SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 4, 2000
ELECTRONIC CLEARING HOUSE, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-15245 93-0946274
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
28001 Dorothy Drive, Agoura Hills, California 91301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 706-8999
(Former name or former address, if changes since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 4, 2000, Electronic Clearing House, Inc., a Nevada corporation
("ECHO"), acquired Rocky Mountain Retail Systems ("RMRS"), a Colorado
corporation, through a merger (the "Merger") of ECHO's wholly-owned
subsidiary, ECHO Acquisition Corporation, a Colorado corporation ("EAC"), with
and into RMRS. The Merger was consumated on the terms set forth in an
Agreement and Plan of Reorganization dated January 4, 2000, by and among ECHO,
EAC and RMRS (the "Merger Agreement"), attached hereto as Exhibit 2.1. As a
result of the Merger, RMRS is now a wholly-owned subsidiary of ECHO.
RMRS is the creator/owner and procesor for National Check Information
Systems through which RMRS provides check verification services to large
retail chains, processors and collection agencies across the nation.
Pursuant to the Merger Agreement, ECHO issued a total of 1,000,000 shares
of restricted common stock ("Base Shares") to the selling shareholders of
RMRS. In addition, up to 1,500,000 shares of restricted common stock
("Performance Shares") will be issued to the RMRS selling shareholders under a
performance clause wherein should the RMRS subsidiary's performance meet or
exceed predetermined earnings goals for the years 2000 through 2002, a
proportionate number of performance-based shares will be issued. The Merger
is being accounted for as a purchase, not a pooling of interests.
All liabilities and expenses paid by ECHO in connection with the Merger
were funded from ECHO's working capital. ECHO expects this merger to be
accretive to earnings.
The description of the Merger contained herein is qualified in its
entirety by reference to the Merger Agreement and the Press Release issued by
ECHO dated January 6, 2000, copies of which are filed herewith and
incorporated herein by reference as Exhibits 2.1 and 99.1 respectively.
ITEM 7. FINANCIAL STATEMENT, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Financial statements
of the business acquired, prepared pursuant to Rule 3-05 of
Regulation S-X, are unavailable as of the date of this filing. Such
information will be filed on or before March 17, 2000.
(b) PRO FORMA FINANCIAL INFORMATION. Pro Forma financial information
required pursuant to Article 11 of Regulation S-X is unavailable as
of the date of this filing. Such information will be filed on or
before March 17, 2000.
(c) EXHIBITS:
Exhibit
Number Description of Document
2.1 Merger Agreement and Plan of Reorganization, dated
January 4, 2000, by and among ECHO, EAC and RMRS
99.1 Press Release, dated January 6, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC CLEARING HOUSE, INC.
(Registrant)
By \s\Alice L. Cheung
Alice L. Cheung, Treasurer &
Chief Financial Officer
Dated: January 19, 2000
<PAGE>
EXHIBIT 2.1
MERGER AGREEMENT AND PLAN OF REORGANIZATION
This Merger Agreement and Plan of Reorganization ("Agreement") is made as of
the 4th day of January, 2000 by and among Electronic Clearing House, Inc., a
Nevada corporation ("ECHO"), ECHO Acquisition Corporation, a Colorado
corporation ("EAC"), Rocky Mountain Retail Systems, Inc., a Colorado
corporation ("RMRS"), and the individual shareholders of RMRS listed and
signing at the end of this Agreement in Article XI ("Selling Shareholders").
WHEREAS the Selling Shareholders own all of the right, title and interest in
all of the outstanding shares of capital stock of RMRS ("RMRS Shares") as set
forth in Article XI;
WHEREAS EAC desires to merge into RMRS and RMRS desires to merge with EAC as
set forth in this Agreement ("Merger");
WHEREAS Selling Shareholders approve the Merger and desire to receive shares
of ECHO in connection with the Merger;
WHEREAS ECHO is willing to issue up to 2,500,000 shares of the common capital
stock of ECHO in connection with the Merger ("ECHO Shares");
WHEREAS RMRS would become a wholly-owned subsidiary of ECHO as a result of the
Merger;
NOW THEREFORE IN CONSIDERATION OF THE MUTUAL COVENANTS SET FORTH HEREIN, THE
PARTIES AGREE AS FOLLOWS:
I
TERMS OF TRANSACTION
1.1 Merger and Effect of Merger.
1.1.1. Merger of EAC and RMRS. EAC will be merged with and into RMRS
effective on date that Articles of Merger in the form attached to this
Agreement as Exhibit A1 are filed with the Colorado Secretary of State
("Effective Date").
1.1.2. RMRS Surviving Corporation. RMRS will be the surviving corporation
in the Merger. After the Effective Date, RMRS;s corporate name, existence and
all its purposes, powers and objectives will continue unaffected and
unimpaired by the Merger, RMRS will continue to be governed by the laws of the
State of Colorado, and RMRS will succeed to EAC's rights, assets, liabilities
and obligations in accordance with the Colorado Business Corporation Act.
1.1.3. Articles of Incorporation. No changes in the Articles of
Incorporation of RMRS will be effected by the Merger. The Articles of
Incorporation of RMRS on the Effective Date will continue to be the Articles
of Incorporation of RMRS after the Effective Date. From and after the
Effective Date, said Articles of Incorporation, as they may be amended from
time to time, will be, and may be separately certified as, the Articles of
Incorporation of RMRS.
1.1.4. Bylaws. The Bylaws of RMRS in effect on the Effective Date
shall be the Bylaws of RMRS after the Effective Date until those Bylaws are
duly altered, amended or repealed.
1.1.5 Directors. The Directors of RMRS on the Effective Date will be
the Directors of RMRS after the Effective Date, with the addition of Joel M.
Barry as Chairman of the Board, until their successors are duly elected and
qualify. The officers of RMRS on the effective date shall be the officers of
RMRS after the effective date, with the addition of Joel M. Barry as Chief
Executive Officer, subject to the terms of this Agreement.
1.1.6 Conversion of EAC Shares. Effective on the Merger, each share
of EAC at the time issued and outstanding will be converted into one share of
the common capital stock of RMRS.
1.1.7 Conversion of RMRS Shares. Effective on the Merger, all of
the shares of RMRS at the time issued and outstanding (other than dissenting
shares to the extent provided in the Colorado Business Corporation Act) will
by virtue of the Merger and without action on the part of any shareholder of
RMRS be converted into the right to receive ECHO Shares as provided in this
Agreement.
1.1.6 Tax-Free Reorganization. The Merger is intended by ECHO, EAC,
RMRS and the Selling Shareholders to be a tax-free reorganization as defined
in Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
("Code") (it being understood that no representation or warranty as to such
effect is or has been made); and this Agreement is intended to be a Plan of
Reorganization under that Section.
1.2 Base Shares.
1.2.1. Issuance of Base Shares to Selling Shareholders at the
Effective Date. Upon effectiveness of the Merger, ECHO will issue to each of
the Selling Shareholders the number of ECHO Shares set forth opposite that
Selling Shareholder's name in Article XI as "Base Shares," aggregating a total
of 1,000,000 Base Shares, subject to the terms of this Agreement.
1.2.2 Escrow of Base Shares.
Certificates representing the Base Shares shall be delivered to the
Secretary of ECHO, to be held in escrow in accordance with an escrow agreement
containing the terms set forth in the form of escrow agreement attached to
this Agreement as Exhibit A2 ("Escrow Agreement"). Subject to the terms of
the Escrow Agreement, certificates for 1,000,000 Base Shares shall be released
from the escrow and delivered to the Selling Shareholders on January 04, 2000.
