit to see if any higher purchase price could be achieved.
Between
the July 24, 2006 Board of Directors' meeting and July 28, 2006, Wedbush Morgan
continued its discussions with Mr. Tinsley regarding purchase price and other
transaction terms, and we continued an ongoing internal analysis of the proposed
transaction. On July 25, 2006, we sent Intuit a revised exclusivity agreement
and non-binding term sheet reflecting an increased proposed purchase price.
On
July 27, 2006, Intuit provided our legal counsel with a revised exclusivity
agreement and non-binding term sheet reflecting the purchase price that we
proposed to Intuit in our July 25, 2006 non-binding term sheet. Wedbush Morgan
provided Intuit with comments to the other deal terms reflected
in Intuit’s revised proposal later that day. On July 28, 2006, Intuit’s
outside legal counsel had discussions with our outside legal counsel regarding
the terms of the exclusivity agreement and non-binding term sheet. Later that
day, Intuit provided us with a revised non-binding term sheet responding to
our
comments and the parties entered into an exclusivity agreement providing that
until September 12, 2006, we would not discuss, negotiate, or enter into another
agreement with a third party relating to the acquisition of us with
specified exceptions to permit our Board of Directors to exercise its fiduciary
duties.
After
the
execution of the exclusivity agreement, we had discussions with representatives
of Intuit regarding coordinating its due diligence review of our company. On
August 4, 2006, Intuit and its representatives received access to an electronic
data room containing due diligence information relating to our
company.
On
August
7, 2006, Mr. Harris, Mr. Kaplan and Alex Lintner, Intuit's Senior Vice
President, Strategy and Corporate Development, met in Los Angeles, California
to
discuss the payments industry and strategic aspects of the potential
transaction.
On
or
about August 8, 2006, Mr. Harris and Michael McNeal, Intuit’s Vice President of
Talent Acquisitions, met in Calabasas, California to review, identify and
discuss a retention strategy for our key employees. During the period from
this meeting until signing, Mr. McNeal had conversations with Mr. Harris
and other members of our management to discuss employee retention, employment
packages and related matters.
Beginning
on August 9, 2006, Intuit and its legal counsel, accounting advisors and other
outside consultants began an extensive due diligence investigation of our
company, including a review of our corporate and financial records and meetings
and telephone calls with our management, independent auditors and technology
personnel. Intuit also sent
several follow-up informational requests. This due diligence investigation
included meetings on August 10 and 11, 2006, at a hotel near our offices in
Camarillo, California, at which Mr. Kaplan and several other representatives
of
Intuit and Intuit’s outside advisors, our management team and several other
ECHO employees, and representatives of Wedbush Morgan, were present. Intuit’s
due diligence investigation, including various telephone calls between the
parties, continued in parallel with the negotiation of the definitive
transaction documents until execution of the merger agreement.
On
August
10, 2006, Intuit’s legal counsel provided us with a draft definitive merger
agreement.
On
August
17, 2006, our legal counsel provided Intuit with comments on Intuit’s proposed
draft definitive merger agreement. Following receipt of these comments, the
parties and their legal counsel exchanged several drafts and negotiated the
terms of the definitive merger agreement, including provisions relating
to our Board of Directors’ ability to respond to and/or negotiate
alternative acquisition proposals and any potential termination
fees.
During
this period management also kept our Board of Directors updated via regular
communications and informal telephonic conferences, which included discussions
of the principal terms of the merger agreement and our Board of Directors'
fiduciary duties.
On
August
24, 2006, Mr. Harris and Mr. Kaplan had a dinner meeting in Calabasas,
California at which they discussed employee-related matters and other issues
related to the transaction.
On
August
25, 2006, Intuit’s legal counsel provided our legal counsel with a draft voting
agreement, pursuant to which members of our management and Board of Directors
would agree to vote their shares of common stock in favor of the
merger.
On
September 5, 2006, Steve Bennett, Intuit’s President and Chief Executive
Officer, met with Mr. Harris at a restaurant near our offices in Camarillo,
California to discuss general business objectives and share market
observations.
Also
on
September 5, 2006, Intuit’s legal counsel provided our legal counsel with a
draft form of non-competition agreement, pursuant to which certain members
of
our management would agree not to compete with Intuit following the closing
of the merger. Negotiation of the non-competition agreement and the voting
agreement continued between us and Intuit and their respective legal advisors
in
parallel with the negotiation of the merger agreement.
On
September 6, 2006, Intuit provided Mr. Harris with employment offer letters
to
be distributed to our executives, which the parties negotiated in parallel
with
the merger agreement and other transaction documents.
On
September 8, 2006, Messrs. Harris, Barry and Kaplan met in Las Vegas with a
select ECHO merchant (subject to a nondisclosure agreement) to conduct customer
due diligence.
On
September 11, 2006, the parties entered into an amendment to the July 28
exclusivity agreement extending the exclusivity period to September 19,
2006.
On
September 14, 2006, our legal counsel provided Intuit’s legal counsel a list of
the remaining open issues on the definitive merger agreement and the parties
and
their counsel engaged in telephone calls to negotiate these open
issues.
Later on
September 14, 2006, Messrs. Kaplan and Tinsley contacted Mr. Harris and
representatives of Wedbush Morgan and advised them that Intuit had determined
to
lower its proposed purchase price in light of certain issues identified in
its
due diligence investigation. At this time, we instructed our outside counsel
to
cease negotiating the terms of the merger agreement.
On
September 15, 2006, Mr. Tinsley communicated, through discussions with Wedbush
Morgan, Intuit’s proposed revised purchase price.
In
light
of the proposed revised purchase price, our Board of Directors held a special
telephonic meeting on September 15, 2006. At this meeting, our Board of
Directors engaged in an extensive discussion of the due diligence findings
identified by Intuit and the various matters reviewed, key business issues
involved in the transaction, and the terms of the draft merger agreement. After
analyzing the issues raised, our Board of Directors instructed Wedbush Morgan
to
negotiate an increase to Intuit’s proposed revised purchase price.
Between
September 15, 2006 and 18, 2006, Wedbush Morgan and our management had
discussions with representatives of Intuit relating to purchase price, but
Intuit indicated that it would not increase its proposed purchase price beyond
what it had proposed on September 15, 2006.
On
September 19, 2006, the exclusivity agreement expired and was not
renewed.
After
further deliberation among the individual members of our Board of Directors
with
representatives of our management and legal counsel and Wedbush Morgan, all
of
which occurred between September 20, 2006 and September 22, 2006, each of
the members of our Board of Directors indicated that they supported moving
forward with negotiations at the reduced purchase price proposed by Intuit.
Our
Board of Directors' analysis in this regard considered all of the costs and
benefits arising from the proposed transaction, an analysis of the due diligence
matters identified by Intuit, a consideration of the fact that the reduced
purchase price was still a significant premium to the then current market price
and the market price prior to entering into negotiations with Intuit, and
discussions with Wedbush Morgan concerning the fairness of the transaction,
from
a financial point of view, to the public holders of our common stock. Following
our Board of Directors' decision to move forward, the
parties resumed their due diligence activities and the negotiation of the
definitive merger agreement and related agreements.
On
September 30, 2006, the Unlawful Internet Gambling Enforcement Act of 2006
(the “Internet Gaming Bill”) was passed by Congress. The Internet Gaming Bill
prohibits gambling businesses from accepting any payment instrument, including
credit cards, ACH and other check transactions, for Internet gambling. The
Internet Gaming Bill directs the United States Federal Reserve, the Department
of the Treasury and the Department of Justice to develop regulations, within
270
days of the Internet Gaming Bill becoming law, which would direct financial
transaction providers, including payment processors, to identify and block
certain types of financial transactions connected with Internet
gambling.
Thereafter,
we undertook to determine the impact of the Internet Gaming Bill on our business
and engaged special counsel to assist in determining its application and effect.
We determined that the Internet Gaming Bill would have a significant negative
impact on our Internet wallet (“eWallet”) business and our future outlook. On
October 4, 2006, our Board of Directors had a meeting to discuss the Internet
Gaming Bill and its impact on our business. Following this meeting, at the
direction of our Board of Directors, we provided Intuit with information on
the
potential impact of the Internet Gaming Bill on our business. The information
we
provided to Intuit was consistent with the information we provided to the public
in our subsequently filed Annual Report on Form 10-K and the information
provided to Wedbush Morgan in connection with its analysis as described in
“Opinion of ECHO’s Financial Advisor.”
Between
October 4, 2006 and October 11, 2006, Messrs. Kaplan and Tinsley had several
telephonic discussions with Mr. Harris and representatives of Wedbush Morgan
concerning the potential impact of the Internet Gaming Bill on our business
and
certain other due diligence matters. On or around this time, the parties stopped
negotiating the terms of the merger agreement and other transaction
documents. On October 11, 2006, Mr. Tinsley and Mr. Kaplan advised us that,
in light of the anticipated impact of the Internet Gaming Bill on our business,
Intuit was further reducing its proposed purchase price.
On
October 11, 2006, after market close, we issued a press release announcing
that
a portion of our business and future results of operations would be impacted
by
the Internet Gaming Bill. The press release also indicated that eWallet services
accounted for less than 10% of our total revenues in 2006 and that the Internet
Gaming Bill would have a significant negative effect on our business and results
of operations in fiscal 2007.
On
October 12, 2006, Wedbush Morgan, at the direction of our Board of Directors
and
after consultation with our management, told Mr. Tinsley that while we were
prepared to engage in discussions regarding a reduced purchase price to reflect
the impact of the Internet Gaming Bill on our business, the proposed reduction
by Intuit was too large and would not be acceptable to our Board of
Directors.
On
October 13, 2006, Mr. Tinsley and another representative of Intuit had further
discussions with representatives of Wedbush Morgan regarding revisions to the
proposed purchase price to reflect the impact of the Internet Gaming Bill on
our
business.
On
October 16, 2006, Intuit provided our Board of Directors with a letter
indicating that Intuit’s “best and final” proposal to acquire us was at a price
per share of $18.75 in cash. The revised proposal reflected a smaller reduction
in the proposed purchase price than the reduction proposed by Intuit on October
11, 2006. Intuit’s revised proposal had an expiration date of October 18, 2006,
which Intuit subsequently extended to October 20, 2006 at our request.
On
October 20, 2006, representatives of Wedbush Morgan, acting at the direction
of
our Board of Directors, informed Mr. Tinsley that we needed additional time
to
fully analyze and assess the impact of the Internet Gaming Bill on our
business and that our Board of Directors would consider Intuit’s revised
proposal only after management’s analysis was complete. Wedbush Morgan requested
that Intuit extend the expiration of its revised proposal by several weeks
to
allow us to complete this analysis. Mr. Tinsley responded that Intuit was not
prepared to allow its proposal to remain open for an extended period and that
Intuit intended to explore other strategic opportunities. Mr. Tinsley indicated
that if our Board of Directors was ready to re-engage in discussions following
the expiration of Intuit’s proposal, Intuit would reevaluate its interest in
acquiring us at that time.
On
October 27, 2006, our Board of Directors participated in a telephonic conference
call to discuss the results of management’s analysis of the Internet Gaming Bill
and whether we should continue discussions with Intuit. As a result of such
discussions and at the direction of our Board of Directors, Wedbush Morgan
contacted Mr. Tinsley later that day to inform Intuit that we had completed
our
analysis and our Board of Directors was now prepared to consider a proposal
on
the terms proposed by Intuit on October 16, 2006, if that proposal remained
open.
On
November 7, 2006, Mr. Tinsley notified Wedbush Morgan that Intuit remained
interested in proceeding with an acquisition of us on the terms proposed by
Intuit on October 16, 2006, including a purchase price of $18.75 per share,
subject to additional due diligence on specified issues previously identified
by
Intuit. Our Board of Directors was then notified of Intuit’s continued
interest, and a Board of Directors meeting was scheduled for November 13, 2006
in order to consider Intuit’s proposal.
Beginning
on November 9, 2006, the parties and their advisors re-engaged on due diligence
and the negotiation of the definitive merger agreement and other transaction
documents.
On
November 12, 2006, our Board of Directors met over dinner during which they
informally discussed Intuit’s latest proposal of $18.75 per share.
On
November 13, 2006, our Board of Directors met to consider Intuit’s latest
proposal. Wedbush Morgan presented to our Board of Directors a preliminary
overview of its financial analysis of Intuit’s latest proposal, including the
valuation considerations made, its market trading analysis, public comparable
company analysis, premium public comparable company analysis and merger and
acquisition transaction analysis, as well as the assumptions made, matters
considered and qualifications and limitations of its review. The valuation
analysis and methodologies were discussed, including a discounted cash flow
analysis. Wedbush Morgan informed our Board of Directors that based on its
financial analysis, it was then able to render to our Board of Directors an
opinion that the $18.75 per share purchase price was fair, from a financial
point of view, to the public holders of our common stock. Our Board of Directors
then continued a discussion of the valuation and other transaction related
matters, including open issues relating to the provisions of the merger
agreement which govern our ability to consider alternative acquisition proposals
and the circumstances under which we would be obligated to pay Intuit a break-up
fee, the timing of the transaction, the intention of Intuit to retain almost
all
of our employees and senior management, the significant synergies between the
companies and the extensive diligence done by Intuit before making its most
recent proposal. Following this extensive discussion, our Board of Directors
authorized management to continue discussions with Intuit at a purchase price
of
$18.75 per share and to negotiate the remaining terms of the transaction with
Intuit.
On
November 14, 2006, our legal counsel called Intuit’s legal counsel to discuss
the remaining open issues related to the merger agreement. Also on November
14,
2006, our representatives and representatives of Intuit and Intuit’s legal
counsel had a conference call to discuss the status of the remaining open issues
in Intuit’s ongoing due diligence investigation.
Between
November 14 and December 14, we and Intuit and our respective representatives
and legal counsel continued negotiating the definitive merger agreement and
other transaction documents. During that time, Intuit continued its due
diligence review and we worked to resolve the diligence issues identified by
Intuit.
After
resolution of outstanding due diligence issues and issues relating to the
definitive agreements, drafts of the definitive transaction documents were
prepared and delivered to all of our directors on December 13, 2006.
On
December 14, 2006, our Board of Directors held a special telephonic meeting.
Representatives of our legal counsel and Wedbush Morgan also attended the
meeting. At the meeting, management and our legal counsel updated our Board
of
Directors on the status of negotiations with Intuit, the terms of the definitive
agreements and the resolution of issues discussed at the prior Board of
Directors meeting, including the provisions of the merger agreement relating
to
our ability to consider alternative acquisition proposals and the circumstances
under which we would be obligated to pay a break-up fee to Intuit. Our Board
of
Directors then asked questions of management and our legal counsel and discussed
the terms of the transaction agreements that had been negotiated with Intuit.
Following that discussion, Wedbush Morgan presented to our Board of Directors
its financial analysis of the per share purchase price of $18.75, including
the
valuation considerations made, their market trading analysis, public comparable
company analysis, premium public comparable company analysis and merger and
acquisition transaction analysis, as well as the assumptions made, matters
considered and qualifications and limitations of its review, see "Opinion of
ECHO's Financial Advisor." The valuation analysis and methodologies were
discussed, including a discounted cash flow analysis. Following questions by
our
Board of Directors to Wedbush Morgan relating to its analysis, Wedbush Morgan
presented its oral opinion to our Board of Directors, which was subsequently
confirmed in a written opinion dated December 14, 2006, that the $18.75 per
share to be paid by Intuit in the merger was fair, from a financial point of
view, to the public holders of our common stock. The full text of Wedbush
Morgan’s written opinion, which sets forth the procedures followed, assumptions
made, matters considered, and qualifications and limitations of the review
undertaken in connection with the opinion, is attached as Annex C hereto.
Following the delivery of the Wedbush Morgan opinion, additional discussion
ensued, including a discussion of the communications plan for announcement
of
the transaction, and our Board of Directors adopted resolutions, among other
things, approving the merger agreement and the transactions contemplated by
the
merger agreement and recommending that the our shareholders adopt the merger
agreement at a special meeting.
Following
the resolution of all outstanding issues relating to the definitive agreements,
after the close of the market on December 14, 2006, the parties executed the
merger agreement and related documents and issued a joint press release
announcing the execution of the merger agreement.
Recommendation
of Our Board of Directors; Our Reasons for
the Merger
Recommendation
of Our Board of Directors
Our
Board
of Directors, by the unanimous vote of all directors:
|
·
|
declared
the merger to be advisable and fair to, and in the best interests
of, us
and our stockholders; and
|
|
·
|
approved
the merger agreement, the merger and the other transactions contemplated
by the merger agreement on the terms and conditions set forth in
the
merger agreement.
|
Accordingly,
our Board of Directors unanimously recommends that you vote “FOR” the approval
of the merger agreement.
Reasons
for
the Merger
In
reaching its unanimous determination to approve the merger agreement, the merger
and the other transactions contemplated by the merger agreement and to
unanimously recommend that you vote in favor of the proposal to approve the
merger agreement, our Board of Directors consulted with our management, as
well
as our legal and financial advisors and considered a number of factors,
including but not limited to the following factors:
Factors
Relating to the Transaction Generally:
|
·
|
ECHO’s
business, financial performance and condition, technology, operations,
business strategy and future prospects, including the risks that
may
adversely impact its prospects, all of which led the Board of Directors
to
conclude that the merger presented an opportunity for ECHO stockholders
to
realize greater value than the value likely to be realized by stockholders
in the event ECHO remained
independent;
|
|
·
|
an
analysis of the nature of ECHO’s competitive position within the industry
in which it competes, and current industry, economic and global market
conditions and trends, both on a historical and on a prospective
basis,
and our Board of Directors' determination that such conditions and
trends
would present significant obstacles to increasing the value of ECHO
to a
level equal to or greater than the value of the consideration to
be
received by its stockholders in the
merger;
|
|
·
|
the
risks and uncertainties of pursuing other strategic options available
to
us, including remaining independent and continuing to implement our
business plan or pursuing other strategic alternatives, such as pursuing
a
strategy of growth through acquisitions and/or pursuing corporate
alliances, the value to stockholders of such alternatives, the costs,
timing and likelihood of actually achieving additional value from
these
alternatives, and our Board of Directors' assessment that none of
these
alternatives was reasonably likely to result in value for stockholders
greater than the consideration to be received in the
merger;
|
|
·
|
the
general risks associated with ECHO remaining an independent company,
including increased competition and the significant and increasing
cost of
complying with ECHO’s obligations as a publicly traded company;
and
|
|
·
|
the
adverse affect the Unlawful Internet Gambling Enforcement Act of
2006
would have on ECHO’s Internet wallet business and ECHO’s future outlook,
including potential downward pressure on the public market price
of ECHO’s
common stock.
|
Factors
Relating to the Specific Terms of the Merger Agreement with Intuit:
|
·
|
the
merger consideration of $18.75 per share of our common stock represents
a
substantial premium to historical trading prices of our common stock.
The
per share common stock merger consideration represents a 26.17% premium
over the closing price of our common stock on December 13, 2006,
the last
trading day prior to the approval of the transaction by our Board
of
Directors. Further the per share common stock merger
consideration represents a 44% premium over our volume
weighted average common stock price for the 30 day period ending
December 12, 2006.
|
|
·
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the
belief by our Board of Directors that ECHO had obtained the highest
price
per share that Intuit was willing to pay, taking into account the
terms
resulting from extensive negotiations between the parties;
|
|
·
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the
conclusion by our Board of Directors that the merger consideration
was
likely the highest price reasonably attainable for ECHO stockholders
in a
merger or other acquisition transaction involving any third party;
|
|
·
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the
presentation by Wedbush Morgan on December 14, 2006 and its opinion
that,
as of December 14, 2006, and based upon the assumptions made, matters
considered, and qualifications and limitations of the review set
forth in its opinion, the consideration to be offered to the public
holders of our common stock in the merger was fair, from a financial
point
of view, to such stockholders (see “Opinion of ECHO’s Financial
Advisor”);
|
|
·
|
the
fact that the merger consideration consists solely of cash, which
provides
certainty of value to our stockholders compared to a transaction
in which
stockholders would receive stock;
|
|
·
|
the
fact that Intuit has expressed its intent to hire most of our employees,
subject to Intuit’s standard hiring
policies;
|
|
·
|
the
terms of the merger agreement, as reviewed by our Board of Directors
with
our legal advisors, including (see “The Merger Agreement”):
|
|
o
|
the
ability of our Board of Directors, under certain circumstances, to
furnish
information to and conduct negotiations with a third party and, upon
the
payment to Intuit of a termination fee of $4,271,000, to terminate
the
merger agreement to accept a superior proposal;
|
|
o
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our
Board of Directors’ belief that the $4,271,000 termination fee payable to
Intuit was reasonable in the context of termination fees that were
payable
in other comparable transactions and would not be likely to preclude
another party from making a superior proposal;
|
|
o
|
the
likelihood that the merger will be consummated in light of the conditions
to Intuit's obligation to complete the merger, Intuit's financial
capability and the absence of any financing condition to Intuit's
obligation to complete the merger; and
|
|
o
|
the
negotiated exclusions to the definition of a "material adverse effect"
in
the merger agreement;
|
|
·
|
the
fact that the completion of the merger is subject to the approval
of the
merger agreement by our stockholders and if a superior proposal for
an
alternative transaction were to be made prior to the approval of
the
merger agreement by our stockholders at the special meeting, our
stockholders (other than ECHO executive officers and directors who
are
entitled to vote approximately [●]% of the outstanding voting power of our
common stock) would be free to reject the transaction with Intuit
by
voting against the approval of the merger
agreement;
|
|
·
|
the
view of our Board of Directors, after receiving advice of management
and
after consultation with our legal counsel, concluded that regulatory
approvals necessary to complete the merger are likely to be obtained;
and
|
|
·
|
the
relatively short time period that is likely necessary to close the
transaction.
|
Potential
Negative Factors Relating to the Transaction:
During
the course of its deliberations, our Board of Directors also considered a
variety of potential drawbacks or risks relating to the merger, including the
following risks and other countervailing factors:
|
·
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we
will no longer exist as an independent company and our stockholders
will
no longer participate in our growth as an independent company and
also
will not participate in any synergies resulting from the merger;
|
|
·
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the
merger agreement precludes us from actively soliciting alternative
proposals;
|
|
·
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we
are obligated to pay Intuit a termination fee of $4,271,000 if we
terminate or if Intuit terminates the merger agreement under certain
circumstances;
|
|
·
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there
can be no assurance that all conditions to the parties’ obligations to
complete the merger will be satisfied, and as a result, it is possible
that the merger may not be completed even if the merger agreement
is
approved by our stockholders;
|
|
·
|
if
the merger does not close, we may incur significant risks and costs,
including the possibility of disruption to our operations, diversion
of
management and employee attention, employee attrition and a potentially
negative effect on business and customer
relationships;
|
|
·
|
certain
of our directors and officers may have conflicts of interest in connection
with the merger, as they may receive certain benefits that are different
from, and in addition to, those of our other stockholders (see “The Merger
- Interests of Our Directors and Executive Officers in the Merger”);
and
|
|
·
|
the
gain from an all-cash transaction would be taxable to our tax-paying
stockholders for United States federal income tax
purposes.
|
After
taking into account all of the factors set forth above, as well as others,
and
consulting with its legal and financial advisors, our Board of Directors
unanimously agreed that the benefits of the merger outweigh the risks and that
the transactions contemplated by the merger agreement, including the merger,
are
advisable, fair to and in the best interests of us and our stockholders. Our
Board of Directors has unanimously approved the merger agreement, the merger
and
the other transactions contemplated by the merger agreement and unanimously
recommends that our stockholders vote to approve the merger agreement at the
special meeting.
The
foregoing discussion is not intended to be exhaustive, but we believe it
addresses the principal information and factors considered by our Board of
Directors in its consideration of the merger. In view of the number and variety
of factors and the amount of information considered, our Board of Directors
did
not find it practicable to, and did not make specific assessments of, quantify
or otherwise assign relative weights to, the specific factors considered in
reaching its determination. In addition, our Board of Directors did not
undertake to make any specific determination as to whether any particular
factor, or any aspect of any particular factor, was favorable or unfavorable
to
its ultimate determination. Rather, our Board of Directors made its
recommendation based on the totality of information presented to and the
investigation conducted by it. In considering the factors discussed above
individual members of our Board of Directors may have given different weights
to
different factors.
Opinion
of ECHO’s Financial Advisor
Scope
of the Assignment
Our
Board
of Directors engaged Wedbush Morgan to serve as the exclusive financial advisor
to us in connection with the potential sale of ECHO to Intuit and to render
an
opinion as to whether the consideration to be paid in the merger was fair,
from
a financial point of view, to the public holders of our common stock. Wedbush
Morgan rendered its oral and written opinion to our Board of Directors that,
as
of December 14, 2006, and based upon the assumptions made, matters considered,
and qualifications and limitations of the review set forth in its written
opinion, the merger consideration of $18.75 per share to be received by our
public stockholders pursuant to the merger agreement was fair from a financial
point of view to such stockholders.
The
full
text of Wedbush Morgan’s written opinion, which sets forth the procedures
followed, assumptions made, matters considered, and qualifications and
limitations of the review undertaken in connection with the opinion, is attached
as Annex C and is incorporated by reference. Wedbush Morgan’s opinion was
intended for the use and benefit of our Board of Directors in connection with
their evaluation of the merger. Wedbush Morgan’s opinion does not address our
underlying business decision to enter into the merger agreement or complete
the
merger or the relative merits of the merger compared to any alternative business
strategies that may exist for us and does not constitute a recommendation to
the
Board of Directors or any stockholder as to how that person should vote on
the
merger or any related matter. The following summary of Wedbush Morgan’s opinion
is qualified in its entirety by reference to the full text of the opinion,
and
our stockholders are urged to read the opinion in its entirety.
For
purposes of its opinion and in connection with its review of the merger, Wedbush
Morgan has, among other things:
|
·
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reviewed
a draft of the merger agreement dated December 13, 2006, which Wedbush
Morgan assumed would be similar in all material respects to the final
form
of the merger agreement;
|
|
·
|
reviewed
certain publicly available business and financial information relating
to
us that Wedbush Morgan deemed to be
relevant;
|
|
·
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reviewed
certain internal information, primarily financial in nature, including
financial projections and other financial and operating data furnished
to
Wedbush Morgan by us;
|
|
·
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reviewed
certain publicly available and other information concerning the reported
prices and trading history of, and the trading market for, our common
stock;
|
|
·
|
reviewed
certain publicly available information with respect to other companies
Wedbush Morgan believed to be comparable in certain respects to
us;
|
|
·
|
considered
the financial terms, to the extent publicly available, of selected
recent
business combinations of companies in the electronic payment processing
industry which Wedbush Morgan deemed to be comparable, in whole or
in
part, to the merger; and
|
|
·
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made
inquiries regarding and discussed the merger agreement and other
matters
related thereto with our counsel.
|
In
addition to the foregoing, Wedbush Morgan discussed with our management our
views on financial and other information described in the bullet points above
and conducted such other analyses and examinations and considered such other
financial, economic and market criteria as Wedbush Morgan deemed appropriate
to
arrive at its opinion.
In
arriving at its opinion, Wedbush Morgan assumed and relied upon the accuracy
and
completeness of all financial and other information provided to or reviewed
by
it or publicly available, and did not assume any responsibility for independent
verification of any such information. With respect to financial projections
and
other information provided to or reviewed by it, Wedbush Morgan was advised
by
our management that such projections and other information were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of our management as to our expected future financial performance.
Wedbush Morgan further relied on the assurances of our management that we are
unaware of any facts that would make the information or projections provided
to
Wedbush Morgan incomplete or misleading. Wedbush Morgan did not make and was
not
provided with any independent evaluations or appraisals of any of our assets,
properties, liabilities or securities, nor did Wedbush Morgan make any physical
inspection of our properties or assets. Wedbush Morgan does not have any opinion
on any financial forecast or the assumptions upon which they were based, by
our
management, nor does it have any opinion as to the price of our common stock
in
the future. Wedbush Morgan assumed that the final form of the merger agreement
would be similar in all material respects to the draft reviewed by
it.
The
opinion is based on economic, market and other conditions as in effect on,
and
the information made available to Wedbush Morgan as of, the date of the opinion.
Wedbush Morgan has also relied on the accuracy and completeness of our
representations and warranties in the merger agreement. Events occurring after
the date of the opinion could materially affect the assumptions used in
preparing the opinion. Wedbush Morgan has not undertaken to reaffirm or revise
the opinion or otherwise comment upon any events occurring after the date of
the
opinion.
Wedbush
Morgan is an investment banking firm and a member of The New York Stock Exchange
and other principal stock exchanges in the United States, and is regularly
engaged as part of its business in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements, secondary distributions of listed and
unlisted securities, and valuations for corporate, estate and other purposes.
Wedbush Morgan was selected by our Board of Directors based on Wedbush Morgan’s
experience, expertise, reputation and familiarity with us.
Wedbush
Morgan has acted as financial advisor to us and has received a customary
fee from us for its services, the payment of which is not contingent upon the
conclusions reached in its opinion, and will also receive an additional fee
if
the proposed merger is consummated. In the ordinary course of its business,
Wedbush Morgan and its affiliates may actively trade our common stock and the
common stock of Intuit for its own account and for the accounts of its customers
and, accordingly, it may at any time hold a long or short position in our common
stock and the common stock of Intuit.
In
October 2006, the Unlawful Internet Gambling Enforcement Act of 2006 (the
“Internet Gaming Bill”) which prohibits acceptance of any payment instrument
including credit cards for Internet gambling, was passed and signed into law.
This new legislation prohibits gambling businesses from accepting any financial
instrument in connection with inappropriate Internet gambling. Since many online
gambling sites utilized Internet wallets as a form of payment, we had estimated
that revenue affected by the Internet Gaming Bill accounted for approximately
$7
million of our fiscal 2006 revenues, which represented approximately 9% of
our
fiscal 2006 total revenues. Wedbush Morgan noted that based on earnings per
share (“EPS”) estimates reported by independent research analyst reports,
referred to as “Street Estimates” and the forecast provided to Wedbush Morgan by
us, the Street Estimates may have underestimated the impact of the Internet
Gaming Bill on our EPS and therefore, we may not meet market expectations and
this could have an adverse effect on our common stock price in the future.
Summary
of Analyses
The
following is a summary of the financial analyses performed by Wedbush Morgan
in
connection with reaching its opinion:
|
·
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Market
Trading Analysis
|
|
·
|
Public
Comparable Company Analysis
|
|
·
|
Premium
Public Comparable Company Analysis
|
|
·
|
Merger
and Acquisition Transaction
Analysis
|
|
·
|
Discounted
Cash Flow Analysis
|
While
the
following summaries describe some analyses and examinations that Wedbush Morgan
deems material to the opinion, they are not a comprehensive description of
all
analyses and examinations actually conducted by Wedbush Morgan. The preparation
of an opinion necessarily is not susceptible to partial analysis or summary
description. Wedbush Morgan believes that such analyses and the following
summaries must be considered as a whole and that selecting portions of such
analyses and of the factors considered, without considering all such analyses
and factors, would create an incomplete view of the process underlying the
analyses.
In
performing its analyses, Wedbush Morgan made numerous assumptions with respect
to industry performance and general business and economic conditions such as
industry growth, inflation, interest rates and many other matters, many of
which
are beyond our control and the control of Wedbush Morgan. Any estimates
contained in Wedbush Morgan’s analyses are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than
suggested by such analyses.
The
financial analyses summarized below include information presented in tabular
format. In order to understand Wedbush Morgan’s analyses, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the analyses. Considering the data described below
without considering the full narrative description of the financial analyses,
including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Wedbush Morgan’s
analyses.
Market
Trading Analysis
Wedbush
Morgan reviewed the average daily closing price and average daily trading volume
of our common stock for each of the quarters of our fiscal years 2004 to 2007.
The average daily closing price of our common stock increased 68.8% from $7.76
for the quarter ended December 31, 2003 to $13.10 for the first quarter in
fiscal 2007 (through December 13, 2006). The average daily closing price for
this period ranged from a low of $7.76 to a high of $15.35, compared to the
value of the merger consideration of $18.75 per share. The high and low prices
over this period were $18.19 and $6.15, respectively. The average daily trading
volume of our common stock for the three-year period from October 1, 2003 to
December 13, 2006 was 22,739 shares, which indicated a low number of actively
traded shares.
Public
Comparable Company Analysis
Using
publicly available information, Wedbush Morgan compared selected financial
data
of us with similar data of selected publicly-traded electronic payment
processors considered by Wedbush Morgan to be comparable to us. In this regard,
Wedbush Morgan noted that although such companies were considered similar,
none
of the companies has the same management, makeup, size or combination of
business we have. Wedbush Morgan reviewed and analyzed the following
publicly-traded companies, which Wedbush Morgan deemed to be comparable to
us:
Alliance Data Systems, Inc., eFunds Corporation, First Data Corporation, Global
Payments Inc., Heartland Payment Systems, Inc., Total Systems Services, Inc.,
and Transaction Network Services, Inc. (collectively, the “Comparable
Companies”).
Wedbush
Morgan analyzed the following financial data for us and each of the Comparable
Companies:
|
·
|
the
“enterprise value” (defined as the market value of the common equity, plus
total debt and preferred stock, less cash) as a multiple of: (i)
gross and
net revenues for the latest twelve months (four most recent fiscal
quarters) for which revenues figures had been reported (“LTM”); (ii) LTM
earnings before interest, taxes and depreciation and amortization
(“EBITDA”); and (iii) 2006 and 2007 estimated EBITDA (which EBITDA
estimates reflected a mean consensus of research analysts’ EBITDA
estimates as reported by the Institutional Brokers Estimate Service
(“IBES”)); and
|
|
·
|
the
closing price of the common stock of the Comparable Companies on
December
11, 2006 as a multiple of: (i) EPS for the latest twelve months for
which
EPS had been publicly reported; and (ii) 2006 and 2007 estimated
EPS
(which EPS estimates reflected a mean consensus of research analysts’ EPS
estimates as reported by IBES).
|
The
analysis indicated that our public valuation multiples, based on the merger
consideration price of $18.75 per share, are above all the mean and median
trading multiples of the Comparable Companies, except for: (i) the “enterprise
value”/calendar year 2007 EBITDA multiple, for which our multiple is equal to
the median of the Comparable Companies’ multiple, and (ii) the “enterprise
value”/LTM revenue multiples, for which our multiple is lower than the
Comparable Companies’ multiples on both a gross and net basis. Since companies
in the electronic payment processing sector report revenues on either a “gross”
revenue or a “net” revenue (gross revenue less interchange fees) basis, Wedbush
Morgan compared our “enterprise value” to LTM’s gross and net revenue
separately.
Wedbush
Morgan performed valuation analyses by applying certain market trading
statistics of the Comparable Companies to our historical and estimated financial
results. As of December 11, 2006, the Comparable Companies were trading at
the
following median valuation multiples:
|
Implied
Company Valuation
|
||||||||||
|
Valuation
Metric
|
Multiple
|
Equity
Value
|
Price
Per Share
|
|||||||
|
EV
to LTM Gross Revenues
|
2.0x
|
$
|
158.4
|
$
|
20.13
|
|||||
|
EV
to LTM Net Revenues
|
3.2x
|
$
|
156.9
|
$
|
19.95
|
|||||
|
EV
to LTM EBITDA
|
12.8x
|
$
|
113.9
|
$
|
14.48
|
|||||
|
EV
to CY 2006 estimated EBITDA
|
11.0x
|
$
|
126.0
|
$
|
16.02
|
|||||
|
EV
to CY 2007 estimated EBITDA
|
9.9x
|
$
|
143.3
|
$
|
18.21
|
|||||
|
Price
to LTM EPS
|
24.0x
|
$
|
66.1
|
$
|
8.41
|
|||||
|
Price
to CY 2006 estimated EPS
|
22.8x
|
$
|
80.8
|
$
|
10.27
|
|||||
|
Price
to CY 2007 estimated EPS
|
19.2x
|
$
|
84.4
|
$
|
10.73
|
|||||
|
Average
|
$
|
116.2
|
$
|
14.77
|
||||||
As
a
result of this valuation analyses, Wedbush Morgan derived an average implied
market value of approximately $116.2 million, or $14.77 per share, for our
common stock, compared to the merger consideration of $18.75 per share, as
of
December 11, 2006. The range of values for the various analyses was $8.41 to
$20.13 per share, and therefore the merger consideration of $18.75 per share
is
close to the high end of the range of values.
Wedbush
Morgan noted that it believes that the Street
Estimates may have underestimated the impact of the Internet Gaming Bill on
our
EPS and therefore we may not meet market expectations and this could have an
adverse effect on our common stock price in the future. If the Street Estimates
fully incorporated the impact of the Internet Gaming Bill, Wedbush Morgan
believes that the EBITDA projections for 2007 would be lower, thus making the
"enterprise value"/calendar year 2007 EBITDA multiple higher than the mean
and median multiples of the Comparable Companies. The Comparable Companies'
revenues and earnings are also at a lower risk than ours since the Comparable
Companies are larger and their revenue is more diversified. These factors
contribute to certain of our multiples described above being lower than the
Comparable Companies' multiples.
Premium
Public Comparable Company
Analysis
Wedbush
Morgan reviewed selected merger and acquisition transactions to analyze the
premiums paid compared to the sellers’ stock price at various times prior to the
announcement of the acquisition. As a result of its analysis, Wedbush Morgan
estimated a 20% acquisition premium to be appropriate. For purposes of this
analysis, Wedbush Morgan used the same Comparable Companies as in its “Public
Company Comparable Analysis” above. Wedbush Morgan compared the Comparable
Companies’ common stock public valuation multiples, which included a 20%
acquisition premium applied to the Comparable Companies’ market value.
The
analysis indicated that our common stock public valuation multiples, based
on
the merger consideration price of $18.75 per share, are above all the mean
and
median trading multiples of the Comparable Companies, including a 20%
acquisition premium applied to the Comparable Companies' market value except
for: (i) the "enterprise value"/revenue multiples, on both a gross and net
basis, (ii) the "enterprise value"/calendar year 2006 EBITDA and "enterprise
value"/calendar year 2007 EBITDA multiples, all for which our multiple is lower
than the Comparable Companies' multiples. Wedbush Morgan noted that it believes
that the Street Estimates may have underestimated the impact of the Internet
Gaming Bill on our EPS and therefore we may not meet market expectations and
this could have an adverse effect on our common stock price in the future.
If
the Street Estimates fully incorporated the impact of the Internet Gaming Bill,
Wedbush Morgan believes that the EBITDA projections for 2007 would be lower,
thus making the "enterprise value"/calendar year 2007 EBITDA multiple
higher than the mean and median multiples of the Comparable Companies. The
Comparable Companies' revenues and earnings are also at a lower risk than ours
since the Comparable Companies are larger and their revenue is more diversified.
These factors contribute to certain of our multiples described above being
lower
than the Comparable Companies' multiples.
