As filed with the Securities and Exchange
Commission on December 29, 2003. Registration No. 333-110297
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ELECTRONIC CLEARING HOUSE, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 93-0946274
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
730 PASEO CAMARILLO
CAMARILLO, CALIFORNIA 93010
800-233-0406
WWW.ECHO-INC.COM
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
JOEL M. BARRY
CHIEF EXECUTIVE OFFICER
730 PASEO CAMARILLO
CAMARILLO, CALIFORNIA 93010
800-233-0406
WWW.ECHO-INC.COM
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
COPIES TO:
V. Joseph Stubbs, Esq.
Stubbs Alderton & Markiles, LLP
15821 Ventura Boulevard, Suite 525
Encino, California 91436
(818) 444-4500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
SUBJECT TO COMPLETION - DECEMBER 29, 2003
PROSPECTUS
ELECTRONIC CLEARING HOUSE, INC.
437,957 SHARES OF COMMON STOCK
($0.01 par value)
----------
This prospectus relates to the offer and sale from time to time of
437,957 shares of our common stock that are held by the stockholders named in
the "Selling Stockholders" section of this prospectus. The shares of our common
stock offered pursuant to this prospectus were originally issued to the selling
stockholders in a private placement financing transaction.
The prices at which the selling stockholders may sell the shares in
this offering will be determined by the prevailing market price for the shares
or in negotiated transactions. We will not receive any of the proceeds from the
sale of the shares. We will bear all expenses of registration incurred in
connection with this offering. The selling stockholders whose shares are being
registered will bear all selling and other expenses.
Our common stock is traded on the NASDAQ SmallCap Stock Market under
the symbol "ECHO." On December 22, 2003, the last reported sale price of the
common stock on the NASDAQ SmallCap Stock Market was $9.75 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT THE RISKS YOU
SHOULD CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is ______________
TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY.............................................................3
RISK FACTORS...................................................................5
FORWARD-LOOKING STATEMENTS....................................................11
USE OF PROCEEDS...............................................................11
SELLING STOCKHOLDERS..........................................................12
PLAN OF DISTRIBUTION..........................................................14
WHERE YOU CAN FIND MORE INFORMATION...........................................16
LEGAL MATTERS.................................................................17
EXPERTS.......................................................................17
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PROSPECTUS SUMMARY
ABOUT 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 revenues from two main business
segments, bankcard and transaction processing services ("bank card services"),
whereby we provide solutions to merchants and banks to allow them to accept
credit and debit card payments from consumers, and 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, with respect to our bank
card services, debit and credit card processing, and U-Haul transaction
processing, and with respect to our check services, check guarantee (where, if
we approve a check transaction and a check is subsequently dishonored by the
check writer's bank, the merchant is reimbursed by us), check verification
(where, prior to approving a check, we search our negative and positive check
writer database to determine whether the check writer has current, delinquent
check-related debts), electronic check conversion (the conversion of a paper
check at the point of sale to a direct bank debit which is processed for
settlement through the Federal Reserve System's Automated Clearing House ("ACH")
network. The ACH is the electronic banking network through which all electronic
funds transfers are made in the United States.), check re-presentment (where we
attempt to clear a check on multiple occasions via the ACH network prior to
returning the check to the merchant so as to increase the number of cleared
check transactions), and check collection (where we provide national scale
collection services for a merchant or bank). We operate our services under the
following brands:
o MerchantAmerica, our retail provider of payment processing
services to both the merchant and bank markets;
o 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 back-end check
verification, check authorization and check capture services,
and for membership to collection agencies; and
o XPRESSCHEX, Inc. for retail check verification, check
conversion, Automated Clearing House services, check
collection and check guarantee services.
Overall, our ability to program and oversee the management of a
merchant's point of sale system, provide credit card and debit card processing,
provide multiple check services for the processing of checks, provide both
electronic and traditional collection services, and fully integrate all of these
services into a single internet-based reporting capability allows us to provide
for the majority of the payment processing needs of our customers.
Our strategy is to provide merchants, banks and industry-specific
resellers with electronic connectivity to various payment services in the credit
card, debit card and check-related markets. With more than twenty years of
experience, we have a history of providing reliable, customer-focused service to
national merchants. Our platform of services is very flexible, enabling merchant
customization and scalability to meet the requirements of high transaction
volumes, as well as access to the Visa POS Check Service Program, a major new
initiative by Visa to enable merchants to receive direct online authorization
for checks written against consumer checking accounts, similar to the
authorizations provided for credit and debit card transactions. Our services
enable merchants to maximize revenues by offering a wide variety of payment
options, reducing the costs associated with processing and handling checks,
improving collections and managing risk more effectively.
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While we currently have little market share in the credit card
processing market, we are one of the top 50 credit card processors according to
THE NILSON REPORT, a monthly financial subscription-based newsletter.
Additionally, we believe we hold a significant competitive position in the check
services market due to our ownership of the NCN database, our integrated set of
check and collection services and the technological advantage of having
certified in the early stages of the Visa POS Check Service Program.