Base Shares reflected in certificates held in escrow cannot be transferred or
otherwise alienated until released from escrow except as provided in this
Agreement.
1.3 Performance Shares.
1.3.1. Issuance of Performance Shares to Selling Shareholders On
Achievement of Performance Goals. As of the last day of Performance Period #
1 (January 1, 2000 through December 31, 2000), Performance Period #2 (January
01, 2001 through December 31, 2001), and Performance Period #3 (January 01,
2002 through December 31, 2002) ECHO will issue to each of the Selling
Shareholders the number of ECHO Shares to which that Selling Shareholder shall
be entitled pursuant to this Section 1.3.1, up to the total number of Shares
set forth opposite that Selling Shareholder's name in Article XI as
"Performance Shares," aggregating up to a maximum of 1,500,000 Performance
Shares, subject to the terms of this Agreement.
The number of Performance Shares that shall be issued under this
Section 1.3.1 is based on Net Earnings accrued during Performance Period #1,
Performance Period #2, and Performance Period #3.
Net Earnings shall be net earnings before taxes as reflected on the
income statement of RMRS for the applicable Performance Period, calculated in
accordance with generally accepted accounting principles and consistent with
the historical and past practices of RMRS. Net earnings shall reflect
deductions for administrative charges of ECHO in accordance with ECHO's set
policy for allocating administrative charges to RMRS. ECHO's policy for
allocating such administrative charges is set forth in Exhibit B. ECHO and
EAC shall waive all set-off rights with respect to Performance Shares issued
through escrow in accordance with the Escrow Agreement.
Any dispute arising out of or relating to Net Earnings calculations
shall be resolved by binding arbitration through a third-party certified
public accounting firm to be agreed upon by both ECHO and the Selling
Shareholders. Should any resulting arbitration judgment be rendered in favor
of ECHO, all related expenses, court costs and attorney's fees will be
allocated to RMRS.
In the event of a merger of ECHO with another company (other than the
Merger contemplated by this Agreement), whether ECHO is the surviving company
or absorbed company, or the acquisition of 50 percent of the outstanding
shares of ECHO by another company or other person or group of persons in the
same transaction or series of related transactions prior to the end of any
Performance Period, Net Earnings shall be the Net Earnings calculated as
previously described, but Performance Shares will now be granted for Net
Earnings of $100,000 or more, instead of the $200,000 or more currently
contemplated under this Agreement. In addition, 6.52 Performance Shares,
instead of the 3.26 Performance Shares currently contemplated under this
Agreement, will be issued for each $1.00 by which Net Earnings exceed said
$100,000 in any one Performance Period up to the maximum of a total of
1,500,000 Performance Shares available for issuance in the aggregate during
Performance Periods #1, #2, and #3.
Performance Period #1 shall commence on January 01, 2000 and shall
terminate on December 31, 2000.
For Performance Period #1, Performance Shares shall be issued in
accordance with the following:
Net Earnings
Number of
Performance Shares
Less than $200,000
<PAGE>
None$200,000 or more
<PAGE>
3.26 Performance Shares
for each $1.00 by which
Net Earnings exceed
$200,000 in any one
Performance Period, up to
the maximum of a total of
1,500,000 Performance
Shares available for
issuance in the aggregate
during Performance
Periods #1, #2, and #3.
Performance Period #2 shall commence on January 01, 2001 and shall
terminate on December 31, 2001. For Performance Period #2, Performance Shares
shall be those Remaining Shares (as defined hereinafter) available after the
Performance Shares for Performance Period #1 have been issued. Performance
Period #3 shall commence on January 01, 2002 and shall terminate on December
31, 2002. For Performance Period #3, Performance Shares shall be those
Remaining Shares available after the Performance Shares for Performance
Periods #1 and #2 have been issued. Thus, if 500,000 shares are issued in
respect to Performance Period #1 (resulting in 1,000,000 Remaining Shares) and
Net Earnings for Performance Period #2 were, e.g., $450,000, then 815,000
Performance Shares would be issued in respect to Performance Period #2; that
is $450,000 - $200,000 = $250,000, $250,000 x 3.26 = 815,000; leaving 185,000
Remaining Shares available for issuance at the end of Performance Period #3.
"Remaining Shares" means 1,500,000 Performance Shares less the aggregate
number, if any, of Performance Shares issued with respect to Performance
Period #1 and Performance Period #2.
Each Selling Shareholder shall be entitled to receive that percentage
of the aggregate number of Performance Shares issued during any Performance
Period as is pro rata to the number of RMRS Shares held by that Shareholder
immediately prior to Closing.
Fractional shares shall not be issued. Any fraction of a share shall be
rounded up to 1 share.
The number of Performance Shares to be issued hereunder shall be
appropriately adjusted to reflect any stock split, stock dividend, stock
combination or similar transaction effected without additional full fair
market value payment for shares. The foregoing shall not apply to any
conversion of convertible securities or any issue of securities on exercise of
warrants or options to purchase such securities.
1.3.2 Escrow of Performance Shares. Certificates for Performance
Shares shall be delivered to the Secretary of ECHO immediately on issue, to be
held in escrow in accordance with the Escrow Agreement. Subject to the terms
of the Escrow Agreement, certificates for the aggregate number of Performance
Shares that shall have been issued with respect to Performance Periods #1 ,
#2, and #3 shall be released from the escrow and delivered to the Selling
Shareholders on the 28th day of February following the close of the prior
respective Performance Period. Thus, if 500,000 Performance Shares are to be
issued with respect to Performance Period #1 ending December 31, 2000, those
500,000 Performance Shares would be issued out of escrow on February 28, 2001.
Performance Shares reflected in certificates held in escrow cannot be
transferred or otherwise alienated until released from escrow, except as
provided in this Agreement.
1.4 Shareholder Rights. Subject to the terms of the Escrow Agreement,
Selling Shareholders shall have all of the rights of Shareholders with respect
to Base Shares and Performance Shares upon issuance thereof, and with respect
to Performance Shares only after they are earned, except the right to assign
or transfer those Shares while such Shares are held in the escrow subject to
the terms of this Agreement.
1.5 Allocation of Base Shares. For ECHO tax and accounting purposes,
the parties intend that all Base Shares issued to Selling Shareholders shall
be allocated in respect to RMRS tangible assets at book value of those
tangible assets and in respect to RMRS intangible assets at fair market value
of those intangible assets.
1.6 Limited Right to Transfer. Notwithstanding any other provision
of this Agreement, Selling Shareholders shall have the right to transfer Base
Shares and earned Performance Shares to any person, provided that: (1) the
transfer does not violate any federal or state securities law or other law,
(2) the Selling Shareholders assume all tax liabilities arising out of the
transfer; and (3) the Selling Shareholders indemnify ECHO against any claim
and/or liability arising out of such transfer.
1.7 Conditions Subsequent - Earnout of Performance Shares.
Notwithstanding any other provision of this Agreement, prior to December 31,
2002, the Selling Shareholders shall have the right to be immediately issued
all Performance and/or Remaining Shares should one or more of the following
events occur: a) ECHO losses the U-Haul relationship for any reason other than
by expiration of contract; b) ECHO fails to honor its corporate allocation and
offset commitments as contained in this Agreement; c) ECHO's common stock
fails to be listed on NASDAQ for any reason; or d) ECHO effects a reverse
stock split of its common stock to avoid a de-listing action by NASDAQ.