Merger
and Acquisition Transaction
Analysis
Wedbush
Morgan reviewed certain publicly available information relating to 30 selected
merger and acquisition transactions (the “Comparable Transactions”) from January
1, 2003 to December 11, 2006 involving electronic payment processing companies,
and all technology-related company mergers and acquisition transactions (the
“Technology Transactions”) for the same period. Wedbush Morgan also reviewed a
subset of the Comparable Transactions and the Technology Transactions, which
included mergers and acquisitions of companies with revenues of $25 million
to
$200 million and transactions ranging from $100 million to $400 million. The
Comparable Transactions considered were as follows:
|
Company
|
Buyer
|
|
Retail
Decisions plc
|
Palamon
Capital
|
|
Moneyline
SA
|
Ingenico
|
|
Princeton
eCom
|
Online
Resources
|
|
iPayment
|
iPayment
Management (MBO)
|
|
First
Horizon Merchant Services
|
Nova
Information Systems
|
|
Goldleaf
Technologies
|
Private
Business
|
|
Verus
Financial Management
|
Sage
Group
|
|
PhoneCharge
|
Checkfree
|
|
VeriSign
Payment Gateway
|
eBay
(Paypal)
|
|
Certegy
|
Fidelity
National Information
|
|
BISYS
Information Services Group
|
Open
Solutions
|
|
i-flex
Solutions
|
Oracle
|
|
BillMatrix
Corporation
|
Fiserv
|
|
Certegy
Merchant Acquiring
|
Nova
Information Systems
|
|
Intelidata
Technologies
|
Corillian
|
|
Tranvia
|
Comdata
|
|
Intrieve
|
Harland
Financial Solutions
|
|
ClearCommerce
|
eFunds
|
|
First
Data Merchant Portfolio
|
iPayment
|
|
Lynk
Incorporated
|
Royal
Bank of Scotland Group
|
|
National
Processing
|
Bank
of America
|
|
re:Member
Data Services
|
Open
Solutions
|
|
Retriever
Payment Systems
|
GTCR
Golder Rauner
|
|
NYCE
|
Metavante
|
|
Fifth
Third Bank Processing Solutions
|
TransFirst
(GTCR)
|
|
Authorize.net
|
Lightbridge
|
|
Aurum
Technology
|
Fidelity
National Financial
|
|
Innovative
Merchant Solutions
|
Intuit
|
|
National
Commerce Financial, Credit Card Portfolio
|
Nova
Information Systems
|
|
Concord
EFS
|
First
Data
|
Information
reviewed in the selected merger and acquisition transactions consisted of,
if
available, (i) “enterprise value” (defined as the market value of the common
equity plus book value of total debt and preferred stock, less cash), divided
by, if available, LTM net revenues and LTM EBITDA, as of the time of the
announcement of the acquisition. Wedbush Morgan noted that the median
“enterprise value” multiples for these transactions were 2.6x LTM Revenues and
14.0x LTM EBITDA. Based on an average of the median multiples paid in these
merger and acquisition transactions, Wedbush Morgan derived an implied $126.6
million equity value, or $16.09 per share, for our common stock, compared to
the
merger consideration of $18.75 per share.
A
summary
of the average multiples utilizing the merger and acquisition analysis is as
follows:
|
Median
Multiple
|
||||||||||
|
EV
/
LTM
Revenue
|
EV
/
LTM
EBITDA
|
Transactions
Examined
|
||||||||
|
TRANSACTION
CATEGORIES
|
||||||||||
|
Comparable
Transactions(1)
|
2.6x
|
14.0x
|
30
|
|||||||
|
Comparable
Transactions: Companies with Revenues of $25 million to $200
million(1)
|
4.0x
|
15.0x
|
19
|
|||||||
|
Comparable
Transactions: Transaction Size of $100 million to $400 million(1)
|
4.2x
|
15.0x
|
11
|
|||||||
|
Technology
Transactions(2)
|
1.4x
|
8.3x
|
2,338
|
|||||||
|
Technology
Transactions: Companies with Revenues of $25 million to $200
million(2)
|
1.3x
|
11.4x
|
757
|
|||||||
|
Technology
Transactions: Transaction Size of $100 million to $400 million(2)
|
2.0x
|
12.4x
|
425
|
|||||||
_____________________________________________________________________________
(1)
Electronic payment processing revenue multiples based on net revenue in all
cases where the information is made publicly available.
(2)
Source: FactSet Research (FactSet is an online investment research and database
service used by many financial institutions): Technology sector transactions
between December 11, 2003 and December 11, 2006.
Wedbush
Morgan noted that an analysis of the results necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of us and the companies included in the Comparable Transactions,
market conditions at the date of announcement, and other factors that could
affect the acquisition value of the companies to which we are being compared.
Mathematical analyses such as determining the median or average is not in itself
a meaningful method of using comparable transaction data.
Wedbush
Morgan also reviewed the Comparable Transactions and Technology Transactions,
as
well as transactions involving acquisitions of public companies (“Public to
Public Transactions”), where pricing information was available, to analyze
premiums paid compared to the seller’s stock price at various times prior to the
announcement of the acquisition. Based on this review, Wedbush Morgan noted
that
for the period from one day prior, to 30 days prior, to the announcement of
the
transaction, the Comparable Transactions had premiums ranging from 12% to 25%,
the Technology Transactions had premiums ranging from 29% to 37%, and the Public
to Public Transactions of $100 million to $500 million in size had premiums
ranging from 24% to 33%. This was in comparison to a premium ranging from 23%
to
58% for our common stock, and a premium ranging from 28% to 44% for our common
stock on a volume weighted average price basis, in both cases assuming an
announcement date of December 13, 2006, and based on the merger consideration
of
$18.75 per share.
Discounted
Cash Flow Analysis
Wedbush
Morgan reviewed the discounted cash flow methodology, which assumes that the
present value of our common stock is equal to the sum of the present value
of
the projected available cash flow streams to the equity holders and the terminal
value of the equity. Wedbush Morgan noted that it assumed we remained
independent during the term of the analysis.
Using
financial projections furnished by our management for the five years ending
September 30, 2007 through 2011, Wedbush Morgan calculated projected cash flow
available for distributions, and our projected future values of our common
stock
by applying assumed EBITDA multiples of 8.0x, 9.0x and 10.0x to our projected
EBITDA for the year ending September 30, 2011. The projected future values
were
then discounted using a range of discount rates of 12.0% to 15.0% (our weighted
average cost of capital was calculated at 12.9%), which yielded an implied
range
of discounted equity present values of $131.7 million to $175.3 million
representing $16.74 to $22.28 per share.
In
determining the discount rates used in the discounted present value analysis,
Wedbush Morgan noted, among other things, factors such as inflation, prevailing
market interest rates, the inherent business risk and rates of return required
by investors. In determining the appropriate EBITDA multiple used in calculating
our projected future equity value, Wedbush Morgan noted, among other things,
the
multiples at which public companies which Wedbush Morgan deemed comparable
to us
historically traded, and the multiples observed in historical mergers and
acquisition transactions which Wedbush Morgan deemed relevant.
Conclusion
Based
upon its analyses, and subject to the assumptions made, matters considered,
and
qualifications and limitations of the review undertaken in connection with
the
opinion, Wedbush Morgan is of the opinion that, as of the date of the opinion,
the merger consideration to be received by the public holders of our common
stock as provided in the merger agreement is fair to such holders from a
financial point of view.
Interests
of Our Directors and Executive Officers in the
Merger
In
considering the recommendation of our Board of Directors with respect to the
merger agreement, you should be aware that our directors and executive officers
may have interests in the merger and have arrangements that are different from,
or in addition to, those of our stockholders generally. Our Board of Directors
was aware of these interests and considered them, among other matters, in
reaching its decisions to approve the merger agreement and to recommend that
our
stockholders vote in favor of the approval of the merger agreement.
Change
of Control Payments Under Existing
Agreements
Equity
Awards
All
unvested and restricted stock held by our employees, including our executive
officers, will vest immediately prior to the merger and will receive merger
consideration in the same manner as otherwise vested options and stock. Our
executive officers hold, in the aggregate, unvested options to purchase [●]
shares of our common stock, with exercise prices ranging from $[●] to $[●].
Accordingly, upon the consummation of the merger, our executive officers will
receive an aggregate of $[●] resulting from the accelerated vesting of such
options. Our executive officers hold, in the aggregate, [●] restricted shares of
our common stock. Accordingly, upon the consummation of the merger, our
executive officers will receive an aggregate of $[●] resulting from the
accelerated vesting of such restricted stock.
Certain
of our executive officers have previously received long-term incentive equity
awards, entitling them to future grants of an aggregate of 95,000 restricted
shares of our common stock. Such awards provide that the rights to receive
restricted stock will accelerate immediately prior to the merger, which such
shares of restricted stock will then, as described above, immediately vest.
Accordingly, pursuant to the acceleration of these long-term incentive equity
awards, our executive officers will receive a total of $[●] upon the
consummation of the merger.
Separation
Arrangements
In
May
2006, we entered into separation agreements with each of our principal executive
officers (Chief Executive Officer, Chief Financial Officer and Chief Operating
Officer) and each of our senior vice presidents whereby, in the event of a
change in control of ECHO (as defined in each agreement) each such executive
officer would be entitled, to the extent they remain employed by us at the
time
of such change in control, to the following: (i) an acceleration of vesting
in
full, immediately prior to the merger, with respect to all stock option and
restricted stock grants then outstanding and not yet vested, which such equity
awards, once vested, will receive merger consideration in the same manner as
otherwise vested options and stock and (ii) a portion of such
executive’s anticipated cash for the fiscal year in which the change in control
occurred.
In
addition, the separation agreements provide that, in the event that the
executive is terminated without cause (as defined in each agreement), or ceases
to provide services to us (or our successor) as a result of an involuntary
termination (as defined in each agreement) within the two year period following
the change in control, then the executive would be entitled to a one-time lump
sum cash payment equal to a percentage of the executive’s anticipated total
compensation for the fiscal year in which the change in control occurred, plus
continued medical benefits for a period of time following such termination
- The
amount of lump sum payout ranges from 1 ½ to 2 times the executive’s total
compensation for the fiscal year prior to the date of termination, and duration
of continued medical benefits ranges between 1 ½ and 2 years depending on
position held by the principal executive or senior vice president. The
consummation of the merger would be deemed a change in control under these
agreements.
With
respect to each of Mr. Barry and Mr. Charles Harris, our Chief Executive Officer
and Chief Operating Officer, respectively, in the event of their termination
without cause or involuntary termination within the two year period following
the change in control, they would each be entitled to a one-time lump sum
payment equal to two times their total compensation for the fiscal year prior
to
the date of termination, plus continued medical benefits for a period of two
years following such termination. Mr. Barry’s service with us will terminate
upon consummation of the merger, and thus he will thus receive a cash separation
payment of $[●] pursuant to these provisions. Mr. Harris is expected to take an
employment position with Intuit following the merger (as described below),
which
employment arrangement will provide that these separation benefits would only
be
payable only in the event of an applicable termination with respect to service
with Intuit, rather than with us.
With
respect to Ms. Cheung, our Chief Financial Officer, in the event of her
termination without cause or involuntary termination within the two year period
following the change in control, she would be entitled to a one-time lump sum
payment equal to one and one-half times her total compensation for the fiscal
year prior to the date of termination, plus continued medical benefits for
a
period of one and one-half years following such termination. Ms. Cheung’s
service with us will terminate upon consummation of the merger, and thus she
will thus receive a cash separation payment of $[●] pursuant to these
provisions.
With
respect to our senior vice presidents, Karl Asplund, Steve Hoofring, Sharat
Shankar, Rick Slater, Patricia Williams, Jack Wilson, and Kris Winkler, and
our
Chief Information Officer, William Wied, in the event of their termination
without cause or involuntary termination within the two year period following
the change in control, they would each be entitled to a one-time lump sum
payment equal to one and one-half times the respective executive’s total
compensation for the fiscal year prior to the date of termination, plus
continued medical benefits for a period of one and one-half years following
such
termination. Each of these executives is expected to take an employment position
with Intuit following the merger (as described below), which employment
arrangement will provide that these separation benefits would only be payable
only in the event of an applicable termination with respect to service with
Intuit, rather than with us.
The
provision regarding the acceleration of vesting for previously issued stock
option grants is consistent with the standard terms and conditions of our 2003
Incentive Stock Option Plan, as amended, which already provides for such
accelerated vesting.
Pursuant
to the terms of the separation agreements as described above, the consummation
of the merger will result in immediate payments to our executive officers as
follows:
|
Executive
Name
|
Cash
Payment Triggered on Consummation of Merger
|
|||
|
Joel
Barry
|
$
|
857,705.00
|
||
|
Charles
Harris
|
$
|
80,140.50
|
||
|
Alice
Cheung
|
$
|
376,132.00
|
||
|
Karl
Asplund
|
$
|
14,343.50
|
||
|
Steve
Hoofring
|
$
|
23,678.00
|
||
|
Sharat
Shankar
|
$
|
33,877.50
|
||
|
Rick
Slater
|
$
|
25,135.00
|
||
|
Patricia
Williams
|
$
|
27,320.50
|
||
|
Jack
Wilson
|
$
|
27,320.50
|
||
|
Kris
Winckler
|
$
|
24,953.00
|
||
|
William
Wied
|
$
|
29,415.00
|
||
Additionally,
pursuant to signed offer letters with respect to those executive officers to
be
retained by Intuit following the consummation of the merger as described below,
the termination of an executive officer without cause by Intuit or an
involuntary termination by such executive officer within two years following
the
consummation of the merger will result in payments to our executive officers
pursuant to the separation agreements as described below.
For
purposes of the separation agreements,
|
(a)
|
termination
for “cause” means termination by reason of:
|
|
(i)
|
any
act or omission knowingly undertaken or omitted by the executive
with the
intent of causing damage to ECHO or its affiliates, its properties,
assets
or business, or its stockholders, officers, directors or employees,
|
|
(ii)
|
any
act of the executive involving a material personal profit to the
executive, including, without limitation, any fraud, misappropriation
or
embezzlement, involving properties, assets or funds of ECHO or any
of its
subsidiaries,
|
|
(iii)
|
the
executive's consistent failure to perform his normal duties or any
obligation under any provision of the relevant separation agreement,
in
either case, as directed by our Board of Directors,
|
|
(iv)
|
the
conviction of, or pleading nolo contendere to, (A) any crime or offense
involving monies or other property of ECHO; (B) any felony offense;
or (C)
any crime of moral turpitude, or
|
|
(v)
|
the
chronic or habitual use or consumption of drugs or alcoholic beverages;
and
|
|
(b)
|
“involuntary
termination” means the executive's cessation of the provision of services
to ECHO following
|
|
(i)
|
a
material reduction in the executive's function, authority, duties,
or
responsibilities, without the executive's express written consent;
or
|
|
(ii)
|
a
material reduction in salary.
|
Employment
Arrangements Following the
Merger
Karl
Asplund, Charles Harris, Steve Hoofring, Sharat Shankar, William Wied, Patricia
Williams, Jack Wilson, and Kris Winkler are expected to take employment
positions with Intuit and have entered into offer letters with Intuit setting
forth the terms of those employment arrangements. Pursuant to the signed
offer letters with Intuit, the executives will be entitled to increased
salaries, potential option and restricted stock grants, as well as participation
in Intuit’s cash incentive compensation program, as set forth in the following
table:
|
Salary
|
Potential
Equity
Grants
in Intuit
|
Target
Cash
Incentive
|
||||||||||||||
|
Executive
Name
|
Pre-Closing
|
Post-Closing
|
Options
|
RSU’s
|
Compensation
|
|||||||||||
|
Karl
Asplund
|
$
|
175,000
|
$
|
185,000
|
6,000
|
1,500
|
$
|
46,250
|
||||||||
|
Charles
Harris
|
275,000
|
325,000
|
28,000
|
7,000
|
130,000
|
|||||||||||
|
Steve
Hoofring
|
130,000
|
150,000
|
4,000
|
1,000
|
37,500
|
|||||||||||
|
Sharat
Shankar
|
155,000
|
175,000
|
6,000
|
1,500
|
52,500
|
|||||||||||
|
William
Wied
|
190,000
|
200,000
|
4,000
|
1,000
|
60,000
|
|||||||||||
|
Patricia
Williams
|
150,000
|
156,000
|
2,400
|
600
|
39,000
|
|||||||||||
|
Jack
Wilson
|
150,000
|
156,000
|
2,400
|
600
|
39,000
|
|||||||||||
|
Kris
Winckler
|
137,000
|
160,000
|
4,000
|
1,000
|
48,000
|
|||||||||||
In
addition, the offer letters provide for amendments to the separation agreements,
described above, such that the executives will receive benefits upon certain
of
events of termination with respect to their service with Intuit, rather than
with us, within two years following the consummation of the merger. In the
event
of termination of any of these executive officers by Intuit without cause or
an
involuntary termination by such an executive officer within two years following
consummation of the merger, such executive officer will be entitled to the
following payments:
|
Executive
Name
|
Payment
Upon Involuntary or Without Cause Termination from Intuit
|
|||
|
Charles
Harris
|
870,562.00
|
|||
|
Karl
Asplund
|
62,044.50
|
|||
|
Steve
Hoofring
|
258,534.00
|
|||
|
Sharat
Shankar
|
332,257.50
|
|||
|
Rick
Slater
|
280,155.00
|
|||
|
Patricia
Williams
|
247,164.00
|
|||
|
Jack
Wilson
|
303,211.50
|
|||
|
Kris
Winckler
|
275,859.00
|
|||
|
William
Wied
|
288,109.50
|
|||
Ms.
Cheung is expected to take on a consulting role with Intuit for a period of
up
to three months following consummation of the merger. Pursuant to this
consulting arrangement, she would receive a monthly consulting fee of
$16,350.
The
merger agreement provides that our directors and officers will continue to
have
the benefit of liability insurance for six years after completion of the
merger.
Delisting
and Deregistration of Our Common
Stock
If
the
merger is completed, we will become a wholly-owned subsidiary of Intuit, our
common stock will be delisted from the NASDAQ Capital Market and deregistered
under the Exchange Act, and we will no longer file periodic reports with the
Securities and Exchange Commission.
Material
U.S.
Federal Income Tax
Consequences
The
following is a summary of certain material U.S. federal income tax consequences
of the merger relevant to United States Holders (as defined below) of our common
stock whose shares are converted into the right to receive cash under the
merger. This summary is based on the Internal Revenue Code of 1986, as amended
(or, the Code), applicable Treasury Regulations, and administrative and judicial
interpretations thereof, each as in effect as of the date hereof, all of which
may change, possibly with retroactive effect. This summary assumes that shares
of our common stock are held as capital assets within the meaning of Section
1221 of the Code. This summary is for general information only and does not
address all of the tax consequences that may be relevant to particular holders
in light of their personal circumstances, or to other types of holders,
including, without limitation:
|
·
|
banks,
insurance companies or other financial institutions;
|
|
·
|
broker-dealers
or traders in securities;
|
|
·
|
retirement
plans;
|
|
·
|
expatriates;
|
|
·
|
tax-exempt
organizations;
|
|
·
|
Non-United
States Holders (as defined below);
|
|
·
|
persons
that are, or are holding our common stock through, S-corporations,
partnerships or other pass through entities;
|
|
·
|
persons
who are subject to alternative minimum tax;
|
|
·
|
persons
who hold their shares of our common stock as a position in a “straddle” or
as part of a “hedging” or “conversion” transaction;
|
|
·
|
persons
that have a functional currency other than the U.S. dollar; or
|
|
·
|
persons
who acquired their shares of our common stock upon the exercise of
stock
options or otherwise as compensation.
|
In
addition, this discussion does not address any state, local or foreign tax
consequences of the merger.
We
urge
each holder of our common stock to consult his or her tax advisor regarding
the
U.S. federal income or other tax consequences of the merger to such holder.
For
purposes of this discussion, a “United States Holder” means a holder that is:
|
·
|
an
individual citizen or resident of the United States;
|
|
·
|
a
corporation (or another entity treated as a corporation for U.S.
federal
income tax purposes) created or organized in or under the laws of
the
United States, any state thereof or the District of Columbia;
|
|
·
|
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
|
|
·
|
a
trust (i) if (a) the administration over which a U.S. court can exercise
primary supervision and all of the substantial decisions of which
one or
more United States persons have the authority to control and (b)
certain
other trusts considered United States Holders for federal income
tax
purposes or (ii) if it has a valid election in effect under the applicable
Treasury Regulations to be treated as a U.S. person.
|
A
“Non-United States Holder” is a holder other than a United States Holder.
Consequences
of the Merger
The
receipt of cash in exchange for shares of our common stock pursuant to the
merger will be a taxable transaction for U.S. federal income tax purposes.
In
general, a United States Holder who receives cash in exchange for shares of
our
common stock pursuant to the merger will recognize capital gain or loss for
United States federal income tax purposes equal to the difference, if any,
between the amount of cash received and the holder’s adjusted tax basis in the
shares of our common stock exchanged for cash pursuant to the merger. Any such
gain or loss would be long-term capital gain or loss if the holding period
for
the shares of our common stock exceeded one year. Long-term capital gains of
noncorporate taxpayers are generally subject to tax at a reduced rate. Capital
gains of corporate stockholders are generally taxable at the regular tax rates
applicable to corporations. The deductibility of capital losses is subject
to
limitations.
Backup
withholding may apply to payments made in connection with the merger. Backup
withholding will not apply, however, to a holder who (1) furnishes a correct
taxpayer identification number and certifies it is not subject to backup
withholding on the substitute Form W-9 or successor form included in the letter
of transmittal to be delivered to holders of our common stock prior to
completion of the merger, or (2) is otherwise exempt from backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be allowed as a refund or a credit against such
holder’s United States federal income tax liability provided the required
information is furnished to the Internal Revenue Service in a timely manner.
THE
FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX
CONSIDERATIONS RELATING TO THE MERGER, AND IS NOT TAX ADVICE. THEREFORE, HOLDERS
OF OUR COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Under
the
HSR Act, we cannot complete the merger until we and Intuit have notified the
Antitrust Division and the FTC, of the merger, furnished them with certain
information and materials and allowed the applicable waiting period to terminate
or expire. We and Intuit filed notification and report forms under the HSR
Act
with the Antitrust Division and the FTC on [●], 2007.
Although
we do not believe the transaction requires additional foreign regulatory
approvals, we and Intuit have agreed to obtain additional regulatory approvals
from, or make additional regulatory notifications to, various state and foreign
competition authorities, if required.
The
FTC,
the Antitrust Division or other similar regulatory authority could take action
under antitrust laws with respect to the merger, including seeking to enjoin
the
completion of the merger or seeking the divestiture by Intuit of all or part
of
our shares or assets, or of other business conducted by Intuit, or their
affiliates, or seeking to subject us, Intuit or our respective affiliates to
operating conditions. We cannot assure you that an antitrust challenge to the
merger will not be made and, if such a challenge is made, we cannot predict
the
result.
Despite
our general obligation to use commercially reasonable efforts to obtain
necessary consents and approvals, Intuit is not required to offer or commit
to
divest any business or assets or to agree to any limitation on the conduct
of
its or any of its subsidiaries’ businesses in connection with obtaining
necessary approvals to consummate the merger.
Under
applicable Nevada law, ECHO stockholders will not be entitled to any dissenters’
rights with respect to the merger.
This
section describes material provisions of the merger agreement. Because the
description of the merger agreement contained in this document is a summary,
it
does not contain all of the information that may be important to you. You should
carefully read the entire copy of the merger agreement attached as Annex A
to
this document, which is incorporated into this document by reference, before
you
decide how to vote.
The
following summary description of the material provisions of the merger agreement
does not purport to be complete and is qualified in its entirety by reference
to
the full text of the merger agreement. A copy of the merger agreement is
attached as Annex A to this document. However, you are cautioned that the
following summary and the copy of the merger agreement included with this
document are not intended to provide you with information concerning the
condition (financial or otherwise) of any of the parties to the merger
agreement. Specifically, although the merger agreement contains various
representations and warranties of the parties, the assertions embodied in those
representations and warranties were made for purposes of the merger agreement
and closing conditions thereunder and are subject to qualifications and
limitations agreed to by the respective parties in connection with negotiating
the terms of the merger agreement (including exceptions to the representations
and warranties that were set forth in schedules that are not included with
this
document). In addition, certain representations and warranties were made as
of a
specific date, may be subject to a contractual standard of materiality different
from what might be viewed as material to ECHO stockholders, or may have been
used for purposes of allocating risk between the respective parties rather
than
establishing matters of fact. Accordingly, you should not look to or rely on
the
representations and warranties in the merger agreement for information about
the
parties to the merger agreement. Investors should read the merger agreement
together with the other information concerning Intuit and ECHO that each company
publicly files in reports and statements with the Securities and Exchange
Commission.
Structure
of the Merger
The
merger agreement provides for the merger of Merger Sub, a newly-formed and
wholly owned Nevada subsidiary of Intuit, with and into ECHO. After the merger,
ECHO will continue as the surviving corporation and will become a wholly owned
subsidiary of Intuit.
Completion
and
Effectiveness of the
Merger
Subject
to the satisfaction or waiver of the other conditions to the merger, the merger
will be completed as promptly as practicable. The merger will become effective
at a closing, which will take place at a time mutually designated by Intuit
and
ECHO, but not later than the second business day after the last of the
conditions to completion of the merger is satisfied or waived.
At
the
effective time of the merger, each share of our common stock outstanding
immediately prior to the effective time of the merger (including any shares
of
common stock issued prior to the effective time upon exercise of options),
other
than shares held by us, Intuit or Merger Sub or any of our or their wholly-owned
subsidiaries, will be automatically converted into the right to receive $18.75
in cash, without interest and less any applicable withholding
taxes.
The
merger agreement provides that prior to the effective time of the merger, we
will cause any unvested options to vest immediately prior to the effective
time
of the merger. All outstanding options to purchase shares of our common stock
will then be cancelled at the effective time of the merger and the holder will
receive a cash payment, without interest and less any applicable withholding
taxes, equal to the product of (i) the excess, if any, of $18.75 over the
applicable option exercise price and (ii) the number of shares of common stock
subject to the option.
Additionally,
the merger agreement provides that prior to the effective time of the merger,
we
will cause any unvested restricted stock to be fully vested immediately prior
to
the effective time of the merger. Holders of then-vested restricted stock will
receive the same consideration as all other holders of our common stock, $18.75
per share in cash, without interest and less any applicable withholding
taxes.
You
should not send stock certificates with your proxy card and should not surrender
stock certificates prior to the completion of the merger and the receipt of
a
letter of transmittal. The payment agent for the merger will mail out letters
of
transmittal as soon as reasonably practicable after the effective time of the
merger, which will include instructions for surrender of your ECHO stock
certificates.
Conditions
to the Completion of the
Merger
Each
party’s obligation to effect the merger is subject to the satisfaction or waiver
of various conditions, which include the following:
Intuit
and we are obligated to effect the merger only if the following conditions
are
satisfied or waived:
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the
holders of the number of the outstanding shares of our common stock
required under applicable law must have voted in favor of approving
the
merger agreement;
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no
governmental entity has enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary
or
permanent) which is in effect and which has the effect of making
the
merger illegal or otherwise prohibiting consummation of the
merger;
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no
order suspending the use of this proxy statement or any part thereof
may
be in effect and no proceeding for that purpose may have been initiated
or
threatened in writing by the SEC and be continuing;
and
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the
applicable waiting period under the HSR Act has expired or terminated,
any
applicable waiting periods under foreign antitrust laws have expired
or
terminated, and all foreign antitrust approvals required to be obtained
prior to the effective time of the merger have been
obtained.
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Intuit
will not be obligated to effect the merger unless the following conditions
are
satisfied or waived:
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each
of our representations and warranties contained in the merger agreement
must have been true and correct as of the date of the merger agreement,
and must be true and correct on and as of the closing date of the
merger
with the same force and effect as if made on and as of the closing
date of
the merger, except (i) in each case, or in the aggregate, as would
not reasonably be expected to constitute a material adverse effect
on us
(provided,
however,
that this material adverse effect qualifier will be inapplicable
with
respect to our representations and warranties as to capitalization,
which
must be true and correct in all material respects), and (ii) for
those representations and warranties which address matters only as
of a
particular date (which representations and warranties must have been
true
and correct (subject to the qualifications as set forth in the preceding
clause (i)) as of that particular date) (it being understood that,
for purposes of determining the accuracy of our representations and
warranties, all “material adverse effect” qualifications and other
qualifications based on the word “material” or similar phrases contained
in those representations and warranties will be
disregarded);
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we
must have performed or complied in all material respects with all
agreements and covenants required to be performed by us under the
merger
agreement at or prior to the closing date of the
merger;
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no
material adverse effect with respect to us and our subsidiaries shall
have
occurred since the date of the merger
agreement;
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we
must have obtained certain consents, waivers and approvals required
in
connection with the transactions contemplated by the merger
agreement;
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there
must be no pending or threatened suit, action or proceeding asserted
by
any governmental entity that challenges or seeks to restrain or prohibit
the consummation of the merger or any of the other transactions
contemplated by the merger agreement, the effect of which restraint
or
prohibition if obtained would make the merger illegal or otherwise
prohibit the consummation of the merger, or would require Intuit
or us or
any of their or our respective subsidiaries or affiliates to effect
an
action of divestiture;
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our
President and Chief Operating Officer and at least five (5) of our
identified key employees must be employees of ECHO or one of our
subsidiaries immediately prior to the closing date of the merger,
and none
of those identified key employees shall have notified (whether formally
or
informally) Intuit or us of his or her intention of leaving the employ
of
Intuit or one of its subsidiaries following the closing date, and
at least
90% of our other employees must be employees of ECHO or one of our
subsidiaries immediately prior to the closing date and no more than
90% of
our other employees must have notified (whether formally or informally)
Intuit or us of their intention of leaving the employ of Intuit or
one of
its subsidiaries following the closing
date;
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the
non-competition agreements entered into in connection with execution
of
the merger agreement must be in full force and effect, and the individuals
that entered into a non-competition agreement must not have attempted
to
terminate or otherwise repudiate their agreement or indicated an
intention
to terminate or otherwise repudiate their
agreement;
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unless
Intuit has provided written notice to us that our 401(k) plan should
not
be terminated, we must provide Intuit with evidence reasonably
satisfactory to Intuit that the our 401(k) plan has been terminated;
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we
must provide written documentation in a form reasonably acceptable
to
Intuit that all current consultants and independent contractors who
contribute or have at any time contributed to the creation or development
of our material intellectual property prior to the closing of the
merger
have executed valid written assignments to us (or one of our subsidiaries)
of all right, title and interest they may have in or to our material
intellectual property and that all current consultants and independent
contractors are obligated to assign to us (or one of our subsidiaries)
all
of their right in or to any future intellectual property created
by those
consultants and independent contractors for us or on our behalf or
on
behalf of any of our subsidiaries after the
closing;
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there
must not have been any restatement of any of our consolidated financial
statements, and we must not have been notified by any governmental
entity
or any of our present or former auditors of any effect that could
reasonably be expected to result in any restatement of any of our
consolidated financial statements, our current auditors must not
have
resigned or threatened to resign, no auditor whose report is included
in
our annual report on Form 10-K for the fiscal year ended
September 30, 2006 shall have revoked, or notified us of its
intention to revoke, its report or consent included in our Form 10-K,
there must not be any pending or threatened investigation or inquiry
by
any governmental entity questioning the accuracy of any of our financial
statements or their conformity with the published rules and regulations
of
the SEC or with GAAP or our historical stock-based compensation practices,
nor shall any governmental entity have requested any information
in
connection with any of the
foregoing;
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if
the effective time of the merger is on or after February 8, 2007, we
must have filed with the SEC our quarterly report on Form 10-Q for
our
fiscal quarter ended December 31, 2006, which Form 10-Q, as so filed
with the SEC, must comply as to form with the rules and regulations
of the
SEC applicable to quarterly reports on Form
10-Q;
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we
must have obtained and delivered to Intuit an unqualified audit of
our
consolidated financial statements for our fiscal year ended September
30,
2006; and
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Intuit
must have received a written resignation from each of our directors
and
officers and the directors and officers of each of our subsidiaries
(in
their capacities as such) effective as of immediately prior to the
effective time of the merger.
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We
will
not be obligated to effect the merger unless the following conditions are
satisfied or waived:
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each
representation and warranty of Intuit and Merger Sub contained in
the
merger agreement must have been true and correct as of the date of
the
merger agreement, and must be true and correct on and as of the date
of
the closing of the merger with the same force and effect as if made
on the
closing date of the merger, except (i) in each case, or in the
aggregate, as would not reasonably be expected to constitute an Intuit
material adverse effect, and (ii) for those representations and
warranties which address matters only as of a particular date (which
representations and warranties must have been true and correct (subject
to
the qualifications as set forth in the preceding clause (i)) as of
that
particular date) (it being understood that, for purposes of determining
the accuracy of Intuit’s representations and warranties, all “Intuit
material adverse effect” qualifications and other qualifications based on
the word “material” or similar phrases contained in Intuit’s
representations and warranties will be disregarded);
and
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Intuit
and Merger Sub must have performed or complied in all material respects
with all agreements and covenants required by the merger agreement
to be
performed or complied with by them on or prior to the closing date
of the
merger.
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Material
Adverse Effect
Material
Adverse Effect on ECHO.
The
merger agreement provides that a “material adverse effect” means, when used in
connection with us, any change, event, violation, inaccuracy, circumstance
or
effect, individually or when aggregated with other such effects, that is or
would be reasonably likely to be materially adverse to the business, properties,
assets (including intangible assets), liabilities (including contingent
liabilities), capitalization, condition (financial or otherwise) or results
of
operations of us and our subsidiaries taken as a whole, or to have a material
adverse effect on our ability to perform our obligations under the merger
agreement or to consummate any of the transactions contemplated by the merger
agreement without any material delay.
However,
the effects arising from or relating to any of the following will not be deemed
in and of itself, either alone or in combination, to constitute, and will not
be
taken into account in determining whether there has been or will be a material
adverse effect on us:
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conditions
affecting the industries in which we participate, the United States
economy as a whole or foreign economies in any locations where we
or any
of our subsidiaries have material operations or sales (which effects,
in
each case, do not disproportionately affect us or our subsidiaries,
as the
case may be);
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any
failure by us to meet any projections or forecasts for any period
ending
(or for which revenues or earnings are released) on or after the
date of
the merger agreement in and of itself (but for the avoidance of doubt,
this will not preclude Intuit or Merger Sub from taking the underlying
cause of any such failure into account in determining whether there
has
been or will be a material adverse
effect);
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any
change in GAAP after the date of the merger
agreement;
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any
attack on, or by, outbreak or escalation of hostilities or acts of
terrorism involving, the United States, or any declaration of war
by the
United States Congress; or
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any
loss of revenue, not to exceed ten percent (10%) of our total revenues,
from internet wallet customers which we successfully bear the burden
of
proving resulted from
the Internet Gaming Bill and
the regulations to be promulgated
thereunder.
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Intuit
Material Adverse Effect.
The
merger agreement provides that an “Intuit material adverse effect” means a
material adverse effect on the ability of Intuit or Merger Sub to perform their
respective obligations under the merger agreement or consummate the transactions
contemplated by the merger agreement without any material
delay.
We
have
agreed we and our subsidiaries will not, and will not knowingly authorize or
permit any of our respective officers, directors, affiliates or employees or
any
of our investment bankers, attorneys, accountants or other advisors or
representatives to, and they will direct their respective representatives not
to, directly or indirectly:
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solicit,
initiate, knowingly encourage, support, facilitate or induce the
making,
submission or announcement of, any acquisition proposal;
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participate
in any negotiations or discussions regarding, or furnish to any person
any
non-public information with respect to any acquisition proposal or
any
proposal or inquiry that could reasonably be expected to lead to,
any
acquisition proposal;
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approve,
endorse or recommend any acquisition proposal;
or
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enter
into any letter of intent or similar document or any contract
contemplating or otherwise relating to any acquisition
transaction.
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The
merger agreement does provide that, in response to an unsolicited written
acquisition proposal submitted by a person or group, we may:
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furnish
non-public information with respect to us and our subsidiaries to
the
person making the takeover proposal (and its representatives) to
that
person or group;
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enter
into a confidentiality agreement with that person or group;
or
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enter
into negotiations or discussions with that person or
group;
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provided
that,
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neither
the we nor our subsidiaries have materially violated any of the covenants
prohibiting solicitation or alternative transactions in connection
with
that acquisition proposal;
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our
Board of Directors concludes in good faith, after consultation with
its
outside legal counsel, that the action is required in order for our
Board
of Directors to comply with its fiduciary duties to our stockholders
under
applicable law;
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at
least two business days prior to furnishing any non-public information
to,
or entering into negotiations or discussions with, that person or
group,
we give Intuit written notice of the identity of that person or group
and
of our intention to furnish information to, or enter into negotiations
or
discussions with, that person or group, and we receive from that
person or
group an executed confidentiality agreement containing terms and
conditions which are not less favorable to us than the confidentiality
agreement we entered into with Intuit;
and
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as
soon as practicable (and in any event no later than 24 hours) after
furnishing any non-public information to that person or group, we
furnish
the same information to Intuit.
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We
have
also agreed to provide Intuit with at least 48 hours prior written notice (or
any lesser prior notice as the longest notice provided to any member of our
Board of Directors) of a meeting of our Board of Directors at which it is
reasonably expected to consider any acquisition proposal and, together with
that
notice, a copy of any documentation (subject to certain confidential information
exclusions) relating to the acquisition proposal.
We
have
agreed to promptly advise Intuit, orally (within one business day) and in
writing, of any request received by us for non-public information with respect
to an acquisition proposal, the receipt by us of any acquisition proposal,
the
material terms of that request or acquisition proposal, the identity of the
person making the takeover proposal and a copy of all written materials (other
than third party confidential information) provided by or on behalf of that
person or group in connection with that request or acquisition proposal. We
have
also agreed to keep Intuit reasonably informed in all material respects of
the
status and details of such request or acquisition proposal and will promptly
provide Intuit a copy of all written materials (other than third party
confidential information) subsequently provided by or on behalf of that person
or group in connection with the request or acquisition proposal.
Our
Board
of Directors may withdraw, amend, change or modify its recommendation in favor
of approval of the merger agreement or approve or recommend an acquisition
proposal, but our Board of Directors may terminate the merger agreement only
if
all of the following conditions are met:
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an
acquisition proposal is made to us and is not withdrawn and our Board
of
Directors determines that the acquisition proposal constitutes a
superior
offer;
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neither
we nor any of our subsidiaries nor any of our respective representatives
will have materially violated any of the restrictions contained in
the
covenants in the merger agreement related to holding our stockholder
meeting and prohibiting solicitation of alternative transactions;
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we
must have delivered to Intuit written notice at least three business
days
prior to effecting the change of recommendation, which must state
expressly that we have received a superior offer and that we intend
to
effect a change of recommendation, include a copy of any definitive
documentation relating to that superior offer and such other documentation
reflecting the final terms and conditions of that superior offer
as being
considered by our Board of Directors, and disclose the identity of
the
person or group making that superior offer;
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after
delivering the change of recommendation notice described in the prior
bullet point, we must provide Intuit with a reasonable opportunity
to make
adjustments in the terms and conditions of the merger agreement during
that three business day period, and negotiate in good faith with
Intuit
with respect thereto during that three business day period; and
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our
Board of Directors must conclude in good faith, after consultation
with
its outside legal counsel, that in light of that superior offer,
and after
considering any adjustments or negotiations with Intuit, the change
of
recommendation is required in order for our Board of Directors to
comply
with its fiduciary duties to our stockholders under applicable
law.
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The
merger agreement provides that the term “acquisition proposal” means any offer
or proposal (other than an offer or proposal by Intuit or Merger Sub) relating
to any acquisition transaction.
The
merger agreement provides that the term “acquisition transaction” means any
transaction or series of related transactions involving:
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any
acquisition or purchase from us by any third party of more than a
twenty
percent (20%) interest in the total outstanding voting securities
of us or
any of our subsidiaries or any tender offer or exchange offer that
if
consummated would result in any third party beneficially owning twenty
percent (20%) or more of the total outstanding voting securities
of us or
any of our subsidiaries or any merger, consolidation, business combination
or similar transaction involving us pursuant to which our stockholders
immediately preceding the transaction hold less than eighty percent
(80%)
of the equity interests in the surviving or resulting entity of the
transaction;
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any
sale, lease, exchange, transfer, license, acquisition or disposition
to
any third party of more than twenty percent (20%) of the fair market
value
of our assets and the assets of our subsidiaries, taken as a whole
(including capital stock of our subsidiaries); or
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our
liquidation or dissolution.