In the event any of the above listed events transpire prior to December
31, 2002, the Selling Shareholders, acting together in full agreement and in
one accord, may decide to affect their decision to be issued all Performance
Shares and/or Remaining Shares by giving prompt written notice of such
decision to ECHO as provided for under the provisions of Section 10.6 of this
Agreement. No single Selling Shareholder or a group of a majority of the
Selling Shareholders shall be permitted to affect an issuance of Performance
Shares and/or Remaining Shares under this Agreement.
ECHO shall issue to each Selling Shareholder, within thirty (30) days
from the date of receipt of the above notice, Performance Shares and/or
Remainin Shares in proportion to the identical amount of RMRS common stock
originally tendered by each Selling Shareholder under the Articles of Merger
attached as Exhibit A1 to this Agreement.
II
RMRS EMPLOYEES
2.1 Donald E. Dick. Effective as of the Effective Date ECHO agrees to
cause RMRS to employ Donald E. Dick in the position of President, upon the
terms and conditions set forth in Exhibit C1 to this Agreement.
2.2 Robert L. Anderson, Jr. Effective as of the Effective Date, ECHO
agrees to cause RMRS to employ Robert L. Anderson, Jr. in the position of Vice
President-Operations, upon the terms and conditions set forth in Exhibit C2 to
this Agreement.
2.3 Arnold Feinberg. Effective as of the Effective Date, ECHO agrees
to cause RMRS to employ Arnold Feinberg in the position of Vice President-
Sales, upon the terms and conditions set forth in Exhibit C3 to this
Agreement.
2.4 Other Employees. Employees of RMRS other than those referred to
in Sections 2.1 through 2.3 shall be retained as employees of RMRS at their
current compensation for at least a two year period. After the effective date
of this Agreement, adding an RMRS employee or terminating an RMRS employee
shall require the approval of ECHO's Chief Executive Officer.
III
REPRESENTATIONS AND WARRANTIES OF
RMRS AND SELLING SHAREHOLDERS
RMRS and the Selling Shareholders jointly and severally represent and
warrant to ECHO as of the date of this Agreement and as of the Effective Date
as follows, except as set forth in Exhibit D:
3.1 Organization and Standing: Authority. RMRS is a corporation duly
organized, validly existing, and in good standing under the laws of Colorado.
RMRS has the requisite corporate power and authority to own, lease and operate
its properties and assets, and to carry on its business as presently conducted
and to enter into this Agreement. All corporate action on the part of RMRS,
its shareholders, directors and officers necessary for the authorization,
execution, delivery and performance of this Agreement by RMRS has been taken
or will be taken prior to the Closing. This Agreement, when executed and
delivered, is a valid and binding obligation of RMRS and each of the Selling
Shareholders, subject to the laws of bankruptcy, insolvency, creditors rights,
and equitable remedies, and will not violate the Articles of Incorporation or
bylaws of RMRS or any agreement, law, regulation, government order or other
obligation under which RMRS or any of the Selling Shareholders is bound. RMRS
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where failure to be so qualified will not have an effect on
the business, properties, assets, condition (financial or otherwise),
liabilities, operations or prospects of RMRS taken as a whole in an amount in
excess of $50,000 ("Material Adverse Effect").
3.2 Corporate Documents. RMRS has delivered to ECHO true copies of
its Articles of Incorporation and its bylaws as currently in effect, all stock
records, and all minutes of meetings and all consents and other actions of its
shareholders, board of directors, executive committee, and other governing
boards. There shall have been no changes to these documents at the time of
the Effective Date. RMRS is in full compliance with all provisions of such
documents.
3.3 Bank Statements. RMRS has delivered statements of all banks and
other institutions at which it maintains funds for each of the three preceding
months. RMRS does not maintain funds at any institution other than those for
which statements have been delivered hereunder.
3.4 Subsidiaries. RMRS has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any other
corporation, association or business entity.
3.5 Capitalization. The authorized capital stock of the RMRS consists
of 10,000 shares of Common Stock, of which 1,053 shares are issued and
outstanding. All issued and outstanding shares have been duly authorized and
validly issued, and are fully-paid and nonassessable. There are no
outstanding options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued
shares of capital stock or other securities of RMRS, nor any agreements to
issue any such rights. All outstanding capital stock was issued in full
compliance with all applicable laws. There are no bonds, debentures, notes or
other evidences of indebtedness having the right to vote on any matter.
3.6 Financial Statements. RMRS has delivered to ECHO a balance sheet
and income statement for each of the fiscal years ended December 31, 1998 and
1999. The balance sheet and income statement for the fiscal year ended
December 31, 1999 shall be audited by ECHO. The balance sheets fairly present
the financial condition of RMRS as of the dates presented and the income
statements fairly present the results of operations of RMRS for the periods
represented. To the best of RMRS's and each Selling Shareholder's knowledge,
there have been no material changes in any asset or liability reflected in the
most recent such balance sheet after the date of that balance sheet, other
than the reduction for accrued payroll. RMRS has not sold, exchanged or
otherwise disposed of any of its assets or rights, other than in the ordinary
course of business.
3.7 Liabilities. To the best of RMRS's and each Selling Shareholder's
knowledge, other than as disclosed in the most recent balance sheet, RMRS has
no direct or contingent liabilities. There are no known or expected actions,
suits, proceedings or investigations pending against RMRS or its properties
before any court, governmental agency, or other tribunal, domestic or foreign.
No known claims against RMRS or any of its shareholders, directors, officers,
employees, agents or consultants have been asserted claiming any rights to any
tangible or intangible property owned, claimed or used by RMRS, or claiming
that the business of RMRS violates any patent, trade secret, or other right of
any person including any former or other present employer of any such
shareholder, director, officer, employee, agent or consultant. RMRS has no
obligation as a guarantor, surety, co-signer, endorser or co-maker with
respect to the liability of any other person. RMRS has not declared or paid
any dividends, or authorized or made any distribution upon or with respect to
any class or series of its capital stock. RMRS has given no power of attorney
to any person.
3.8 Intangible Assets. A list of all intangible assets, including
without limitation all concepts, designs, ideas, methods, computer programs,
systems, patents, trade secrets, trademarks, trade names and copyrights, is
set forth in Exhibit E. Developing, marketing, assigning or transferring, or
other use of any such intangible asset after the Effective Date will not
infringe the rights of any other person. RMRS possesses sufficient legal
rights to all intangible assets necessary for the conduct of RMRS's business
as now conducted. Without limiting the foregoing, RMRS has not entered into
any cross-licensing arrangement with any person or entity, and there are no
agreements relating to and materially affecting any intangible asset or the
use or ownership thereof, including without limitation license agreements,
confidentiality or non-disclosure agreements, assignments or agreements to
assign, development agreements, settlement agreements or similar agreements.
None of the Selling Shareholders, and to the best of RMRS's and each Selling
Shareholder's knowledge no other person who is an employee of RMRS, is
obligated under any agreement or subject to any judgment, decree or order of
any court or administrative agency that would interfere with such person's
duties with RMRS or that would conflict with RMRS's business as presently
proposed to be conducted. RMRS will not need to utilize any inventions, trade
secrets or proprietary information of any of its employees or shareholders
made prior to their employment by RMRS, except for inventions, trade secrets
or proprietary information that have been assigned to RMRS (copies of all such
assignments having been delivered to ECHO). Neither RMRS nor any Selling
Shareholder has received information that any other person is engaged in any
activity or contemplating any activity that might constitute an infringement
or other violation of RMRS's rights with regard to any of its intangible
assets.
3.9 Agreements and Licenses. All oral and written agreements,
including without limitation all licenses, to which RMRS is a party or under
which it is bound are listed in Exhibit F. All such agreements and licenses
have been delivered to ECHO. All such agreements and licenses are valid,
binding and enforceable in accordance with their terms. RMRS is not in
default or breach of any such agreement or license. Execution and performance
of this Agreement will not violate or breach any such agreement or license.
Without limiting the generality of the foregoing, no warranty or
representation has been made to any customer of RMRS other than as set forth
in written agreements with such customer, all of which are listed in Exhibit
F.
3.10 Title to Properties. RMRS has good and marketable title to all
its properties and assets, including leasehold interests, trade secrets,
trademarks, copyrights, patents, software, systems and other intangible
assets. RMRS's title to its properties and assets is free and clear of any
lien, claim, encumbrance or restriction of any nature. In particular, without
limiting the generality of the foregoing, no person has any claim, lien or
other rights in or against any intellectual property or other intangible asset
of RMRS including without limitation any of RMRS's software programs except
pursuant to written license agreements all of which are listed in Exhibit F.
To the best of RMRS's and each Selling Shareholder's knowledge, there are no
pending or threatened proceedings of any nature alleging any violation of any
right of any other person with respect to any of RMRS's properties or assets.
3.11 Accounts Receivable and other Receivables. To the best of RMRS's
and each Selling Shareholder's knowledge, all accounts receivable are current
and collectible in the ordinary course of business. RMRS has not made any
loans or advances to any person, other than in the ordinary course of
business.
3.12 Insurance. All policies of insurance owned or held by RMRS are
listed in Exhibit G. All such policies are in full force and effect, and will
not be affected by the transactions contemplated by this Agreement.
3.13 Leases. All leases under which RMRS is bound are listed in
Exhibit H. All such leases are in full force and effect, and will not be
affected by the transactions contemplated by this Agreement. RMRS is not in
default or breach of any lease.
3.14 Employees. RMRS has no (a) retirement, pension, profit sharing,
deferred compensation, bonus, or other compensation plan, other than regular
salaries and wages, (b) stock option, stock purchase or other employee stock
or equity plan, (c) medical or disability plan, (d) other employee benefit
plan, (e) employment agreement of any kind. To the best of RMRS's and the
Selling Shareholder's knowledge, no director, officer or employee is obligated
under any contract, license, covenant, commitment or other agreement, or
subject to any judgment, decree, or other order that would conflict with his
or her obligation to use his or her best efforts to promote the interests of
RMRS. Except as provided in this Agreement, no employee of RMRS has been
granted the right to continued employment by RMRS or to any material
compensation following termination of employment by RMRS or consummation of
the transactions contemplated by this Agreement. Neither RMRS nor any Selling
Shareholder is aware that any officer or employee intends to terminate his or
her employment with RMRS.
3.15 Taxes. All tax liabilities of any nature incurred by RMRS have
been paid. To the best of RMRS's and each Selling Shareholder's knowledge, no
facts exist that would be grounds for the assessment of any additional tax
liability. All required tax returns of RMRS have been accurately prepared and
duly and timely filed. RMRS has not been advised that any of its returns,
federal, state or other, have been or are being audited.
3.16 Compliance with Law. To the best of RMRS's and each Selling
Shareholder's knowledge, RMRS is in full compliance with all laws and
regulations applicable to its business, and all judgments, decrees, orders,
and writs to which RMRS is subject (copies of all of which have been delivered
to ECHO). To the best of RMRS's and each Selling Shareholder's knowledge, RMRS
possesses from the appropriate governmental authorities, all licenses,
permits, certificates, approvals, franchises and other authorizations as are
necessary for RMRS to engage in the business currently conducted.
3.17 Governmental Consent. To the best of RMRS's and each Selling
Shareholder's knowledge, after consultation with legal counsel, no consent,
approval or authorization of or designation, declaration or filing with any
governmental authority on the part of RMRS or the Selling Shareholders is
required in connection with the valid execution and delivery of this
Agreement or the consummation of any other transaction contemplated hereby
except filing Articles of Merger as provided in Section 1.1.
3.18 Investment Intent. Each of the Selling Shareholders will acquire
the ECHO Shares to be issued to that Shareholder pursuant to this Agreement
for investment for his own account, not as a nominee or agent, and not with a
view to or for sale in connection with any distribution of the ECHO Shares, or
any part thereof; he has no present intention of selling, granting
participation in, or otherwise distributing the ECHO Shares.
3.19 No Registration of ECHO Shares. Each of the Selling
Shareholders understands that the ECHO Shares have not been registered under
the Securities Act of 1933 ("Securities Act") nor registered or qualified
under the Colorado Securities Act, nor other applicable securities law, on the
basis that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities Act and
from registration or qualification under applicable securities laws, and that
ECHO's reliance on such exemptions is predicated on the representations set
forth herein. In this connection, each of the Selling Shareholders
understands that the offering of ECHO Shares contemplated by this Agreement
and related documents and disclosures have not been reviewed or recommended by
the U.S. Securities and Exchange Commission ("SEC") nor by the securities
administrator of Colorado or any other state or jurisdiction. Therefore, ECHO
Shares cannot be resold unless registered under the Securities Act, and
registered or qualified under any applicable state securities law including
without limitation the Securities Act of Colorado, or unless an exemption from
registration, i.e., Rule 144 exemption, is available.
3.20 Knowledge of Business/Ability to Bear Economic Risk. Each of
the Selling Shareholders is familiar with the business of ECHO, and has
received each of the following: (1) ECHO's 1999 Annual Report to Shareholders;
(2) Form 10-K for the Fiscal Year ended September 30, 1999; (3) Notice of
Annual Meeting of Shareholders, February 04, 2000, and (4) Proxy Statement
dated February 04, 1999 ("ECHO Documents"). Each of the Selling Shareholders
understands that he can request, and that ECHO will promptly provide to the
Selling Shareholder on such request, any exhibit required to be filed with the
Securities and Exchange Commission in connection the foregoing documents
including the Exhibits referred to in Part IV of the aforementioned Form 10-K.
Each of the Selling Shareholders is experienced in the type of business
engaged in by ECHO, is able to fend for himself in the transactions
contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of
investment in the ECHO Shares, and has the ability to bear the economic risks
of the investment.
3.21 Due Diligence. Each of the Selling Shareholders represents that
he has had the opportunity to ask questions of, and to receive answers from,
ECHO concerning the terms and conditions of his investment in the ECHO Shares
and to obtain additional information (to the extent ECHO possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to him or to
which he had access.
3.22 Free of Liens and Encumbrances. The RMRS Shares are validly
issued, fully-paid and nonassessable, and are free of any liens, claims,
encumbrances, or other restrictions of any kind. Neither the execution of this
Agreement nor the transactions contemplated herein shall violate the Articles
of Incorporation or bylaws of RMRS, any agreement, or any law, rule or order
of any governmental authority or any court.
3.23 Operation of Software and Systems. All data processing systems,
including all software programs, of RMRS operate normally in accordance with
the specifications and functions for those systems and software programs
previously disclosed to ECHO. RMRS is making all such systems ready for the
year 2000 and does not expect such systems to be adversely affected by the
advent of that year. Except as stated in the first sentence of this Section
3.24, neither RMRS nor any of the Selling Shareholders is aware of any
material defect in design, materials, manufacture, performance or otherwise in
any products or services developed, manufactured, distributed, licensed, sold
or provided by RMRS since RMRS's incorporation or any defect in repair to,
service of, or replacement of, any such products which would give rise to a
Material Adverse Effect.