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The
merger agreement provides that the term “superior offer” means any unsolicited,
bona fide written acquisition proposal on terms that our Board of Directors
determines in good faith in its reasonable judgment (after consultation with
Wedbush Morgan or another financial advisor of nationally recognized reputation)
to be more favorable to our stockholders from a financial point of view than
the
terms of the merger (taking into account any revisions or modifications made
by
Intuit and all other relevant factors).
The
merger agreement provides that the term “third party” means any person
(including a “group” as defined in Section 13(d)-3 of the Exchange Act) other
than Intuit or Merger Sub or any of their respective affiliates or
subsidiaries.
The
merger agreement may be terminated under certain circumstances,
including:
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by
mutual written consent duly authorized by the boards of directors
of
Intuit and us;
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by
either Intuit or us, if the merger has not been completed by May
9, 2007
(as may be extended by mutual agreement of Intuit and us) for any
reason;
provided,
however,
that the right to terminate the merger agreement will not be available
to
any party whose action or failure to act has been a principal cause
of or
resulted in the failure of the merger to be completed by May 9, 2007
and
that action or failure to act constitutes a breach of the merger
agreement;
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by
either Intuit or us, if a governmental entity issues an order, decree
or
ruling or takes any other action, in any case having the effect of
permanently restraining, enjoining or otherwise prohibiting the merger,
which order, decree, ruling or other action is final and nonappealable;
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by
either Intuit or us, if the required approval of our stockholders
contemplated by the merger agreement has not been obtained by reason
of
the failure to obtain the required vote at the stockholders’ meeting or at
any adjournment thereof; provided,
however,
that this right to terminate the merger agreement is not available
to
either Intuit or us where the failure to obtain our stockholder approval
is caused by the action or failure to act of Intuit and/or us, as
the case
may be, and that action or failure to act constitutes a breach by
that
party of the merger agreement;
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by
us, at any time prior to the approval of the merger agreement by
our
stockholders, if our Board of Directors has effected a change of
recommendation pursuant to and in compliance with the terms of the
merger
agreement, we have made full payment of the termination fee, and
concurrently or within two calendar days of that termination, we
enter
into a definitive agreement with respect to the superior offer that
was
the subject of that change of
recommendation;
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by
us, upon a breach of any representation, warranty, covenant or agreement
on the part of Intuit set forth in the merger agreement, or if any
representation or warranty of Intuit has become untrue, in either
case
such that the conditions set forth in the merger agreement relating
to
Intuit’s representations, warranties, covenants and agreements would not
be satisfied as of the time of the breach or as of the time the
representation or warranty has become untrue (subject to a 30 calendar
day
cure period in certain instances);
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by
Intuit, upon a breach of any representation, warranty, covenant or
agreement on our part as set forth in the merger agreement, or if
any of
our representations or warranties has become untrue, in either case
such
that the conditions set forth in the merger agreement relating to
our
representations, warranties, covenants and agreements would not be
satisfied as of the time of the breach or as of the time the
representation or warranty becomes untrue (subject to a 30 calendar
day
cure period in certain instances);
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by
Intuit, if a material adverse effect with respect to us and our
subsidiaries has occurred since the date of the merger agreement
(subject
to a 30 calendar day cure period in certain
instances);
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by
Intuit, if there has been any restatement of any of our consolidated
financial statements; we have been notified by any governmental entity
or
any present or former auditor of any effect that could reasonably
be
expected to result in any such restatement; our auditors have resigned
or
threatened to resign; any auditor whose report is included in our
annual
report on Form 10-K for the fiscal year ended September 30, 2006 has
revoked, or notified us of its intention to revoke, such auditor’s report
or consent to include such report in such Form 10-K; or there is
any
pending or threatened investigation or inquiry by any governmental
entity
questioning the accuracy of any of our financial statements or their
conformity with the published rules and regulations of the SEC or
with
GAAP or our historical stock-based compensation practices or any
governmental entity has requested any information in connection with
any
of the foregoing (subject to a 30 calendar day cure period in certain
instances); or
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by
Intuit, if a triggering event has
occurred.
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The
merger agreement provides that the term “triggering event” means if any of the
following has occurred:
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our
Board of Directors or any committee of our Board of Directors makes
a
change of recommendation for any
reason;
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we
fail to include in this proxy statement the recommendation of our
Board of
Directors that stockholders vote in favor of and approve the merger
agreement;
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our
Board of Directors fails to reaffirm (publicly, if so requested)
its
recommendation in favor of the approval of the merger agreement within
ten
(10) calendar days after Intuit requests in writing that the
recommendation be reaffirmed; provided that Intuit may only request
a
reaffirmation following the public announcement by a third party
of an
acquisition proposal or an intent to make an acquisition
proposal;
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our
Board of Directors or any committee of our Board of Directors approves,
endorses or recommends any acquisition
proposal;
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we
enter into any letter of intent or similar document or any contract
accepting any acquisition proposal;
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a
tender or exchange offer relating to our securities is commenced
by a
person unaffiliated with Intuit and we do not send to its securityholders
pursuant to Rule 14e-2 promulgated under the Securities Act, within
ten (10) business days after that tender or exchange offer is first
published sent or given, a statement disclosing that our Board of
Directors recommends rejection of that tender or exchange offer;
or
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we
intentionally materially breach our covenants of the merger agreement
relating to our stockholders’ meeting or prohibiting solicitation of
alternative transactions.
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We
have
agreed in the merger agreement to hold our stockholders’ meeting to approve the
merger agreement as promptly as practicable and, subject to our right to adjourn
the stockholders’ meeting in accordance with the merger agreement, in any event
within thirty (30) calendar days following the mailing of the definitive proxy
statement. The merger agreement provides that we must use our commercially
reasonable efforts to solicit from our stockholders proxies in favor of the
approval of the merger agreement and take all other action necessary or
advisable to secure the vote or consent of our stockholders required by the
rules of the NASDAQ or Nevada law.
Conduct
of Business Pending the Merger
Under
the
merger agreement, we have agreed that prior to the effective time of the merger,
subject to certain exceptions, unless we obtain Intuit’s written consent (and
Intuit’s decision with respect to that consent may not be unreasonably withheld)
we will and will cause each of our subsidiaries to:
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carry
on our business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and in compliance in all
material
respects with all applicable legal
requirements;
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pay
our liabilities and taxes when due (subject to good faith disputes
over
those liabilities or taxes);
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pay
or perform our other obligations when due;
and
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maintain
insurance in amounts and against risks and losses consistent with
insurance maintained by us and our subsidiaries as of the date of
the
merger agreement.
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Further,
under the merger agreement, we have agreed to use our commercially reasonable
efforts consistent with past practices and policies to:
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preserve
intact our present business
organization;
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keep
available the services of our present officers and employees;
and
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preserve
our relationships with customers, suppliers, distributors, consultants,
licensors, licensees and others with which we have significant business
dealings.
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We
have
also agreed to promptly notify Intuit of any material event involving our
business or operations occurring outside the ordinary course of
business.
In
addition, without the prior written consent of Intuit, except as specifically
permitted or required by the merger agreement or as disclosed to Intuit, during
the period from the date of the merger agreement and continuing until the
earlier of the termination of the merger agreement pursuant to its terms or
the
effective time of the merger, we may not, and may not permit our subsidiaries
to, do any of the following:
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cause,
permit or submit to a vote of our stockholders any amendments to
our
charter documents (or similar governing instruments of any of our
subsidiaries);
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issue,
deliver, sell, authorize or designate (including by certificate of
designation) or pledge or otherwise encumber, or propose any of the
foregoing with respect to any of the shares of the capital stock
of us or
our subsidiaries or any securities convertible into shares of capital
stock of us or our subsidiaries, or subscriptions, rights, warrants
or
options to acquire any shares of capital stock of us or our subsidiaries
or any securities convertible into shares of capital stock of us
or our
subsidiaries, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible
securities, other than the issuance, delivery and/or sale of shares
of our
common stock pursuant to the exercise of our stock options outstanding
as
of the date of the merger agreement which are either vested on the
date of
the merger agreement or vest after the date of the merger agreement
in
accordance with their terms, in each case as disclosed to
Intuit;
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declare,
set aside or pay any dividends on or make any other distributions
(whether
in cash, securities or property) in respect of any capital stock
of us or
our subsidiaries or split, combine or reclassify any capital stock
of us
or our subsidiaries or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital
stock of us or our subsidiaries;
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purchase,
redeem or otherwise acquire, directly or indirectly, any shares of
capital
stock of us or our subsidiaries or any other securities of us or
our
subsidiaries or any options, warrants, calls or rights to acquire
any such
shares or other securities, except repurchases of unvested shares
at or
below cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase
agreements in effect on the date of the merger agreement, provided
that no
such repurchase may be permitted in the event the per share repurchase
price is greater than the merger
consideration;
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waive
any stock repurchase rights, accelerate, amend or change the period
of
exercisability of any equity award, reprice any of our stock options,
or
authorize cash payments in exchange for any equity
award;
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grant
or pay any severance or termination pay or any bonus or other special
remuneration (whether in cash, securities or property) or any increase
thereof to any director, officer, consultant or employee except pursuant
to written agreements outstanding on the date of the merger agreement
and
disclosed to Intuit;
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adopt
any new severance plan, or amend or modify or alter in any manner
any
severance plan, agreement or arrangement existing on the date of
the
merger agreement;
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grant
any equity-based compensation, whether payable in cash, securities
or
property;
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enter
into any agreement the benefits of which are contingent or the terms
of
which are materially altered upon the occurrence of a transaction
involving us of the nature contemplated by the merger
agreement;
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grant
any loans or advances to employees, officers, directors or other
third
parties, make any investments in or capital contributions to any
person,
incur any indebtedness for borrowed money or guarantee any indebtedness
for borrowed money of another person, issue or sell any debt securities
or
options, warrants, calls or other rights to acquire any debt securities
of
us, enter into any “keep well” or other agreement to maintain any
financial statement condition or enter into any arrangement having
the
economic effect of any of the foregoing other than in connection
with the
financing of ordinary course trade payables consistent with past
practice;
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increase
the compensation or benefits payable or to become payable to officers,
directors, consultants, or employees (other than as disclosed to
Intuit);
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enter
into any new or amend any existing employee plan, employment agreement,
indemnification, collective bargaining, or similar agreement, except
in
the ordinary course of business (provided doing so does not materially
increase the cost associated with that plan or agreement) and except
as
required by applicable legal
requirements;
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hire
any employee at or above the level of manager or for a total annual
compensation (including bonus opportunity) of equal to or more than
$50,000;
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hire
any employee below the level of manager and for a total annual
compensation (including bonus opportunity) of less than $50,000,
other
than in the ordinary course of
business;
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terminate
any employee (except termination for
cause);
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enter
into, amend in any material respect or terminate (other than any
termination as the result of the expiration of the term of any agreement),
or waive or assign any material right under, any of the contracts
disclosed to Intuit in connection with the merger agreement (or any
contract that would have been required to be disclosed to Intuit
if it
existed as of the date of the merger agreement), or any contract
with one
or more of our affiliates;
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make
or commit to make any capital expenditures in excess of $100,000
individually or $500,000 in the aggregate;
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acquire
or agree to acquire by merging or consolidating with, or by purchasing
any
equity interest in or a portion of the assets of, or by any other
manner,
any business or any corporation, partnership, association or other
business organization or division thereof or any ownership interest
in any
of the foregoing, or otherwise acquire or agree to enter into any
joint
ventures, strategic partnerships or similar
alliances;
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waive
the benefits of, agree to modify in any manner, terminate, release
any
person from or knowingly fail to enforce the confidentiality or
nondisclosure provisions of any contract to which we or any of our
subsidiaries are a party or of which we or any of our subsidiaries
are a
beneficiary;
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sell,
lease, license, encumber or otherwise dispose of any properties or
assets
except sales of inventory in the ordinary course of business consistent
with past practice, dispositions of obsolete and unsaleable inventory
or
equipment, and transactions described in the following bullet
point;
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other
than in the ordinary course of business consistent with past practice,
sell, lease, license, transfer or otherwise dispose of, or otherwise
extend, amend or modify in any material respect, any rights to our
products or other intellectual property, or otherwise extend, amend
or
modify or forfeit or allow to lapse any right
thereto;
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issue
or agree to issue any refunds, credits, allowances or other concessions
with customers with respect to amounts collected by or owed to us
or any
of our subsidiaries in excess of $50,000 individually or $250,000
in the
aggregate;
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enter
into any new line of business;
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except
as required by GAAP, revalue any of our assets or make any change
in
accounting methods, principles or
practices;
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make
any material tax election, settle or compromise any material tax
liability
or refund, file any amendment to a material return, enter into any
closing
agreement or consent to any extension or waiver of any limitation
period
with respect to material taxes;
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take
any action, or fail to take any action, with the intention of causing
any
representation or warranty made by us contained in the merger agreement
to
become untrue or inaccurate in any material
respect;
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commence
or settle any pending or threatened litigation, proceeding or
investigation (whether or not commenced prior to the date of the
merger
agreement), other than any litigation to enforce any of our rights
under
the merger agreement, a settlement fully reimbursable from insurance
(subject to any applicable deductible) or calling solely for a cash
payment in an aggregate amount less than $100,000 and in any case
including a full release of us and our subsidiaries, as applicable,
or
collection actions brought by us in the ordinary course of business
to
collect amounts not in excess of $100,000; or
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agree
in writing or otherwise to take any of the actions described in the
previous bullet points.
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Commercially
Reasonable
Efforts
Upon
the
terms and subject to the conditions set forth in the merger agreement, each
of
we, Intuit and Merger Sub has agreed to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by the merger agreement,
including using reasonable efforts to accomplish the following:
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the
taking of all reasonable acts necessary to cause the conditions precedent
to the merger to be satisfied;
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the
obtaining of all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from governmental entities and
the
making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with governmental entities,
if
any) and the taking of all reasonable steps as may be necessary to
avoid
any suit, claim, action, investigation or proceeding by any governmental
entity;
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the
obtaining of all consents, approvals or waivers from third parties
required as a result of the transactions contemplated in the merger
agreement;
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the
defending of any suits, claims, actions, investigations or proceedings,
whether judicial or administrative, challenging the merger agreement
or
the consummation of the transactions contemplated by the merger agreement,
including seeking to have any stay or temporary restraining order
entered
by any court or other governmental entity vacated or reversed;
and
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the
execution or delivery of any additional instruments reasonably necessary
to consummate the transactions contemplated by, and to fully carry
out the
purposes of, the merger agreement.
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However,
neither Intuit nor any of its subsidiaries or affiliates is bound under the
merger agreement to:
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agree
to any divestiture by Intuit or us or any of Intuit’s or our affiliates of
shares of capital stock or of any business, assets or property, or
the
imposition of any limitation on the ability of any of them to conduct
their business or to own or exercise control such assets, properties
and
stock (any such action is referred as an action of divestiture in
this
proxy statement); or
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utilize
commercially reasonable efforts, or otherwise, in responding to formal
requests for additional information or documentary material pursuant
to
the HSR Act, or any other antitrust law, for a period of time exceeding
60
days from the receipt of any initial
request.
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Amendment; Extension and Waiver
The
merger agreement may be amended by the parties at any time by execution of
an
instrument in writing signed on behalf of each of Intuit and us.
At
any
time prior to the effective time of the merger, any party may, to the extent
legally allowed:
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extend
the time for the performance of any of the obligations or other acts
of
the other parties to the merger
agreement;
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waive
any inaccuracies in the representations and warranties made to that
party
contained in the merger agreement or in any document delivered pursuant
to
the merger agreement; and
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waive
compliance with any of the agreements or conditions for the benefit
of
that party contained in the merger agreement, provided that the mutual
closing conditions to the merger may not be waived without the express
written consent of Intuit.
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Any
extension or waivers must be in writing. Delay in exercising any right under
the
merger agreement does not constitute a waiver of that right.
Expenses
The
merger agreement provides that regardless of whether the merger is consummated,
all fees and expenses incurred by the parties will be borne by the party
incurring those fees and expenses, provided that Intuit and we will share
equally any filing fee for any notification and report form filed with the
FTC
and the Antitrust Division pursuant to the HSR Act, and any appropriate
pre-merger notifications under the antitrust laws of any foreign jurisdiction,
as reasonably agreed by the parties to be appropriate, in each case pursuant
to
the terms of the merger agreement.
Termination
Fee
The
merger agreement requires that we pay Intuit a termination fee of $4,271,000
if:
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the
merger agreement is terminated by Intuit because a triggering event
has
occurred;
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our
Board of Directors effects a change of recommendation pursuant to
and in
compliance with the terms of the merger agreement and concurrently
or
within two calendar days of that termination, we enter into a definitive
agreement with respect to the superior offer that was the subject
of that
change of recommendation; or
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the
merger agreement is terminated by Intuit because (i) the effective
time of
the merger has not occurred by May 9, 2007 (provided that date has
not
been extended by mutual agreement of the parties), or (ii) the required
approval of our stockholders contemplated by the merger agreement
is not
obtained by reason of the failure to obtain the required vote at
the
stockholders’ meeting, in either case pursuant to the terms of the merger
agreement, and any of the following
occur:
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following
the date of the merger agreement and prior to the termination of
the
merger agreement, a third party announces, and does not publicly
definitively withdraw at least five business days prior to that
termination, an acquisition proposal and within 12 months following
the
termination of the merger agreement any company acquisition is
consummated; or
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if
following the date of the merger agreement and prior to the termination
of
the merger agreement, a third party announces, and does not publicly
definitively withdraw at least five business days prior to that
termination, an acquisition proposal and within 12 months following
the
termination of the merger agreement we enter into a letter of intent
or
similar document or any written contract providing for any company
acquisition or publicly announce our intent to enter into a company
acquisition, and that company acquisition is subsequently consummated
within 9 months thereafter.
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If
the
merger agreement is terminated by Intuit pursuant to its termination right
based
on a breach by us of a covenant or agreement, and prior to that termination,
we
receive, or a third party announces, an acquisition proposal and that breach
is
intended to facilitate that acquisition proposal or benefit the third party
making that acquisition proposal without similarly benefiting Intuit, we must
pay Intuit an amount equal to the out of pocket fees and expenses incurred
by
Intuit and Merger Sub in connection with the negotiation, execution and delivery
of the merger agreement and the merger (including, without limitation,
reasonable attorney fees and expenses, reasonable advisor fees and expenses,
travel costs, filing fees, printing, mailing and solicitation costs and
expenses).
If
we
fail to pay in a timely manner the amounts due pursuant to the merger agreement
and, in order to obtain that payment, Intuit makes a claim that results in
a
judgment against us for the amounts set forth in the merger agreement, we must
pay to Intuit its reasonable costs and expenses (including reasonable attorneys’
fees and expenses) in connection with that suit, together with interest on
the
those amounts at the prime rate of Citibank N.A. in effect on the date that
payment was required to be made.
Payment
of the termination fee by us constitutes liquidated damages, and Intuit’s right
to receive a termination fee in the circumstances provided in the merger
agreement is the exclusive remedy available to Intuit for any failure of the
merger to be consummated, and we have no further liability with respect to
the
merger agreement or the merger; provided that in no event will a termination
fee
be in lieu of damages incurred as a result of any intentional or willful breach
of, or any intentional misrepresentation made in, the merger agreement. However,
the payment by us of any Intuit expenses does not constitute liquidated damages
with respect to any claim which Intuit or Merger Sub would be entitled to assert
against us or our assets, or against any of our directors, officers, employees
or stockholders, with respect to any such breach, and does not constitute the
sole and exclusive remedy with respect to any such breach.
The
merger agreement provides that the term “company acquisition” means any of the
following transactions (other than the transactions contemplated by the merger
agreement):
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a
merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving us pursuant
to
which our stockholders immediately preceding the transaction hold
less
than a majority of the aggregate equity interests in the surviving
or
resulting entity of the transaction;
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a
sale or other disposition by us of all or more than a majority of
the
assets of us and our subsidiaries, taken as a whole; or
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the
acquisition by any person or group (including by way of a tender
offer or
an exchange offer or issuance by us), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of
shares
representing in excess of a majority of the voting power of the then
outstanding shares of our capital
stock.
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Representations
and
Warranties
The
merger agreement contains customary representations and warranties relating
to;
among other things:
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corporate
organization and similar matters with respect to each of Intuit,
Merger
Sub and us;
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our
subsidiaries;
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our
charter documents;
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our
capital structure;
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authorization,
execution, delivery, performance and enforceability of the merger
agreement and related matters with respect to each of Intuit and
us;
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required
consents, approvals, orders and authorizations of, and notices to,
governmental authorities and third parties relating to the merger
agreement and related matters with respect to each of Intuit and
us;
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our
compliance with applicable laws and
permits;
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documents
we have filed with the Securities and Exchange Commission, the accuracy
of
the financial statements and other information contained in those
documents, and our internal
controls;
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the
absence of undisclosed liabilities by
us;
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absence
of certain changes in our business since June 30,
2006;
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pending
or threatened litigation against us and pending or threatened government
investigations;
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our
employee benefit plans and matters relating to the Employee Retirement
Income Security Act with respect to
us;
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the
accuracy of information supplied by each of Intuit and us in connection
with this proxy statement;
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restrictions
on our business activities;
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tax
matters with respect to us;
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environmental
matters with respect to us;
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brokerage,
finders and financial advisory fees and expenses payable by us in
connection with the merger agreement and the transactions contemplated
by
the merger agreement;
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our
intellectual property;
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certain
of our contracts;
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our
largest customers and suppliers;
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our
insurance policies;
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receipt
by us of the fairness opinion of Wedbush
Morgan;
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our
Board of Directors’ approval of the merger
agreement;
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required
vote of our stockholders;
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applicability
of certain state takeover statutes’ requirements to us and the amendment
of our existing stockholders rights
agreement;
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transactions
with our affiliates;
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illegal
payments by us;
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compliance
by us with applicable privacy laws and our privacy
policies;
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compliance
by us with payment industry standards and card association rules
and
regulations and ownership by us of our merchant
accounts;
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the
inapplicability to us of certain Federal Reserve
Regulations;
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sufficiency
of Intuit’s funds to perform its obligations under the merger agreement,
including payment of the merger
consideration;
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interim
operations of Merger Sub; and
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Intuit’s
failure to be an “interested stockholder” of ours within the meaning of
Nevada law.
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ECHO
Articles of Incorporation
As
of the
effective time of the merger, our articles of incorporation, as amended, will
be
amended and restated to read the same as the articles of incorporation of Merger
Sub, as in effect immediately prior to the effective time of the merger, until
thereafter amended in accordance with Nevada law and those articles of
incorporation, provided that our
name
will continue to be “Electronic Clearing House, Inc.”
ECHO
By-Laws
The
merger agreement provides that as of the effective time of the merger, by virtue
of the merger and without any action on the part of Merger Sub or us, the bylaws
of the surviving corporation will be amended and restated to read the same
as
the bylaws of Merger Sub, as in effect immediately prior to the effective time
of the merger, until thereafter amended in accordance with Nevada law, the
articles of incorporation of the surviving corporation and those
bylaws.
Contemporaneously
with the execution and delivery of the merger agreement, Aristides W.
Georgantas, Herbert Lucas, Carl R. Terzian, Richard D. Field, H. Eugene
Lockhart, Alice Cheung, Stephen D. Hoofring, Patricia M. Williams, Richard
Lee
Slater, Karl J. Asplund, Joel M. Barry, Charles Harris, Kris Winckler, William
J. Wied, Jack Wilson, Sharat Shankar and Donna Rehman, who were the directors
and executive officers of ECHO as of the date of the merger agreement, in their
capacity as stockholders of ECHO, entered into voting agreements with Intuit.
Approximately [●]% of the outstanding ECHO shares on the record date for the
ECHO special meeting are subject to the voting agreements. The shares covered
by
the voting agreements are referred to in this proxy statement as the “subject
ECHO shares.”
The
following is a summary description of the voting agreements. The form of voting
agreement is attached as Annex B to this proxy statement, which is hereby
incorporated into this document by reference.
Agreement
to Vote and Proxy
Each
individual who entered into a voting agreement with Intuit agreed to vote the
subject ECHO shares at the ECHO special meeting:
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in
favor of approval of the merger;
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against
approval of any proposal made in opposition to, or in competition
with,
consummation of the merger and the transactions contemplated by the
merger
agreement, and against any action or agreement that would result
in a
breach of any representation, warranty, covenant, agreement or other
obligation of ECHO in the merger agreement;
and
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against
any acquisition proposal (as defined in the merger agreement) or,
other
than those actions that relate to the merger and the transactions
contemplated by the merger agreement, any other: (i) merger,
consolidation, business combination, sale of assets, reorganization
or
recapitalization of ECHO or any subsidiary of ECHO with any party,
(ii) sale, lease or transfer of any significant part of the assets of
ECHO or any subsidiary of ECHO, (iii) reorganization,
recapitalization, dissolution, liquidation or winding up of ECHO
or any
subsidiary of ECHO, (iv) material change in the capitalization of
ECHO or any subsidiary of ECHO, or the corporate structure of ECHO
or any
subsidiary of ECHO, or (v) action that is intended, or could reasonably
be
expected to, impede, interfere with, delay, postpone, discourage
or
adversely affect the merger or any of the other transactions contemplated
by the merger agreement.
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These individuals also agreed to grant to Intuit a proxy and appointed the directors of Intuit as their proxy to vote the subject ECHO shares on any of the foregoing matters at the ECHO special meeting.
The
individuals singing voting agreements have agreed that they will be bound by
the
non-solicitation provisions of the merger agreements described above under
“The
Merger AgreementំNo Solicitation.” These individuals further agreed to certain
restrictions on the transfer of their subject ECHO shares.
PROPOSAL
2—ADJOURNMENT OF THE SPECIAL
MEETING
The
Adjournment Proposal
If
at or
prior to the special meeting of stockholders, the number of shares of our common
stock present or represented and voting in favor of approval of the merger
agreement is insufficient to approve that proposal under Nevada law, we intend
to move to adjourn the special meeting in order to enable our Board of Directors
to solicit additional proxies in respect of such proposal. In that event, we
will ask our stockholders to vote only upon the adjournment proposal, and not
the proposal regarding the approval of the merger agreement.
In
this
proposal, we are asking you to authorize the holder of any proxy solicited
by
our Board of Directors to vote in favor of granting Charles Harris and Alice
Cheung, as proxies, the authority to adjourn the special meeting to another
time
and place for the purpose of soliciting additional proxies. If the stockholders
approve the adjournment proposal, our management could adjourn the special
meeting and any adjourned session of the special meeting and use the additional
time to solicit additional proxies, including the solicitation of proxies from
stockholders that have previously voted. Among other things, approval of the
adjournment proposal could mean that, even if we had received proxies
representing a sufficient number of votes against the approval of the merger
agreement to defeat that proposal, our management could adjourn the special
meeting without a vote on the merger agreement and seek to convince the holders
of those shares to change their votes to votes in favor of approval of the
merger agreement.
Vote
Required and Board Recommendation
Approval
of the proposal to adjourn the special meeting for the purpose of soliciting
additional proxies, if necessary or appropriate, requires a majority of the
voting power present at the meeting, in person or represented by proxy. Properly
executed proxies that do not contain voting instructions will be voted “FOR” the
adjournment proposal. No proxy that is specifically marked “AGAINST” approval of
the merger agreement will be voted in favor of the adjournment proposal, unless
it is specifically marked “FOR” the adjournment proposal. Shares of our stock
held by persons attending the special meeting but abstaining from voting and
broker non-votes will have the effect of voting against the adjournment
proposal.
Our
Board
of Directors believes that if the number of shares of our common stock present
or represented at the special meeting and voting in favor of approval of the
merger agreement is insufficient to approve that proposal, it is in the best
interests of us and our stockholders to enable our Board of Directors to
continue to seek to obtain a sufficient number of additional votes in favor
of
approval of the merger agreement.
Our
Board
of Directors recommends that you vote “FOR” the adjournment proposal.
MARKET
PRICE AND DIVIDEND DATA
Since
January 17, 1986, we have been trading on the over-the-counter market under
the
name Electronic Clearing House, Inc. On October 2, 1989, we were accepted for
listing on the National Association of Securities Dealers Automated Quotation
System (“NASDAQ”) and trade under the symbol of “ECHO”
on the
NASDAQ Capital Market. The following table sets forth the range of high and
low
closing prices for each quarter for our common stock during the fiscal periods
indicated, as reported on the NASDAQ Capital Market.
|
FISCAL
YEAR ENDED SEPTEMBER
30
|
High
|
Low
|
|||||
|
2007
|
|||||||
|
First
Quarter (through [●] )
|
$
|
[●] |
$
|
[●] | |||
|
2006
|
|||||||
|
First
Quarter
|
$
|
11.00
|
$
|
9.00
|
|||
|
Second
Quarter
|
$
|
13.66
|
$
|
10.01
|
|||
|
Third
Quarter
|
$
|
18.19
|
$
|
12.51
|
|||
|
Fourth
Quarter
|
$
|
18.08
|
$
|
13.16
|
|||
|
2005
|
|||||||
|
First
Quarter
|
$
|
9.65
|
$
|
7.42
|
|||
|
Second
Quarter
|
$
|
9.22
|
$
|
7.99
|
|||
|
Third
Quarter
|
$
|
10.35
|
$
|
7.10
|
|||
|
Fourth
Quarter
|
$
|
9.36
|
$
|
8.00
|
|||
The
prices set forth above are not necessarily indicative of liquidity of the
trading market. Trading in our common stock is limited and sporadic, as
indicated by the average monthly trading volume of approximately 275,000 shares
during our fiscal year ended September 30, 2006.
The
following table sets forth the closing per share sales price of our common
stock, as reported on the NASDAQ Capital Market on December 13, 2006, the last
full trading day before the public announcement of the proposed merger, and
on
[●], 2007, the latest practicable trading day before the printing of this
proxy statement:
ECHO
COMMON STOCK
|
Closing
Price
|
||
|
December
13, 2006
|
$14.86
|
|
|
[●],
2007
|
|
$[●] |
We
have
not paid any dividends in the past and have no current plan to pay any
dividends. We intend to devote all funds to the operation of our businesses.
Following the consummation of the merger there will be no further market for
our
common stock.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As
of
December 31, 2006, there were 6,836,064 shares of our Common Stock outstanding.
Based on our review of Forms 4 and Schedules 13D, 13G and 13F filed with the
Securities and Exchange Commission on the dates noted, the following persons
have beneficial ownership or control over 5% or more of our outstanding Common
Stock:
|
Amount
and
|
Percentage
of
|
|||
|
Nature
of Beneficial
|
Outstanding
Stock
|
|||
|
Name
and Address
|
Ownership
|
At
12/31/06
|
||
|
Melvin
Laufer
|
519,839
|
7.60%
|
||
|
136
Beach 140th
Street
|
||||
|
Far
Rockaway, NY 11694
|
||||
|
Schedule
13D/A filed September 3, 2004
|
||||
|
William
Blair and Company LLC
|
973,512
|
14.24%
|
||
|
222
W. Adams Street
|
|
|||
|
Chicago,
IL 60606
|
||||
|
Schedule
13F filed September 30, 2006
|
||||
|
Discovery
Equity Partners LP; Discovery
|
821,454
|
12.02%
|
||
|
Group
I LLC; Daniel J. Donoghue;
|
||||
|
Michael
R. Murphy
|
||||
|
71
South Wacker Drive
|
||||
|
Chicago,
IL 60606
|
||||
|
Forms
4 filed November 20, 2006
|
The
following table sets forth the number of shares of Common Stock owned
beneficially by our (i) directors, (ii) the Named Executive Officers (as defined
below), and (iii) the executive officers and directors as a group, as of
December 31, 2006. Such figures are based upon information furnished by the
persons named.
|
Amount
and
|
Percentage
of
|
|||
|
Nature
of Beneficial
|
Outstanding
Stock[1]
|
|||
|
Name
and Address
|
Ownership
|
At 12/31/06
|
||
|
Joel
M. Barry
|
328,119[2]
|
4.68%
|
||
|
730
Paseo Camarillo
|
||||
|
Camarillo,
CA 93010
|
||||
|
Charles
Harris
|
65,000[2]
|
0.95%
|
||
|
730
Paseo Camarillo
|
||||
|
Camarillo,
CA 93010
|
||||
|
Alice
L. Cheung
|
82,500[2]
|
1.20%
|
||
|
730
Paseo Camarillo
|
||||
|
Camarillo,
CA 93010
|
|
Jack
Wilson
|
67,475[2][5]
|
0.98%
|
|
|
730
Paseo Camarillo
|
|||
|
Camarillo,
CA 93010
|
|
||
|
Sharat
Shankar
|
49,400[2]
|
0.72%
|
|
|
730
Paseo Camarillo
|
|
||
|
Camarillo,
CA 93010
|
|
||
|
|
|||
|
Rick
Slater
|
37,300[2]
|
0.54%
|
|
|
730
Paseo Camarillo
|
|
||
|
Camarillo,
CA 93010
|
|
||
|
|
|||
|
Richard
Field
|
203,696[3]
|
2.98%
|
|
|
49
Locust Avenue
|
|
||
|
New
Canaan, CT 06840
|
|
||
|
|
|||
|
Aristides
W. Georgantas
|
16,521
|
0.24%
|
|
|
180
Springdale Road
|
|
||
|
Princeton,
NJ 08540
|
|
||
|
|
|||
|
H.
Eugene Lockhart
|
4,514
|
0.07%
|
|
|
280
Park Avenue
|
|||
|
New
York, NY 10017
|
|||
|
Herbert
L. Lucas, Jr.
|
57,880[4]
|
0.85%
|
|
|
12011
San Vicente Blvd.
|
|||
|
Los
Angeles, CA 90049
|
|||
|
Carl
R. Terzian
|
3,031
|
0.04%
|
|
|
12400
Wilshire Blvd.
|
|||
|
Los
Angeles, CA 90025
|
|||
|
|
|||
|
All
executive officers and directors as a group (16 persons)
|
1,097,243[6]
|
14.98%
|
______________________________
| [1] |
Under
Rule 13d-3, certain shares may be deemed to be beneficially owned
by more
than one person (if, for example, persons share the power to vote
or the
power to dispose of the shares). In addition, shares are deemed to
be
beneficially owned by a person if the person has the right to acquire
the
shares (for example, upon exercise of an option) within 60 days of
the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed
to
include the amount of shares beneficially owned by such person (and
only
such person) by reason of these acquisition rights. As a result,
the
percentage of outstanding shares of any person as shown in this table
does
not necessarily reflect the person’s actual ownership or voting power with
respect to the number of shares of Common Stock actually outstanding
at
December 31, 2006.
|
| [2] |
Includes
stock options according to the terms of the 1992 Officers and Key
Employees Incentive Stock Option Plan and the 2003 Incentive Stock
Option
Plan, which for the following number of shares and for the following
individuals could be acquired within 60 days through the exercise
of stock
options: Joel M. Barry, 180,000 shares; Alice Cheung, 60,000 shares;
Jack
Wilson, 57,400 shares; Sharat Shankar, 49,400 shares; and Rick Slater,
22,800.
|
| [3] |
Includes
103,400 shares which are in an IRA account in Mr. Field’s
name.
|
| [4] |
Includes
17,972 shares indirectly owned by Mr. Lucas through a trust for his
wife.
|
| [5] |
Includes
530 shares indirectly owned by Mr. Wilson through his
wife.
|
| [6] |
Includes
shares and stock options according to the terms of the 1992 Officers
and
Key Employees Incentive Stock Option Plan and the 2003 Incentive
Stock
Option Plan, which for the following number of shares and for the
following individuals could be acquired within 60 days through the
exercise of stock options: Patricia Williams, 40,400 shares; Steven
Hoofring, 36,000 shares; and Kris Winckler, 42,400
shares.
|
STOCKHOLDER
PROPOSALS FOR 2007 ANNUAL
MEETING
We
will
hold our 2007 annual meeting of stockholders only if the merger is not
consummated because following the merger our common stock will be delisted
from
the NASDAQ Capital Market, our common stock will be deregistered under the
Exchange Act and we will no longer be a publicly-held company. Any stockholder
wishing to have a proposal considered for inclusion in our 2007 annual meeting
proxy solicitation materials must set forth such proposal in writing and file
it
with our secretary a reasonable period of time before we print and mail our
2007
annual meeting proxy materials. We will publicly notify you of the expected
date
that we plan to print and mail our 2007 annual meeting proxy materials at the
time we establish a date for such meeting if the merger is not consummated.
Proposals received after such date shall be considered untimely and shall not
be
included in our annual meeting proxy solicitation materials. Our Board of
Directors will review any timely submitted stockholder proposals which are
filed
as required and will determine whether such proposals meet applicable criteria
for inclusion in our 2007 annual meeting proxy solicitation materials.
If
you
wish to submit a proposal for consideration at our next annual general meeting
of stockholders but that is not to be included in our proxy statement, you
must
deliver the proposal in writing (and otherwise comply with the requirements
in
our by-laws relating to the submission of proposals) to: 730 Paseo Camarillo,
Camarillo, California, 93010, Attention: Secretary.
OTHER
MATTERS
As
of the
date of this proxy statement, our Board of Directors knows of no other matters
that will be presented for consideration at the special meeting other than
as
described in this proxy statement. However, if any other matter is presented
properly for consideration and action at the meeting, it is intended that the
proxies will be voted with respect thereto in accordance with the best judgment
and in the discretion of the proxy holders.
Intuit
and Merger Sub are not participants in the solicitation made by this proxy
statement. None of Intuit or Merger Sub has any interest in the solicitation
other than as a result of Intuit’s agreement to acquire all of the outstanding
shares of our common stock pursuant to the terms of the merger agreement.
INCORPORATION
OF INFORMATION BY
REFERENCE
The
Securities and Exchange Commission allows us to “incorporate by reference”
information into this proxy statement, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered part of this proxy statement, except
for
any information superseded by information contained directly in this proxy
statement or in later filed documents incorporated by reference in this proxy
statement.
This
proxy statement incorporates by reference the documents set forth below that
we
have previously filed with the Securities and Exchange Commission.
|
ECHO’s
Securities and Exchange Commission filings
|
Period
|
|
Annual
Report on Form 10-K
|
Year
ended September 30, 2006, as filed on December 14, 2006
|
|
Current
Report on Form 8-K
|
Filed
on December 14, 2006
|
We
also
incorporate by reference additional documents that may be filed with the
Securities and Exchange Commission between the date of this proxy statement
and
the date of the special meeting of stockholders or, if sooner, the termination
of the merger agreement. These include periodic reports, such as Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K,
as
well as proxy statements.
If
you
are a stockholder, we may have sent you some of the documents incorporated
by
reference, but you can obtain any of them through us, the Securities and
Exchange Commission or the Securities and Exchange Commission’s Internet web
site at http://www.sec.gov. You may obtain documents we incorporate by reference
from us without charge, excluding all exhibits except those that we have
specifically incorporated by reference in this proxy statement. Stockholders
may
obtain documents incorporated by reference in this proxy statement by requesting
them in writing or by telephone from us at the following address:
Electronic
Clearing House, Inc.
Corporate
Secretary and Investor Relations
730
Paseo
Camarillo
Camarillo,
CA 93010
(800)
233-0406 ext. 8533
corp@ECHO-inc.com
We
will
send you any of these documents free of charge upon your request.
You
should rely only on the information contained or incorporated by reference
into
this proxy statement. We have not authorized anyone to provide you with
information that is different from what is contained in this proxy statement
or
in any of the materials that have been incorporated by reference into this
document. If you are in a jurisdiction where the solicitation of proxies is
unlawful, or if you are a person to whom it is unlawful to direct these types
of
activities, then the solicitation presented in this document does not extend
to
you. This proxy statement is dated [●], 2007. You should not assume that the
information contained in this proxy statement is accurate as of any date other
than that date. The mailing of this proxy statement to stockholders does not
create any implication to the contrary.