3.24 Suppliers and Customers. No substantial supplier or customer
(who accounted for more than 2% of aggregate 1998 purchases or more than 2% of
aggregate 1999 revenues, as the case may be) or any prospective customer, has
indicated to RMRS or to any Selling Shareholder that it intends to terminate
its relationship with RMRS, nor does RMRS or any Selling Shareholder have
knowledge that any such supplier or customer intends to terminate such
relationship. There is no information that would indicate that RMRS does not
have good business relations with each supplier and customer, or that
consummation of the transactions contemplated by this Agreement would or might
disrupt RMRS's existing relationships with any such supplier or customer.
3.25 Records. RMRS has made available all of its records to ECHO in
all media, including without limitation all financial records, product
records, software code, written operating procedures, customer records,
personnel records, and insurance records.
3.26 No Material Adverse Effect. To the best of RMRS's and each
Selling Shareholder's knowledge, there does not exist any fact or circumstance
which, alone or together with another fact of circumstance, could reasonably
be expected to have a Material Adverse Effect on the business, properties,
assets, condition (financial or otherwise), liabilities, operations,
properties or future prospects of RMRS.
3.27 Brokers and Finders. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based on arrangements
made by RMRS or any of the Selling Shareholders.
3.28 Truth of Representations and Warranties. All of the
representations and warranties set forth in this Article III shall be true as
of the time of the Effective Date. No representation or warranty or other
statement made to ECHO by RMRS or any Selling Shareholder contains any untrue
statement of a material fact necessary to make the statement, in light of the
circumstances under which the statement was made, not misleading.
3.29 Survival of Provisions. The provisions of this Article III
shall survive Closing and the Merger for a period of one (1) year.
3.30 Knowledge Representation. When the words "to the best of RMRS's
and each Selling Shareholder's knowledge" or "RMRS's and each Selling
Shareholder's knowledge" appear in the provisions of this Article III, it is
understood that no affirmative investigation has been made to confirm such
"RMRS's and each Selling Shareholder's knowledge." RMRS's knowledge is deemed
to be the knowledge of Donald E. Dick, Robert L. Anderson, Jr., and Arnold
Feinberg.
IV
REPRESENTATIONS AND WARRANTIES OF ECHO AND EAC
ECHO and EAC each represents and warrants to RMRS and the Selling
Shareholders as of the date of this Agreement and as of the date of the
Effective Date as follows, except as set forth in Exhibit I:
4.1 Organization and Standing: Authority. ECHO is a corporation duly
organized, validly existing, and in good standing under the laws of Nevada.
EAC is a corporation duly organized, validly existing, and in good standing
under the laws of Colorado. Each has the requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted and to enter into this Agreement. All
corporate action on the part of ECHO and EAC, its shareholders, directors and
officers necessary for the authorization, execution, delivery and performance
of this Agreement by ECHO and EAC has been taken or will be taken prior to the
Effective Date. This Agreement, when executed and delivered, is a valid and
binding obligation of ECHO and EAC and will not violate the Articles of
Incorporation or bylaws of ECHO or EAC or any agreement, law, regulation,
government order or other obligation under which ECHO or EAC is bound.
4.2 Capitalization. The authorized capital stock of ECHO consists
36,000,000 shares of Common Stock, of which 19,788,213 shares were issued and
outstanding on September 30, 1999; and 5,000,000 shares of Convertible
Preferred Stock, of which 40,000 shares of Series L Preferred Stock were
issued and outstanding on that date. All issued and outstanding shares have
been duly authorized and validly issued, are fully-paid and nonassessable, and
were issued in full compliance with all applicable laws. Options to acquire up
to 3,318,000 shares of Common Stock at exercise prices ranging from $0.40 to
$2.00 per share were outstanding on September 30, 1999, and warrants to
acquire up to 600,000 shares of Common Stock at $0.40 per share were
outstanding on that date. Holders of shares of Common Stock have one vote for
each share of Common Stock held in connection with matters on which a
shareholder vote is taken, the right to receive dividends and other
distributions when, as and if declared by the board of directors, and such
other rights as may be set forth in the Articles of Incorporation and required
by applicable law. The rights of holders of capital stock of ECHO are more
fully described in the Articles of Incorporation of ECHO, and the foregoing
description in this Section 4.2 is subject in all respects to the provisions
of those Articles. There are no bonds, debentures, notes or other evidences
of indebtedness having the right to vote on any matter. The authorized
capital stock of EAC consists of 10,000 shares of Common Stock of which 100
shares are issued and outstanding. The rights of holders of capital stock of
EAC are more fully described in the Articles of Incorporation of EAC.
4.3 Corporate Documents. ECHO and EAC has each delivered to RMRS
true copies of its Articles of Incorporation and its bylaws as currently in
effect. There shall have been no changes to these documents at the time of
the Effective Date.
4.4 Financial Statements. ECHO has delivered to RMRS a balance sheet
and income statement for each of the fiscal years ended September 30, 1995,
1996, 1997, 1998, and 1999, prepared in accordance with generally accepted
accounting principles. The balance sheets fairly present the assets,
liabilities, and financial condition of ECHO as of the dates presented and the
income statements fairly present the results of operations of ECHO for the
periods therein referred to. To the best of ECHO's knowledge, there have been
no material changes in any asset or liability reflected in the most recent
such balance sheet after the date of that balance sheet.
4.5 Governmental Consent. To the best of ECHO's and EAC's knowledge,
after consultation with legal counsel, no consent, approval or authorization
of or designation, declaration or filing with any governmental authority on
the part of ECHO or EAC is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or delivery of the ECHO Shares,
or the consummation of any other transaction contemplated hereby, except
filing Articles of Merger as provided in Section 1.1, certain securities
filings in connection with applicable exemptions from registration and/or
qualification requirements, and certain filings required by federal securities
regulations.
4.6 Free of Liens and Encumbrances. The ECHO Shares when issued as
provided in this Agreement will be validly issued, fully-paid and
nonassessable, and will be free of any liens, claims, encumbrances, or other
restrictions of any kind except those relating to applicable securities laws
requirements and those set forth in this Agreement. Neither the execution of
this Agreement nor the issuance of the ECHO Shares to Selling Shareholders as
contemplated herein shall violate the Articles of Incorporation or bylaws of
ECHO or EAC, any agreement, or any law, rule or order of any governmental
authority or any court.
4.7 Truth of Representations and Warranties. All of the
representations and warranties set forth in this Article IV shall be true as
of the Effective Date. No representation or warranty or other statement made
to RMRS or any Selling Shareholder by ECHO or EAC contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statement, in light of the circumstances under which the statement
was made, not misleading. From the date of ECHO's most current Form 10-K
(September 30, 1999) to the Close date, January 04, 2000, ECHO and EAC
officers and directors are unaware of facts or circumstances required to be
disclosed in ECHO Documents.
4.8 Due Diligence. ECHO represents that ECHO has had the opportunity
to ask questions of, and to receive answers from, RMRS concerning the terms
and conditions of its investment in RMRS Shares and to obtain additional
information (to the extent RMRS possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify the accuracy of
any information furnished to ECHO or to which ECHO had access.
4.9 Suppliers and Customers. No substantial supplier or customer
(who accounted for more than 2% of aggregate 1998 purchases or more than 2% of
aggregate 1999 revenues, as the case may be) or any prospective customer, has
indicated to ECHO or EAC that it intends to terminate its relationship with
ECHO or EAC, nor does ECHO or EAC have knowledge that any such supplier or
customer intends to terminate such relationship. There is no information that
would indicate that ECHO or EAC does not have good business relations with
each supplier and customer, or that consummation of the transactions
contemplated by this Agreement would or might disrupt ECHO's and EAC's
existing relationships with any such supplier or customer.