MULTIPLE
STOCKHOLDERS SHARING ONE
ADDRESS
In
accordance with Rule 14a-3(e)(1) under the Exchange Act, one proxy statement
will be delivered to two or more stockholders who share an address, unless
we
have received contrary instructions from one or more of the stockholders. We
will deliver promptly upon written or oral request a separate copy of the proxy
statement to a stockholder at a shared address to which a single copy of the
proxy statement was delivered. Requests for additional copies of the proxy
statement, and requests that in the future separate proxy statements be sent
to
stockholders who share an address, should be directed to Electronic Clearing
House, Inc., Corporate Secretary and Investor Relations, 730 Paseo Camarillo,
Camarillo, CA 93010, (800) 233-0406 ext. 8533, corp@ECHO-inc.com. In addition,
stockholders who share a single address but receive multiple copies of the
proxy
statement may request that in the future they receive a single copy by
contacting us at the address and phone number set forth in the prior sentence.
SOURCES
OF ADDITIONAL INFORMATION
Except
where we indicate otherwise, we use the name “Intuit” in this proxy statement to
refer to Intuit Inc., and references to “ECHO”, “the Company”, “us”, “we”,
“our”, “ours” and similar expressions used in this proxy statement refer to
Electronic Clearing House, Inc. We briefly describe Intuit and the other parties
to the merger agreement under “The Merger—The Companies.” We also refer to our
common stock, par value $0.01 per share, as our “common stock.” All information
contained in this proxy statement with respect to the parties to the merger
agreement other than ECHO has been supplied by those other parties.
ECHO
and
Intuit are each subject to the informational requirements of the Exchange Act.
Each company files annual, quarterly and special reports, proxy statements
and
other information with the Securities and Exchange Commission.
You
may
read and copy these reports, proxy statements and other information (including
the documents described in “Incorporation of Information by Reference”) at the
Securities and Exchange Commission’s Public Reference Section at 100 F Street,
N.E., Washington, DC 20549. You may obtain information on the operation of
the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission also maintains an
Internet website, located at http://www.sec.gov, which contains reports, proxy
statements and other information regarding ECHO, Intuit and other registrants
that file electronically with the Securities and Exchange Commission.
You
may
also read reports, proxy statements and other information relating to ECHO
at
the offices of the The NASDAQ Stock Market at 1735 K Street, N.W., Washington,
D.C. 20006.
Our
stockholders should not send in their ECHO certificates until they receive
the
transmittal materials from the paying agent. Our stockholders of record who
have
further questions about their share certificates or the exchange of our common
stock for cash should call the paying agent, whose contact information will
be
included in the letter of transmittal.
You
should rely only on the information contained in this proxy statement. We have
not authorized anyone to provide you with information that is different from
what is contained in this proxy statement. This proxy statement is dated [●],
2007. You should not assume that the information contained in this proxy
statement is accurate as of any date other than that date. Neither the mailing
of this proxy statement to stockholders nor the issuance of cash in the merger
creates any implication to the contrary.
If
you
have questions about the special meeting or the merger with Intuit after reading
this proxy, or if you would like additional copies of this proxy statement
or
the proxy card, please contact:
Electronic
Clearing House, Inc.
Corporate
Secretary and Investor Relations
730
Paseo
Camarillo,
Camarillo,
CA 93010
(800)
233-0406 ext. 8533
corp@ECHO-inc.com
or
Morrow
& Company, Inc.
470
West
Avenue, 3rd Floor
Stamford,
CT 06902
[●]
[●]
Attn:
Gerard J. Mucha or Fred Marquardt
PROXY
ELECTRONIC
CLEARING HOUSE, INC.
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL
MEETING OF STOCKHOLDERS
[●],
2007
The
undersigned hereby appoints Charles Harris and Alice Cheung, jointly and
severally, proxies, with full power of substitution, to vote all shares of
common stock of Electronic Clearing House, Inc., a Nevada corporation, which
the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held at ECHO’s offices, 730 Paseo Camarillo, Camarillo, California, 93010, on
[●], 2007, at 9:00 a.m., local time, or any adjournment thereof and to vote all
shares of common stock which the undersigned would be entitled to vote thereat
if then and there personally present, on the matters set forth below:
THIS
PROXY WILL BE VOTED AS DIRECTED AND, IF NO DIRECTION IS INDICATED, THIS PROXY
WILL BE VOTED “FOR” THE APPROVAL OF THE MERGER AGREEMENT AND, IF APPLICABLE,
“FOR” THE ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT
ADDITIONAL PROXIES (PROVIDED THAT NO PROXY THAT IS SPECIFICALLY MARKED “AGAINST”
PROPOSAL 1 WILL BE VOTED IN FAVOR OF PROPOSAL 2, UNLESS IT IS SPECIFICALLY
MARKED “FOR” PROPOSAL 2).
(Continued,
and to be marked, dated and signed, on the other side)
Address
Change/Comments (Mark the corresponding box on the reverse side)
^FOLD
AND
DETACH HERE^
Please
Mark here for Address Change or Comments
SEE
REVERSE SIDE
THIS
PROXY WILL BE VOTED AS DIRECTED AND, IF NO DIRECTION IS INDICATED, THIS PROXY
WILL BE VOTED “FOR” THE APPROVAL OF THE MERGER AGREEMENT AND, IF APPLICABLE,
“FOR” THE ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT
ADDITIONAL PROXIES (PROVIDED THAT NO PROXY THAT IS SPECIFICALLY MARKED “AGAINST”
PROPOSAL 1 WILL BE VOTED IN FAVOR OF PROPOSAL 2, UNLESS IT IS SPECIFICALLY
MARKED “FOR” PROPOSAL 2).
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
|
1.
Proposal to approve the Agreement and Plan of Merger, dated as
of December
14, 2006 by and among Electronic Clearing House, Inc., Intuit Inc.,
and
Elan Acquisition Corporation, a wholly owned subsidiary of Intuit
Inc.
|
FOR
|
AGAINST
|
ABSTAIN
|
|
2.
Proposal to approve the adjournment of the special meeting, if
necessary
or appropriate, to solicit additional proxies if there are insufficient
votes at the time of the special meeting to approve the merger
agreement.
|
FOR
|
AGAINST
|
ABSTAIN
|
In
their
discretion, the proxies are authorized to vote upon such other business as
may
properly come before the special meeting or any adjournment
thereof.
Both
of
the foregoing attorneys-in-fact or their substitutes or, if only one shall
be
present and acting at the special meeting or any adjournment(s) thereof,
the
attorney-in-fact so present, shall have and may exercise all of the powers
of
said attorney-in-fact hereunder.
|
Signature
|
Date
|
|||
|
Signature
|
Date
|
NOTE:
The
proxy should be marked, dated and signed by the stockholder exactly as his,
her
or its name appears hereon, persons signing in a fiduciary capacity should
so
indicate and if shares are held by joint tenants or as community property,
both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, partnership or
other
entity, please sign in full.
^
FOLD
AND DETACH HERE ^
Please
mark, sign and date your proxy card and return it in the enclosed
envelope.
Annex
A
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER is made and entered into as of December 14,
2006 (the “Agreement”),
by
and among Intuit inc., a Delaware corporation (“Parent”),
Elan
Acquisition Corporation, a Nevada corporation and a wholly-owned
subsidiary of Parent (“Merger
Sub”),
and
Electronic Clearing House, Inc., a Nevada corporation (the “Company”).
RECITALS
WHEREAS,
the Boards of Directors of Parent, Merger Sub and the Company have each
determined that it is in the best interests of their respective stockholders
for
Parent to acquire the Company upon the terms and subject to the conditions
set
forth herein.
WHEREAS,
the Board of Directors of the Company (the “Board”)
has
unanimously (i) determined that the Merger (as defined in Section 1.1
hereof)
is advisable and fair to, and in the best interests of, the Company and its
stockholders, and (ii) approved this Agreement, the Merger and the other
transactions contemplated by this Agreement (the “Transactions”),
and
(iii) resolved, subject to the terms and conditions of this Agreement, to
recommend the approval of this Agreement by the stockholders of the
Company.
WHEREAS,
concurrently with the execution of this Agreement, as a condition and material
inducement to Parent’s willingness to enter into this Agreement, all executive
officers and directors of the Company and all of their respective affiliates,
in
their capacity as stockholders of the Company, are entering into voting
agreements in substantially the form attached hereto as Exhibit A
(the
“Company
Voting Agreements”),
pursuant to which each such stockholder has agreed, among other things, to
vote
his, her or its Shares (as defined in Section
1.6(a)
hereof)
in favor of the Merger.
WHEREAS,
concurrently with the execution of this Agreement, as a condition and material
inducement to Parent’s willingness to enter into this Agreement, (i) the
individuals listed on Schedule
I
attached
hereto are entering into non-competition agreements with Parent (the
“Non-Competition
Agreements”),
and
(ii) the individuals listed on Schedule
II
attached
hereto (the “Key
Employees”)
are
entering into offer letters with Parent.
NOW,
THEREFORE, in consideration of the covenants, promises and representations
set
forth herein, and for other good and valuable consideration, the receipt
and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
A-1
ARTICLE
I
THE
MERGER
1.1 The
Merger.
At the
Effective Time (as defined in Section 1.2
hereof)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Nevada Revised Statutes (“Nevada
Law”),
Merger Sub shall be merged with and into the Company (the “Merger”),
the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation. The Company, as the surviving corporation
after the Merger, is hereinafter sometimes referred to as the “Surviving
Corporation.”
1.2 Effective
Time; Closing.
Upon
the terms and subject to the conditions of this Agreement, the parties hereto
shall cause the Merger to be consummated by filing articles of merger (the
“Articles
of Merger”)
with
the Secretary of State of the State of Nevada in accordance with the relevant
provisions of Nevada Law (the time of such filing (or such later time as
may be
agreed in writing by the Company and Parent and specified in the Articles
of
Merger) being the “Effective
Time”)
as
soon as practicable on or after the Closing Date (as herein defined). Unless
the
context otherwise requires, the term “Agreement”
as
used
herein refers collectively to this Agreement and Plan of Merger (as the same
may
be amended from time to time in accordance with the terms hereof) and the
Articles of Merger. The closing of the Merger (the “Closing”)
shall
take place at the offices of O’Melveny & Myers LLP, Embarcadero Center
West, 275 Battery Street, Suite 2600, San Francisco, California, at a
time and date to be specified by the parties hereto, which shall be no later
than the second business day after the satisfaction or waiver of the conditions
set forth in Article
VI
hereof
(other than those conditions, which by their terms, are to be satisfied or
waived on the Closing Date), or at such other time, date and location as
the
parties hereto agree in writing (the “Closing
Date”).
1.3 Effect
of the Merger.
At the
Effective Time, the effect of the Merger shall be as provided in this Agreement
and the applicable provisions of Nevada Law. Without limiting the generality
of
the foregoing, and subject thereto, at the Effective Time all of the assets,
properties, rights, privileges, powers and franchises of the Company and
Merger
Sub shall vest in the Surviving Corporation, and all of the debts, liabilities,
obligations, restrictions and duties of the Company and Merger Sub shall
become
the debts, liabilities, obligations, restrictions and duties of the Surviving
Corporation.
1.4 Articles
of Incorporation and Bylaws of Surviving Corporation.
(a) Articles
of Incorporation.
As of
the Effective Time, by virtue of the Merger and without any action on the
part
of Merger Sub or the Company, the Articles of Incorporation of the Surviving
Corporation shall be amended and restated to read the same as the Articles
of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, until thereafter amended in accordance with Nevada Law and such Articles
of Incorporation; provided,
however,
that as
of the Effective Time the Articles of Incorporation shall provide that the
name
of the Surviving Corporation is “Electronic Clearing House, Inc.”
A-2
(b) Bylaws.
As of
the Effective Time, by virtue of the Merger and without any action on the
part
of Merger Sub or the Company, the Bylaws of the Surviving Corporation shall
be
amended and restated to read the same as the Bylaws of Merger Sub, as in
effect
immediately prior to the Effective Time, until thereafter amended in accordance
with Nevada Law, the Articles of Incorporation of the Surviving Corporation
and
such Bylaws; provided,
however,
that
all references in such Bylaws to Merger Sub shall be deemed to refer to
“Electronic Clearing House, Inc.”
1.5 Directors
and Officers of Surviving Corporation.
(a) Directors.
The
initial directors of the Surviving Corporation shall be the directors of
Merger
Sub as of immediately prior to the Effective Time, until their respective
successors are duly elected or appointed and qualified.
(b) Officers.
The
initial officers of the Surviving Corporation shall be the officers of Merger
Sub as of immediately prior to the Effective Time, until their respective
successors are duly elected or appointed and qualified.
1.6 Effect
on Capital Stock.
Upon
the terms and subject to the conditions of this Agreement, at the Effective
Time, by virtue of the Merger and without any action on the part of Merger
Sub,
the Company or the holders of any of the following securities, the following
shall occur:
(a) Conversion
of Shares.
Each
share of Company Common Stock (as defined in Section 2.3(a) hereof), including
the associated right (the “Rights”)
to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock (“Series A
Preferred Stock”),
or in
certain circumstances Company Common Stock, pursuant to the Amended and Restated
Rights Agreement dated as of January 29, 2003 (the “Rights
Agreement”),
by
and between the Company and OTR, Inc., as Rights Agent, (the “Shares”)
issued
and outstanding immediately prior to the Effective Time (other than any Shares
to be canceled pursuant to Section
1.6(b)
hereof
and any Dissenting Shares (as defined in Section 1.7
hereof)), will be canceled and extinguished and automatically converted into
the
right to receive, upon surrender of the certificate representing such Share
in
the manner provided in Section 1.8
hereof
(or in the case of a lost, stolen or destroyed certificate, upon delivery
of an
affidavit (and bond, if required) in the manner provided in Section 1.10
hereof),
cash, without interest, in an amount equal to EIGHTEEN DOLLARS AND SEVENTY
FIVE
CENTS ($18.75) per Share (the “Merger
Consideration”).
(b) Cancellation
of Treasury and Parent-Owned Shares.
Each
Share held by the Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of the Company or of Parent immediately
prior
to the Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Capital
Stock of Merger Sub.
Each
share of common stock, par value $0.01 per share, of Merger Sub (the
“Merger
Sub Common Stock”)
issued
and outstanding immediately prior to the Effective Time shall be converted
into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock outstanding immediately prior
to
the Effective Time shall evidence ownership of such shares of capital stock
of
the Surviving Corporation.
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(d) Equity
Awards.
The
Company shall, prior to the Effective Time, take such action, adopt such
amendments, and obtain all such consents, as shall be required: (i) as to
any
Company Stock Options (as defined in Section 2.3(a)), shares of Company
Restricted Stock (as defined in Section 2.3(a)) (including those shares issued
pursuant to the acceleration of Long-Term Incentive Restricted Stock Grants
(as
defined in Section 2.3(a)) as a result of this Section 1.6(d)), Long-Term
Incentive Restricted Stock Grants and Long-Term Incentive Phantom Stock Grants
(as defined in Section 2.3(a)) that are outstanding and unvested immediately
prior to the Effective Time, to cause such Company Stock Options, shares
of
Company Restricted Stock, Long-Term Incentive Restricted Stock Grants and
Long-Term Incentive Phantom Stock Grants to be fully vested immediately prior
to
the Effective Time; (ii) as to any Long-Term Incentive Restricted Stock Grants
that are accelerated as a result of this Section 1.6(d), to issue shares
of
Company Restricted Stock in respect thereof upon such acceleration; (iii)
as to
any shares of Company Restricted Stock (including those issued pursuant to
the
acceleration of Long-Term Incentive Restricted Stock Grants as a result of
this
Section 1.6(d)), to cause such shares to be treated in accordance with Section
1.6(a) at the Effective Time; and (iv) to cancel, immediately prior to the
Effective Time, all then-outstanding Company Stock Options and Long-Term
Incentive Phantom Stock Grants such that the holder of any such Company Stock
Option or Long-Term Incentive Phantom Stock Grant shall have no further interest
in such Company Stock Option or Long-Term Incentive Phantom Stock Grants,
or
right in respect thereof or with respect thereto, other than the right to
receive such cash consideration as determined pursuant to the next three
sentences. With respect to each Company Stock Option that has a per share
exercise price that is less than the Merger Consideration and is so cancelled,
the holder of such Company Stock Option shall be entitled to receive for
such
Company Stock Option (the “Option
Consideration”)
(subject to any applicable withholding tax) cash equal to the product of
(A) the
number of shares of Company Common Stock as to which the portion of the Company
Stock Option that is so cancelled could be exercised, multiplied by (B) the
Merger Consideration less the per share exercise price of such portion of
the
Company Stock Option. In the case of a Company Stock Option having a per
share
exercise price equal to or greater than the Merger Consideration, such Company
Stock Option shall be cancelled without the payment of cash or issuance of
other
securities in respect thereof. With respect to each Long-Term Incentive Phantom
Stock Grant, the holder of such Long-Term Incentive Phantom Stock Grant shall
be
entitled to receive for such Long-Term Incentive Phantom Stock Grant (the
“Phantom
Stock Consideration”)
(subject to any applicable withholding tax) cash equal to the product of
(A) the
number of shares of phantom stock subject to such Long-Term Incentive Phantom
Stock Grant, multiplied by (B) the Merger Consideration. As soon as reasonably
practicable after the Effective Time, Parent shall deliver to the Surviving
Corporation an amount equal to the sum of the aggregate Option Consideration
and
the aggregate Phantom Stock Consideration payable to holders of Company Stock
Options and Long-Term Incentive Phantom Stock Grants that were converted
into
the right to receive Option Consideration and Phantom Stock Consideration
pursuant to this Section
1.6(d),
and the
Surviving Corporation shall promptly deliver the Option Consideration and
Phantom Stock Consideration to such holders of Company Stock Options and
Long-Term Incentive Phantom Stock Grants.
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1.7 Dissenting
Shares.
(a) Notwithstanding
any provision of this Agreement to the contrary, any shares of Company Common
Stock that are issued and outstanding immediately prior to the Effective
Time
and that are held by a stockholder of the Company who has properly exercised
his, her or its dissenter’s rights under Nevada Law (the “Dissenting
Shares”)
shall
not be converted into the right to receive the Merger Consideration pursuant
to
Section
1.6(a),
but,
instead, such shares shall be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to and subject to the requirements of Nevada Law. If any
such
holder shall have failed to perfect, or shall have effectively withdrawn
or
lost, his, her or its right to dissent from the Merger under Nevada Law,
each
share of such holder’s Company Common Stock shall thereupon be deemed to have
been converted, as of the Effective Time, into the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 1.8
hereof,
of the certificate or certificates that formerly evidenced such Shares. The
Company shall give Parent (i) prompt notice of any notice or demands for
appraisal or payment for shares of Company Common Stock received by the Company,
and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Nevada Law. The Company shall not,
except
with the prior written consent of Parent, make any payment with respect to
any
demands for appraisal or offer to settle or settle any such
demands.
1.8 Surrender
of Certificates.
(a) Paying
Agent.
Prior
to the Effective Time, Parent shall select a bank or trust company reasonably
acceptable to the Company to act as agent (the “Paying
Agent”)
for
the holders of Shares to receive the funds to which holders of Shares shall
become entitled pursuant to Section 1.6(a).
As soon
as reasonably practicable after the Effective Time, Parent shall deposit,
or
cause Merger Sub to deposit, with the Paying Agent, for the benefit of the
holders of Shares, cash in an amount sufficient to pay the aggregate Merger
Consideration. The deposit made by Parent or Merger Sub, as the case may
be,
pursuant to this Section
1.8(a)
is
hereinafter referred to as the “Exchange
Fund.”
If
such funds are insufficient to make the payments contemplated by Section
1.6(a),
Parent
shall promptly deposit, or cause to be deposited, additional funds with the
Paying Agent in an amount that is equal to the deficiency in the amount funds
required to make such payment. Parent shall instruct the Paying Agent to
cause
the Exchange Fund to be (i) held for the benefit of the holders of the Shares,
and (ii) applied promptly to make the payments provided for in Section
1.6(a)
in
accordance with this Section
1.8.
The
Exchange Fund shall be invested by the Paying Agent as directed by
Parent.
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(b) Payment
Procedures.
As soon
as reasonably practicable after the Effective Time, Parent shall cause the
Paying Agent to mail to each holder of record (as of the Effective Time)
of a
certificate or certificates (the “Certificates”),
which
immediately prior to the Effective Time represented the outstanding Shares
converted into the right to receive the Merger Consideration, (i) a letter
of transmittal in customary form (which shall specify that delivery shall
be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates (or affidavits of loss in lieu thereof
and any
required bond in accordance with Section
1.10)
to the
Paying Agent and shall contain such other provisions as Parent or the Paying
Agent may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Consideration
(which instructions shall include provisions for payment of the Merger
Consideration to a person other than the person in whose name the surrendered
Certificate is registered on the transfer books of the Company, subject to
receipt of appropriate documentation and payment of any applicable taxes).
Upon
surrender of Certificates for cancellation (or affidavits of loss in lieu
thereof together with any required bond in accordance with Section
1.10)
to the
Paying Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly completed and validly executed
in
accordance with the instructions thereto, the holders of such Certificates
formerly representing the Shares shall be entitled to receive in exchange
therefor the Merger Consideration, and the Certificates so surrendered shall
forthwith be canceled. Until so surrendered, outstanding Certificates shall
be
deemed from and after the Effective Time, for all corporate purposes, to
evidence only the right to receive the Merger Consideration.
Promptly
following surrender of any such Certificates, the Paying Agent shall deliver
to
the record holders thereof, without interest, the Merger
Consideration.
(c) Payments
with respect to Unsurrendered Shares; No Liability.
At any
time following the one (1) year anniversary of the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it
any
portion of the Exchange Fund that remains unclaimed by the holders of Shares
(including, without limitation, all interest and other income received by
the
Paying Agent in respect of all funds made available to it), and, thereafter,
such holders shall be entitled to look to the Surviving Corporation (subject
to
abandoned property, escheat and other similar laws) only as general creditors
thereof with respect to any Merger Consideration that may be payable upon
due
surrender of the Certificates held by them. Notwithstanding the foregoing,
neither Parent, the Surviving Corporation nor the Paying Agent shall be liable
to any holder of a Share for any Merger Consideration delivered in respect
of
such Share to a public official pursuant to any abandoned property, escheat
or
other similar law.
(d) Transfers
of Ownership.
If the
payment of the Merger Consideration is to be paid to a person other than
the
person in whose name the Certificates surrendered in exchange therefor are
registered, it will be a condition of payment that the Certificates so
surrendered be properly endorsed and otherwise in proper form for transfer
(including without limitation, if requested by Parent or the Paying Agent,
a
medallion guarantee), and that the persons requesting such payment will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the payment of the Merger Consideration to a person
other
than the registered holder of the Certificates surrendered, or established
to
the reasonable satisfaction of Parent or any agent designated by it that
such
tax has been paid or is not applicable.
A-6
(e) Required
Withholding.
Each of
the Paying Agent, Parent and the Surviving Corporation shall be entitled
to
deduct and withhold from any consideration payable or otherwise deliverable
pursuant to this Agreement to any holder or former holder of Shares or Company
Stock Options such amounts as may be required to be deducted or withheld
therefrom under the Code (as defined in Section
2.11(a)
hereof)
or under any provision of state, local or foreign tax law or under any other
applicable Legal Requirement (as defined in Section
2.3(a)
hereof).
To the extent such amounts are so deducted or withheld, such amounts shall
be
treated for all purposes under this Agreement as having been paid to the
person
to whom such amounts would otherwise have been paid (in respect of which
Parent,
the Paying Agent or the Surviving Company, as the case may be, made such
deductions and withholdings).
(f) Adjustments.
If
during the period from the date of this Agreement through the Effective Time,
any change in the outstanding shares of Company Common Stock or the shares
of
Company Common Stock issuable upon conversion, exercise or exchange of
securities convertible, exercisable or exchangeable into or for shares of
Company Common Stock, shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares
of Company Common Stock, or any similar transaction, or any stock dividend
thereon with a record date during such period, the Merger Consideration shall
be
appropriately adjusted to reflect such change.
1.9 No
Further Ownership Rights in Shares.
Payment
of the Merger Consideration shall be deemed to have been paid in full
satisfaction of all rights pertaining to the Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation
of
the Shares which were outstanding immediately prior to the Effective Time.
If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in
this Article
I.
1.10 Lost,
Stolen or Destroyed Certificates.
In the
event that any Certificates shall have been lost, stolen or destroyed, the
Paying Agent shall pay in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof, the Merger Consideration payable with respect thereto; provided,
however,
that
Parent may, in its discretion and as a condition precedent to the payment
of
such Merger Consideration, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such reasonable and customary amount as
it may
direct as indemnity against any claim that may be made against Parent, the
Surviving Corporation or the Paying Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
1.11 Taking
of Necessary Action; Further Action.
If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Merger Sub,
the
officers and directors of the Company and Merger Sub will take all such lawful
and reasonably necessary action.
A-7
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF COMPANY
The
Company hereby represents and warrants to Parent and Merger Sub, subject
only to
exceptions disclosed in writing in the disclosure schedule supplied by the
Company to Parent dated as of the date hereof and certified by a duly authorized
officer of the Company (the “Company
Schedule”),
as
follows:
2.1 Organization
and Qualification; Subsidiaries.
(a) Each
of
the Company and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority to own,
lease
and operate its assets and properties and to carry on its business as it
is now
being conducted and as proposed by the Company to be conducted. Each of the
Company and its subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, approvals
and orders (“Approvals”)
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted and as
proposed by the Company to be conducted. except where any failure to possess
such Approvals would not, individually or in the aggregate, be reasonably
likely
to have a Material Adverse Effect.
(b) The
Company has no subsidiaries except for the corporations identified in
Section
2.1(b)
of the
Company Schedule. Section
2.1(b)
of the
Company Schedule also (i) sets forth the form of ownership and percentage
interest of the Company in each of its subsidiaries, (ii) to the extent that
a
subsidiary set forth thereon is not wholly owned by the Company, lists the
other
persons or entities who have an interest in such subsidiary and sets forth
the
percentage of each such interest, and (iii) identifies each of the directors
and
officers of each such subsidiary. Neither the Company nor any of its
subsidiaries has agreed to make nor is obligated to make nor is bound by
any
written, oral or other agreement, contract, subcontract, lease, mortgage,
indenture, understanding, arrangement, instrument, note, bond, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan, permit,
franchise or other instrument, obligation or commitment or undertaking of
any
nature (a “Contract”),
in
effect as of the date hereof or as may hereafter be in effect under which
it may
become obligated to make, any future investment in or capital contribution
to
any other entity. Neither the Company nor any of its subsidiaries directly
or
indirectly owns any equity or similar interest in or any interest convertible,
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business, association or entity.
(c) The
Company and each of its subsidiaries is duly qualified to do business as
a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the character of the properties owned, leased or operated
by
it or the nature of its activities makes such qualification necessary, except
where failures to be so qualified and in good standing would not, individually
or in the aggregate, be reasonably likely to have a Material Adverse Effect
on
the Company.
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2.2 Articles
of Incorporation and Bylaws.
The
Company has previously furnished to Parent (i) a complete and correct copy
of its Articles of Incorporation and Bylaws as amended to date (together,
the
“Company
Charter Documents”)
and
(ii) the equivalent organizational documents for each subsidiary of the
Company, each as amended to date. The Company is not in violation of any
of the
provisions of the Company Charter Documents, and no subsidiary of the Company
is
in violation of its equivalent organizational documents.
2.3 Capitalization.
(a) The
authorized capital stock of the Company consists of 36,000,000 shares of
Company
common stock, par value $0.01 per share (“Company
Common Stock”)
and
5,000,000 shares of Preferred Stock, par value of $0.01 per share (“Company
Preferred Stock”),
of
which 500,000 shares have been designated as Series A Junior Participating
Preferred Stock. At the close of business on the date of this Agreement
(i) 6,824,814 shares of Company Common Stock were issued and outstanding
(not including 38,269 shares of Company Common Stock held by the Company
as
treasury stock), all of which are validly issued, fully paid and nonassessable,
of which 137,602 shares were Company Restricted Stock (of which (x) 108,088
shares of Company Restricted Stock were granted under the 2003 Option Plan
(as
defined below), (y) no shares of Company Restricted Stock were granted under
the
1992 Option Plan (as defined below), and (z) 29,514 shares of Company Restricted
Stock were granted outside of the Company Option Plans (as defined below));
(ii) no shares of Company Common Stock were held by subsidiaries of the
Company; (iii) 709,200 shares of Company Common Stock were reserved for issuance
upon the exercise of outstanding options to purchase Company Common Stock
under
the Company’s 2003 Incentive Stock Option Plan (the “2003
Option Plan”), 95,000
shares of Company Common Stock were reserved for issuance pursuant to
outstanding incentive grants of future restricted stock awards (the
“Long-Term
Incentive Restricted Stock Grants”)
under
the 2003 Option Plan, 10,000 shares of phantom stock were reserved for issuance
pursuant to outstanding cash-settled incentive phantom stock grants (the
“Long-Term
Incentive Phantom Stock Grants”)
under
the 2003 Option Plan, and 227,912 shares of Company Common Stock were reserved
for future issuance pursuant to the 2003 Option Plan; (iv) 239,325 shares
of
Company Common Stock were reserved for issuance upon the exercise of outstanding
options to purchase Company Common Stock under the Company’s 1992 Officers and
Key Employees Incentive Stock Option Plan (the “1992
Option Plan,”
and
together with the 2003 Option Plan, the “Company
Option Plans”),
no
shares
of Company Common Stock were reserved for issuance pursuant to outstanding
Long-Term Incentive Restricted Stock Grants under the 1992 Option
Plan,
no
shares of phantom stock were reserved for issuance pursuant to Long-Term
Incentive Phantom Stock Grants under the 1992 Option Plan, and no shares
of
Company Common Stock were reserved for future issuance pursuant to the 1992
Option Plan,
(v) no shares of Company Common Stock were reserved for issuance upon the
exercise of outstanding options to purchase Company Common Stock granted
outside
of the Company Option Plans, and (vi) no shares of Company Preferred Stock
were
issued and outstanding.
No
Long-Term Incentive Restricted Stock Grants or Long-Term Incentive Phantom
Stock
Grants have been granted by the Company other than under the Company Option
Plans. Section
2.3(a)
of the
Company Schedule sets forth the following information with respect to each
Company stock option (“Company
Stock Options”),
each
share of Company Common Stock that is restricted, unvested or subject to
a
repurchase option or other risk of forfeiture (“Company
Restricted Stock”)
and
each Long-Term Incentive Restricted Stock Grant and Long-Term Incentive Phantom
Stock Grant (collectively, “Incentive
Grants,”
and
collectively with the Company Stock Options and Company Restricted Stock,
“Equity
Awards”)
outstanding as of the date of this Agreement: (i) the name and address of
the Equity Award Holder; (ii) the particular Company Option Plan, if any,
pursuant to which such Equity Award was granted; (iii) the number of shares
of Company Common Stock subject to such Equity Award; (iv) for each Equity
Award that is a Company Stock Option, the exercise price of each Company
Stock
Option; (v) the date on which such Equity Award was granted; (vi) the
date on which such Equity Award expires; and (vii) for each Equity Award
that is a Company Stock Option, whether such Company Stock Option is intended
to
qualify as an incentive stock option within the meaning of Section 422 of
the Code. All
Company Stock Options (including those that have been exercised, terminated,
expired, forfeited or otherwise cancelled) were issued at a strike price
at
least equal to fair market value such that the fair market value on the grant
date equaled or exceeded the fair market value on the financial measurement
date
for each such Company Stock Option or, with respect to Company Stock Options
that were not issued in such a manner, the Company recorded an appropriate
compensation charge in its financial statements relating to such grants in
the
appropriate period and reported such in its financial statements and Returns
during the required period. The
Company has made available to Parent accurate and complete copies of all
forms
of agreements pursuant to which outstanding Equity Awards have been issued.
All
shares of Company Common Stock subject to issuance upon exercise of or otherwise
issuable under such Equity Awards, when issued on the terms and conditions
specified in the instrument pursuant to which they are issuable, will be
duly
authorized, validly issued, fully paid and nonassessable. There are no
commitments or agreements of any character to which the Company is bound
obligating the Company to accelerate the vesting of any Equity Award as a
result
of the Transactions. All outstanding shares of Company Common Stock, all
outstanding Company Equity Awards and all outstanding shares of capital stock
of
each subsidiary of the Company have been issued and granted in material
compliance with (i) all applicable Legal Requirements, and (ii) all requirements
set forth in applicable Contracts. For the purposes of this Agreement,
“Legal
Requirements”
means
any federal, state, local, municipal, foreign or other law, statute,
legislation, constitution, principle of common law, resolution, ordinance,
code,
edict, order, judgment, decree, rule, regulation, ruling or requirement issues,
enacted, adopted, promulgated, implemented or otherwise put into effect by
or
under the authority of any Governmental Entity (as defined in Section
2.5(b)
hereof).
There are no declared or accrued but unpaid dividends with respect to any
shares
of Company Common Stock.
A-9
(b) The
Company owns free and clear of all liens, pledges, hypothecations, charges,
mortgages, security interests, encumbrances, claims, interferences, options,
rights of first refusals, preemptive rights, community property interests
or
restrictions of any nature (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset,
any
restriction on the possession, exercise or transfer of any other attribute
of
ownership of any asset) (“Liens”),
other
than restrictions on transfer imposed by federal and state securities laws,
directly or indirectly through one or more wholly owned subsidiaries, all
issued
and outstanding shares of capital stock, partnership interests or similar
ownership interests of any subsidiary of the Company, and all issued and
outstanding securities convertible into, or exercisable or exchangeable for,
such shares of capital stock, partnership interests or similar ownership
interests. Except as set forth in Section
2.3(a)
hereof,
there are no subscriptions, options, warrants, shares of capital stock,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which the
Company or any of its subsidiaries is a party or by which the Company or
any of
its subsidiaries is bound obligating the Company or any of its subsidiaries
to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of the Company or any of its subsidiaries or obligating the Company
or
any of its subsidiaries to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, call, right, commitment or
agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to the
Company
or any of its subsidiaries. There are no registration rights in respect of
any
shares of Company Common Stock, and except for the Company Voting Agreements,
there are no voting trusts, proxies, rights plans, antitakeover plans or
other
agreements or understandings to which the Company or any of its subsidiaries
is
a party or by which the Company or any of its subsidiaries is bound with
respect
to any class of capital stock of the Company or with respect to any class
of
capital stock, partnership interest or similar ownership interest of any
of its
subsidiaries.
2.4 Authority
Relative to this Agreement.
The
Company has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate, on
the
terms and subject to the conditions hereof (including, without limitation,
with
respect to the Merger, the approval of this Agreement by holders of a majority
of the outstanding Shares in accordance with Nevada Law), the Transactions.
The
execution and delivery of this Agreement by the Company and the consummation
by
the Company of the Transactions have been duly and validly authorized by
all
necessary corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Transactions (other than (x) with respect to the
Merger, the approval of this Agreement by holders of a majority of the
outstanding Shares in accordance with Nevada Law, and (y) the filing of the
Articles of Merger as required by Nevada Law). This Agreement has been duly
and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub, constitute
legal
and binding obligations of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization and similar laws affecting creditors’ rights
generally and to general equitable principles.
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2.5 No
Conflict; Required Filings and Consents.
(a) The
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Company Charter Documents or the equivalent organizational documents
of any of the Company’s subsidiaries, (ii) subject, (x) with respect
to the Merger, to the approval of this Agreement by holders of a majority
of the
outstanding Shares in accordance with Nevada Law and (y) to compliance with
the requirements set forth in Section
2.5(b)
hereof,
conflict with or violate in any material respect any Legal Requirements
applicable to the Company or any of its subsidiaries or by which its or any
of
their respective properties is bound or affected, or (iii) conflict with or
violate, or result in any breach of or constitute a default (or an event
that
with notice or lapse of time or both would become a default) under, or alter
the
rights or obligations of any third party under, or give to others any rights
of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company or any
of
its subsidiaries pursuant to, any Company Contract to which the Company or
any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or affected,
except to the extent such conflict, violation, breach, default, impairment
or
other effect would not in the case of clauses (ii) or (iii), individually
or in the aggregate, be reasonably likely to (A) be material to the Company
and its subsidiaries taken as a whole, or, following the Effective Time,
Parent
or the Surviving Corporation, or (B) have a material adverse effect on the
ability of the Company to perform its obligations under this Agreement or
consummate the Transactions without any material delay.
(b) The
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company shall not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any
federal, state or foreign court, administrative agency, commission, governmental
or regulatory authority of competent jurisdiction, or any non-governmental
self-regulatory agency, commission or authority having (through authority
granted by a governmental agency or commission) the force of law (each, a
“Governmental
Entity”),
except in each case (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”),
state
securities Legal Requirements (“Blue
Sky Laws”)
and
state takeover laws, applicable requirements, if any, of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the “HSR
Act”),
applicable pre-merger notification requirements of foreign Governmental
Entities, the rules and regulations of the Nasdaq Capital Market (the
“Nasdaq”),
and
the filing and recordation of the Articles of Merger as required by Nevada
Law,
and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not,
individually or in the aggregate, be reasonably likely to (A) be material
to the Company and its subsidiaries taken as a whole or, following the Effective
Time, Parent or the Surviving Corporation, or (B) have a material adverse
effect on the ability of the Company to perform its obligations under this
Agreement or consummate the Transactions without any material
delay.
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2.6 Compliance.
(a) Neither
the Company nor any of its subsidiaries is in conflict with, or in default
or
violation of, any Legal Requirements applicable to the Company or any of
its
subsidiaries or by which its or any of their respective properties is bound
or
affected, except for any conflicts, defaults or violations that would not,
individually or in the aggregate, be reasonably likely to be material to
the
Company and its subsidiaries taken as a whole.
(b) The
Company’s and its subsidiaries’ material Approvals are in full force and effect,
and the Company and its subsidiaries are in compliance in all material respects
with the terms of each of such material Company Approval.
(c) The
use
by any Person of any Company Product (as defined in Section 2.18(b)) as such
Company Product is intended by the Company to be used will not cause such
Person
to be in conflict with, or in default or violation of, any Legal Requirements,
PCI Standards (as defined in Section
2.29(a)),
CISP
Requirements (as defined in Section
2.29(a))
or
NACHA Rules (as defined in Section
2.29(a)).
2.7 SEC
Filings; Financial Statements;
Internal Controls.
(a) Each
report, schedule, form, registration statement, proxy statement and other
document filed or furnished by the Company with the Securities and Exchange
Commission (the “SEC”)
since
January 1, 2004 (together with all information incorporated by reference
therein, the “Company
SEC Reports”),
which
are all the reports, schedules, forms, statements and documents required
to be
filed or furnished by the Company with the SEC since January 1, 2004
(including any Company SEC Report filed after the date of this Agreement):
(i) was and will be prepared in all material respects in accordance with
the requirements of the Securities Act of 1933, as amended (the “Securities
Act”),
the
Exchange Act and the Sarbanes-Oxley Act of 2002, and the rules and regulations
promulgated thereunder (the “Sarbanes-Oxley
Act”),
in
each case, applicable to such Company SEC Report as of its respective date,
as
the case may be, and (ii) did not and will not at the time it was filed
(and if amended or superseded by a filing prior to the date of this Agreement
then on the date of such filing) contain any untrue statement of a material
fact
or omit to state a material fact required to be stated therein or necessary
in
order to make the statements therein (in light of the circumstances under
which
they were made, in the case of any such Company SEC Report filed under the
Exchange Act) not misleading. None of the Company’s subsidiaries is required to
file any reports or other documents with the SEC.