4.10 Records. ECHO and EAC has made available to RMRS all records
requested by RMRS in all media, including without limitation all requested
financial records, product records, software code, written operating
procedures, customer records, personnel records, and insurance records.
4.11 No Material Adverse Effect. To the best of ECHO's and EAC's
knowledge, there does not exist any fact or circumstance which, alone or
together with another fact of circumstance, could reasonably be expected to
have an effect on the business, properties, assets, condition (financial or
otherwise), liabilities, operations, properties or prospects of ECHO or EAC
taken as a whole in an amount in excess of $200,000.
4.12 Brokers and Finders. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based on arrangements
made by ECHO or EAC.
4.13 Survival of Provisions. The provisions of this Article IV shall
survive the Effective Date and the Merger.
4.14 Knowledge Representation. When the words "to the best of ECHO's
and EAC's knowledge" appear in the provisions of this Article IV, it is
understood that no affirmative investigation has been made to confirm such
"knowledge."
V
RESTRICTIVE LEGENDS
5.1 Securities Act of 1933. Each certificate representing the ECHO
Shares shall bear a legend substantially as follows:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (1)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, OR (2) THE TRANSFER IS MADE IN
COMPLIANCE WITH SECURITIES AND EXCHANGE COMMISSION RULE 144, OR
(3) ECHO RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE
SECURITIES REASONABLY SATISFACTORY TO ECHO, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
5.2 Escrow Legend. While in escrow as provided in this Agreement,
each certificate representing ECHO Performance Shares shall bear a legend
substantially as follows:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER SET FORTH IN AN ESCROW AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, AND
CANNOT BE TRANSFERRED EXCEPT AS PROVIDED IN THAT ESCROW
AGREEMENT.
5.3 Additional Legends. Each certificate representing ECHO Shares
shall bear any other legend required by the securities laws or other laws of
any jurisdiction.
5.4 Restrictions on Transfer. ECHO need not register a transfer of
any of the ECHO Shares unless the conditions and requirements specified in the
applicable legend are satisfied. In addition, ECHO shall make a notation
regarding the restrictions on transfer of ECHO Shares in its stock books.
ECHO Shares shall be transferred on the books of ECHO only if transferred or
sold in compliance with the Securities Act of 1933 and applicable state
securities and other laws.
VI
POST CLOSING COVENANTS
6.1 Covenant Regarding Competition. Each of Donald E. Dick, Robert
L. Anderson, Jr., Randal J. Bjerke, and Arnold Feinberg agrees that, during
the three (3) year period after the Closing, he will not, directly or
indirectly, in any state or territory of the United States or in any other
country:
(A) engage in any enterprise which competes with RMRS
or may reasonably result in competition with RMRS;
(B) solicit any employee of RMRS or any consultant
engaged by RMRS for the purpose of hiring such
employee or consultant;
(C) solicit any customer of RMRS for the purpose of
providing any services or any products to such
customer similar to the products sold to that customer
by RMRS.
6.2 Trade Secrets. Each of the Selling Shareholders agrees that he
will not at any time use or disclose any Trade Secrets of ECHO or any
subsidiary of ECHO including without limitation RMRS (individually and
collectively referred to in this Section 6.2 as "ECHO"), except as otherwise
agreed in a writing signed by a duly authorized officer of ECHO and by the
Selling Shareholder. Trade Secrets include ECHO's marketing plans, product
plans, customer lists, confidential proprietary rights in ECHO's intellectual
property, and other nonpublic proprietary information that ECHO may designate
as a "Trade Secret." Each of the Selling shareholders further agrees that he
will not use or disclose the nonpublic proprietary information of any other
person that the Selling Shareholder has reason to know that ECHO has an
obligation to protect from disclosure or use. Each Selling Shareholder will
keep Trade Secrets confidential and will not directly or indirectly disclose
or make available to any person or entity any Trade Secrets of RMRS or ECHO at
any time and for a period of thirty-six months following the effective date of
this Agreement.
This Section 6.2 does not apply to the extent that information: (1) is
or becomes generally known to the public without fault of Selling
Shareholder(s); (2) is independently developed by Selling Shareholder(s)
without use of any information obtained from RMRS or ECHO; (3) consists solely
of generally-known ideas, concepts, know-how or techniques; or (4) is
requested to be disclosed by law or judicial order.
6.3 Inventions Disclaimer and Assignment. Each of the Selling
Shareholders disclaims any right, title or interest in any tangible or
intangible asset of RMRS including without limitation any concept, design,
idea, method, computer program, software, system, manual, documentation or
trade Secret of RMRS ("RMRS Asset"), and hereby assigns and transfers to RMRS
any right, title or interest that such Selling Shareholder may now or in the
future have in any RMRS Asset. Each of the Selling Shareholders will assist
RMRS (at RMRS's expense) in obtaining and from time to time enforcing patents,
copyrights, and other legal protection for RMRS Assets in the United States
and any other country, including without limitation by executing all documents
confirming his assignment of any RMRS Asset necessary to ensure and perfect
RMRS's right to such RMRS Asset and to apply for and obtain patents,
copyrights and other legal protection.
6.4 Restrictions on Transfer/Piggyback Rights. If and when ECHO
should decide to file with the Securities and Exchange Commission a future
registration statement in compliance with the Securities Act of 1933 and
applicable state securities and other laws, all restricted shares issued under
this Agreement, both Base Shares and Performance Shares, are to be included in
that registration. All costs associated with such registration are to be
borne by ECHO.
6.5 Remedies. Each of the Selling Shareholders acknowledges that a
breach of this Article VI may cause ECHO continuing and irreparable injury to
its business which may not be adequately compensated for by money damages.
Each of the Selling Shareholders therefore agrees that in the event of any
actual or threatened breach of this Article VI, ECHO shall be entitled, in
addition to other available remedies, to a temporary restraining order and to
injunctive preliminary and final relief to prevent any violations of this
Article VI. In any such injunctive proceedings, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and other expenses.
6.6 Survival of Provisions. The provisions of this Article VI shall
survive and continue in effect after Effective Date.
VII
INDEMNITY
7.1 Indemnity by ECHO. ECHO shall indemnify and hold harmless the
Selling Shareholders and their heirs, representatives and assigns, from any
claims, liabilities, losses, damages, reasonable attorney's fees, and related
expenses which aggregate to over $50,000 and are caused by breach of any
provision of this Agreement, including without limitation any representation
or warranty set forth in Article IV.
7.2 Indemnity by Selling Shareholders. The Selling Shareholders shall
separately and severally indemnify and hold harmless ECHO, and its successors
and assigns, from any claims, liabilities, losses, damages, reasonable
attorney's fees, and related expenses which aggregate to over $50,000, but do
not exceed $2,000,000, and are caused by breach of any provision of this
Agreement, including without limitation any representation or warranty set
forth in Article III.
7.3 Survival of Provisions. The provisions of this Article VII shall
survive and continue in effect after the Effective Date.
VIII
CONDITIONS TO CLOSING
8.1 ECHO Conditions. The obligations of ECHO under this Agreement are
subject to the fulfillment on or before the date of Closing of each of the
following conditions, any of which may be waived by ECHO in writing:
8.1.1 Delivery of Documents at Closing. All documents required to
be delivered to ECHO at Closing shall have been tendered for delivery to ECHO.
8.1.2 Compliance with Law. All consents, authorizations, permits
or other approvals, if any, that are required by any governmental authority or
regulatory agency (other than filing the Articles of Merger), or under any
agreement or other document under which ECHO or RMRS is obligated, shall have
been duly obtained and shall be effective. Consummation of the transactions
contemplated by this Agreement shall comply with all requirements of corporate
law applicable to mergers; and shall not violate any law, regulation, or order
of any governmental authority or any court, nor any obligation under which
ECHO, EAC or RMRS is bound.
8.1.3 ECHO Director Approval. The board of directors of ECHO
shall have approved the execution of this Agreement.
8.1.4 RMRS Director Approval. The board of directors of RMRS
shall have approved this Agreement and the Merger, and shall have directed
that the Merger be submitted to the shareholders of RMRS for approval, and
copies of the resolution of such board of directors setting forth such
approvals and direction, certified by the President and Secretary of RMRS,
shall have been delivered to ECHO.
8.1.5 RMRS Shareholder Approval. The shareholders of RMRS shall
have approved the Merger as required by law, and copies of the dissenters'
rights notice required by Section 7-113-201 of the Colorado Business
Corporation Act and of the resolution of such shareholders setting forth such
approval, certified by the President and Secretary of RMRS, shall have been
delivered to ECHO.
8.1.6 Documents. All documents delivered to ECHO pursuant to this
Agreement shall be reasonably acceptable to ECHO.
8.1.7 Adverse Changes. No material adverse change shall have
occurred in the financial condition, working capital, assets, liabilities,
business, operations or prospects of RMRS since the date of its most recent
balance sheet delivered to ECHO as provided in this Agreement.
8.1.8 Representations and Warranties True. The representations
and warranties of RMRS and the Selling Shareholders set forth in Article III
shall be true in all material respects as of the date of Closing.
8.1.9 Employee Agreements. Each of the employees of RMRS
designated by ECHO shall have signed and delivered a Nondisclosure and
Inventions Disclaimer Agreement substantially in the form of Exhibit J.
8.1.10 Resignations of Directors and Officers. Each director and
each officer of RMRS shall have signed a resignation in the form of Exhibit K.
8.1.11 No Dissenters. None of the shareholders of RMRS shall
have given notice of their intention to demand payment pursuant to Section 7-
113-202 of the Colorado Business Corporation Act.
8.2 RMRS/Selling Shareholder Conditions. The obligations of RMRS and
the Selling Shareholders under this Agreement are subject to the fulfillment
on or before the date of Closing of each of the following conditions, any of
which may be waived by RMRS and Selling Shareholders holding a majority of the
RMRS Shares in writing:
8.2.1 Delivery of Documents at Closing. All documents required to
be delivered to Selling Shareholders at Closing shall have been tendered for
delivery to the Selling Shareholders.
8.2.2 Compliance with Law. All consents, authorizations, permits
or other approvals, if any, that are required by any governmental authority or
regulatory agency (other than filing the Articles of Merger), or under any
agreement or other document under which ECHO or RMRS is obligated, shall have
been duly obtained and shall be effective. Consummation of the transactions
contemplated by this Agreement shall comply with all requirements of corporate
law applicable to mergers; and shall not violate any law, regulation, or order
of any governmental authority or any court, nor any obligation under which
ECHO, EAC or RMRS is bound.
8.2.3 EAC Director Approval. The board of directors of EAC shall
have approved this Agreement and the Merger, and shall have directed that the
Merger be submitted to the shareholder of EAC for approval, and copies of the
resolution of such board of directors setting forth such approval, certified
by the President and CEO of EAC, shall have been delivered to the Selling
Shareholders.
8.2.4 EAC Shareholder Approval. The shareholders of EAC shall
have approved the Merger as required by law, and copies of the resolution of
such shareholder setting forth such approval, certified by the President and
CEO of EAC, shall have been delivered to ECHO.
8.2.5 Adverse Changes. No material adverse change shall have
occurred in the financial condition, working capital, assets, liabilities,
business, operations or prospects of ECHO since the date of its most recent
balance sheet filed with the Securities and Exchange Commission.
8.2.6 Representations and Warranties True. The representations
and warranties of ECHO as set forth in Article IV shall be true in all
material respects as of the date of Closing.
IX
CLOSING
9.1 Date of Closing. The closing of the transactions contemplated by
this Agreement ("Closing") shall take place on January 04, 2000 at 12:00
o'clock, at the offices of RMRS located at the address set forth at the end of
this Agreement, or at such other date, time and place as ECHO, RMRS and
Selling Shareholders holding a majority of the RMRS Shares may agree in
writing.
9.2 Documents to be Delivered At Closing. At the Closing, the parties
shall deliver the following.
(1) Each of the Selling Shareholders shall deliver to ECHO:
(A) Certificates for RMRS Shares as provided in
this Agreement, duly endorsed to transfer all
right, title and interest in such Shares to ECHO
along with such other documents as ECHO shall
reasonably request to ensure the transfer to ECHO
of all such right, title and interest, totaling all
of the RMRS Shares.
(B) An executed copy of the Escrow Agreement.
(C) An executed copy of this Agreement, if not
previously delivered.
(2) ECHO shall deliver
(A) Certificates for the number of Base Shares
issued to each Selling Shareholder, to the Escrow
Agent in accordance with the Escrow Agreement.
(B) An executed copy of the Employment Agreement,
to Donald D. Dick, Robert L. Anderson, Jr., and
Arnold Feinberg, respectively.
(C) An executed copy of the Escrow Agreement, to
each Selling Shareholder.
(D) An executed copy of this Agreement, to each
Selling Shareholder, if not previously delivered.
(3) RMRS shall deliver to ECHO
(A) Employment, Nondisclosure and Inventions
Disclaimer Agreements as provided in Section 8.1.9.
(B) Resignations signed by each director and officer
of RMRS as provided in Section 8.1.10.
(C) An executed copy of the Escrow Agreement.
(D) Executed copies of Employment Agreements with
Donald E. Dick, Robert L. Anderson, Jr., and Arnold
Feinberg.
(E) An executed copy of this Agreement, if not
previously delivered.
(F) Articles of Merger, signed by the President
and CEO of RMRS
(4) EAC shall deliver to RMRS and to the Selling Shareholders:
(A) Copies of resolutions adopted by the
board of directors of EAC approving this
Agreement and the Merger, certified by the
President and the CEO of EAC.
(B) Copies of resolutions adopted by the
shareholder of EAC approving this Agreement and
the Merger, certified by the President and the
CEO of RMRS
(C) Articles of Merger, signed by the
President and the CEO of EAC.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Governing Law. This Agreement was made in and shall
be governed in all respects by the laws of the State of
California, except that the laws of Colorado shall govern the
Merger.
10.2 Survival. The representations, warranties, covenants
and agreements made herein shall not be waived or affected by any
investigation by any party and shall survive the closing of the
transactions contemplated hereby.
10.3 Successors and Assigns. The provisions of this
Agreement shall inure to the benefit of, and shall be binding
upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
10.4 Entire Agreement. This Agreement and the other
documents delivered pursuant hereto constitute the full and
entire understanding and agreement between the parties with
regard to the subject matter hereof.
10.5 Amendments. Any amendment or modification to this
Agreement must be in writing signed by all of the parties.
10.6 Notices. All notices required or permitted hereunder
shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand
or by messenger, addressed to each party at the address set forth
at the end of this Agreement, or at such other address as the
party shall have furnished by notice hereunder.
10.7 Expenses. Each party shall bear its own expenses,
including legal fees, incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby.
10.8 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and
each of which shall be enforceable against the parties actually
executing such counterpart, and all of which together shall
constitute one instrument.