(b) Each
set
of consolidated financial statements (including, in each case, any related
notes
thereto) contained in the Company SEC Reports (including any Company SEC
Report
filed after the date of this Agreement): (i) complied and will comply as to
form in all material respects with the published rules and regulations of
the
SEC with respect thereto in effect at the time of such filing; (ii) was and
will be prepared in accordance with United States generally accepted accounting
principles (“GAAP”)
applied on a consistent basis throughout the periods involved (except as
may be
indicated in the notes thereto or, in the case of unaudited statements, may
not
contain footnotes as permitted by Form 10-Q of the Exchange Act) and each
presents fairly, in all material respects, the consolidated financial position
of the Company and its consolidated subsidiaries at the respective dates
thereof
and the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are
subject to normal year-end adjustments which were not or will not be material
in
amount or significance.
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(c) The
Company has previously furnished to Parent a complete and correct copy of
any
amendments or modifications, which have not yet been filed with the SEC but
which are required to be filed or furnished, to agreements, documents or
other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
(d) Except
as
set forth on the Company Schedule, the Company’s system of internal controls
over financial reporting are reasonably sufficient in all material respects
to
provide reasonable assurance (i) that transactions are recorded as
necessary to permit preparation of financial statements in conformity with
GAAP,
(ii) that receipts and expenditures are executed only in accordance with
the authorization of management, and (iii) regarding prevention or timely
detection of the unauthorized acquisition, use or disposition of the Company’s
assets that could materially affect the Company’s financial
statements.
(e) The
Company’s “disclosure controls and procedures” (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective to provide
reasonable assurance that (i) all information (both financial and
non-financial) required to be disclosed by the Company in the reports that
it
files or submits under the Exchange Act is recorded, processed, summarized
and
reported within the time periods specified in the rules, regulations and
forms
of the SEC, and (ii) all such information is accumulated and communicated
to the Company’s management as appropriate to allow timely decisions regarding
required disclosure and to make the certifications of the principal executive
officer and principal financial officer of the Company required under the
Exchange Act with respect to such reports.
(f) The
Company’s management has disclosed to the Company’s auditors and the audit
committee of the Board (i) any significant deficiencies in the design or
operation of its internal controls over financial reporting that are reasonably
likely to adversely affect the Company’s and its subsidiaries’ ability to
record, process, summarize and report financial information and has identified
for the Company’s auditors and audit committee of the Board any material
weaknesses in internal control over financial reporting and (ii) any fraud,
whether or not material, that involves management or other employees who
have a
significant role in the Company’s internal control over financial reporting. The
Company has made available to the Parent (i) a summary of any such
disclosure made by management to the Company’s auditors and audit committee, and
(ii) any material communication made by management or the Company’s
auditors to the audit committee required or contemplated by listing standards
of
Nasdaq, the audit committee’s charter or professional standards of the Public
Company Accounting Oversight Board. No material complaints from any source
regarding accounting, internal accounting controls or auditing matters, and
no
material concerns from Company or subsidiary of the Company employees regarding
questionable accounting or auditing matters, have been received by the Company.
The Company has made available to the Parent a summary of all such material
complaints or concerns relating to other matters through the Company’s
whistleblower hot-line or equivalent system for receipt of employee or other
person’s concerns regarding possible violations of Legal Requirements by the
Company or any of its subsidiaries or any of their respective employees.
No
attorney representing the Company or any of its subsidiaries, whether or
not
employed by the Company or any of its subsidiaries, has reported evidence
of a
violation of securities laws, breach of fiduciary duty or similar violation
by
the Company, any subsidiary of the Company or any of its officers, directors,
employees or agents to the Company’s chief legal officer, audit committee (or
other committee designated for the purpose) of the Board or the Board pursuant
to the rules adopted pursuant to Section 307 of the Sarbanes-Oxley Act or
any Company policy contemplating such reporting, including in instances not
required by those rules.
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(g) The
Company is in compliance in all material respects with the applicable provisions
of the Sarbanes-Oxley Act and with the applicable listing and other rules
and
regulations of the Nasdaq and has not received any notice from the Nasdaq
asserting any non-compliance with such rules and regulations. Each of the
principal executive officer of the Company and the principal financial officer
of the Company has made all certifications required by Rule 13a-14 or
15d-14 under the Exchange Act and Sections 302 and 906 of the
Sarbanes-Oxley Act with respect to the Company SEC Reports, and the statements
contained in such certifications are accurate in all material respects. For
purposes of this Agreement, “principal executive officer” and “principal
financial officer” shall have the meanings given to such terms in the
Sarbanes-Oxley Act. Neither the Company nor any of its subsidiaries has
outstanding, or has arranged any outstanding, “extensions of credit” to
directors or executive officers within the meaning of Section 402 of the
Sarbanes-Oxley Act.
2.8 No
Undisclosed Liabilities.
Neither
the Company nor any of its subsidiaries has any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type
(whether absolute, accrued, contingent or otherwise) (collectively,
“Liabilities”)
which
would be material to the business, results of operations or financial condition
of the Company and its subsidiaries, taken as a whole, except
(i) Liabilities reflected in the Company’s balance sheet as of
June 30, 2006 (including any related notes thereto) (the “Interim
Balance Sheet”),
(ii) Liabilities incurred since June 30, 2006 (the “Interim
Balance Sheet Date”)
and
prior to the date hereof in the ordinary course of business, none of which
individually (in the case of this clause (ii)) is material to the business,
results of operations or financial condition of the Company and its
subsidiaries, taken as a whole, or (iii) Liabilities incurred on or after
the date of this Agreement in compliance with Section
4.1
hereof.
A-14
2.9 Absence
of Certain Changes or Events.
Since
the Interim Balance Sheet Date (i) there has not been any Material Adverse
Effect on the Company, (ii) neither the Company nor any of its subsidiaries
has taken any of the actions set forth in Sections
4.1(a)
through
4.1(u),
and
(iii) there has not been any damage, destruction or other casualty loss
with respect to any tangible asset or tangible property owned, leased or
otherwise used by the Company or any of its subsidiaries having a value prior
to
such losses exceeding $100,000.
2.10 Absence
of Litigation.
There
are no material claims, actions, suits or proceedings pending or, to the
knowledge of the Company, threatened (each, an “Action”)
against the Company or any of its subsidiaries, or any of their respective
properties or assets or any of the executive officers or directors of the
Company or any of its subsidiaries, before any Governmental Entity or
arbitrator, nor is there any reasonable basis therefor. No investigation
or
review by any Governmental Entity is pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries, or any
of
their respective properties or assets or any of the executive officers or
directors of the Company or any of its subsidiaries, nor has any Governmental
Entity indicated to the Company an intention to conduct the same. To the
knowledge of the Company, since June 30, 2003, no Governmental Entity has
at any
time challenged in writing or questioned in writing the legal right of the
Company to conduct its operations as presently or previously conducted. The
Company has provided to Parent true, correct and complete copies of all
complaints, pleadings, motions and other filings and written correspondence
(including settlement communications) regarding any Actions, investigations
or
challenges referred to in Section 2.10
of the
Company Schedule.
2.11 Employee
Benefit Plans. Definitions.
With
the exception of the definition of “Affiliate”
set
forth in Section
2.11(a)(i)
below
(which definition shall apply only to this Section 2.11),
for
purposes of this Agreement, the following terms shall have the meanings set
forth below:
(i) “Affiliate”
shall
mean any other person or entity under common control with the Company within
the
meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations
issued thereunder;
(ii) “COBRA”
shall
mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended;
(iii) “Code”
shall
mean the Internal Revenue Code of 1986, as amended;
(iv) “Company
Employee Plan”
shall
mean any plan, program, policy, practice, contract, agreement or other
arrangement providing for employment, compensation, severance, termination
pay,
deferred compensation, bonus, performance awards, stock or stock-related
awards,
fringe benefits, disability benefits, supplemental employment benefits, vacation
benefits, retirement benefits, profit-sharing, post-retirement benefits,
or
other employee benefits or remuneration of any kind, whether written or
unwritten or otherwise, funded or unfunded, including without limitation,
each
“employee benefit plan,” within the meaning of Section 3(3) of ERISA which
is or has been maintained, contributed to, or required to be contributed
to, by
the Company or any Affiliate for the benefit of any Employee, or with respect
to
which the Company has or may have any liability or obligation;
A-15
(v) “DOL”
shall
mean the Department of Labor;
(vi) “Employee”
shall
mean any current or former or retired employee, consultant or director of
the
Company or any Affiliate;
(vii) “Employment
Agreement”
shall
mean each management, employment, severance, termination, consulting,
relocation, repatriation, expatriation, visas, work permit or other agreement,
contract or understanding between the Company or any Affiliate and any
Employee;
(viii) “ERISA”
shall
mean the Employee Retirement Income Security Act of 1974, as
amended;
(ix)
“FMLA”
shall
mean the Family Medical Leave Act of 1993, as amended;
(x)
“International
Employee Plan”
shall
mean each Company Employee Plan and each Employment Agreement that has been
adopted, maintained or entered into by the Company or any Affiliate, whether
informally or formally, or with respect to which the Company or any Affiliate
will or may have any liability,
outside
the jurisdiction of the United States or for the benefit of any Employee
or
Employees who perform services outside the United States;
(xi) “IRS”
shall
mean the Internal Revenue Service;
(xii) “Multiemployer
Plan”
shall
mean any employee benefit plan which is a “multiemployer plan,” as defined in
Section 3(37) of ERISA;
(xiii) “Pension
Plan”
shall
mean each employee benefit plan which is an “employee pension benefit plan,”
within the meaning of Section 3(2) of ERISA.
(b) Schedule.
Section
2.11(b)
of the
Company Schedule contains an accurate and complete list of each material
Company
Employee Plan and each Employment Agreement. The Company does not have any
plan
or commitment to establish any new Company Employee Plan or Employment
Agreement, to modify any Company Employee Plan or Employment Agreement (except
to the extent required by applicable Legal Requirements or to conform any
such
Company Employee Plan or Employment Agreement to the requirements of any
applicable Legal Requirements, in each case as previously disclosed to Parent
in
writing, or as required by this Agreement), or to adopt or enter into any
Company Employee Plan or Employment Agreement.
A-16
(c) Documents.
The
Company has provided to Parent correct and complete copies of: (i) all
documents embodying each Company Employee Plan and each Employment Agreement
including (without limitation) all amendments thereto and all related trust
documents, administrative service agreements, group annuity contracts, group
insurance contracts, and policies pertaining to fiduciary liability insurance
covering the fiduciaries for each Plan, a written description of each material
Company Employee Plan that is not set forth in a written document; (ii) the
three (3) most recent annual actuarial valuations, if any, prepared for each
Company Employee Plan; (iii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto, or
otherwise), if any, required under ERISA, the Code or other applicable Legal
Requirement in connection with each Company Employee Plan; (iv) the most
recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each
Company
Employee Plan; (v) all IRS determination, opinion, notification and
advisory letters, and all material applications and correspondence to or
from
the IRS or the DOL with respect to any such application or letter; (vi) all
material communications to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating
to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would reasonably be expected to result in any material liability to the Company;
(vii) all correspondence to or from any governmental agency relating to any
Company Employee Plan; (viii) all COBRA forms and related notices (or such
forms and notices as required under comparable Legal Requirements);
(ix) the three (3) most recent plan years discrimination tests for each
Company Employee Plan; and (x) all registration statements, annual reports
(Form 11-K and all attachments thereto) and prospectuses prepared in
connection with each Company Employee Plan.
(d) Employee
Plan Compliance.
Each
Company Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
Legal Requirements, including ERISA and the Code. Each Company Employee Plan
intended to qualify under Section 401(a) or Section 401(k) of the Code and
each trust intended to qualify under Section 501(a) of the Code has either
(i) received a favorable determination, opinion, notification or advisory
letter
from the IRS with respect to each such Company Employee Plan as to its qualified
status, and each such trust as to its exempt status, under the Code, including
all amendments to the Code effected by the Tax legislation commonly known
as
“GUST”, and, to the Company’s knowledge, no fact or event has occurred since the
date of such determination, opinion, notification or advisory letter to
adversely affect the qualified status of any such Company Employee Plan or
the
exempt status of each such trust, or (ii) has remaining a period of time
under
applicable Treasury regulations or IRS pronouncements in which to apply for
such
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified status of each such Company Employee Plan. No material
“prohibited transaction,” within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under
Section 4975 of the Code or Section 408 of ERISA (or any
administrative class exemption issued thereunder), has occurred with respect
to
any Company Employee Plan. There are no actions, suits or claims pending,
or, to
the knowledge of the Company, threatened or reasonably anticipated (other
than
routine claims for benefits) against or with respect to any Company Employee
Plan or any Employment Agreement or against the assets of any Company Employee
Plan. Each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time, without material liability to Parent,
Company or any of its Affiliates (other than ordinary administration expenses).
There are no audits, inquiries or proceedings pending or, to the knowledge
of
the Company or any Affiliates, threatened by the IRS or DOL with respect
to any
Company Employee Plan. The Company is not subject to any material penalty
or tax
with respect to any Company Employee Plan under Title I of ERISA or
Sections 4975 through 4980 of the Code. All contributions, reserves or
premium payments required to be made or accrued as of the date hereof to
the
Company Employee Plans have been timely made or accrued. Each “nonqualified
deferred compensation plan” (as defined in Section 409A(d)(1) of the Code) has
been operated since January 1, 2005 in good faith compliance with Section
409A of the Code and IRS Notice 2005-1 and the Internal Revenue Service’s
proposed regulations under Section 409A of the Code and no such plan has
been
materially modified since October 3, 2004. No nonqualified deferred compensation
plan has been “materially modified” (within the meaning of IRS Notice 2005-1) at
any time after October 3, 2004.
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(e) Pension
Plan.
Neither
the Company nor any Affiliate has ever maintained, established, sponsored,
participated in, or contributed to, any Pension Plan which is subject to
Title IV of ERISA or Section 412 of the Code.
(f) Collectively
Bargained, Multiemployer and Multiple Employer Plans.
At no
time has the Company or any Affiliate contributed to, participated in, or
been
obligated to contribute to any Multiemployer Plan. Neither the Company, nor
any
Affiliate has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan described in Section 413 of the Code or to
any plan that was also at that time sponsored, participated in, or contributed
to by any employer other than the Company or an Affiliate.
(g) No
Severance or Post-Employment Obligations.
Except
as
set forth on Section
2.11(g)
of the
Company Schedule, no Company Employee Plan provides for the payment of severance
or other benefits upon termination of employment. No Company Employee Plan
provides, or reflects or represents any liability to provide retiree health
or
other welfare benefits to any person for any reason, except as may be required
by COBRA or other applicable statute, and the Company has no expected liability
or obligation as a result of representations, promises or contracts (whether
in
oral or written form) to or with any Employee (either individually or to
Employees as a group) or any other person that such Employee(s) or other
person
would be provided with retiree health or other welfare benefits, except to
the
extent required by statute.
(h) Health
Care Compliance.
Neither
the Company nor any Affiliate has, prior to the Effective Time and in any
material respect, violated any of the health care continuation requirements
of
COBRA, the requirements of FMLA, the requirements of the Health Insurance
Portability and Accountability Act of 1996, the requirements of the Women’s
Health and Cancer Rights Act of 1998, the requirements of the Newborns’ and
Mothers’ Health Protection Act of 1996, or any amendment to each such act, or
any similar provisions of state law applicable to its Employees.
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(i) Effect
of Transaction.
(i) The
execution of this Agreement and the consummation of the Transactions will
not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employment Agreement,
trust
or loan that will or may result in any payment (whether of severance pay
or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(ii) No
payment or benefit which will or may be made by the Company or its Affiliates
with respect to any Employee or any other “disqualified individual” (as defined
in Code Section 280G and the regulations thereunder) will, individually or
in combination with any other such payment, be characterized as a “parachute
payment,” within the meaning of Section 280G(b)(2) of the Code.
(j) Employment
Matters.
The
Company: (i) is in compliance in all material respects with all applicable
foreign, federal, state and local Legal Requirements respecting employment,
employment practices, terms and conditions of employment and wages and hours,
in
each case, with respect to Employees; (ii) has withheld and reported all
amounts required by Legal Requirements or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees;
(iii) is not liable for any arrears of wages or any taxes or any penalty
for failure to comply with any of the foregoing; and (iv) is not liable for
any payment to any trust or other fund governed by or maintained by or on
behalf
of any governmental authority, with respect to unemployment compensation
benefits, social security or other benefits or obligations for Employees
(other
than routine payments to be made in the normal course of business and consistent
with past practice). Except as set forth on Section
2.11(j)
of the
Company Schedule, there are no pending, threatened or reasonably anticipated
claims or actions against the Company under any worker’s compensation policy or
long-term disability policy.
(k) Employee
Information.
The
Company has made available to Parent a true, correct and complete list setting
forth the names, positions and rates of compensation of all current
officers, directors, employees and consultants of the Company, as of the
date
hereof, showing each such person’s name, positions, and annual remuneration,
bonuses and fringe benefits for the current fiscal year and the most recently
completed fiscal year. To the knowledge of the Company, no executive or key
employee of the Company has any plans to terminate his or her employment
with
the Company. All
independent contractors have been properly classified as independent contractors
for the purposes of federal and applicable state tax laws, laws applicable
to
employee benefits and other applicable law except to the extent such failure
could not reasonably be expected to result in a Material Adverse Effect.
Section
2.11(k)
of the
Company Schedule sets forth a list of all former consultants of the
Company.
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(l) Labor.
No work
stoppage, labor strike or slowdown against the Company is pending, threatened
or
reasonably anticipated. The Company does not know of any activities or
proceedings of any labor union to organize any Employees. There are no actions,
suits, claims, labor disputes or grievances pending, or, to the knowledge
of the
Company, threatened or reasonably anticipated relating to any labor, safety
or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
any
material liability to the Company. Neither the Company nor any of its
subsidiaries has engaged in any unfair labor practices within the meaning
of the
National Labor Relations Act. The Company is not presently, nor has it been
in
the past, a party to, or bound by, any collective bargaining agreement or
union
contract with respect to Employees and no collective bargaining agreement
is
being negotiated by the Company.
(m) International
Employee Plan.
Neither
the Company nor any of its Affiliates has ever established, maintained or
administered an International Employee Plan.
(n) WARN
Act.
The
Company has complied with the Workers Adjustment and Retraining Notification
Act
of 1988, as amended (“WARN
Act”)
and
all similar state Legal Requirements including applicable provisions of the
California Labor Code. All Liabilities relating to the employment, termination
or employee benefits of any former Employees previously terminated by the
Company or an Affiliate including, without limitation, all termination pay,
severance pay or other amounts in connection with the WARN Act and all similar
state Legal Requirements including applicable provisions of the California
Labor
Code, shall be the responsibility of the Company.
(o) Section
409A.
Each
Company Employee Plan that is a deferred compensation arrangement has been
identified as either being exempt from Section 409A of the Code or as subject
to
Section 409A of the Code (and identified as either an account balance plan
or a
non-account balance plan, and equity plan or a severance plan). Any Equity
Award
grants by the Company to its employees, directors and other service providers
were made over Company Common Stock, have an exercise price that is at least
equal to the fair market value of the Company Common Stock on the date that
Equity Awards were granted, and the determination of the fair market value
of
such Equity Awards satisfied the valuation requirements of Section 409A of
the
Code.
2.12 Proxy
Statement.
Subject
to the limitation set forth in the last sentence of this Section
2.12,
(a)
neither the proxy statement to be sent to the stockholders of the Company
in
connection with the Stockholders’ Meeting (as hereinafter defined), nor any
amendment or supplement thereto (such proxy statement, as amended or
supplemented, being referred to herein as the “Proxy
Statement”),
shall, at the date the Proxy Statement (or any amendment or supplement thereto)
is first mailed to stockholders of the Company or at the time of the
Stockholders’ Meeting (as defined in Section
5.2
hereof),
and (b) no other documents that may be filed with the SEC in connection with
the
transactions contemplated by this Agreement shall, at the respective times
filed
with the SEC, in each case contain any untrue statement of material fact,
or
omit to state any material fact required to be stated therein or necessary
in
order to make the statement therein, in light of the circumstances under
which
it was made, not false or misleading. The Proxy Statement shall comply in
all
material respects as to form with the requirements of the Exchange Act and
the
rules and regulations thereunder. Notwithstanding the foregoing, no
representation is made by the Company in this Section
2.12
with
respect to statements made based on information supplied by Parent or Merger
Sub
in writing specifically for inclusion in the Proxy Statement.
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2.13 Restrictions
on Business Activities.
There
is no Contract (noncompete or otherwise), or to the Company’s knowledge,
judgment, injunction, order or decree, binding upon the Company or its
subsidiaries or to which the Company or any of its subsidiaries is a party
which
has the effect of prohibiting or limiting any business practice of the Company
or any of its subsidiaries, any acquisition of property by the Company or
any of
its subsidiaries, the solicitation or hiring of any person or the conduct
of
business by the Company or any of its subsidiaries as currently conducted.
Without limiting the foregoing, neither the Company nor any of its subsidiaries
has entered into any Contract under which it is restricted from selling,
licensing or otherwise distributing any of its technology or products to
or
providing or seeking to provide services to, customers or potential customers
or
any class of customers, in any geographic area, during any period of time
or in
any segment of the market.
2.14 Title
to Property.
(a) Neither
the Company nor any of its subsidiaries owns any real property. Section
2.14(a)(i)
of the
Company Schedule sets forth a list of all real property currently leased
by the
Company or any of its subsidiaries. Section
2.14(a)(ii)
of the
Company Schedule sets forth a list of all real property previously owned
by the
Company or any of its subsidiaries. All such current leases are in full force
and effect, are valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any existing default or event
of
default (or event which with notice or lapse of time, or both, would constitute
a default) of the Company or any of its subsidiaries, or to the knowledge
of the
Company, any other party thereto.
The
Company has made available to Parent true, complete and correct copies of
each
lease set forth on Section
2.14(a)(i)
of the
Company Schedule, and all amendments and modifications thereto. Each of the
properties listed on Section
2.14(a)(ii)
of the
Company Schedule were property transferred to third parties, are no longer
owned
by the Company and there are no outstanding, ongoing or residual obligations
by
the Company with respect to such properties.
(b) The
Company and each of its subsidiaries has good and valid title to, or, in
the
case of leased properties and assets, valid leasehold interests in, all of
its
properties and assets, real, personal and mixed, used or held for use in
its
business, free and clear of all Liens, except for Permitted Liens (as defined
below).
As used
in this Agreement, “Permitted
Liens”
means:
(i) Liens for Taxes (as herein defined) not yet due and payable or which
are
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established; (ii) Liens securing indebtedness or other
liabilities reflected in the Interim Balance Sheet; (iii) such non-monetary
Liens or other imperfections of title, if any, that, individually or in the
aggregate, would not be reasonably likely to (A) materially interfere with
the
present use or operation of any material property or asset of the Company
or any
of its subsidiaries or (B) materially detract from the value of such material
property or asset; (iv) Liens imposed or promulgated by Laws with respect
to
real property and improvements, including zoning regulations; (v) Liens
disclosed on existing title reports or existing surveys (in either case copies
of which title reports and surveys have been delivered or made available
to
Parent); and (vi) mechanics’, carriers’, workmen’s , repairmen’s and similar
Liens incurred in the ordinary course of business.
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(c) All
the
plants, structures and equipment of the Company and its subsidiaries, are
in
satisfactory condition and repair for their current and intended use by the
Company, reasonable wear and tear excepted, except where the failure to be
in
satisfactory condition and repair would not reasonably be likely to have
a
Material Adverse Effect.
2.15 Taxes.
(a) Definition
of Taxes.
For the
purposes of this Agreement, “Tax”
or
“Taxes”
means
(i) any and all federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, including
taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with
all
interest, penalties and additions imposed with respect to such amounts;
(ii) any liability for the payment of any amounts of the type described in
clause (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period; and (iii) any liability for the
payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person
or as
a result of any obligations under any agreements or arrangements with any
other
person with respect to such amounts and including any liability for taxes
of a
predecessor entity.
(b) Tax
Returns and Audits.
(i) The
Company and each of its subsidiaries have timely filed all Returns (defined
below). Such Returns are true, correct and complete in all material respects.
The Company and each of its subsidiaries have paid or withheld and paid to
the
appropriate Tax authority all material amounts of Taxes due, whether or not
shown to be due on such Returns. As used in this Agreement, “Returns”
means
federal, state, local and foreign returns, forms, estimates, information
statements and reports relating to Taxes required to be filed by the Company
and
each of its subsidiaries with any Tax authority.
(ii) The
Company and each of its subsidiaries have withheld and
paid
to the appropriate Tax authority all Taxes required to be withheld and paid
in
connection with amounts paid and owing to any employee, independent contractor,
creditor, stockholder or other third party (whether domestic or
foreign).
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(iii) Neither
the Company nor any of its subsidiaries has been delinquent in the payment
of
any material Tax nor is there any material Tax deficiency outstanding, proposed
or assessed against the Company or any of its subsidiaries, nor has the Company
or any of its subsidiaries executed any unexpired waiver of any statute of
limitations on or extension of any the period for the assessment or collection
of any Tax.
(iv) No
audit
or other examination of any Return of the Company or any of its subsidiaries
by
any Tax authority is presently in progress, nor has the Company or any of
its
subsidiaries been notified of any request for such an audit or other
examination. The
Company has delivered or made available to Parent true and complete copies
of
income
tax
Returns of the Company and its subsidiaries for the years ended September
30,
2001, 2002, 2003, 2004
and
2005,
and
true and complete copies of all examination reports and statements of
deficiencies assessed against or agreed to by any of the Company and its
subsidiaries or any predecessor, with respect to income
Taxes.
No
material claim in writing has ever been made by a Tax authority in a
jurisdiction where the Company or any of its subsidiaries do not file Returns
that any of the Company or its subsidiaries is or may be subject to a
Tax
liability in that jurisdiction.
(v) No
adjustment relating to any Returns filed or required to be filed by the Company
or any of its subsidiaries has been proposed in writing, formally or informally,
by any Tax authority to the Company or any of its subsidiaries or any
representative thereof.
(vi) Neither
the Company nor any of its subsidiaries has any liability for any unpaid
material Taxes (whether or not shown to be due on any Return) which has not
been
accrued for or reserved on the Company’s Interim Balance Sheet in accordance
with GAAP, whether asserted or unasserted, contingent or otherwise, other
than
any liability for unpaid Taxes that may have accrued since the Interim Balance
Sheet Date in connection with the operation of the business of the Company
and
its subsidiaries in the ordinary course. There are no Liens with respect
to
material Taxes on any of the assets of the Company or any of its subsidiaries,
other than customary Liens for Taxes not yet due and payable.
(vii) Except
as
set forth on Section
2.15(b)(vii)
of the
Company Schedule, there is no Contract, plan or arrangement to which the
Company
or any of its subsidiaries is a party as of the date of this Agreement,
including the provisions of this Agreement, covering any employee or former
employee of the Company or any of its subsidiaries that, individually or
collectively, would reasonably be expected to give rise to the payment of
any
amount that would not be deductible pursuant to Sections 280G or 162(m) of
the Code. There is no Contract, plan or arrangement to which the Company
or any
of its subsidiaries is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the
Code.
A-23
(viii) Neither
the Company nor any of its subsidiaries is party to or has any obligation
under
any tax-sharing, tax indemnity or tax allocation agreement or arrangement.
Neither the Company nor any of its subsidiaries has ever been a member of
a
group filing a consolidated, unitary, combined or similar Return (other than
Returns which include only the Company and any of its subsidiaries) under
any
federal, state, local or foreign Legal Requirements. Neither
the Company nor any of its subsidiaries has any
liability
for
Taxes of any person other than the Company and its subsidiaries (i) under
Treasury Regulations Section 1.1502-6 (or any similar provision of state,
local
or foreign Legal Requirements), (ii) as a transferee or successor,
(iii) by contract, or (iv) otherwise. Neither
the Company nor any of its subsidiaries is party to any joint venture,
partnership or other arrangement that could be treated as a partnership for
federal and applicable state, local or foreign Tax purposes.
(ix) None
of
the Company’s or its subsidiaries’ assets are tax exempt use property within the
meaning of Section 168(h) of the Code. Neither
the Company nor any of its subsidiaries has agreed, or is or was required,
to
make any adjustment under Section 481(a) of the Code by reason of a change
in
accounting method or otherwise (or by reason of any similar provision of
state,
local or foreign Legal Requirements).
(x) Neither
the Company nor any of its subsidiaries has constituted either a “distributing
corporation” or a “controlled corporation” in a distribution of stock intended
to qualify for tax-free treatment under Section 355 of the Code (x) in
the two years prior to the date of this Agreement or (y) in a distribution
which could otherwise constitute part of a “plan” or “series of related
transactions” (within the meaning of Section 355(e) of the Code) in
conjunction with the Transactions.
(xi) Neither
the Company nor any of its subsidiaries has been a party to a “reportable
transaction,” as such term is defined in Treasury Regulations Section
1.6011-4(b)(1) or to a transaction that is or is substantially similar to
a
“listed transaction,” as such term is defined in Treasury Regulations Section
1.6011-4(b)(2), or any other transaction requiring disclosure under analogous
provisions of state, local or foreign Tax Legal Requirement.
(xii) Neither
the Company nor any of its subsidiaries has, or has had, any permanent
establishment in any foreign country, as defined in any applicable Tax
convention.
A-24
2.16 Environmental
Matters.
(a) For
purposes of this Agreement, the following terms shall have the meanings set
forth below:
(i) “Environmental
Law”
shall
mean any applicable federal, state, local and foreign laws, regulations,
ordinances, and common law relating to pollution or protection of human health
(to the extent relating to exposure to Materials of Environmental Concern)
or
protection of the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata, and natural
resources), including, without limitation, laws and regulations relating
to
emissions, discharges, releases or threatened releases of, or exposure to,
Materials of Environmental Concern.
(ii) “Materials
of Environmental Concern”
shall
mean hazardous chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products, asbestos or
asbestos-containing materials or products, polychlorinated biphenyls, lead
or
lead-based paints or materials, radon, toxic fungus, toxic mold, mycotoxins
or
other hazardous substances that would reasonably be expected to have an adverse
effect on human health or the environment.
(b) Except
as
would not, individually or in the aggregate, reasonably be expected to have
a
Material Adverse Effect, (i) the Company and its subsidiaries are in compliance
with all applicable Environmental Laws, (ii) neither the Company nor any
of its
subsidiaries has any liabilities or obligations arising from the release
of any
Materials of Environmental Concern by the Company or any of its subsidiaries
into the environment, (iii) the Company and its subsidiaries currently hold
all
material environmental Approvals (the “Company
Environmental Permits”)
necessary for the conduct of the Company’s and its subsidiaries’ activities and
businesses as such activities and businesses are currently being conducted,
(iv)
all such Company Environmental Permits are valid and in full force and effect,
and (v) the Company and its subsidiaries have complied in all material respects
with all covenants and conditions of any such Company Environmental
Permit.
(c) Neither
the Company nor any of its subsidiaries has received written notice of violation
of any Environmental Law or any formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity
that is
pending or threatened.
(d) Neither
the Company nor any of its subsidiaries is a party to or bound by any court
order, administrative order, consent order or other Contract between the
Company
or any of its subsidiaries on the one hand, and any Governmental Entity or
other
third party on the other hand, entered into in connection with any legal
obligation, remediation or liability arising under or with respect to any
Environmental Law.
A-25
(e) A
true,
complete and correct copy of all environmental reports, investigations and
audits relating to premises currently or previously owned or operated by
the
Company or any of its subsidiaries which the Company has possession of or
access
to have been made available to Parent.
(f) The
Company has no knowledge of any material environmental liability of any solid
or
hazardous waste transporter or treatment, storage or disposal facility that
has
been used by the Company or any of its subsidiaries.
2.17 Third
Party Expenses.
Except
pursuant to the engagement letter with Wedbush Morgan Securities dated June
30,
2006, a copy of which has been furnished to Parent, neither the Company nor
any
of its subsidiaries has incurred, nor will it incur, directly or indirectly,
any
liability for brokerage, finders or financial advisory fees or agent’s
commissions or any similar charges in connection with this Agreement or the
Transactions contemplated hereby.
2.18 Intellectual
Property.
(a) For
purposes of this Agreement, “Intellectual
Property”
shall
mean collectively all of the following types of intangible assets: (i) all
inventions (whether patentable or unpatentable and whether or not reduced
to
practice), all improvements thereto, and all Patents and patent disclosures;
(ii) all trademarks, service marks, trade dress, logos, domain names, URLs,
trade names and other source indicators, including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (iii) all works of authorship, including all copyrights therein
(whether registered or unregistered), and all applications, registrations
and
renewals in connection therewith; (iv) all trade secrets and confidential
information (including documented research and development, documented know-how,
processes, data, designs, specifications, customer lists, sales prospect
lists,
distributor lists, supplier lists, pricing and cost information, and marketing
plans and proposals); (v) all software, including all source code, object
code,
firmware, related documentation, files, data, and all media on which any
of the
foregoing is recorded; and (vi) any similar, corresponding or equivalent
rights
to any of the foregoing anywhere in the world. For purposes of this Agreement,
“Patents”
means
all United States and foreign patents and applications therefore and all
reissues, divisions, renewals, reexaminations, extensions, provisionals,
continuations, continuing prosecution applications and continuations-in-part
thereof.
(b) Section 2.18(b)
of the
Company Schedule contains a complete and accurate list (by name and version
number, as appropriate) of all products, software or service offerings of
the
Company and its subsidiaries (collectively, “Company
Products”)
(i) that have been operated, sold, licensed, distributed or otherwise
provided in the three (3) year period preceding the date hereof,
(ii) that the Company or any of its subsidiaries intends to operate, sell,
license, distribute or otherwise provide in the future, for which development
is
materially underway and (iii) for which the Company or any of its subsidiaries
has any liability related thereto.
A-26
(c) The
Company or one of its subsidiaries exclusively owns or possesses sufficient
legal rights to use all Intellectual Property used to conduct the business
of
the Company as it is currently conducted. The Company or one of its subsidiaries
is the exclusive owner of all right, title and interest in and to the Company
Intellectual Property and has the rights to make, use, sell, export, import,
license, assign, transfer or otherwise commercially exploit the Company
Intellectual Property without payment or other obligations to third parties.
Each item of Company Intellectual Property is free and clear of any liens
or
encumbrances, except for non-exclusive licenses granted to end-user customers
or
other third parties in the ordinary course of business consistent with past
practices, the forms of which have been provided to Parent. For purposes
of this
Agreement, “Company
Intellectual Property”
means
all Intellectual Property owned by or purported to be owned by the Company,
or
any of its subsidiaries including without limitation as incorporated in or
otherwise used in connection with Company Products.
(d) Neither
the Company nor any of its subsidiaries has (A) granted or agreed to grant
any
exclusive license of or right to use, or authorized the retention of any
rights
to use or joint ownership of, any Company Intellectual Property, to any person,
(B) permitted any person to modify, improve or create derivative works of
Company Intellectual Property or own any Intellectual Property rights therein,
(C) disclosed any source code that is Company Intellectual Property to any
person, or (D) granted “most favored customer” status to any person or subjected
itself to a non-compete agreement of any kind in any jurisdiction or other
restriction in its business.
(e) To
the
Company’s knowledge, all Company Intellectual Property was written and/or
created solely by either (i) employees of the Company or one of its
subsidiaries acting within the scope of their employment, (ii) third
parties, all of whom have validly and irrevocably assigned all of their rights,
including Intellectual Property rights therein, to the Company or one of
its
subsidiaries, or (iii) third parties who have entered into an agreement
with the Company or one of its subsidiaries pursuant to which any Intellectual
Property authored or created by such third party would be considered a “work
made for hire” pursuant to 17 U.S.C. § 101 et seq., and no such third party owns
or has any rights to any such Intellectual Property.
(f) Section
2.18(f)
of the
Company Schedule sets forth a true and complete list of all Company Registered
IP and the jurisdiction(s) in which each item of Company Registered IP was
or is
filed or registered, whether pending or abandoned, including the respective
application or registration numbers and dates. Each item of Company Registered
IP is currently in compliance with all formal legal requirements (including
payment of filing, examination and maintenance fees and proofs of use), except
to the extent any failure would not be reasonably likely to have a Material
Adverse Effect, and is valid and subsisting. All necessary documents and
certificates in connection with such Company Registered IP have been filed
with
the relevant authorities in the United States or foreign jurisdictions, as
the
case may be, for the purposes of applying for, perfecting, prosecuting and
maintaining such Company Registered IP. There are no actions that must be
taken
by the Company or any of its subsidiaries within one hundred twenty (120)
days
of the date hereof, including the payment of any registration, maintenance
or
renewal fees or the filing of any responses to PTO office actions, documents,
applications or certificates, for the purposes of obtaining, maintaining,
perfecting or preserving or renewing any Company Registered IP. “Company
Registered IP”
means
any Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded
by,
any Governmental Authority at any time that is owned by, filed in the name
of,
or applied for by, the Company or any of its subsidiaries.
A-27
(g) Section
2.18(g)
of the
Company Schedule sets forth a true and complete list of all Public Software
currently used in the operation of the business of the Company or any of
its
subsidiaries, used or incorporated with Company Products or distributed at
any
time, in whole or in part, by the Company in connection with the business
of the
Company or any Company Products. No software covered by or embodying any
Company
Intellectual Property or Company Product, or used in the operation of the
business of the Company, has been or is being distributed, in whole or in
part,
or is being used in conjunction with any Public Software in a manner which
would
require that such software or Company Product be disclosed or distributed
in
source code form or made available in any form at no charge. For purposes
of
this Agreement, “Public
Software”
means
any software that contains, or is derived in any manner (in whole or in part)
from, any software that is distributed as free software, “shareware”, open
source software or similar licensing or distribution models, including without
limitation software licensed under the following licenses or distribution
models: the GNU General Public License (GPL), GNU Lesser General Public License
or GNU Library General Public License (LGPL), Mozilla Public License (MPL),
BSD
licenses, the Artistic License, the Netscape Public License, the Sun Community
Source License (SCSL) the Sun Industry Standards License (SISL) and the Apache
License.
(h) Section 2.18(h)(i)
of the
Company Schedule lists all IP Licenses pursuant to which the Company or any
of
its subsidiaries is granted rights to any Intellectual Property of a third
party
used in or in connection with the business of the Company or its subsidiaries
within the past three (3) years, except for non-negotiated licenses of generally
commercially available software that have been licensed by the Company on
standard terms and Public Software licenses set forth on Section
2.18(g)
of the
Company Schedule; Section 2.18(h)(ii)
of the
Company Schedule lists all IP Licenses pursuant to which a third party is
granted rights to any material Company Intellectual Property, except for
agreements with Company’s or its subsidiaries’ customers entered into in the
ordinary course of business consistent with past practices in the form made
available to Parent; and Section 2.18(h)(iii)
of the
Company Schedule lists, for each Company Product, all Intellectual Property
incorporated in or used in connection with such Company Product that is not
Company Intellectual Property and the IP License pursuant to which Company
or
any of its subsidiaries acquired the right to use such Intellectual
Property,
other
than either of the following so long as they are not distributed for use
with,
or incorporated in, a Company Product constituting software that is distributed,
directly or indirectly, to end users: (A) non-negotiated licenses of generally
commercially available software that have been licensed by the Company on
standard terms; and (B) Public Software licenses set forth on Section 2.18(g)
of
the Company Schedule. For
the
purposes of this Agreement, “IP
Licenses”
means
all the contracts, licenses and agreements to which the Company or any of
its
subsidiaries is a party with respect to any Intellectual Property licensed
to or
by, or created for or by, the Company or any of its subsidiaries.