10.9 Headings. The headings in this Agreement are for
convenience of reference only and are not to be considered in
construing this Agreement.
10.10 Waivers. Any waiver of any breach or default under
this Agreement, or any waiver of any provisions or conditions of
this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing.
10.11 Severability. In the event that any provision of
this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any
party.
10.12 Attorney's Fees. If legal or other proceedings are
instituted by any party against any other party to enforce any
provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees, court costs and
ancillary expenses.
10.13 Selling Shareholders' Spousal Indemnity and
Representations. Each of the Selling Shareholders will
indemnify and hold harmless ECHO, its successors and assigns,
against all liabilities, all defects in title to RMRS Shares
transferred to ECHO pursuant to this Agreement, and all related
costs and expenses, arising out of any claim by the spouse of the
Selling Shareholder based on marital rights of the spouse in such
RMRS Shares. Donald E. Dick, Robert L. Anderson, Jr., Randal J.
Bjerke, and Arnold Feinberg each represents that the person
signing along with that Selling Shareholder below is the spouse
of that Selling Shareholder.
10.14 Further Action. Each party agrees to execute and
deliver such documents and to take such further action after
Closing as may be necessary or appropriate to effect the Merger and
the other provisions of this Agreement.
10.15 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument. For purposes of this Agreement, facsimile signature
shall be deemed and accepted as an original signature.
ARTICLE XI
SIGNATURES AND SHARE AMOUNTS
The parties hereto have evidenced their agreement to the
provisions of this Agreement by their signatures subscribed below,
it being understood that the Selling Shareholders hold the number
of RMR Shares indicated, and the Selling Shareholders are entitled
to receive the number of Base Shares indicated and up to the
maximum number of Performance Shares indicated, in accordance with
and subject to the terms of this Agreement.
Each spouse signing below represents that she has read and
understood this Agreement, she consents to its terms, and she
releases and assigns any community property or other interest she
may have in any of the RMRS Shares to ECHO pursuant to this
Agreement.
"ECHO"
ELECTRONIC CLEARING HOUSE, INC.
By:
Joel M. Barry, President,
Chairman and Chief
Executive Officer
28001 Dorothy Drive
Agoura Hills, CA 91301
<PAGE>
"RMRS"
ROCKY MOUNTAIN RETAIL SYSTEMS,
INC.
By:
Donald E. Dick
President and Chief
Executive Officer
4895 Riverbend Road, Suite D
Boulder, CO 80301
By:
Robert L. Anderson, Jr."EAC"
ECHO ACQUISITION CORPORATION
By:
Joel M. Barry, President
Chairman and Chief
Executive Officer
28001 Dorothy Drive
Agoura Hills, CA 91301-2697
<PAGE>
Chairman of the Board
and Secretary
4895 Riverbend Road, Suite D
Boulder, CO 80301
SELLING SHAREHOLDERS
RMRS
SHARES
BASE
SHARES
<PAGE>
MAXIMUM
PERFORMANCE
SHARES
Donald E. Dick
Martha D. Dick
Street
City State ZIP
425
403,609
605,413
SELLING SHAREHOLDERS
RMRS
SHARES
BASE
SHARES
<PAGE>
MAXIMUM
PERFORMANCE
SHARES
Robert L. Anderson, Jr.
Judith E. Meredith
Street
City State ZIP
425
403,609
605,413
Randal J. Bjerke
Lois Marie Bjerke
Street
City State ZIP
150
142,450
213,675
SELLING SHAREHOLDERS
RMRS
SHARES
BASE
SHARES
<PAGE>
MAXIMUM
PERFORMANCE
SHARES
Arnold Feinberg
Diana Dunkley
Street
City State ZIP
53
50,332
75,499
TOTAL
1,053
1,000,000
1,500,000
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
January 6, 2000
ECHO ANNOUNCES THE ACQUISITION OF
ROCKY MOUNTAIN RETAIL SYSTEMS, INC.
Agoura Hills, Calif. - Electronic Clearing House, Inc.
(NASDAQ:ECHO) announced the signing of an agreement to acquire
Rocky Mountain Retail Systems, Inc. (RMRS). RMRS, based in
Boulder, Colorado, is the creator/owner and processor for
National Check Information Systems (NCIS) through which RMRS
provides check verification services to large retail chains,
processors and collection agencies across the nation, among which
are Dollar General, VISA, and Blockbuster Video. The quality of
the NCIS negative check writer database puts it among the top 5
in the nation.
"RMRS is attractive to ECHO for many reasons: its profitable
check verification operations, its significant business
relationships, its host of new opportunities and products under
development, its effective and seasoned sales team, its highly
technical group of engineers, and its experienced management
team," stated Joel M. Barry, CEO of ECHO. "We especially value
their strong existing customer base that includes both collection
agencies and retailers. When you combine the services provided by
Magic Software Development, the check services company acquired
by ECHO in April, 1999, with those provided by RMRS, RMRS is
immediately competitive with the top check services providers in
the nation. We believe the new RMRS will present a better value
to sales organizations and merchants who are looking for check
services to sell or purchase, respectively", stated Mr. Barry.
RMRS will operate as a wholly owned subsidiary and Dr. Donald
Dick, President of RMRS, will remain the President of the ECHO
subsidiary. Operations will remain in Boulder, Colorado. Dr.
Dick has a doctorate in Electrical Engineering and has extensive
experience in both hardware and software design and
manufacturing. Mr. Robert Anderson will continue to serve as Vice
President of RMRS and Chief Technical Officer. Mr. Anderson has a
Bachelors degree in Physics with advanced degree work in Computer
Science and has overseen the technical developments that have
distinguished RMRS as a leader in the check industry for the past
8 years. Mr. Arnold Feinberg will continue to oversee all sales
activity for RMRS and will serve as Vice President of Sales. Mr.
Feinberg is a nationally recognized expert in payment systems and
has consulted with many of the nations top retailers in designing
and implementing full electronic payment solutions.
"RMRS has grown exponentially over the past three years but we
realized we would need a solid technical and financial foundation
in order to continue to grow as a national provider of check
services. After looking at all of our options, we agreed with
ECHO's conclusion that we are stronger together. We see our
business increasing due to ECHO's experience in system
integration, credit card processing and, especially, Internet-
based processing and reporting. We also felt the management team
at ECHO and Magic fit very well with our own. We are pleased to
become a part of the ECHO family." stated Dr. Dick.
Under the terms of the acquisition agreement, ECHO issued
1,000,000 shares of restricted common stock. An additional
1,500,000 shares of restricted stock will be placed into escrow
to be issued to the RMRS selling shareholders under a performance
clause wherein, should the RMRS subsidiary's performance meet or
exceed predetermined earnings goals for years 2000 through 2002,
a proportionate number of performance-based shares will be
issued.
Electronic Clearing House, Inc. provides credit card
processing, cash advance services, check guarantee, check
verification, check conversion, inventory tracking and/or various
Internet services to over 41,000 retail merchants, U-Haul dealers
and casinos across the nation. ECHO also designs, develops and
integrates software and point-of-sale hardware that is utilized
as credit card processing terminals, automated money order
dispensers, inventory tracking devices, and casino cash advance
systems.
To take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, you are hereby
cautioned that this release contains forward-looking statements
that are based upon current expectations and involve a number of
risks and uncertainties. Actual operations and results may differ
materially from those expressed in the forward-looking statements
made by the Company.
Media Contact:
Donna Camras-Rehman, Corporate Secretary
(818) 706-8999, ext. 3033 or [email protected]