A-28
(i) All
material IP Licenses are in full force and effect. Neither the Company nor
any
of its subsidiaries is in breach of nor has the Company or any of its
subsidiaries failed to perform under, and neither the Company nor any of
its
subsidiaries has received any notice of any breach or failure to perform
under,
any IP License and, to the knowledge of the Company, no other party to any
such
IP License is in breach thereof or has failed to perform thereunder. Neither
the
Company nor any of its subsidiaries is currently in dispute with another
party
regarding the scope of any IP License, or regarding performance by any party
under any IP License, including any payments to be made or received by the
Company or any of its subsidiaries thereunder. The consummation of the
transactions contemplated by this Agreement (including any subsequent merger
of
the Surviving Corporation into the Parent) will neither violate nor result
in
the breach, modification, cancellation, termination or suspension of any
IP
Licenses or entitle the other party or parties to such IP Licenses to terminate
such IP Licenses. Following the Closing Date (and any merger of the Surviving
Corporation into the Parent), both the Parent and the Surviving Corporation
will
be permitted to exercise all of Company’s or its subsidiaries’ rights under the
IP Licenses to the same extent Company or the relevant subsidiary would have
been able to had the transactions contemplated by this Agreement not occurred
and without the payment of any additional amounts or consideration other
than
ongoing fees, royalties or payments which Company or such subsidiary would
otherwise be required to pay. Neither the transactions nor any merger of
the
Surviving Company with the Parent, will result in any third party being granted
any rights to any Company Intellectual Property that are in addition to,
or
greater than, such third party currently has under such IP Licenses, including
any access to or release of any source or object code owned by or licensed
to
the Company or any of its subsidiaries.
(j) The
Company’s and its subsidiaries’ conduct of their business as currently conducted
does not infringe, misappropriate or otherwise violate any Intellectual Property
owned or claimed by another person, violate any other intellectual property
right of another person (including any right to privacy or publicity), or
constitute unfair competition or trade practices under or, to the knowledge
of
Company, otherwise violate the Legal Requirements of, any jurisdiction, and
neither the Company nor any of its subsidiaries has received any notice
thereof.
(k) No
person
has asserted or, to the knowledge of the Company, threatened to assert, any
claims challenging the use, ownership, validity or enforceability of any
Company
Intellectual Property or Company Product. No material Company Intellectual
Property is subject to any outstanding order, judgment, decree, stipulation
or
agreement related to or restricting in any manner the licensing, assignment,
transfer, use or conveyance thereof by the Company or any of its
subsidiaries.
(l) Neither
the Company nor any of its subsidiaries has brought any actions or lawsuits
alleging (A) infringement or misappropriation of any of the Company Intellectual
Property or (B) breach of any license, sublicense or other agreement authorizing
another party to use any Company Intellectual Property, and, to the knowledge
of
the Company, there does not exist any facts which could form the basis of
any
such action or lawsuit. Neither the Company nor any of its subsidiaries has
entered into any agreement granting any person
the right to bring infringement or misappropriation actions with respect
to, or
otherwise to enforce rights with respect to, any of the Company Intellectual
Property.
A-29
(m) The
Company and its subsidiaries have taken all reasonable steps to protect the
confidential information and trade secrets (as defined by each applicable
jurisdiction) used in or necessary for the conduct of the business of the
Company as currently conducted and as currently contemplated or provided
by any
other person to the Company or any of its subsidiaries pursuant to a written
non-disclosure agreement and/or marked as “proprietary” or “confidential.”
Without limiting the foregoing, (i) the Company has, and enforces, a policy
requiring each current and former employee of the Company and its subsidiaries
to execute proprietary information, confidentiality and assignment agreements
substantially in the form(s) attached to Schedule
2.18(m)(i)
(the
“Employee
Proprietary Information Agreement”),
(ii)
the Company has, and enforces, a policy requiring each current and former
consultant or independent contractor of the Company and its subsidiaries
to
execute a consulting agreement containing proprietary information,
confidentiality and assignment provisions substantially in the form attached
to
Schedule
2.18(m)(ii)
(the
“Consultant
Proprietary Information Agreement”)
and
(iii) except as provided in Schedule
2.18(m)(iii),
all
current and former employees, consultants and independent contractors of
the
Company and its subsidiaries have executed an Employee Proprietary Information
Agreement or a Consultant Proprietary Information Agreement, as appropriate.
None of the current and former employees, consultants and independent
contractors identified on Schedule 2.18(m)(iii)
has at
any time contributed to the creation or development of material Company
Intellectual Property.
(n) No
government funding, facilities of a university, college, other educational
institution or research center or funding from third parties was used in
the
development of any material Company Intellectual Property. To the Company’s
knowledge, no current or former employee, consultant or independent contractor
of the Company or any of its subsidiaries who was involved in, or who
contributed to, the creation or development of any material Company Intellectual
Property, has performed services for the government, university, college,
or
other educational institution or research center during a period of time
during
which such employee, consultant or independent contractor was also performing
services for the Company or any of its subsidiaries.
(o) Neither
this Agreement nor the transactions contemplated by this Agreement, including
the assignment to Parent or Surviving Corporation, by operation of law or
otherwise, of any IP Licenses, contracts or agreements to which the Company
or
any of its subsidiaries is a party, will result in (i) either Parent’s or
the Surviving Corporation’s granting to any third party any right to or with
respect to any Intellectual Property owned by, or licensed to, either of
them,
(ii) either the Parent’s or the Surviving Corporation’s being bound by, or
subject to, any non-compete or other restriction on the operation or scope
of
their respective businesses, or (iii) either the Parent’s or the Surviving
Corporation’s being obligated to pay any royalties or other amounts to any third
party in excess of those payable by to Company or any of its subsidiaries,
respectively, prior to the Closing. The Company and its subsidiaries can
validly
transfer all Company Intellectual Property to Parent or one of its subsidiaries
without restriction or penalty.
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2.19 Contracts.
(a) Neither
the Company nor any of its subsidiaries is a party to or is bound
by:
(i) any
Contract with (A) a payment processor or settlement bank, and (B) a Member
Bank;
(ii) any
Contract with any reseller or any Contract with any independent service or
sales
organization, agent, agent bank or any other non-employee/independent person
that solicit Merchants (as defined in Section
2.29
hereof)
for or on behalf of the Company or any of its subsidiaries;
(iii) any
Contract with any Significant Supplier (as defined in Section
2.20(b)
hereof);
(iv) any
Contract with any Significant Customer (as defined in Section
2.20(a)
hereof);
(v) any
joint
venture, partnership or other similar agreement involving co-investment with
a
third party;
(vi) any
(A) note, indenture, loan agreement, credit agreement, financing agreement,
or other evidence of indebtedness relating to the borrowing of money,
(B) guaranty made by the Company or any subsidiary in favor of any person,
or (C) letter of credit issued for the account of the Company or any
subsidiary under which the Company or any of its subsidiaries has obligations
of
at least $250,000;
(vii) any
lease
of real property having a value in excess of $250,000 or of personal property
having a value in excess of $100,000;
(viii) any
agreement of indemnification or guaranty, other than any agreement of
indemnification entered into in connection with the sale or license of Company
Products in the ordinary course of business on one of the Company’s standard
forms, true, complete and correct copies of which are attached to Section
2.19(a)(viii)
of the
Company Schedule;
(ix) any
agreement, contract or commitment relating to the disposition or acquisition
of
assets or any interest in any business enterprise outside the ordinary course
of
business, and any agreement, contract, commitment, instrument, escrow
instruction or grant deed entered into or otherwise issued in connection
with
the disposition or abandonment of any real property and any indemnification
or
other agreement entered into in connection with or ancillary to any such
disposition or abandonment;
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(x) any
Contract (other than any Contracts with Significant Suppliers and Contracts
with
Significant Customers referenced in Section 2.19(a)(iii) and 2.19(a)(iv))
(A)
that involved an excess of $250,000 being paid to the Company over the last
twelve (12) months or is reasonably expected to involve in excess of $250,000
being paid to the Company over the next twelve months, or (B) involving in
excess of $250,000 being paid by the Company over the term thereof;
(xi) any
agreement, contract or commitment in which the Company or any of its
subsidiaries grants any person exclusive rights, including any exclusivity
with
respect to any product, service, market, industry, field of use, or geographic
territory;
(xii) any
Contract currently in force under which the Company or any of its subsidiaries
have continuing material obligations to jointly market any product, technology
or service, or any Contract pursuant to which the Company or any of its
subsidiaries have continuing material obligations to jointly develop any
Intellectual Property that will not be owned, in whole, by the Company or
any of
its subsidiaries;
(xiii) any
Contract to provide source code to any third party;
(xiv) any
(A)
settlement agreement entered into in the past three years, and (B) other
settlement agreement under which the Company has any material ongoing
obligations or receives any material ongoing benefits or rights;
(xv) any
Contract requiring the delivery of financial statements by the Company or
any of
its subsidiaries;
(xvi) any
other
Contract or commitment that is of the nature required to be filed by Company
as
an exhibit to an Annual Report on Form 10-K under the Exchange Act or
disclosed on Form 8-K under the Exchange Act; or
(xvii)
each
amendment, supplement, and modification in respect of any of the
foregoing.
(b) Neither
the Company nor any of its subsidiaries, nor to the knowledge of the Company
any
other party to a Company Contract (as defined below), is in breach, violation
or
default under any Company Contract, and neither the Company nor any of its
subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the Contracts
or commitments to which the Company or any of its subsidiaries is a party
or by
which it is bound that are required to be disclosed in Section
2.11(b)
(but
only with respect to Employment Agreements), Section
2.18(h)
or
Section
2.19(a)
of the
Company Schedule (any such Contract or commitment, a “Company
Contract”)
in
such a manner as would permit any other party to cancel or terminate any
such
Company Contract, or would permit any other party to seek material damages
or
other remedies (for any or all of such breaches, violations or defaults,
in the
aggregate). The Company has furnished to Parent true, complete and correct
copies of all Company Contracts.
Each
Company Contract is in full force and effect and constitutes a legal and
binding
obligation of the Company (if the Company is a party to such Company Contract)
or the subsidiary that is party thereto, and are enforceable in accordance
with
their terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors’ rights generally and to
general equitable principles.
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2.20 Customers
and Suppliers.
(a) Section
2.20(a)(i)
of the
Company Schedule
contains
a list of the 50 largest customers of the Company based on consolidated net
revenues of the Company and its subsidiaries (taken as a whole) during the
fiscal years ended September 30, 2005 and September 30, 2006 (the “Significant
Customers”).
Between September 30,
2005
and the date hereof, no Significant Customer has cancelled, failed to renew
or
otherwise terminated, or notified the Company in writing of its intention
to
cancel, fail to renew or otherwise terminate, its Contract with the
Company. Section
2.20(a)(ii)
of the
Company Schedule identifies each current customer of the Company which acts
as
an “Internet wallet” for processing online transactions (each such listed
customer being referred to herein as an “Internet
Wallet Customer”),
together with the revenue recognized from each such Internet Wallet Customer
for
the Company’s fiscal year ended September 30, 2006.
(b) Section
2.20(b)
of the
Company Schedule
contains
a list of the 25 largest suppliers of the Company based on consolidated
purchases of the Company and its subsidiaries (taken as a whole) during the
fiscal years ended September 30, 2005 and September 30, 2006 (the “Significant
Suppliers”).
Between
September 30,
2005
and the date hereof, no Significant Supplier has cancelled, failed to renew
or
otherwise terminated, or notified the Company in writing of its intention
to
cancel, fail to renew or otherwise terminate, its Contract with the
Company.
2.21 Insurance.
Section
2.21
of the
Company Schedule lists all insurance policies and/or fidelity bonds covering
the
assets, business, equipment, properties, operations, employees, officers
and
directors of the Company and its subsidiaries (collectively, the “Insurance
Policies”).
There
is no claim by the Company or any of its subsidiaries pending under any of
the
Insurance Policies as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such Insurance Policies have been paid, and the Company and each
of
its subsidiaries, as the case may be, is otherwise in compliance with the
terms
of such Insurance Policies, except where any failure to be in compliance
would
not, individually or in the aggregate, be reasonably likely to be material
to
the Company and its subsidiaries taken as a whole.
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2.22 Opinion
of Financial Advisor.
The
Company has been advised in writing by its financial advisor, Wedbush Morgan
Securities, that in its opinion, as of the date of this Agreement, the Merger
Consideration is fair to the stockholders of the Company from a financial
point
of view.
2.23 Board
Approval.
The
Board has, as of the date of this Agreement, unanimously (i) determined
that the Merger is advisable and fair to, and in the best interests of, the
Company and its stockholders, (ii) approved, subject to stockholder
approval, the Transactions, and (iii) resolved, subject to the terms of
this Agreement, to recommend that the stockholders of the Company approve
this
Agreement.
2.24 Vote
Required.
The
affirmative vote of a majority of the votes that holders of the outstanding
Shares are entitled to vote with respect to the Merger is the only vote of
the
holders of any class or series of the Company’s capital stock necessary to
approve this Agreement and the Transactions, including the Merger.
2.25 State
Takeover Statutes;
Rights Agreement.
(a) Neither
Sections
78.378-78.3793 nor
Sections
78.411-78.444 of Nevada Law apply to the Merger or any of the Transactions
or
the Voting Agreements or any of the transactions contemplated by the Voting
Agreements. No
other
state takeover or dissenters’ rights statute or similar statute or regulation
applies to or purports to apply to the Merger, this Agreement and the Company
Voting Agreements or the Transactions and the transactions contemplated by
the
Company Voting Agreements in any state in which the Company or its Subsidiaries
conduct business.
(b) The
Company has amended the Rights Agreement in accordance with its terms to
render
it inapplicable to this Agreement, the Merger and the Transactions.
2.26 Transactions
with Affiliates.
Except
as set forth in the Company SEC Reports, since the date of the Company’s last
proxy statement filed with the SEC, no event has occurred that as of the
date
hereof that would be required to be reported by the Company pursuant to Item
404
of Regulation S-K promulgated by the SEC.
2.27 Illegal
Payments, Etc.
In the
conduct of their business, neither the Company nor any of its subsidiaries
nor,
to the knowledge of the Company, any of their respective Representatives,
has
(a) directly or indirectly, given, or agreed to give, any gift,
contribution, payment or similar benefit that is or was illegal under applicable
Legal
Requirement
to any
supplier, customer, governmental official or employee or other person who
was,
is or may be in a position to help or hinder the Company or any of its
subsidiaries (or assist in connection with any actual or proposed transaction)
or made, or agreed to make, any contribution that is or was illegal under
applicable Legal Requirements, or reimbursed any political gift or contribution
that is or was illegal under applicable Legal Requirements made by any other
person, to any candidate for federal, state, local or foreign public office
or
(b) established or maintained any unrecorded fund or asset or made any
false entries on any books or records for any purpose.
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2.28 Privacy.
(a) The
Company and each of its subsidiaries has (i) complied in all material
respects with all applicable Legal Requirements governing the acquisition,
sharing, use or security from unauthorized disclosure of non-public personal
information (including account numbers, balance information, and, if it would
disclose that the Company or such subsidiary has non-public information with
respect to such person, such person’s name, address, telephone number or email
address) with respect to natural persons (“NPI”)
that
is possessed or otherwise subject to the control of the Company or any of
its
subsidiaries, (ii) adopted, implemented and maintains a system of internal
controls sufficient to provide reasonable assurance that the Company and
each of
its subsidiaries complies with the Legal Requirements described in
clause (i) and that none of the Company or any of its subsidiaries will
acquire, fail to secure, share or use such NPI in a manner inconsistent with
(A) such Legal Requirements, (B) any policy adopted by the Company or
such subsidiary, (C) any contractual commitment made by the Company or such
subsidiary that is applicable to such NPI, or (D) any privacy policy or
privacy statement from time to time published or otherwise made available
to
third parties by the Company or such subsidiary (collectively, “Privacy
Statement”),
(iii) in connection with each third party servicing, outsourcing or similar
arrangement, contractually obligated any service provider to (A) comply
with the Legal Requirements described in clause (i) with respect to NPI
acquired from or with respect to the Company or any of its subsidiaries,
(B) take reasonable steps to protect and secure from unauthorized
disclosure NPI acquired from or with respect to the Company or any of its
subsidiaries, (C) restrict use of NPI acquired from or with respect to the
Company or any of its subsidiaries to those authorized or required under
the
servicing, outsourcing or similar arrangement, and (D) afford to the
Company or such subsidiary or their Representatives access to the places
of
business and systems of such servicer, outsourcer or similar provider to
assess
compliance with such contractual obligations, and (iv) periodically tested
the system of internal controls described in clause (ii) and, to the extent
warranted by risk, the internal controls of any service provider, to assess
the
effectiveness, implementation and required improvements of or to any such
system
of internal controls.
(b) Neither
the execution of this Agreement nor the consummation of the Merger will result
in a violation or breach of any Privacy Statement or otherwise increase the
burden of compliance on the Company, any of its subsidiaries or any successor
of
compliance with the Privacy Statements.
(c) Except
for disclosures of information (i) permitted under the Fair Credit
Reporting Act, (ii) to servicers providing services to the Company or any
of its subsidiaries, or (iii) as otherwise required under applicable Legal
Requirements, none of the Company or any of its subsidiaries sells, rents
or
otherwise makes available to third parties or any affiliate any
NPI.
A-35
2.29 Compliance
With Applicable Standards; Merchant Agreements.
(a) The
Company and its subsidiaries have operated and conducted their business
(including their processing systems and software) in compliance in all material
respects with all Payment Card Industry Standards (including the PCI Data
Security Requirements) (the “PCI
Standards”),
the
Visa Cardholder Information Security Program requirements (the “CISP
Requirements”)
and
all Operating Rules of the Electronic Payments Association (“NACHA
Rules”).
The
Company and its subsidiaries have operated and conducted their business in
material compliance with any and all applicable Card Association rules and
regulations. Neither the Company nor any of its subsidiaries nor, to the
knowledge of the Company, any of their customers have lost or had stolen
any
cardholder or check-writer account information or information related to
cardholder or check-writer accounts such as social security numbers. The
Company
has made available to Parent all correspondence with any Card Association
or
NACHA relating to compliance with the PCI Standards, the CISP Requirements
or
the NACHA Rules.
(b) The
Company owns all Merchant Accounts free and clear of all Liens other than
any
Permitted Liens. Subject to the terms, conditions and limitations set forth
in
the Company’s existing agreement with First Regional Bank, the Company has the
right to transfer Merchant Accounts to another qualified Member Bank and
to
direct its existing Member Bank to execute the necessary transfer and assignment
documents to accommodate such transfer.
(c) For
purposes of this Agreement, the following terms have the following
meanings:
(i) “Card
Association”
means
VISA USA, Inc., VISA Canada, Inc., VISA International, Inc., MasterCard
International, Inc., Novus, American Express, Diner’s Club, JCB International
Co., Ltd. and any legal successor organizations or association of any of
them.
(ii) “Member
Bank”
means
a
member of VISA and/or MasterCard which is authorized by such associations
to
enter or receive transactions into (or from) such associations’ settlement and
authorization systems, and to participate in such associations’ charge card
programs, or a participant bank in Visa’s POS Check Service
program.
(iii) “Merchant”
means
any customer who enters into a Merchant Agreement for the purpose of
participating in the Merchant Program (as defined below).
(iv) “Merchant
Accounts”
means
the written contractual relationship between a Merchant on the one hand,
and/or
a Member Bank and the Company and any of its subsidiaries on the other for
the
acquisition and processing of transactions.
A-36
(v) “Merchant
Agreement”
means
any Contract between the Company and any of its subsidiaries and a Merchant,
including any merchant bank card application, merchant debit card application
and processing agreement, Visa POS check conversion merchant application,
Xpress
CheX ACH services application, agreement for check collection services for
electronic checks, agreement for paper check collection services, paper check
verification service application, paper check guarantee merchant application,
batch RCK check processing services application Maestro Network sponsor
agreement, equipment agreement, bank card/check services application, NCN
participation agreement, electronic check services and processing agreement,
terminal lease agreement and all other agreements and applications pursuant
to
which the Company and its subsidiaries provides services to Merchants, as
such
agreements have been amended from time to time.
(vi) “Merchant
Program”
means
the package of services offered by the Company or any of its subsidiaries
and a
Member Bank to a customer which enables a Merchant to (x) which permits the
Merchant make sales to a credit or debit card holder or which permits the
Merchant to present sales records to a processor for payment or processing,
and/or (y) which permits the Merchant to present or re-present checks for
authorization, guarantee, payment, settlement or processing.
2.30 Federal
Reserve Regulations.
Neither
the Company nor any of its subsidiaries is engaged in the business of extending
credit for the purpose of purchasing or carrying margin securities (within
the
meaning of Regulation G of the Board of Governors of the Federal Reserve
System).
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent
and Merger Sub hereby jointly and severally represent and warrant to the
Company, subject only to exceptions disclosed in writing in the disclosure
schedule supplied by Parent to the Company dated as of the date hereof and
certified by a duly authorized officer of Parent (the “Parent
Schedule”),
as
follows:
3.1 Corporate
Organization.
Each of
Parent and Merger Sub is a corporation duly organized, validly existing and
in
good standing under the laws of the State of Delaware and Nevada, respectively,
and has the requisite corporate power and authority and all necessary Approvals
to own, lease and operate its properties and to carry on its business as
it is
now being conducted, except where the failure to be so organized, existing
or in
good standing or to have such power, authority and governmental approvals
would
not be reasonably likely to have a Parent Material Adverse Effect (as defined
below). As used in this Agreement, the term “Parent
Material Adverse Effect”
means
a
material adverse effect on the ability of Parent or Merger Sub to perform
their
respective obligations under this Agreement or consummate the Transactions
without any material delay.
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3.2 Authority
Relative to this Agreement.
Each of
Parent and Merger Sub has all necessary corporate power and authority to
execute
and deliver this Agreement, and to perform its obligations hereunder and
to
consummate the Transactions. The execution and delivery of this Agreement
by
Parent and Merger Sub and the consummation by Parent and Merger Sub of the
Transactions, including the Merger, have been duly and validly authorized
by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement, or to consummate the Transactions (other than,
with
respect to the Merger, the filing of the Articles of Merger as required by
Nevada Law). This Agreement has been duly and validly executed and delivered
by
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal and binding obligation of Parent
and Merger Sub, enforceable against Parent and Merger Sub in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization and similar laws affecting creditors’ rights
generally and to general equitable principles.
3.3 No
Conflict; Required Filings and Consents.
(a) The
execution and delivery of this Agreement by Parent and Merger Sub does not,
and
the performance of this Agreement by Parent and Merger Sub will not,
(i) conflict with or violate Parent’s certificate of incorporation or
bylaws or Merger Sub’s articles of incorporation or bylaws, (ii) subject to
compliance with the requirements set forth in Section
3.3(b)
hereof,
conflict with or violate any Legal Requirements applicable to Parent or by
which
its properties are bound or affected, or (iii) conflict with or violate,
result in any breach of or constitute a default (or an event that with notice
or
lapse of time or both would become a default) under, or alter the rights
or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of Parent pursuant
to any
Contract to which Parent is a party or by which Parent or its properties
are
bound or affected, except to the extent such conflict, violation, breach,
default, impairment or other effect would not in the case of clauses (ii)
or (iii) individually or in the aggregate, be reasonably likely to have a
Parent
Material Adverse Effect.
(b) The
execution and delivery of this Agreement by Parent and Merger Sub does not,
and
the performance of this Agreement by Parent and Merger Sub shall not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity except (i) for applicable
requirements, if any, of the Exchange Act, Blue Sky Laws and state takeover
laws, applicable requirements, if any, of the HSR Act, applicable pre-merger
notification requirements of foreign Governmental Entities, the rules and
regulations of the Nasdaq National Market, and the filing and recordation
of the
Articles of Merger as required by Nevada Law, and (ii) where
the failure to obtain such consents, approvals, authorizations or permits,
or to
make such filings or notifications, would not, individually or in the
aggregate, be reasonably likely to have a Parent Material Adverse
Effect.
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3.4 Proxy
Statement.
Subject
to the limitation set forth in the last sentence of this Section
3.4,
the
information supplied by Parent and Merger Sub (a) for inclusion in the Proxy
Statement shall not, at the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company or at
the
time of the Stockholders’ Meeting, and (b) for inclusion in any other documents
that may be filed with the SEC in connection with the transactions contemplated
by this Agreement shall not, at the respective times filed with the SEC,
in each
case contain any untrue statement of material fact, or omit to state any
material fact required to be stated therein or necessary in order to make
the
statement therein, in light of the circumstances under which it was made,
not
false or misleading. Notwithstanding the foregoing, Parent and Merger Sub
make
no representation or warranty with respect to any information supplied by
the
Company or any of its Representatives for inclusion in the Proxy
Statement.
3.5 Sufficient
Funds.
Parent
has and will have at the Effective Time sufficient funds to perform (and
cause
Merger Sub to perform) its obligations under this Agreement and consummate
the
Transactions, including payment of the consideration set forth in Article
I.
3.6 No
Business Activities.
All of
the outstanding capital stock of Merger Sub is owned by Parent, directly
or
indirectly through one or more wholly owned subsidiaries. Merger Sub is not
a
party to any material contract and has not conducted any business activities
other than in connection with the organization of Merger Sub, the negotiation
and execution of this Agreement and the Company Voting Agreements and the
consummation of the Transactions. Merger Sub has no subsidiaries.
3.7 Ownership
of Company Stock.
Neither
Parent nor Merger Sub is, nor at any time during the last three years has
it
been, an “interested stockholder” of Company as defined in Section 78.423 of
Nevada Law.
ARTICLE
IV
CONDUCT
PRIOR TO THE EFFECTIVE TIME
4.1 Conduct
of Business by Company.
During
the period from the date of this Agreement and continuing until the earlier
of
the termination of this Agreement pursuant to its terms or the Effective
Time,
the Company and each of its subsidiaries shall, except to the extent that
Parent
shall otherwise consent in writing (which consent shall not be unreasonably
withheld), carry on its business in the usual, regular and ordinary course
in
substantially the same manner as heretofore conducted and in compliance in
all
material respects with all applicable Legal
Requirements,
pay its
Liabilities (including the costs and expenses associated with this Agreement
and
the Transactions) and Taxes when due (subject to good faith disputes over
such
Liabilities or Taxes), pay or perform its other obligations when due, maintain
insurance in amounts and against risks and losses consistent with insurance
maintained as by the Company and its subsidiaries as of the date of this
Agreement, and use its commercially reasonable efforts consistent with past
practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees, and (iii) preserve its relationships with customers, suppliers,
distributors, consultants, licensors, licensees and others with which it
has
significant business dealings. In addition, the Company shall promptly notify
Parent of any material event involving its business or operations occurring
outside the ordinary course of business,
including but not limited to, prompt written notice of a potential or proposed
Special IP Transaction (as defined below) or any negotiation by the Company
relating thereto.
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In
addition, without the prior written consent of Parent, except as specifically
permitted or required by this Agreement and except as provided in Section 4.1
of the
Company Schedule, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant
to
its terms or the Effective Time, Company shall not, and shall not permit
its
subsidiaries to, do any of the following:
(a) Cause,
permit or submit to a vote of the Company’s stockholders any amendments to the
Company Charter Documents (or similar governing instruments of any of its
subsidiaries);
(b) Issue,
deliver, sell, authorize or designate (including by certificate of designation)
or pledge or otherwise encumber, or propose any of the foregoing with respect
to
any shares of capital stock of the Company or its subsidiaries or any securities
convertible into shares of capital stock of the Company or its subsidiaries,
or
subscriptions, rights, warrants or options to acquire any shares of capital
stock of the Company or its subsidiaries or any securities convertible into
shares of capital stock of the Company or its subsidiaries, or enter into
other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than the issuance, delivery and/or
sale
of shares of Company Common Stock pursuant to the exercise of Company Stock
Options outstanding as of the date of this Agreement which are either vested
on
the date hereof or vest after the date hereof in accordance with their terms
on
the date hereof, in each case as disclosed on the Company Schedule;
(c) Declare,
set aside or pay any dividends on or make any other distributions (whether
in
cash, securities or property) in respect of any capital stock of the Company
or
its subsidiaries or split, combine or reclassify any capital stock of the
Company or its subsidiaries or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock
of
the Company or its subsidiaries;
(d) Purchase,
redeem or otherwise acquire, directly or indirectly, any shares of capital
stock
of the Company or its subsidiaries or any other securities of the Company
or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities, except repurchases of unvested shares at or below
cost in connection with the termination of the employment relationship with
any
employee pursuant to stock option or purchase agreements in effect on the
date
of this Agreement, provided
that no
such repurchase shall be permitted in the event the per share repurchase
price
is greater than the Merger Consideration;
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(e) Waive
any
stock repurchase rights, accelerate, amend or change the period of
exercisability of any Equity Award, reprice any Company Stock Option, or
authorize cash payments in exchange for any Equity Award;
(f) Grant
or
pay any severance or termination pay or any bonus or other special remuneration
(whether in cash, securities or property) or any increase thereof to any
director, officer, consultant or employee except pursuant to written agreements
outstanding on the date hereof disclosed on Section
2.11(b)
of the
Company Schedule, adopt any new severance plan, or amend or modify or alter
in
any manner any severance plan, agreement or arrangement existing on the date
hereof (including without limitation any retention, change of control or
similar
agreement), grant any equity-based compensation, whether payable in cash,
securities or property, or enter into any agreement the benefits of which
are
contingent or the terms of which are materially altered upon the occurrence
of a
transaction involving the Company of the nature contemplated
hereby;
(g) Grant
any
loans or advances to employees, officers, directors or other third parties,
make
any investments in or capital contributions to any person, incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or options, warrants, calls or
other
rights to acquire any debt securities of the Company, enter into any “keep well”
or other agreement to maintain any financial statement condition or enter
into
any arrangement having the economic effect of any of the foregoing other
than in
connection with the financing of ordinary course trade payables consistent
with
past practice;
(h) (i) Increase
the compensation or benefits payable or to become payable to officers,
directors, consultants, or employees (other than as disclosed on Section
2.11(b)
of the
Company Schedule), (ii) enter into any new or amend any existing Company
Employee Plan, Employment Agreement, indemnification, collective bargaining,
or
similar agreement, except in the ordinary course of business (provided doing
so
does not materially increase the cost associated with such plan or agreement)
and except as required by applicable Legal
Requirements,
(iv) hire any employee at or above the level of manager or for a total
annual compensation (including bonus opportunity) of equal to or more than
$50,000, (v) hire any employee below the level of manager and for a total
annual
compensation (including bonus opportunity) of less than $50,000, other than
in
the ordinary course of business, or (vi) terminate any employee (except
termination for cause);
(i) Enter
into, amend in any material respect or terminate (other than any termination
as
the result of the expiration of the term of any agreement), or waive or assign
any material right under any (i) Company Contract (or any Contract that would
be
a Company Contract if it were to exist as of the date of this Agreement),
or
(ii) any Contract with an affiliate of the Company;
(j) Make
or
commit to make any capital expenditures in excess of $100,000 individually
or
$500,000 in the aggregate;
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(k) Acquire
or agree to acquire by merging or consolidating with, or by purchasing any
equity interest in or a portion of the assets of, or by any other manner,
any
business or any corporation, partnership, association or other business
organization or division thereof or any ownership interest in any of the
foregoing, or otherwise acquire or agree to enter into any joint ventures,
strategic partnerships or similar alliances;
(l) Waive
the
benefits of, agree to modify in any manner, terminate, release any person
from
or knowingly fail to enforce the confidentiality or nondisclosure provisions
of
any Contract to which the Company or any of its subsidiaries is a party or
of
which the Company or any of its subsidiaries is a beneficiary;
(m) Sell,
lease, license, encumber or otherwise dispose of any properties or assets
except
(i) sales of inventory in the ordinary course of business consistent with
past practice, (ii) dispositions of obsolete and unsaleable inventory or
equipment, and (iii) transactions permitted by Section
4.1(n);
(n) Other
than in the ordinary course of business consistent with past practice, sell,
lease, license, transfer or otherwise dispose of, or otherwise extend, amend
or
modify in any material respect, any rights to, Company Products or other
Company
Intellectual Property, or otherwise extend, amend or modify or forfeit or
allow
to lapse any right thereto
(for the
avoidance of doubt, any grant of a material right in, entering into a Contract
pertaining to royalty or license fee terms with the party identified on
Section
4.1(n)
of the
Company Schedule regarding, or disclosure of Company source code or other
material Company Intellectual Property to such other party, whether or not
in
connection with such other party’s exercise of its license option under that
certain agreement set forth on Section
4.1(n)
of the
Company Schedule (a “Special
IP Transaction”),
shall
be deemed a breach of this Section
4.1(n));
(o) Issue
or
agree to issue any refunds, credits, allowances or other concessions with
customers with respect to amounts collected by or owed to the Company or
any of
its subsidiaries in excess of $50,000 individually or $250,000 in the
aggregate;
(p) Enter
into any new line of business;
(q) Except
as
required by GAAP, revalue any of its assets (including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice)
or
make any change in accounting methods, principles or practices;
(r) Make
any
material Tax election, settle or compromise any material Tax liability or
refund, file any amendment to a material Return, enter into any closing
agreement or consent to any extension or waiver of any limitation period
with
respect to material Taxes;
(s) Take
any
action, or fail to take any action, with the intention of causing any
representation or warranty made by the Company contained in this Agreement
to
become untrue or inaccurate in any material respect;
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(t) Commence
or settle any pending or threatened litigation, proceeding or investigation
(whether or not commenced prior to the date of this Agreement), other than
(i)
any litigation to enforce any of its
rights
under the Agreement, (ii) a settlement fully reimbursable from insurance
(subject to any applicable deductible) or calling solely for a cash payment
in
an aggregate amount less than $100,000 and in any case including a full release
of the Company and its subsidiaries, as applicable, or (iii) collection actions
brought by the Company in the ordinary course of business to collect amounts
not
in excess of $100,000; or
(u) Agree
in
writing or otherwise to take any of the actions described in Section
4.1(a)
through
4.1(t)
above.
4.2 No
Control.
Nothing
contained in this Agreement is intended to give Parent, directly or indirectly,
the right to control or direct the Company’s or its subsidiaries’ operations
prior to the Effective Time. Prior to the Effective Time, the Company shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision over its and its subsidiaries operations.
ARTICLE
V
ADDITIONAL
AGREEMENTS
5.1 Proxy
Statement.
As
promptly as practicable after the execution of this Agreement, the Company,
in
consultation with Parent, shall prepare and file the Proxy Statement with
the
SEC under the Exchange Act. Parent and Merger Sub shall provide promptly
to the
Company such information concerning itself as may be required or appropriate
for
inclusion in the Proxy Statement, or in any amendments or supplements thereto.
As promptly as practicable after any comments are received from the SEC thereon
(or upon notice from the SEC that no such comments will be made), the Company
shall, in consultation with Parent, prepare and file any required amendments
to,
and the definitive, Proxy Statement with the SEC. The Company will cause
the
Proxy Statement to be mailed to its stockholders as soon as practicable after
the definitive Proxy Statement is filed with the SEC. The Company shall notify
Parent promptly upon the receipt of any comments from the SEC or its staff
and
of any request by the SEC or its staff for amendments or supplements to the
Proxy Statement or for additional information and shall supply Parent with
copies of all correspondence between the Company or any of its Representatives,
on the one hand, and the SEC or its staff, on the other hand, with respect
to
the Proxy Statement or the Merger. The Company shall give Parent and its
counsel
reasonable opportunity to review and comment on the Proxy Statement, including
all amendments and supplements thereto, prior to its being filed with the
SEC
and shall give Parent and its counsel reasonable opportunity to review all
responses to requests for additional information and replies to comments
prior
to their being filed with, or sent to, the SEC, and will provide Parent with
a
copy of all such filings made with the SEC. Whenever any event occurs which
is
required to be set forth in an amendment or supplement to the Proxy Statement,
the Company shall promptly inform Parent of such occurrence and, in consultation
with Parent, file with the SEC or its staff and/or mail to stockholders of
the
Company, such amendment or supplement.
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5.2 Meeting
of Company Stockholders.
(a) Promptly
after the date hereof, the Company shall take all action reasonably necessary
in
accordance with Nevada Law and the Company Charter Documents to call, hold
and
convene an annual or special meeting of its stockholders for the purpose
of
considering and taking action on this Agreement and the Merger (the
“Stockholders’
Meeting”),
to be
held as promptly as practicable, and, subject to the Company’s right to adjourn
or postpone the Stockholders’ Meeting pursuant to this Section
5.2(a),
in any
event within thirty (30) calendar days after the Proxy Statement is mailed
to
the stockholders of the Company. Subject to the terms of Section
5.4(c)
hereof,
the Company shall use its commercially reasonable efforts to solicit from
its
stockholders proxies in favor of the approval of this Agreement and shall
take
all other action necessary or advisable to secure the vote or consent of
its
stockholders required by the rules of the Nasdaq or Nevada Law to obtain
such
approvals. Notwithstanding anything to the contrary contained in this Agreement,
the Company may adjourn or postpone the Stockholders’ Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Proxy
Statement is provided to the Company’s stockholders in advance of a vote on the
Merger and this Agreement or, if as of the time for which the Stockholders’
Meeting is originally scheduled (as set forth in the Proxy Statement) there
are
insufficient shares of Company Common Stock represented (either in person
or by
proxy) to constitute a quorum necessary to conduct the business of the
Stockholders’ Meeting. The Company shall ensure that the Stockholders’ Meeting
is called, noticed, convened, held and conducted, and that all proxies solicited
by the Company in connection with the Stockholders’ Meeting are solicited, in
compliance with Nevada Law, the Company Charter Documents, the rules of the
Nasdaq and all other applicable legal requirements. The Company’s obligation to
call, give notice of, convene and hold the Stockholders’ Meeting in accordance
with this Section
5.2(a)
shall
not be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to the Company of any Acquisition Proposal (as
defined in Section
5.4(d)
hereof).
For the avoidance of doubt, the Company shall not be required to call, give
notice of, convene or hold the Stockholders’ Meeting if this Agreement has been
validly terminated (including, in the case of termination pursuant to
Section
7.1(e),
the
payment of the Termination Fee) in accordance with Article VII hereof. The
Company shall not submit to the vote of its stockholders any Acquisition
Proposal or publicly propose or resolve to do so, unless this Agreement has
been
validly terminated (including, in the case of termination pursuant to Section
7.1(e),
the
payment of the Termination Fee) in accordance with Article VII
hereof.
(b) The
Proxy
Statement shall include the fairness opinion referred to in Section 2.22
hereof.
Subject to the terms of Section
5.4(c)
hereof:
(i) the Board shall unanimously recommend that the Company’s stockholders
vote in favor of this Agreement; (ii) the Proxy Statement shall include a
statement to the effect that the Board has unanimously recommended that the
Company’s stockholders vote in favor of this Agreement at the Stockholders’
Meeting; and (iii) neither the Board nor any committee thereof shall
withdraw, amend, change or modify, or propose or resolve to withdraw, amend,
change or modify, in a manner adverse to Parent, the recommendation of the
Board
that the Company’s stockholders vote in favor this Agreement. For purposes of
this Agreement, said recommendation of the Board shall be deemed to have
been
modified in a manner adverse to Parent, and a “Change of Recommendation” shall
be deemed to have been made, if said recommendation shall no longer be unanimous
(excluding, for the purpose of determining whether said recommendation shall
no
longer be unanimous, directors who have abstained from such recommendation
due
to circumstances giving rise to an actual or potential conflict of interest;
provided
that
this exclusion shall not be applicable if the remaining directors making
such
recommendation constitute less than a majority of the full Board), or if
any
director shall have publicly expressed opposition to this Agreement or the
Transactions.
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5.3 Confidentiality;
Access to Information.
(a) The
parties acknowledge that Parent and the Company have previously executed
a
Mutual Nondisclosure and Nonuse Agreement, dated as of May 17, 2006 (the
“Confidentiality
Agreement”),
which
Confidentiality Agreement will continue in full force and effect in accordance
with its terms.
(b) The
Company shall afford Parent and its Representatives reasonable access during
normal business hours, upon reasonable notice, to the properties, books,
records
and personnel of the Company during the period prior to the Effective Time
to
obtain all information concerning the business, including the status of product
development efforts, properties, financial positions, results of operations
and
personnel of the Company, as Parent may reasonably request; provided
that
such access does not unreasonably interfere with the business or operations
of
the Company or its subsidiaries; and provided, further
that to
the extent any such access would reasonably be expected to result in a loss
or
impairment of any attorney-client or work-product privilege, the parties
shall
use their respective reasonable best efforts to cause such information to
be
provided in a manner that does not result in any such loss or impairment
(which
reasonable best efforts shall include entering into one or more joint defense
or
community of interest agreements on customary terms).
(c) No
information or knowledge obtained by Parent in any investigation pursuant
to
this Section 5.3
will
affect or be deemed to modify any representation or warranty contained herein
or
the conditions to the obligations of the parties to consummate the
Transactions.
A-45
5.4 No
Solicitation.
(a) From
the
date hereof until the earlier of the approval of this Agreement by the Company’s
stockholders or the termination of this Agreement, the Company and its
subsidiaries shall not, nor will they authorize or knowingly permit any of
their
respective officers, directors, affiliates or employees or any investment
banker, attorney, accountant, or other advisor or representative retained
by any
of them (“Representatives”)
to,
and they shall direct their respective representatives not to, directly or
indirectly: (i) solicit, initiate, knowingly encourage, support, facilitate
or induce the making, submission or announcement of, any Acquisition Proposal
(as defined in Section
5.4(d)
hereof);
(ii) participate in any negotiations or discussions regarding, or furnish
to any person any non-public information with respect to any Acquisition
Proposal or any proposal or inquiry that could reasonably be expected to
lead
to, any Acquisition Proposal (it being understood and agreed that informing
any
person as to the existence of these provisions in response to any unsolicited
Acquisition Proposal, proposal or inquiry, without providing any additional
information, shall not constitute, or be deemed to be, a violation of the
preceding clauses (i) or (ii) of this Section
5.4(a));
(iii) approve, endorse or recommend any Acquisition Proposal; or
(iv) enter into any letter of intent or similar document or any Contract
contemplating or otherwise relating to any Acquisition Transaction (as defined
in Section
5.4(d)
hereof);
provided,
however,
that
the terms of this Section 5.4
shall
not prohibit the Company from furnishing non-public information regarding
the
Company and its subsidiaries to, entering into a confidentiality agreement
with
or entering into negotiations or discussions with, any person or group (and
its
or their Representatives) in response to an unsolicited written Acquisition
Proposal submitted by such person or group (and not withdrawn) if:
(1) neither the Company nor its subsidiaries shall have materially violated
any of the restrictions set forth in this Section 5.4
in
connection with such Acquisition Proposal; (2) the Board concludes in good
faith, after consultation with its outside legal counsel, that such action
is
required in order for the Board to comply with its fiduciary duties to the
Company’s stockholders under applicable law; (3)(x) at least two (2)
business days prior to furnishing any such information to, or entering into
negotiations or discussions with, such person or group, the Company gives
Parent
written notice of the identity of such person or group and of the Company’s
intention to furnish information to, or enter into negotiations or discussions
with, such person or group, and (y) the Company receives from such person
or group an executed confidentiality agreement containing terms and conditions
which are not less favorable to the Company than the Confidentiality Agreement;
and (4) as soon as practicable (and in any event no later than twenty four
(24) hours) after furnishing any such information to such person or group,
the
Company furnishes such information to Parent. In addition to the foregoing,
the
Company shall provide Parent with at least forty-eight (48) hours prior written
notice (or such lesser prior notice as the longest notice provided to any
member
of the Board) of a meeting of the Board at which the Board is reasonably
expected to consider any Acquisition Proposal and together with such notice
a
copy of any documentation relating to such Acquisition Proposal (other than
confidential information provided by or on behalf of the person or group
making
such Acquisition Proposal relating to such person’s or group’s business or the
effect of combining the business of the Company with such person’s or group’s
business, in each case that such person or group specifically identifies
as
confidential (“Third
Party Confidential Information”),
provided
that the
parties hereby acknowledge that the terms and conditions of the Acquisition
Proposal or any information that is otherwise taken into account in determining
whether such Acquisition Proposal constitutes a Superior Offer shall not
under
any circumstance be deemed to be Third Party Confidential
Information).
The
Company and its subsidiaries shall immediately cease any and all existing
activities, negotiations or discussions with any parties conducted heretofore
with respect to any Acquisition Proposal. Without limiting the foregoing,
it is
understood that any violation of the restrictions set forth in this Section 5.4
by any
officer or director of the Company or any of its subsidiaries, or by any
other
Representative acting at the authorization or direction of the Company or
any of
its subsidiaries, shall be deemed to be a breach of this Section 5.4
by the
Company.
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(b) From
and
after the execution of this Agreement, in addition to the obligations of
the
Company set forth in Section
5.4(a)
hereof,
the Company shall promptly advise Parent orally (within one business day)
and in
writing (within two business days) of any request received by the Company
for
non-public information with respect to an Acquisition Proposal or the receipt
by
the Company of any Acquisition Proposal, the material terms and conditions
of
such request or Acquisition Proposal, the identity of the person or group
making
any such request or Acquisition Proposal and a copy of all written materials
(other than Third Party Confidential Information) provided by or on behalf
of
such person or group in connection with such request or Acquisition Proposal.
After receipt of any such request or Acquisition Proposal, the Company shall
keep Parent reasonably informed in all material respects of the status and
details (including material amendments or proposed material amendments) of
any
such request or Acquisition Proposal and shall promptly provide Parent a
copy of
all written materials (other than Third Party Confidential Information)
subsequently provided by or on behalf of such person or group in connection
with
such request or Acquisition Proposal.
(c) Notwithstanding
anything in this Agreement to the contrary, nothing in this Agreement shall
prevent the Board from withdrawing, amending, changing or modifying its
recommendation in favor of the approval of this Agreement or approving or
recommending an Acquisition Proposal (any of the foregoing actions, whether
by
the Board or a committee thereof, a “Change
of Recommendation”)
at any
time prior to the approval of this Agreement by the Company’s stockholders, but
the Board may do so only to terminate this Agreement in accordance with
Section
7.1(e)
hereof
and only if all of the following conditions in clauses (i) through (v) are
met: (i) an Acquisition Proposal is made to the Company and is not
withdrawn and the Board determines that such Acquisition Proposal constitutes
a
Superior Offer (as defined in Section
5.4(d)
hereof),
(ii) neither the Company nor any of its subsidiaries nor any of their
respective Representatives shall have materially violated any of the
restrictions set forth in Section 5.2
or
Section 5.4
hereof,
(iii) the Company shall have delivered to Parent written notice (a
“Change
of Recommendation Notice”)
at
least three (3) business days prior to effecting such Change of Recommendation,
which shall (A) state expressly that the Company has received a Superior
Offer
and that the Company intends to effect a Change of Recommendation,
(B) include a copy of any definitive documentation relating to such
Superior Offer and such other documentation reflecting the final terms and
conditions of such Superior Offer as being considered by the Board, and
(C) disclose the identity of the person or group making such Superior
Offer; (iv) after delivering the Change of Recommendation Notice, the
Company shall provide Parent with a reasonable opportunity to make such
adjustments in the terms and conditions of this Agreement during such three
(3)
business day period, and negotiate in good faith with Parent with respect
thereto during such three (3) business day period; and (v) the Board
concludes in good faith, after consultation with its outside legal counsel,
that
in light of such Superior Offer, and after considering any adjustments or
negotiations pursuant to the preceding clause (iv), such Change of
Recommendation is required in order for the Board to comply with its fiduciary
duties to the Company’s stockholders under applicable law.
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(d) For
purposes of this Agreement:
(i) “Acquisition
Proposal”
shall
mean any offer or proposal (other than an offer or proposal by Parent or
Merger
Sub) relating to any Acquisition Transaction.
(ii) “Acquisition
Transaction”
shall
mean any transaction or series of related transactions other than the
Transactions involving: (A) any acquisition or purchase from the Company by
any Third Party of more than a twenty percent (20%) interest in the total
outstanding voting securities of the Company or any of its subsidiaries or
any
tender offer or exchange offer that if consummated would result in any Third
Party beneficially owning twenty percent (20%) or more of the total outstanding
voting securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the
Company
pursuant to which the stockholders of the Company immediately preceding such
transaction hold less than eighty percent (80%) of the equity interests in
the
surviving or resulting entity of such transaction; (B) any sale, lease,
exchange, transfer, license, acquisition or disposition to any Third Party
of
more than twenty percent (20%) of the fair market value of the assets of
the
Company and its subsidiaries, taken as a whole (including capital stock of
subsidiaries of the Company); or (C) any liquidation or dissolution of the
Company.
(iii) “Superior
Offer”
shall
mean an unsolicited, bona fide written Acquisition Proposal on terms that
the
Board determines in good faith in its reasonable judgment (after consultation
with Wedbush Morgan Securities or another financial advisor of nationally
recognized reputation) to be more favorable to the Company stockholders from
a
financial point of view than the terms of the Transactions (taking into account
any revisions or modifications made by Parent and all other relevant factors,
including, without limitation, conditions relating to regulatory approvals,
the
existence of a financing or due diligence condition, timing
considerations,
other
events or circumstances beyond the control of the party invoking a condition
and
whether financing for the Acquisition Proposal is committed).
(iv) “Third
Party”
means
any person (including a “group” as defined in Section 13(d)-3 of the Exchange
Act) other than the Parent or Merger Sub or any of their respective affiliates
or subsidiaries.
(e) Nothing
contained in this Section
5.4
shall
prohibit the Board from taking and disclosing to the stockholders of the
Company
a position contemplated by Rule 14d-9 or 14e-2 promulgated under the Exchange
Act; provided,
however,
that
prior to taking any of the foregoing actions, the Company has complied with
the
applicable requirements of Section 5.4(c);
and,
provided,
further,
that
any such disclosure (other than a “stop-look-and-listen” letter or similar
communication under Rule 14d-9(f) promulgated under the Exchange Act) relating
to an Acquisition Proposal shall be deemed a Change of Recommendation unless
the
Company Board rejects acceptance of such Acquisition Proposal and reaffirms
its
recommendation in favor of the approval of this Agreement in such disclosure.
A-48
5.5 Public
Disclosure.
(a) Parent
and the Company shall consult with each other, and to the extent practicable,
agree, before issuing any press release or otherwise making any public statement
with respect to the Transactions, this Agreement, and shall not issue any
such
press release or make any such public statement prior to such consultation,
except as may be required by Legal
Requirement
or any
listing agreement with any national securities exchange or national trading
system, in which case reasonable efforts to consult with the other party
will be
made prior to such release or public statement. The parties have agreed to
the
text of the joint press release announcing the signing of this
Agreement.
(b) The
Company shall consult with Parent before issuing any press release or otherwise
making any public statement with respect to the Company’s earnings or results of
operations, and shall not issue any such press release or make any such public
statement prior to such consultation.
5.6 Rights
Agreement.
The
Board shall take all further action reasonably requested by Parent in order
to
render the Rights issued pursuant to the Rights Agreement inapplicable to
the
Merger and the Transactions.
5.7 Reasonable
Efforts; Notification.
(a) Upon
the
terms and subject to the conditions set forth in this Agreement each of the
parties agrees to use its commercially reasonable efforts to take, or cause
to
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Transactions, including using reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article
VI
to be
satisfied, (ii) the obtaining of all necessary actions or nonactions,
waivers, consents, approvals, orders and authorizations from Governmental
Entities and the making of all necessary registrations, declarations and
filings
(including registrations, declarations and filings with Governmental Entities,
if any) and the taking of all reasonable steps as may be necessary to avoid
any
suit, claim, action, investigation or proceeding by any Governmental Entity,
(iii) the obtaining of all consents, approvals or waivers from third
parties required as a result of the transactions contemplated in this Agreement,
(iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement
or
the consummation of the transactions contemplated hereby, including seeking
to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed, and (v) the execution or delivery
of any additional instruments reasonably necessary to consummate the
Transactions, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, the Company and its Board
shall, if any state takeover statute or similar Legal Requirement is or becomes
applicable to the Transactions or this Agreement, use its commercially
reasonable efforts to ensure that the Transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such Legal Requirement on the Transactions
and this Agreement. Notwithstanding anything herein to the contrary, nothing
in
this Agreement shall be deemed to require Parent or any subsidiary or affiliate
of Parent (x) to agree to any divestiture by itself or the Company or any
of
their respective affiliates of shares of capital stock or of any business,
assets or property, or the imposition of any limitation on the ability of
any of
them to conduct their business or to own or exercise control of such assets,
properties and stock (any such actions, an “Action
of Divestiture”),
or
(y) to utilize commercially reasonable efforts, or otherwise, in responding
to formal requests for additional information or documentary material pursuant
to 16 C.F.R. 830.20 under the HSR Act, or any other Antitrust Law, for a
period
of time exceeding sixty (60) days from the receipt of any such initial
request.
A-49
(b) The
Company shall give prompt notice to Parent (i) upon becoming aware that any
representation or warranty made by it contained in this Agreement has become
untrue or inaccurate, or of any failure of the Company to comply with or
satisfy
any covenant, condition or agreement to be complied with or satisfied by
it
under this Agreement, in each case, such that the conditions set forth in
Article
VI
hereof
would not be satisfied, (ii) upon becoming aware that any representation
or
warranty made by it in Section
2.7
hereof
has become untrue or inaccurate in any respect, (iii) upon receipt by it
of any
notice or
other
communication from any person alleging that the consent of such person is
or may
be required in connection with the
transactions contemplated by this Transactions, (iv) upon becoming aware
of any
pending or threatened investigation or inquiry by any Governmental Entity
questioning the accuracy of any of the Company’s financial statements or their
conformity with the published rules and regulations of the SEC or with GAAP
or
the historical stock-based compensation practices of the Company, and
(v) upon receipt by it of any comments from the SEC or its staff on any
Company SEC Report or of any request by the SEC or its staff for amendments
or
supplements to any Company SEC Report or for any information in connection
with
any Company SEC Report or in connection with any of the matters referred
to in
clause (iv) of this sentence, and shall supply Parent with copies of all
correspondence between the Company or any of its Representatives, on the
one
hand, and the SEC or its staff, on the other hand, with respect to the Company
SEC Reports; provided,
however,
that no
notification by the Company pursuant to this Section
5.7
shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this
Agreement.
5.8 Third
Party Consents;
Other Actions.
(a) As
soon
as practicable following the date hereof, Company shall use its commercially
reasonable efforts to (i) obtain any consents, waivers and approvals under
any
the Contracts set forth on Section 2.5(a)
of the
Company Schedule,
and
(ii) amend the Contracts set forth on Section 5.8(a)(ii)
of the
Company Schedule in the manner set forth on Section 5.8(a)(ii)
of the
Company Schedule.
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(b) The
Company shall, prior to the Effective Time, (i) repay in full all of its
obligations under the Company’s loan agreement with Bank of the West, dated
October 1, 2003 (extended January 31, 2005 and February 22, 2006) and the
Company’s loan agreement with Bank of the West dated as of August 1, 2005
(together, the “Credit
Facilities”),
(ii)
obtain customary pay-off letters in a form reasonably acceptable to Parent
with
respect to the Credit Facilities, (iii) obtained release and termination
agreements from the lender(s) with respect to such Credit Facilities in a
form(s) reasonably satisfactory to Parent, which shall include a release
of all
Liens, termination of the Credit Facilities and a release of the Company,
the
Surviving Corporation and their Affiliates from any further obligations under
the Credit Facilities.
(c) The
Company shall, prior to the Effective Time, terminate the Agreements set
forth
on Section
5.8(c)
of the
Company Schedule in accordance with the requirements set forth on such
Schedule.
(d) The
Company shall, prior to the Effective Time, take the actions referred to
on
Section
5.8(d)
of the
Company Schedule in accordance with the requirements set forth on such Schedule.
5.9 Indemnification.
(a) Parent
shall, and shall cause the Surviving Corporation to, maintain in effect for
not
less than six (6) years after the Effective Time policies of directors’ and
officers’ liability insurance no less favorable in all material respects to that
maintained by or on behalf of the Company and its subsidiaries on the date
hereof (which policy is set forth on Section
5.9(a)
of the
Company Schedule (the “Current
Policy”)
(and
having coverage and containing terms and conditions which in the aggregate
are
not less advantageous to the persons currently covered by such Current Policy
as
insureds (the “Insured
Parties”)
with
respect to claims arising from any actual or alleged wrongful act or omission
occurring prior to the Effective Time (including, without limitation, any
acts
or omissions relating to the approval of this Agreement and the consummation
of
the Transactions) for which a claim has not been made against any director
or
officer of the Company prior to the Effective Time or any director or officer
of
a Company subsidiary prior to the Effective Time; provided,
however,
that in
the event any claim is asserted or made within such six (6) year period,
Parent
shall ensure that such insurance coverage will survive as to such claim until
final disposition of such claim; and provided
further
that if
the aggregate annual premiums for such insurance at any time during such
period
exceed 150% of the per annum rate of premium currently paid by the Company
and
its subsidiaries for the Current Policy on the date of this Agreement (which
annual rate of premium is set forth on Section
5.9(a)
of the
Company Schedule) (the “Current
Premium”),
then
Parent will cause the Surviving Corporation to, and the Surviving Corporation
will, provide the maximum coverage that will then be available at an annual
premium equal to 150% of the Current Premium. Parent may meet its obligations
under this Section 5.9(a)
by (i)
covering the Insured Parties under the Parent’s insurance policy for its
directors and officers or, (ii) causing the Surviving Corporation to, or
requesting that the Company, purchase a six-year “tail” policy (and, upon
Parent’s request, the Company shall use its commercially reasonable efforts to
purchase such “tail” policy prior to the Effective Time; provided that the
Company shall not purchase any such “tail” policy without Parent’s prior
consent). Notwithstanding the foregoing, in no event will Parent be obligated
to
pay more than 250% of the Current Premium in the aggregate for any “tail”
policy.
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(b) This
Section 5.9
is
intended for the irrevocable benefit of, and to grant third party rights
to, the
Insured Parties, and the provisions of this Section 5.9 shall survive the
consummation of the Merger as set forth herein and shall be binding on all
successors and assigns of Parent, the Company and the Surviving Corporation.
Each of the Insured Parties (and their respective heirs and representatives)
shall be entitled to enforce the covenants contained in this Section
5.9.
The
obligations of Parent and the Surviving Corporation under this Section
5.9
shall
not be terminated or modified in such a manner as to adversely affect the
rights
of any Insured Party under this Section
5.9
without
the consent of such affected Insured Party. Parent shall cause the Surviving
Corporation to perform all of the obligations of the Surviving Corporation
under
this Section
5.9.
5.10 Regulatory
Filings; Reasonable Efforts.
In
furtherance and not in limitation of the obligations of the parties set forth
in
Section 5.7
hereof,
and subject thereto, as soon as may be reasonably practicable the Company
and
Parent each shall file (i) a Notification and Report Form with the Federal
Trade Commission (the “FTC”)
and
the United States Department of Justice (the “DOJ”)
pursuant to the HSR Act with respect to the Transactions, including the Merger
and (ii) any appropriate pre-merger notifications under the Antitrust Laws
of any foreign jurisdiction, as reasonably agreed by the parties to be
appropriate. Each of the Company and Parent shall cause all documents that
it is
responsible for filing with any Governmental Entity under this Section
5.10
to
comply in all material respects with applicable law. The Company and Parent
each
shall promptly (a) supply the other with any additional information and
documentary material that may be requested pursuant to the HSR Act which
may be
required in order to effectuate such filings and to take all other actions
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable, and (b) supply any
additional information, which reasonably may be required by the competition
or
merger control authorities of any other jurisdiction and which the parties
reasonably agree to be appropriate; provided,
however,
that
Parent shall not be required to agree to any Action of Divestiture. Parent
shall
be entitled to direct any proceedings or negotiations with any Governmental
Entity relating to any of the foregoing, provided that
Parent
shall afford the Company a reasonable opportunity to participate therein.
Each
party hereto shall notify the other promptly upon the receipt of (i) any
comments from any officials of any Governmental Entity in connection with
any
filings made pursuant hereto and (ii) any request by any officials of any
Governmental Entity for amendments or supplements to any filings made pursuant
to, or information provided to comply in all materials respect with, applicable
law. Whenever any event occurs that is required to be set forth in an amendment
or supplement to any filing made pursuant to this Section
5.10,
each
party will promptly inform the other parties hereto of such occurrence and
the
Company will cooperate with Parent in filing with the applicable Governmental
Entity such amendment or supplement. For purposes of this Agreement,
“Antitrust
Law”
means
the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, and all other Legal Requirements
that
are designed or intended to prohibit, restrict or regulate actions having
the
purpose or effect of monopolization or restraint of trade.
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5.11 Termination
of Certain Benefit Plans.
(a) Effective
no later than the day immediately preceding the Effective Time, the Company
and
its Affiliates, as applicable, shall each terminate any and all group severance,
separation or salary continuation plans, programs or arrangements and any
and
all plans intended to include a Code Section 401(k) arrangement (unless Parent
provides written notice to the Company that such 401(k) plans shall not be
terminated) (collectively, “Company
401(k) Plans”).
Unless Parent provides such written notice to the Company, no later than
five
(5) business days prior to the Effective Time, the Company shall provide
Parent
with evidence that such Company 401(k) Plan(s) have been terminated (effective
no later than the day immediately preceding the Effective Time) pursuant
to
resolutions of the Board. The form and substance of such resolutions shall
be
subject to review and approval of Parent. The Company also shall take such
other
actions in furtherance of terminating such Company 401(k) Plan(s) as Parent
may
reasonably require.
(b) As
soon
as administratively practicable following the Closing Date, the Company shall
advise the Transferred Company Employees (as defined below) of their right
to
elect to receive a distribution of, or to directly rollover, their individual
account balances from the Company 401(k) Plan(s). To the extent permitted
by
Law, as soon as practicable following the Closing Date, such account balances
may be transferred by the Transferred Company Employees to a defined
contribution retirement plan maintained by Parent (the “Parent’s
401(k) Plan”)
in a
direct rollover or rollover contribution, which, in the case of a Transferred
Company Employee who rolls over his or her entire account balance, shall
include
any outstanding loan notes from the Company’s 401(k) Plan(s). Prior to
terminating the Company 401(k) Plan(s), the Company shall take any steps
necessary, including amending the Company 401(k) Plan(s) and any related
401(k)
loan policies, to ensure that such rollover of participant accounts and loans
balances is permitted under the terms of the Company 401(k) Plan(s) and any
401(k) loan policies.
5.12 Employee
Benefits.
As soon
as practicable after the Effective Time, Parent shall provide the employees
of
the Company and its subsidiaries who remain employed after the Effective
Time
(each, a “Transferred
Company Employee”
and
collectively, the “Transferred
Company Employees”)
with
substantially similar types and levels of employee benefits (other than
equity-based compensation or benefits) as those provided to similarly situated
employees of Parent. Parent shall treat the service of Transferred Company
Employees with the Company or any subsidiary of the Company prior to the
Effective Time as service rendered to Parent or any affiliate of Parent for
purposes of eligibility and vesting in Parent’s applicable benefit plans, other
than stock option and restricted stock unit vesting. Parent shall use its
reasonable best efforts to provide that no Transferred Company Employee,
or any
of his or her eligible dependents, who, at the Effective Time, are participating
in the Company group health plan shall be excluded from the Parent’s group plan,
or limited in coverage thereunder, by reason of any waiting period restriction
or pre-existing condition limitation; provided
that
such Transferred Company Employees are based in the United States and meet
applicable actively at work requirements as of the Effective Time.
Notwithstanding the foregoing, Parent shall not be required to provide any
coverage, benefits, or credit inconsistent with the terms of Parent benefit
plans.
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5.13 FIRPTA
Certificate.
On or
prior to the Effective Time, the Company shall deliver to Parent a properly
executed statement in a form reasonably acceptable to Parent for purposes
of
satisfying Parent’s obligations under Treasury Regulation Section
1.1445-2(c)(3).
ARTICLE
VI
CONDITIONS
TO THE MERGER
6.1 Conditions
to Obligations of Each Party to Effect the Merger.
The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company
Stockholder Approval.
This
Agreement shall have been duly approved, by the requisite vote under applicable
law, by the stockholders of the Company.
(b) No
Order.
No
Governmental Entity shall have enacted, issued, promulgated,
enforced
or entered any statute, rule, regulation, executive order, decree, injunction
or
other order (whether temporary, preliminary or permanent) which is in effect
and
which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
(c) Proxy
Statement.
No
order suspending the use of the Proxy Statement or any part thereof shall
be in
effect and no proceeding for that purpose shall have been initiated or
threatened in writing by the SEC and shall be continuing.
(d) HSR
Act and Comparable Laws.
Any
applicable waiting period under the HSR Act relating to the Transactions,
including the Merger, shall have expired or been terminated, any applicable
waiting periods under foreign Antitrust Laws relating to the Transactions,
including the Merger, shall have expired or been terminated, and all foreign
antitrust Approvals required to be obtained prior to the Effective time shall
have been obtained.
6.2 Additional
Conditions to Obligations of Company.
The
obligation of the Company to consummate and effect the Merger shall be subject
to the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the
Company:
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(a) Representations
and Warranties.
Each
representation and warranty of Parent and Merger Sub contained in this Agreement
(i) shall have been true and correct as of the date of this Agreement, and
(ii) shall be true and correct on and as of the Closing Date with the same
force and effect as if made on the Closing Date except (A) in each case, or
in the aggregate, as would not reasonably be expected to constitute a Parent
Material Adverse Effect, and (B) for those representations and warranties
which address matters only as of a particular date (which representations
shall
have been true and correct (subject to the qualifications as set forth in
the
preceding clause (A)) as of such particular date) (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, all “Parent Material Adverse Effect” qualifications and other
qualifications based on the word “material” or similar phrases contained in such
representations and warranties shall be disregarded). The Company shall have
received a certificate with respect to the foregoing signed on behalf of
Parent
by an authorized officer of Parent.
(b) Agreements
and Covenants.
Parent
and Merger Sub shall have performed or complied in all material respects
with
all agreements and covenants required by this Agreement to be performed or
complied with by them on or prior to the Closing Date, and the Company shall
have received a certificate to such effect signed on behalf of Parent by
an
authorized officer of Parent.
6.3 Additional
Conditions to the Obligations of Parent and Merger Sub.
The
obligations of Parent and Merger Sub to consummate and effect the Merger
shall
be subject to the satisfaction at or prior to the Closing Date of each of
the
following conditions, any of which may be waived, in writing, exclusively
by
Parent:
(a) Representations
and Warranties.
Each
representation and warranty of the Company contained in this Agreement
(i) shall have been true and correct as of the date of this Agreement, and
(ii) shall be true and correct on and as of the Closing Date with the same
force and effect as if made on and as of the Closing Date except (A) in
each case, or in the aggregate, as would not reasonably be expected to
constitute a Material Adverse Effect on the Company (provided,
however,
that
such Material Adverse Effect qualifier shall be inapplicable with respect
to the
representations and warranties set forth in Section 2.3
(Capitalization) hereof, which shall be true and correct in all material
respects), and (B) for those representations and warranties which address
matters only as of a particular date (which representations shall have been
true
and correct (subject to the qualifications as set forth in the preceding
clause (A)) as of such particular date) (it being understood that, for
purposes of determining the accuracy of such representations and warranties,
all
“Material Adverse Effect” qualifications and other qualifications based on the
word “material” or similar phrases contained in such representations and
warranties shall be disregarded). Parent shall have received a certificate
with
respect to the foregoing signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company.
(b) Agreements
and Covenants.
The
Company shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it at or prior to the Closing Date.
Parent
shall have received a certificate with respect to the foregoing signed on
behalf
of the Company by the Chief Executive Officer and the Chief Financial Officer
of
the Company.
A-55
(c) Material
Adverse Effect.
No
Material Adverse Effect with respect to the Company and its subsidiaries
shall
have occurred since the date of this Agreement, and Parent shall have received
a
certificate to such effect signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company.
(d) Consents.
The
Company shall have obtained all consents, waivers and approvals required
in
connection with the consummation of the transactions contemplated hereby
in
connection with the Contracts set forth on Section 6.3(d)
of the
Company Schedule in form and substance reasonably satisfactory to
Parent.
(e) No
Litigation.
There
shall not be any pending or threatened suit, action or proceeding asserted
by
any Governmental Entity (i) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other Transactions, the effect
of
which restraint or prohibition if obtained would cause the condition set
forth
in Section
6.1(b)
to not
be satisfied, or (ii) seeking to require Parent or the Company or any of
their respective subsidiaries or affiliates to effect an Action of
Divestiture.
(f) Key
Employees.
(i) the current President and Chief Operating Officer and at least five (5)
of the employees listed on Section
6.3(f)(i)
of the
Company Schedule (the President and Chief Operating Officer and such five
(5)
other employees, the “Key
Group”)
shall
be employees of the Company or one of its subsidiaries immediately prior
to the
Closing Date, and none of the Key Group shall have notified (whether formally
or
informally) Parent or the Company of such employee’s intention of leaving the
employ of Parent or one of its subsidiaries following the Closing Date, and
(ii)
at least 90% of the employees listed on Section
6.3(f)(ii)
of the
Company Schedule shall be employees of the Company or one of its subsidiaries
immediately prior to the Closing Date and no more than 90% of such employees
shall have notified (whether formally or informally) Parent or the Company
of
such employee’s intention of leaving the employ of Parent or one of its
subsidiaries following the Closing Date.
(g) Non-Competition
Agreements.
The
Non-Competition Agreements shall be in full force and effect, and none of
the
individuals that entered into a Non-Competition Agreement shall have attempted
to terminate or otherwise repudiated such agreement or indicated an intention
to
terminate or otherwise repudiate such agreement.
(h) 401(k)
Plans.
Unless
Parent shall have provided written notice to the Company pursuant to
Section
5.11
that the
Company 401(k) Plan should not be terminated, the Company shall have provided
Parent with evidence reasonably satisfactory to Parent that the Company 401(k)
Plans have been terminated.
(i) Assignments
The
Company shall have provided written documentation in a form reasonably
acceptable to Parent that all current consultants and independent contractors
who contribute or have at any time contributed to the creation or development
of
material Company Intellectual Property prior to the Closing have executed
valid
written assignments to the Company (or one of its subsidiaries) of all right,
title and interest they may have in or to such Company Intellectual Property
and
that all current consultants and independent contractors are obligated to
assign
to the Company (or one of its subsidiaries) all of their right in or to any
future Intellectual Property created by such consultants and independent
contractors for or on behalf of the Company or any of its subsidiaries after
the
Closing.
A-56
(j) Restatement.
There
shall not have been any restatement of any of the Company’s consolidated
financial statements, and the Company shall not have been notified by any
Governmental Entity or any present or former auditor of the Company of any
Effect that could reasonably be expected to result in any such restatement.
The
Company’s auditors shall not have resigned or threatened to resign. No auditor
whose report is included in the Company’s Annual Report on Form 10-K for the
fiscal year ended September 30, 2006 shall have revoked, or notified the
Company of such auditor’s intention to revoke, such auditor’s report or consent
to include such report in such Form 10-K. There shall not be any pending
or
threatened investigation or inquiry by any Governmental Entity questioning
the
accuracy of any of the Company’s financial statements or their conformity with
the published rules and regulations of the SEC or with GAAP or the historical
stock-based compensation practices of the Company, nor shall any Governmental
Entity have requested any information in connection with any of the foregoing;
provided,
however,
that
any comments from the SEC or its staff in connection with their review of
the
Proxy Statement that have been resolved without any of the effects referred
to
in this paragraph (j) shall not constitute a pending or threatened investigation
or inquiry or request for information.
(k) Exchange
Act Filings.
If the
Effective Time shall be on or after February 8, 2007, the Company shall
have filed with the SEC its Quarterly Report on Form 10-Q for its fiscal
quarter
ended December 31, 2006, which Form 10-Q, as so filed with the SEC, shall
comply as to form with the rules and regulations of the SEC applicable to
quarterly reports on Form 10-Q.
(l) Audited
Financial Statements.
The
Company shall have obtained and delivered to Parent an unqualified audit
of the
Company’s consolidated financial statements for the Company’s fiscal year ended
September 30, 2006.
(m) Resignation
of Directors and Officers.
Parent
shall have received a written resignation from each of the directors and
officers of the Company and each of its subsidiaries (in their capacities
as
such) effective as of immediately prior to the Effective Time.
A-57
ARTICLE
VII
TERMINATION,
AMENDMENT AND WAIVER
7.1 Termination.
This
Agreement may be terminated at any time prior to the Effective Time, and
the
Merger may be abandoned, notwithstanding (except as set forth below) any
requisite approval of this Agreement by the stockholders of the
Company:
(a) by
mutual
written consent duly authorized by the Boards of Directors of Parent and
the
Company;
(b) by
either
the Company or Parent if the Effective Time shall not have occurred on or
before
May 9, 2007 (as may be extended by mutual agreement of the parties, the
“End
Date”)
for
any reason; provided,
however,
that
the right to terminate this Agreement under this Section
7.1(b)
shall
not be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Effective Time to occur
on
or before such date and such action or failure to act constitutes a breach
of
this Agreement;
(c) by
either
the Company or Parent if a Governmental Entity shall have issued an order,
decree or ruling or taken any other action, in any case having the effect
of
permanently restraining, enjoining or otherwise prohibiting the Merger, which
order, decree, ruling or other action is final and nonappealable;
(d) by
either
the Company or Parent if the required approval of the stockholders of the
Company contemplated by this Agreement shall not have been obtained by reason
of
the failure to obtain the required vote at the Stockholders’ Meeting or at any
adjournment thereof; provided,
however,
that
the right to terminate this Agreement under this Section
7.1(d)
shall
not be available to either party where the failure to obtain the Company
stockholder approval shall have been caused by the action or failure to act
of
such party and such action or failure to act constitutes a breach by such
party
of this Agreement;
(e) by
the
Company, at any time prior to the approval of this Agreement by the Company’s
stockholders, if
(i)
the Board shall have effected a Change of Recommendation pursuant to and
in
compliance with Section
5.4(c)
hereof,
(ii) the Company shall have made full payment of all amounts provided under
Section 7.3
hereof,
and (iii) concurrently or within two (2) calendar days of such termination,
the
Company enters into a definitive agreement with respect to the Superior Offer
that was the subject of such Change of Recommendation.
(f) by
the
Company, upon a breach of any representation, warranty, covenant or agreement
on
the part of Parent set forth in this Agreement, or if any representation
or
warranty of Parent shall have become untrue, in either case such that the
conditions set forth in Section
6.2(a)
or
Section
6.2(b)
hereof
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided,
however,
that if
such inaccuracy in Parent’s representations and warranties or breach by Parent
is curable by Parent prior to the End Date through the exercise of its
commercially reasonable efforts, then the Company may not terminate this
Agreement under this Section
7.1(f)
for
thirty (30) calendar days after delivery of written notice from the Company
to
Parent of such breach, provided Parent continues to exercise commercially
reasonable efforts to cure such breach (it being understood that the Company
may
not terminate this Agreement pursuant to this paragraph (f) if such breach
by Parent is cured during such thirty (30) calendar
day period);
A-58
(g) by
Parent, upon a breach of any representation, warranty, covenant or agreement
on
the part of the Company set forth in this Agreement, or if any representation
or
warranty of the Company shall have become untrue, in either case such that
the
conditions set forth in Section
6.3(a)
or
Section
6.3(b)
hereof
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided,
however,
that if
such inaccuracy in the Company’s representations and warranties or breach by the
Company is curable by the Company prior to the End Date through the exercise
of
its commercially reasonable efforts, then Parent may not terminate this
Agreement under this Section
7.1(g)
for
thirty (30)calendar days after delivery of written notice from Parent to
the
Company of such inaccuracy or breach, provided the Company continues to exercise
commercially reasonable efforts to cure such inaccuracy or breach (it being
understood that Parent may not terminate this Agreement pursuant to this
paragraph (g) if such inaccuracy or breach is cured during such thirty (30)
calendar day period);
(h) by
Parent, if a Material Adverse Effect with respect to the Company and its
subsidiaries shall have occurred since the date of this Agreement; provided,
however,
that if
such Material Adverse Effect is curable by the Company prior to the End Date
through the exercise of its commercially reasonable efforts, then Parent
may not
terminate this Agreement under this Section
7.1(h)
for
thirty (30) calendar days after delivery of written notice from Parent to
the
Company of such Material Adverse Effect, provided the Company continues to
exercise commercially reasonable efforts to cure such Material Adverse Effect
(it being understood that Parent may not terminate this Agreement pursuant
to
this paragraph (h) if such Material Adverse Effect is cured during such
thirty (30) calendar day period);
(i) by
Parent, upon the occurrence of any of the events referred to in Section 6.3(j);
provided,
however,
that if
such event is curable by the Company prior to the End Date through the exercise
of its commercially reasonable efforts, then Parent may not terminate this
Agreement under this Section 7.1(i)
for
thirty (30) calendar days after delivery of written notice from Parent to
the
Company of the occurrence of such event, provided the Company continues to
exercise commercially reasonable efforts to cure such event (it being understood
that Parent may not terminate this Agreement pursuant to this paragraph (i)
if such event is cured during such thirty (30) calendar day period);
or
(j) by
Parent, if
a
Triggering Event (as defined below) shall have occurred.
For
the
purposes of this Agreement, a “Triggering
Event”
shall
be deemed to have occurred if: (i) the Board or any committee thereof shall
for any reason have made a Change of Recommendation; (ii) the Company shall
have failed to include in the Proxy Statement the recommendation of the Board
that holders of Shares vote in favor of and approve this Agreement;
(iii) the Board fails to reaffirm (publicly, if so requested) its
recommendation in favor of the approval of this Agreement within ten (10)
calendar days after Parent requests in writing that such recommendation be
reaffirmed; provided
that
Parent shall only request such a reaffirmation following the public announcement
by a Third Party of an Acquisition Proposal or an intent to make an Acquisition
Proposal, (iv) the Board or any committee thereof shall have approved,
endorsed or recommended any Acquisition Proposal; (v) the Company shall
have entered into any letter of intent or similar document or any Contract
accepting any Acquisition Proposal; (vi) a tender or exchange offer
relating to securities of the Company shall have been commenced by a person
unaffiliated with Parent and the Company shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities
Act, within ten (10) business days after such tender or exchange offer is
first
published sent or given, a statement disclosing that the Board recommends
rejection of such tender or exchange offer; or (v) the Company shall have
intentionally materially breached the provisions of Section
5.2
or
Section
5.4.
A-59
7.2 Notice
of Termination; Effect of Termination.
Any
termination of this Agreement under Section 7.1
hereof
will be effective immediately upon (or, if the termination is pursuant to
Section
7.1(f),
7.1(g),
7.1(h)
or
7.1(i)
hereof
and the proviso therein is applicable, thirty (30) calendar
days thereafter) the delivery of written notice of the terminating party
to the
other parties hereto. In the event of the termination of this Agreement as
provided in Section 7.1
hereof,
this Agreement shall be of no further force or effect and there shall be
no
liability to any party hereunder in connection with the Agreement or the
Transactions, except (i) as set forth in Section
5.3(a)
hereof,
this Section 7.2,
Section 7.3
hereof
and Article
VIII
hereof,
each of which shall survive the termination of this Agreement, and
(ii) nothing herein shall relieve any party from liability for fraud or any
intentional or willful breach of, or any intentional misrepresentation made
in,
this Agreement. No termination of this Agreement shall affect the obligations
of
the parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their
terms.
7.3 Fees
and Expenses.
(a) General.
Except
as set forth in this Section 7.3,
all
fees and expenses incurred in connection with this Agreement and the
Transactions shall be paid by the party incurring such expenses whether or
not
the Merger is consummated; provided,
however,
that
Parent and Company shall share equally any filing fee for any Notification
and
Report Form filed with the FTC and the DOJ pursuant to the HSR Act, and any
appropriate pre-merger notifications under the Antitrust Laws of any foreign
jurisdiction, as reasonably agreed by the parties to be appropriate, in each
case pursuant to Section 5.10
hereof.
A-60
(b) Company
Payments.
(i) The
Company shall pay to Parent in immediately available funds, within three
(3)
business days after written demand by Parent, an amount equal to Four Million
Two Hundred and Seventy One Thousand Dollars ($4,271,000) (the “Termination
Fee”)
if
this Agreement is terminated by Parent pursuant to Section
7.1(j)
hereof.
(ii) The
Company shall pay to Parent in immediately available funds, concurrent with
a
termination by Company of this Agreement pursuant to Section
7.1(e)
hereof,
an amount equal to the Termination Fee, and no such termination of this
Agreement shall be deemed effected until such time as the Termination Fee
shall
have been paid to Parent.
(iii) The
Company shall pay Parent in immediately available funds, within one (1) business
day after written demand by Parent, an amount equal to the Termination Fee,
if
this Agreement is terminated by Parent pursuant to Section
7.1(b)
or
Section
7.1(d)
hereof
and any of the following shall occur:
(A) if
following the date hereof and prior to the termination of this Agreement,
a
Third Party has announced, and not publicly definitively withdrawn at least
five
(5) business days prior to such termination, an Acquisition Proposal and
within twelve (12) months following the termination of this Agreement any
Company Acquisition (as defined below) is consummated; or
(B) if
following the date hereof and prior to the termination of this Agreement,
a
Third Party has announced, and not publicly definitively withdrawn at least
five
(5) business days prior to such termination, an Acquisition Proposal and
within twelve (12) months following the termination of this Agreement the
Company enters into a letter of intent or similar document or any written
Contract providing for any Company Acquisition or publicly announces its
intent
to enter into a Company Acquisition, and such Company Acquisition is
subsequently consummated within nine (9) months thereafter.
(iv) The
Company shall pay to Parent in immediately available funds, within two (2)
business days after written demand by Parent, if this Agreement is terminated
by
Parent pursuant to Section
7.1(g)
based on
a failure to satisfy the condition set forth in Section
6.3(b)
and,
(x) prior to such termination, the Company has received, or a Third Party
has announced, an Acquisition Proposal and (y) such breach is intended to
facilitate such Acquisition Proposal or benefit the Third Party making such
Acquisition Proposal without similarly benefiting Parent, an amount equal
to the
out-of-pocket fees and expenses incurred by Parent and Merger Sub in connection
with the negotiation, execution and delivery of this Agreement and the
transactions contemplated hereby (including, without limitation, reasonable
attorney fees and expenses, reasonable advisor fees and expenses, travel
costs,
filing fees, printing, mailing and solicitation costs and
expenses).
A-61
(v) The
Company hereby acknowledges and agrees that the agreements set forth in this
Section
7.3(b)
with
respect to payment of the Termination Fee are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement. Accordingly, if the Company fails
to
pay in a timely manner the amounts due pursuant to this Section
7.3(b)
and, in
order to obtain such payment, Parent makes a claim that results in a judgment
against the Company for the amounts set forth in this Section
7.3(b),
the
Company shall pay to Parent its reasonable costs and expenses (including
reasonable attorneys’ fees and expenses) in connection with such suit, together
with interest on the amounts set forth in this Section
7.3(b)
at the
prime rate of Citibank N.A. in effect on the date such payment was required
to
be made. Payment of the Termination Fee by the Company shall constitute
liquidated damages, and Parent’s right to receive a Termination Fee in the
circumstances provided in this Section
7.3(b)
is the
exclusive remedy available to the Parent for any failure of the Merger and
other
Transactions to be consummated in those circumstances, and the Company shall
have no further liability with respect to this Agreement or the Transactions,
except as described in the previous sentence; provided
that
in
no event shall a Termination Fee be in lieu of damages incurred as a result
of
any intentional or willful breach of, or any intentional misrepresentation
made
in this Agreement. Notwithstanding the foregoing, the payment by the Company
of
any Parent Expenses pursuant to Section
7.2(b)(iv)
shall
not constitute liquidated damages with respect to any claim which Parent
or
Merger Sub would be entitled to assert against the Company or its assets,
or
against any of the Company’s directors, officers, employees or stockholders,
with respect to any such breach, and shall not constitute the sole and exclusive
remedy with respect to any such breach.
(vi) For
the
purposes of this Agreement, “Company
Acquisition”
shall
mean any of the following transactions (other than the Transactions contemplated
by this Agreement): (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the
Company pursuant to which the stockholders of the Company immediately preceding
such transaction hold less than a majority of the aggregate equity interests
in
the surviving or resulting entity of such transaction, (ii) a sale or other
disposition by the Company of all or more than a majority of the assets of
the
Company and its subsidiaries, taken as a whole, or (iii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer
or
issuance by the Company), directly or indirectly, of beneficial ownership
or a
right to acquire beneficial ownership of shares representing in excess of
a
majority of the voting power of the then outstanding shares of capital stock
of
the Company.
A-62
7.4 Amendment.
Subject
to applicable Legal
Requirements,
this
Agreement may be amended by the parties hereto at any time by execution of
an
instrument in writing signed on behalf of each of Parent and the
Company.
7.5 Extension;
Waiver.
At any
time prior to the Effective Time, any party hereto may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or
in any
document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions for the benefit of such party contained herein;
provided
that
Section
6.1(a)
may not
be waived without the express written consent of Parent. Any agreement on
the
part of a party hereto to any such extension or waiver shall be valid only
if
set forth in an instrument in writing signed on behalf of such party. Delay
in
exercising any right under this Agreement shall not constitute a waiver of
such
right.
ARTICLE
VIII
GENERAL
PROVISIONS
8.1 Non-Survival
of Representations and Warranties.
The
representations and warranties of the Company, Parent and Merger Sub contained
in this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective
Time.
8.2 Notices.
All
notices and other communications hereunder shall be in writing and shall
be
deemed given if delivered personally or by commercial delivery service, or
sent
via telecopy (receipt confirmed) to the parties at the following addresses
or
telecopy numbers (or at such other address or telecopy numbers for a party
as
shall be specified by like notice):
|
(a)
|
if
to Parent or Merger Sub, to:
|
Intuit
Inc.
2632
Marine Way
Mountain
View, CA 94043
Attention:
General Counsel
Telephone
No.: (650) 944-6622
Telecopy
No.: (650) 944-6000
with
a
copy to:
O’Melveny
& Myers LLP
Embarcadero
Center West
275
Battery Street, Suite 2600
San
Francisco, California 94111
Attention:
Michael S. Dorf, Esq.
Telephone
No.: (415) 984-8700
Telecopy
No.: (415) 984-8701
A-63
if
to the
Company, to:
Electronic
Clearing House, Inc.
730
Paseo
Camarillo
Camarillo,
CA 93010
Attention:
Charles Harris
Telephone
No.: (805) 419-8600
Telecopy
No.: (805) 419-8689
with
a
copy to:
Stubbs
Alderton & Markiles, LLP
15260
Ventura Boulevard, 20th Floor
Sherman
Oaks, California 91403
Attention:
V. Joseph Stubbs, Esq.
Telephone
No.: (818) 444-4507
Telecopy
No.: (818) 474-8607
8.3 Interpretation;
Knowledge.
(a) The
words
“hereof,” “herein” and “herewith” and words of similar import shall, unless
otherwise stated, be construed to refer to this Agreement as a whole and
not to
any particular provision of this Agreement, and annex, article, section,
paragraph, exhibit and schedule references are references to the annex,
articles, sections, paragraphs, exhibits and schedules of this Agreement,
unless
otherwise indicated. Unless otherwise indicated the words “include,” “includes”
and “including” when used herein shall be deemed in each case to be followed by
the words “without limitation.” The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any
way
the meaning or interpretation of this Agreement. When reference is made herein
to “the business of” an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity. The plural of any defined term shall have a
meaning
correlative to such defined term and words denoting any gender shall include
all
genders and the neuter. A reference to any legislation or to any provision
of
any legislation shall include any modification, amendment, re-enactment thereof,
any legislative provision substituted therefore and all rules, regulations
and
statutory instruments issued or related to such legislation.
(b) For
purposes of this Agreement, with respect to any person that is not an
individual, the term “knowledge” means
the
actual knowledge of such person’s directors and executive officers and the
knowledge that any of such persons would be reasonably expected to have in
the
conduct of their respective duties, and, with respect to any individual,
means
the actual knowledge of such person.
A-64
(c) For
purposes of this Agreement, the term “Material
Adverse Effect”
when
used in connection with the Company means any change, event, violation,
inaccuracy, circumstance or effect (each, an “Effect”),
individually or when aggregated with other Effects, that is or would be
reasonably likely to (i) be materially adverse to the business, properties,
assets (including intangible assets), liabilities (including contingent
liabilities), capitalization, condition (financial or otherwise) or results
of
operations of the Company and its subsidiaries taken as a whole, or
(ii) have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or consummate the Transactions
without any material delay; provided,
however,
that
Effects arising from or relating to ant of the following shall not be deemed
in
and of itself, either alone or in combination, to constitute, and shall not
be
taken into account in determining whether there has been or will be, a Material
Adverse Effect: (A) conditions affecting the industries in which the Company
participates, the United States economy as a whole or foreign economies in
any
locations where the Company or any of its subsidiaries has material operations
or sales (which Effects, in each case, do not disproportionately affect the
Company or its subsidiaries, as the case may be), (B) any failure by the
Company
to meet any projections or forecasts for any period ending (or for which
revenues or earnings are released) on or after the date hereof in and of
itself
(for the avoidance of doubt, this clause (B) shall not preclude Parent or
Merger
Sub from taking the underlying cause of any such failure into account in
determining whether there has been or will be a Material Adverse Effect),
(C)
any change in GAAP after the date hereof, (D) any attack on, or by, outbreak
or
escalation of hostilities or acts of terrorism involving, the United States,
or
any declaration of war by the United States Congress, or (E) any loss of
revenue, not to exceed ten percent (10%) of the Company’s total revenues, from
Internet Wallet Customers, which the Company successfully bears the burden
of
proving resulted from the Unlawful Internet Gambling Enforcement Act of 2006
and
the regulations to be promulgated thereunder.
(d) For
purposes of this Agreement, the term “person”
shall
mean any individual, corporation (including any non-profit corporation),
general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint
stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(e) For
purposes of this Agreement, an “affiliate”
of
any
person shall mean another person that directly or indirectly, through one
or
more intermediaries, controls, is controlled by, or is under common control
with, such first person, where “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities,
by
contract, as trustee or executor, or otherwise.
(f) For
purposes of this Agreement, the term “business
day”
shall
mean any day other than Saturday, Sunday or any other day on which banks
are
legally permitted to be closed in San Francisco, California or Las Vegas,
Nevada.
8.4 Counterparts.
This
Agreement may be executed in one or more counterparts, all of which shall
be
considered one and the same agreement and shall become effective when one
or
more counterparts have been signed by each of the parties and delivered to
the
other party, it being understood that all parties need not sign the same
counterpart.
A-65
8.5 Entire
Agreement; Third Party Beneficiaries.
This
Agreement and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, including the Company
Schedule and the Parent Schedule (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements, representations, warranties and understandings, both written
and
oral, among the parties with respect to the subject matter hereof, it being
understood that the Confidentiality Agreement shall continue in full force
and
effect and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.9
hereof.
8.6 Severability.
In the
event that any provision of this Agreement, or the application thereof, becomes
or is declared by a court of competent jurisdiction to be illegal, void or
unenforceable, the remainder of this Agreement will continue in full force
and
effect and the application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties
hereto.
The parties further agree to replace such void or unenforceable provision
of
this Agreement with a valid and enforceable provision that will achieve,
to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
8.7 Other
Remedies; Specific Performance.
Except
as otherwise provided herein, any and all remedies herein expressly conferred
upon a party will be deemed cumulative with and not exclusive of any other
remedy conferred hereby, or by law or equity upon such party, and the exercise
by a party of any one remedy will not preclude the exercise of any other
remedy.
The parties hereto agree that irreparable damage would occur in the event
that
any of the provisions of this Agreement were not performed in accordance
with
their specific terms or were otherwise breached. It is accordingly agreed
that
the parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction,
this
being in addition to any other remedy to which they are entitled at law or
in
equity.
8.8 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of New York, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law thereof.
8.9 Rules
of Construction.
The
parties hereto agree that they have been represented by counsel during the
negotiation and execution of this Agreement and, therefore, waive the
application of any Legal Requirement or rule of construction providing that
ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
8.10 Assignment.
No
party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other parties.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
A-66
8.11 Waiver
of Jury Trial.
EACH OF
PARENT, COMPANY AND MERGER SUB HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT
OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS
OF
PARENT, COMPANY OR MERGER SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
AND ENFORCEMENT HEREOF.
[Remainder
of Page Intentionally Left Blank]
A-67
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of
Merger to be executed by their duly authorized respective officers as of
the
date first written above.
|
INTUIT
INC.
|
||
|
By:
|
/s/
Joe Kaplan
|
|
|
Name:
|
Joe
Kaplan
|
|
|
Title:
|
Vice
President
|
|
|
ELAN
ACQUISITION CORPORATION
|
||
|
By:
|
/s/
Jeff Hank
|
|
|
Name:
|
Jeff
Hank
|
|
|
Title:
|
VP,
Treasurer & Chief Financial Officer
|
|
|
ELECTRONIC
CLEARING HOUSE, INC.
|
||
|
By:
|
/s/
Charles Harris
|
|
|
Name:
|
Charles
Harris
|
|
|
Title:
|
President
& COO
|
|
[Signature
Page to Agreement and Plan of Merger]
A-68
Annex
B
FORM
OF VOTING AGREEMENT
THIS
VOTING AGREEMENT (this “Agreement”)
is
made and entered into as of December 14, 2006 by and between Intuit Inc.,
a
Delaware corporation (“Parent”),
and
the undersigned stockholder (the “Stockholder”)
of
Electronic Clearing House, Inc., a Nevada corporation (the “Company”).
RECITALS:
A. Parent,
the Company and Merger Sub have entered into an Agreement and Plan of Merger
(the “Merger
Agreement”),
which
provides for the merger (the “Merger”)
of
Merger Sub with and into the Company, pursuant to which all outstanding capital
stock of the Company will be converted into the right to receive a cash payment,
as set forth in the Merger Agreement.
B. The
Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”))
of
such number of shares of the outstanding capital stock of the Company, and
such
number of shares of capital stock of the Company issuable upon the exercise
of
outstanding options and warrants, as is indicated on the signature page of
this
Agreement.
C. In
consideration of the execution of the Merger Agreement by Parent, the
Stockholder (in his or her capacity as such) has agreed to vote the Shares
(as
defined below) so as to facilitate consummation of the Merger.
NOW,
THEREFORE, intending to be legally bound hereby, the parties hereto hereby
agree
as follows:
1. Certain
Definitions.
Capitalized terms used but not defined herein shall have the respective meanings
ascribed thereto in the Merger Agreement. For all purposes of and under this
Agreement, the following terms shall have the following respective
meanings:
(a)
“Expiration
Date”
shall
mean the earlier to occur of (i) such date and time as the Merger Agreement
shall have been validly terminated pursuant to its terms, or (ii) such date
and time as the Merger shall become effective in accordance with the terms
and
conditions set forth in the Merger Agreement.
(b)
“person”
shall
mean any individual, corporation (including any not-profit corporation),
general
partnership, limited partnership, limited liability partnership, joint venture,
estate, limited liability company, trust, company (including any limited
liability company or joint stock company), association, organization, entity,
or
governmental authority.
(c)
“Shares”
shall
mean: (i) all securities of the Company (including all shares of capital
stock of the Company and all options, warrants and other rights to acquire
shares of capital stock of the Company) owned by the Stockholder as of the
date
of this Agreement, and (ii) all additional securities of the Company
(including all additional shares of capital stock of the Company and all
additional options, warrants and other rights to acquire shares of capital
stock
of the Company) of which the Stockholder acquires beneficial ownership during
the period commencing with the execution and delivery of this Agreement until
the Expiration Date.
B-1
(d)
Transfer.
A
person shall be deemed to have effected a “Transfer”
of
a
security if such person directly or indirectly (i) sells, pledges,
encumbers, grants an option with respect to, establishes an open “put equivalent
position” within the meaning of Rule 16a-h under the Exchange Act, transfers or
otherwise disposes of such security or any interest therein (including the
economic consequences of ownership), or (ii) enters into an agreement or
commitment providing for the sale of, pledge of, encumbrance of, grant of
an
option with respect to, establishment of a “put equivalent position” with
respect to, transfer of or other disposition of such security or any interest
therein (including the economic consequences of ownership).
2. Transfer
of Shares.
(a)
Transfer
of Shares.
The
Stockholder hereby agrees that, at all times during the period commencing
with
the execution and delivery of this Agreement until the Expiration Date, the
Stockholder shall not cause or permit any Transfer of any of the Shares to
be
effected or make any offer regarding any Transfer of any of the Shares;
provided,
however,
that
the Stockholder may Transfer Shares to a family member or trust for estate
planning purposes, provided that, as a condition to any such Transfer to
a
family member or trust, the transferee has agreed with Parent in writing
to be
bound by the terms of this Agreement (including granting a Proxy as contemplated
hereby) and to hold such Shares subject to all the terms and provisions of
this
Agreement.
(b)
Transfer
of Voting Rights.
The
Stockholder hereby agrees that, at all times commencing with the execution
and
delivery of this Agreement until the Expiration Date, the Stockholder shall
not
deposit, or permit the deposit of, any Shares in a voting trust, grant any
proxy
in respect of the Shares, or enter into any voting agreement or similar
arrangement, commitment or understanding in a manner inconsistent with the
terms
of Section
3
hereof
or otherwise in contravention of the obligations of the Stockholder under
this
Agreement, with respect to any of the Shares.
3. Agreement
to Vote Shares.
Until
the Expiration Date, at every meeting of stockholders of the Company called
with
respect to any of the following, and at every adjournment or postponement
thereof, and on every action or approval by written consent of stockholders
of
the Company with respect to any of the following, the Stockholder shall vote,
to
the extent not voted by the person(s) appointed under the Proxy (as defined
in
Section 4
hereof),
the Shares:
(a)
in
favor
of approval of the Merger;
(b) against
approval of any proposal made in opposition to, or in competition with,
consummation of the Merger and the transactions contemplated by the Merger
Agreement, and against any action or agreement that would result in a breach
of
any representation, warranty, covenant, agreement or other obligation of
the
Company in the Merger Agreement; and
(c) against
any Acquisition Proposal or (other than those actions that relate to the
Merger
and the transactions contemplated by the Merger Agreement) any other:
(A) merger, consolidation, business combination, sale of assets,
reorganization or recapitalization of the Company or any subsidiary of the
Company with any party, (B) sale, lease or transfer of any significant part
of the assets of the Company or any subsidiary of the Company,
(C) reorganization, recapitalization, dissolution, liquidation or winding
up of the Company or any subsidiary of the Company, (D) material change in
the capitalization of the Company or any subsidiary of the Company, or the
corporate structure of the Company or any subsidiary of the Company, or (E)
action that is intended, or could reasonably be expected to, impede, interfere
with, delay, postpone, discourage or adversely affect the Merger or any of the
other transactions contemplated by the Merger Agreement.
B-2
4. Irrevocable
Proxy.
Concurrently with the execution of this Agreement, the Stockholder agrees
to
deliver to Parent a proxy in the form attached hereto as Exhibit A
(the
“Proxy”),
which
shall be irrevocable to the fullest extent permissible by applicable law,
with
respect to the Shares.
5. No
Solicitation.
The
Stockholder hereby represents and warrants that he or she has read Section
5.4
of the Merger Agreement and agrees to be bound by the provisions of such
section.
6. Representations
and Warranties of the Stockholder.
The
Stockholder hereby represents and warrants to Parent that, as of the date
hereof
and at all times until the Expiration Date, (i) the Stockholder is (and
will be) the beneficial owner of the shares of capital stock of the Company,
and
the options, warrants and other rights to purchase shares of capital stock
of
the Company, set forth on signature page of this Agreement, with full power
to
vote or direct the voting of the Shares for and on behalf of all beneficial
owners of the Shares; (ii) the Shares are (and will be) free and clear of
any liens, pledges, security interests, claims, options, rights of first
refusal, co-sale rights, charges or other encumbrances of any kind or nature
(each an “Encumbrance”);
(iii) the Stockholder does not as of the date of this Agreement
beneficially own any securities of the Company other than the shares of capital
stock of the Company, and options, warrants and other rights to purchase
shares
of capital stock of the Company, set forth on the signature page of this
Agreement; (iv) the Stockholder has (and will have) full power and
authority to make, enter into and carry out the terms of this Agreement and
the
Proxy; (v) the Stockholder agrees that it will not bring, commence, institute,
maintain, prosecute, participate in or voluntarily aid any action, claim,
suit
or cause of action, in law or in equity, in any court or before any governmental
entity, which (a) challenges the validity of or seeks to enjoin the operation
of
any provision of this Agreement or (b) alleges that the execution and delivery
of this Agreement by the Stockholder, either alone or together with the other
Company voting agreements and proxies to be delivered in connection with
the
execution of the Merger Agreement, or the approval of the Merger Agreement
by
the board of directors of the Company, breaches any fiduciary duty of the
board
of directors of the Company or any member thereof; (vi) the execution, delivery
and performance of this Agreement by the Stockholder and the proxy contained
herein does not violate or breach, and will not give rise to any violation
or
breach of, the Stockholder’s certificate of formation or limited liability
company agreement or other organizational documents (if the Stockholder is
not
an individual), or any law, contract, instrument, arrangement or agreement
by
which such Stockholder is bound; (vii) this Agreement has been duly executed
by
the Stockholder and constitutes the valid and legally binding obligation
of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors’
rights and general principles of equity and the availability of equitable
remedies may be limited by equitable principles of general applicability;
and
(viii) the execution, delivery and performance of this Agreement and the
proxy
contained herein do not, and performance of this Agreement will not, require
any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority (other than any necessary filing
under the Exchange Act), domestic or foreign.
B-3
7. Consent
and Waiver.
The
Stockholder (not in his or her capacity as a director or officer of the Company)
hereby gives any consents or waivers that are reasonably required for the
consummation of the Merger under the terms of any agreements to which the
Stockholder is a party, or pursuant to any rights Stockholder may have. The
Stockholder further consents and authorizes Parent and Company to publish
and
disclose in the Proxy Statement (including all documents filed with the SEC
in
connection therewith) its identity and ownership of the Shares and the nature
of
its commitments, arrangements and understandings under this
Agreement.
8. Legending
of Shares.
If so
requested by Parent, the Stockholder hereby agrees that the Shares shall
bear a
legend stating that they are subject to this Agreement and to an irrevocable
proxy.
9. Termination.
This
Agreement shall terminate and be of no further force or effect as of the
Expiration Date.
10. Appraisal
Rights.
The
Stockholder irrevocably waives and agrees not to exercise any rights (including,
without limitation, under Sections 92A.300 through 92A.500 of the Nevada
Revised
Statutes) to demand appraisal of any of the Shares which may arise with respect
to the Merger.
11. Miscellaneous.
(a) Waiver.
No
waiver by any party hereto of any condition or any breach of any term or
provision set forth in this Agreement shall not be effective unless in writing
and signed by each party hereto. The waiver of a condition or any breach
of any
term or provision of this Agreement shall not operate as or be construed
to be a
waiver of any other previous or subsequent breach of any term or provision
of
this Agreement. Any such waiver shall not be applicable or have any effect
except in the specific instance in which it is given.
(b) Severability.
In the
event that any term, provision, covenant or restriction set forth in this
Agreement, or the application of any such term, provision, covenant or
restriction to any person, entity or set of circumstances, shall be determined
by a court of competent jurisdiction to be invalid, unlawful, void or
unenforceable to any extent, the remainder of the terms, provisions, covenants
and restrictions set forth in this Agreement, and the application of such
terms,
provisions, covenants and restrictions to persons, entities or circumstances
other than those as to which it is determined to be invalid, unlawful, void
or
unenforceable, shall remain in full force and effect, shall not be impaired,
invalidated or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by applicable law.
(c) Binding
Effect; Assignment.
This
Agreement and all of the terms and provisions hereof shall be binding upon,
and
inure to the benefit of, the parties hereto and their respective successors
and
permitted assigns, but, except as otherwise specifically provided herein,
neither this Agreement nor any of the rights, interests or obligations of
the
Stockholder may be assigned to any other person without the prior written
consent of Parent.
B-4
(d) Amendments.
This
Agreement may not be modified, amended, altered or supplemented, except upon
the
execution and delivery of a written agreement executed by each of the parties
hereto.
(e) Specific
Performance; Injunctive Relief.
Each of
the parties hereto hereby acknowledge that (i) the representations,
warranties, covenants and restrictions set forth in this Agreement are
necessary, fundamental and required for the protection of Parent and to preserve
for Parent the benefits of the Merger; (ii) such covenants relate to
matters which are of a special, unique, and extraordinary character that
gives
each such representation, warranty, covenant and restriction a special, unique,
and extraordinary value; and (iii) a breach of any such representation,
warranty, covenant or restriction, or any other term or provision of this
Agreement, will result in irreparable harm and damages to Parent which cannot
be
adequately compensated by a monetary award. Accordingly, Parent and the
Stockholder hereby expressly agree that in addition to all other remedies
available at law or in equity, Parent shall be entitled to the immediate
remedy
of specific performance, a temporary and/or permanent restraining order,
preliminary injunction, or such other form of injunctive or equitable relief
as
may be used by any court of competent jurisdiction to restrain or enjoin
any of
the parties hereto from breaching any representations, warranties, covenants
or
restrictions set forth in this Agreement, or to specifically enforce the
terms
and provisions hereof.
(f) Governing
Law.
This
Agreement shall be governed by and construed, interpreted and enforced in
accordance with the laws of the State of New York without giving effect to
any
choice or conflict of law provision, rule or principle (whether of the State
of
New York or any other jurisdiction) that would cause the application of the
laws
of any jurisdiction other than the State of New York.
(g) Entire
Agreement.
This
Agreement and the Proxy and the other agreements referred to in this Agreement
set forth the entire agreement and understanding of Parent and the Stockholder
with respect to the subject matter hereof and thereof, and supersede all
prior
discussions, agreements and understandings between Parent and the Stockholder,
both oral and written, with respect to the subject matter hereof and
thereof.
(h) Notices.
All
notices and other communications pursuant to this Agreement shall be in writing
and deemed to be sufficient if contained in a written instrument and shall
be
deemed given if delivered personally, telecopied, sent by nationally-recognized
overnight courier or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the respective parties at the following address
(or at such other address for a party as shall be specified by like
notice):
B-5
|
If
to Parent:
|
Intuit
Inc.
|
|
|
2632
Marine Way
|
||
|
Mountain
View, CA 94043
|
||
|
Attention:
General Counsel
|
||
|
Telephone
No.: (650) 944-6000
|
||
|
Telecopy
No.: (650) 944-6622
|
||
|
with
a copy to:
|
O’Melveny
& Myers LLP
|
|
|
Embarcadero
Center West
|
||
|
275
Battery Street, Suite 2600
|
||
|
San
Francisco, California 94111
|
||
|
Attention:
Michael S. Dorf, Esq.
|
||
|
Telephone
No.: (415) 984-8700
|
||
|
|
Telecopy No.: (415) 984-8701 | |
|
If
to the Stockholder:
|
To
the address for notice set forth on the signature page
hereof.
|
(i) Further
Assurances.
The
Stockholder (in his or her capacity as such) shall execute and deliver any
additional certificate, instruments and other documents, and take any additional
actions, as Parent may deem necessary or desirable, in the reasonable opinion
of
Parent, to carry out and effectuate the purpose and intent of this
Agreement.
(j) Headings.
The
section headings set forth in this Agreement are for convenience of reference
only and shall not affect the construction or interpretation of this Agreement
in any manner.
(k) Counterparts.
This
Agreement may be executed in several counterparts, each of which shall be
deemed
an original, and all of which together shall constitute one and the same
instrument.
(l) Rules
of Construction.
The
parties hereto agree that they have been represented by counsel during the
negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against
the
party drafting such agreement or document.
(m) Expenses.
All
costs and expenses incurred in connection with this Agreement shall be paid
by
the party incurring such cost or expense.
(n) Waiver
of Jury Trial.
Each of
Parent, Company and Stockholder hereby irrevocably waives all right to trial
by
jury in any action, proceeding or counterclaim (whether based on contract,
tort
or otherwise) arising out of or relating to this agreement.
B-6
IN
WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed
as of the date first written above.
|
INTUIT
INC.
|
||
|
By:
|
||
|
Signature
of Authorized Signatory
|
||
|
|
||
|
Name:
|
||
|
Title:
|
||
*****VOTING
AGREEMENT*****
B-7
|
STOCKHOLDER:
|
||
|
By:
|
||
|
Signature
|
||
|
Name:
|
||
|
Title:
|
||
|
Print
Address
|
||
|
Telephone
|
||
|
Facsimile
No.
|
||
|
Shares
beneficially owned:
|
||
|
__________
shares of Company capital stock
|
||
|
__________
shares of Company capital stock issuable upon the exercise of
outstanding
options, warrants or other
rights
|
||
*****VOTING
AGREEMENT*****
B-8
EXHIBIT
A
IRREVOCABLE
PROXY
The
undersigned stockholder of Electronic Clearing House, Inc., a Nevada
corporation (the “Company”),
hereby irrevocably (to the fullest extent permitted by law) appoints the
directors of the Board of Directors of Intuit Inc., a Delaware corporation
(“Parent”),
and
each of them, as the sole and exclusive attorneys-in-fact and proxies of
the
undersigned, with full power of substitution and resubstitution, to vote
and
exercise all voting and related rights (to the full extent that the undersigned
is entitled to do so) with respect to all of the shares of capital stock
of the
Company that now are or hereafter may be beneficially owned by the undersigned,
and any and all other shares or securities of the Company issued or issuable
in
respect thereof on or after the date hereof (collectively, the “Shares”)
in
accordance with the terms of this irrevocable proxy (the “Proxy”).
The
Shares beneficially owned by the undersigned stockholder of the Company as
of
the date of this Proxy are listed on the final page of this Proxy. Upon the
execution of this Proxy by the undersigned, any and all prior proxies given
by
the undersigned with respect to any Shares are hereby revoked and the
undersigned hereby agrees not to grant any subsequent proxies with respect
to
the Shares until after the Expiration Date (as defined below).
This
Proxy is irrevocable (to the fullest extent permitted by law), is coupled
with
an interest and is granted pursuant to that certain Voting Agreement of even
date herewith by and between Parent and the undersigned stockholder (the
“Voting
Agreement”),
and
is granted in consideration of Parent entering into that certain Agreement
and
Plan of Merger (the “Merger
Agreement”),
by
and among Parent, Elan Acquisition Corporation, a Nevada corporation and
a
wholly-owned subsidiary of Parent (“Merger
Sub”),
and
the Company, which provides for the merger of Merger Sub with and into the
Company in accordance with its terms (the “Merger”).
As
used herein, the term “Expiration
Date”
shall
mean the earlier to occur of (i) such date and time as the Merger Agreement
shall have been validly terminated pursuant to its terms, or (ii) such date
and time as the Merger shall become effective in accordance with the terms
and
conditions set forth in the Merger Agreement.
The
attorneys and proxies named above, and each of them, are hereby authorized
and
empowered by the undersigned, at any time prior to the Expiration Date, to
act
as the undersigned’s attorney and proxy to vote the Shares, and to exercise all
voting, consent and similar rights of the undersigned with respect to the
Shares
(including, without limitation, the power to execute and deliver written
consents) at every annual, special, adjourned or postponed meeting of
stockholders of the Company and in every written consent in lieu of such
meeting:
(i) in
favor
of approval of the Merger;
(ii) against
approval of any proposal made in opposition to, or in competition with,
consummation of the Merger and the transactions contemplated by the Merger
Agreement, and against any action or agreement that would result in a breach
of
any representation, warranty, covenant, agreement or other obligation of
the
Company in the Merger Agreement; and
B-9
(iii) against
any Acquisition Proposal or (other than those actions that relate to the
Merger
and the transactions contemplated by the Merger Agreement) any other:
(A) merger, consolidation, business combination, sale of assets,
reorganization or recapitalization of the Company or any subsidiary of the
Company with any party, (B) sale, lease or transfer of any significant part
of the assets of the Company or any subsidiary of the Company, (C)
reorganization, recapitalization, dissolution, liquidation or winding up
of the
Company or any subsidiary of the Company, (D) material change in the
capitalization of the Company or any subsidiary of the Company, or the corporate
structure of the Company or any subsidiary of the Company, or (E) action
that is
intended, or could reasonably be expected to, impede, interfere with, delay,
postpone, discourage or adversely affect the Merger or any of the other
transactions contemplated by the Merger Agreement.
The
attorneys-in-fact and proxies named above may not exercise this Proxy on
any
other matter except as provided above.
Any
obligation of the undersigned hereunder shall be binding upon the successors
and
assigns of the undersigned.
B-10
This
Proxy is irrevocable (to the fullest extent permitted by law). This Proxy
shall
terminate, and be of no further force and effect, automatically upon the
Expiration Date.
|
Dated:
__________________ ____, 2006
|
|
|
Signature
of Stockholder:__________________________
|
|
|
Print
Name of Stockholder:________________________
|
|
|
Shares
beneficially owned:
|
|
|
________
shares of Company capital stock
|
|
|
________
shares of the Company capital stock issuable upon the exercise
of
outstanding options, warrants or other
rights
|
B-11
1000
WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90017-2465
MAILING
ADDRESS: P.O. BOX 30014, LOS ANGELES, CALIFORNIA 90030-0014
 |
(213)
688-4545
FAX
(213) 688-6642
|
December
14, 2006
Board
of
Directors
Electronic
Clearing House, Inc.
730
Paseo
Camarillo
Camarillo,
CA 93010
Gentlemen:
We
understand that Electronic Clearing House, Inc. (the "Company" or "ECHO")
is
planning a
potential sale of the Company to Intuit Inc. ("Intuit" or "Parent") or another
potential bidder identified
as a result of a market check of an offer by Intuit (the "Transaction").
We also
understand
that the Company and Intuit propose to enter into an agreement and plan of
merger (the
"Final Agreement"). We have reviewed a draft of the merger agreement dated
December 13,
2006
(the "Merger Agreement"), which for the purpose of this opinion we have assumed
is similar in all material respects to the Final Agreement. Pursuant to the
Merger Agreement, a
wholly-owned subsidiary of Parent ("Merger Sub") shall be merged with and
into
the Company
(the "Merger"), the separate corporate existence of Merger Sub shall cease
and
the Company shall continue as the surviving corporation, subject to the Company
shareholders' approval and certain other conditions. The capitalized terms
in
this opinion shall have the meaning
given to them in the Merger Agreement. Pursuant to the Merger, as more fully
described
in the Merger Agreement, we understand that, subject to the exercise of
dissenters' rights, each outstanding share of the common stock ("Company
Common
Stock"), par value $0.01
per
share, other than treasury shares, and associated Rights will be canceled
and
extinguished
and automatically converted into the right to receive cash, without interest,
in
an amount
equal to $18.75 per share (the "Merger Consideration"). Each Company Stock
Option
and share of Company Restricted Stock will become fully vested. Each Company
Stock
Option will be cancelled, and the holder of each Company Stock Option that
has a
per share exercise price that is less than the Merger Consideration shall
be
entitled to receive cash equal to the product of (A) the number of shares
of
Company Common Stock as to which the portion
of the Company Stock Option that is so cancelled could be exercised, multiplied
by (B)
the
Merger Consideration less the per share exercise price of such portion of
the
Company Stock
Option. The terms and conditions of the Merger are set forth in more detail
in
the Merger
Agreement.
You
have
asked us whether, in our opinion, as of the date hereof, the consideration
to be
received
by the holders of Company Common Stock as provided in the Merger Agreement
(the
"Merger Consideration") is fair to such holders from a financial point of
view.
www.wedbush.com
C-1
|
Board
of Directors
|
December
14, 2006
|
|
Electronic
Clearing House, Inc
|
Page
2 of 3
|
Wedbush
Morgan Securities Inc. ("Wedbush Morgan") is an investment banking firm and
member
of
The New York Stock Exchange and other principal stock exchanges in the United
States,
and is regularly engaged as part of its business in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements,
secondary distributions of listed and unlisted securities, and valuations
for
corporate,
estate and other purposes.
For
purposes of this opinion and in connection with our review of the Merger,
we
have, among
other things: (1) reviewed the Merger Agreement which we understand is in
a form
substantially
similar to the one the Board will be reviewing; (2) reviewed certain publicly
available
business and financial information relating to the Company that we deem to
be
relevant;
(3) reviewed certain internal information, primarily financial in nature,
including financial projections and other financial and operating data furnished
to us by the Company; (4) reviewed certain publicly available and other
information concerning the reported prices and trading history of, and the
trading market for, the common stock of the Company; (5) reviewed
certain publicly available information with respect to other companies that
we
believe
to be comparable in certain respects to the Company; (6) considered the
financial terms,
to
the extent publicly available, of selected recent business combinations of
companies in
the
electronic payment processing industry which we deemed to be comparable,
in
whole or
in
part, to the Merger; and (7) made inquiries regarding and discussed the Merger
Agreement
and other matters related thereto with the Company's counsel. In addition,
we
have
held
discussions with the management of the Company concerning their views as
to the
financial
and other information described above. In addition to the foregoing, we have
conducted
such other analyses and examinations and considered such other financial,
economic
and market criteria as we deem appropriate to arrive at our
opinion.
In
arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information provided to or reviewed
by
us or publicly available, and we have
not
assumed any responsibility for independent verification of any such information.
With
respect to financial projections and other information provided to or reviewed
by us, we have
been
advised by the management of the Company that such projections and other
information
were reasonably prepared on bases reflecting the best currently available
estimates
and judgments of the management of the Company as to the expected future
financial
performance of the Company.
We
further relied on the assurances of management of the Company that they are
unaware of any
facts
that would make the information or projections provided to us incomplete
or
misleading.
We have not made or been provided with any independent evaluations or
appraisals
of any of the assets, properties, liabilities or securities, nor have we
made
any physical
inspection of the properties or assets, of the Company.
Our
opinion is based on economic, market and other conditions as in effect on,
and
the information
made available to us as of, the date hereof. We have also relied on the accuracy
and
completeness of the Company's representations and warranties in the Agreement.
Events
occurring after the date hereof could materially affect the assumptions used
in
preparing this opinion. We have not undertaken to reaffirm or revise this
opinion or otherwise
comment upon any events occurring after the date hereof.
C-2
|
Board
of Directors
|
December
14, 2006
|
|
Electronic
Clearing House, Inc
|
Page
3 of 3
|
We
have
acted as financial advisor to the Company and have received a fee from the
Company
for our services. The fee for rendering our opinion is not contingent upon
the
conclusions reached and is payable upon delivery of the opinion. We will
also
receive an additional
fee if the proposed Merger is consummated. In the ordinary course of our
business, we
and
our affiliates may actively trade the common stock of the Company and Parent
for
our own
account and for the accounts of our customers and, accordingly, we may at
any
time hold a long or short position in the common stock of the Company or
Parent.
This
opinion is for the benefit and use of the Board in connection with its
evaluation of the Transaction
and does not constitute a recommendation to any holder of the Company's
common
stock as to how such holder should vote with respect to the Transaction.
This
opinion
may not be used for any other purpose without our prior written consent in
each
instance,
except as expressly provided for in the engagement letter dated as of June
30,
2006 between
the Board and Wedbush Morgan.
Based
upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration
to be received by the public holders of the Company is fair from a financial
point
of
view.
|
Very
truly yours,
|
|
 |
C-3