During the year ended September 30, 2003, our total revenue increased
22.1% to $40,636,000, up from $33,291,000 in fiscal 2002. The increase was
primarily attributable to the growth of our bankcard and transaction processing
business, which grew organically as a result of the efforts of our various sales
channels, including direct sales and sales from our authorized resellers. Our
bankcard and transaction processing revenue for fiscal 2003 increased 18.2%,
from $27,456,000 in fiscal 2002, to $32,444,000 in fiscal 2003. Our
check-related revenues also increased in fiscal 2003, from $5,835,000 in fiscal
2002 to $8,192,000, an increase of 40.4%. This was attributable to a 9.8%
increase in check verification revenue, from $2,821,000 in fiscal 2002 to
$3,097,000 in fiscal 2003, and a 246.0% increase in electronic check conversion
and electronic check presentation revenue, from $836,000 in fiscal 2002 to
$2,892,000 in fiscal 2003, whose growth was in large part due to the increasing
market acceptance of these products.
We had a net loss in fiscal 2003 of $3,379,000, as compared to a net
loss of $2,376,000 for fiscal 2002. The higher net loss in fiscal 2003 was
primarily due to a $4.7 million goodwill write-off as a result of our adoption
of SFAS 142 in October 2002. However, income from operations improved
substantially in the 2003 fiscal year, from a $3,669,000 operating loss in
fiscal 2002 to $2,425,000 in operating income for fiscal 2003. The improvement
in income from operations between fiscal 2002 and fiscal 2003 resulted from the
following: (1) a 22.1% increase in revenue; (2) a 3.8% improvement in gross
margins; (3) the elimination of $489,000 in goodwill amortization expense; and
(4) the absense of a one-time $2.5 million legal settlement cost which was
incurred in fiscal 2002.
CORPORATE INFORMATION
We were incorporated in Nevada in December 1981. Our executive offices
are located at 730 Paseo Camarillo, Camarillo, California 93010, and our
telephone number is (800) 233-0406. Information on our website,
www.echo-inc.com, does not constitute part of this prospectus.
ABOUT THE OFFERING
This prospectus may be used only in connection with the resale by the
selling stockholders of 437,957 shares of our common stock.
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholders using this prospectus. On December 22,
2003, we had 6,325,012 shares of common stock outstanding.
4
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THE
MATERIAL ONES FACING OUR COMPANY. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER.
IF THIS OCCURS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
WE RELY ON COOPERATIVE RELATIONSHIPS WITH, AND SPONSORSHIP BY, BANKS, THE
ABSENCE OF WHICH MAY AFFECT OUR OPERATIONS.
We currently rely on cooperative relationships with, and sponsorship by, banks
in order to process our Visa, MasterCard and other bankcard transactions. We
also rely on several banks for access to the Automated Clearing House ("ACH")
for submission of both credit card and check settlements. Our banking
relationships are currently with smaller banks (with assets of less than
$500,000,000). Even though smaller banks tend to be more susceptible to mergers
or acquisitions and are therefore less stable, these banks find the programs we
offer more attractive and we believe we cannot obtain similar relationships with
larger banks at this time. A bank could at any time curtail or place
restrictions on our processing volume because of its internal business policies
or due to other adverse circumstances. If a volume restriction is placed on us,
it could materially adversely affect our business operations by restricting our
ability to process credit card transactions and receive the related revenue. Our
relationships with our customers and merchants would also be adversely affected
by our inability to process these transactions.
We currently maintain one primary bankcard processing and sponsorship
relationship with First Regional Bank in Agoura Hills, California. Our agreement
with First Regional Bank continues through 2005. Additionally, we have reached a
tentative agreement with Woodforest Bank in Woodforest, Texas, to sponsor our
bankcard activity. Once finalized, we expect this agreement will continue
through 2009. We also maintain several banking relationships for ACH processing.
While we believe our current bank relationships are sound, we cannot assure that
these banks will not restrict our increasing processing volume or that we will
always be able to maintain these relationships or establish new banking
relationships. Even if new banking relationships are available, they may not be
on terms acceptable to us. With respect to First Regional Bank and Woodforest
Bank, while we believe their respective ability to terminate our respective
relationships is cost-prohibitive, they may independently determine that the
cost of terminating their agreements is less than the cost of continuing to
perform in accordance with their terms, and may therefore determine to terminate
those agreements prior to their expiration. Ultimately, our failure to maintain
these banking relationships and sponsorships may have a material adverse effect
on our business and results of operations.
MERCHANT FRAUD WITH RESPECT TO BANKCARD AND ACH TRANSACTIONS COULD CAUSE US TO
INCUR SIGNIFICANT LOSSES.
We significantly rely on the processing revenue derived from bankcard and ACH
transactions. If any merchants were to submit or process unauthorized or
fraudulent bankcard or ACH transactions, depending on the dollar amount, ECHO
could incur significant losses which could have a material adverse effect on our
business and results of operations. ECHO assumes and compensates the sponsoring
bank for bearing the risk of these types of transactions.
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We have implemented systems and software for the electronic surveillance and
monitoring of fraudulent bankcard and ACH use. As of September 30, 2003, we
maintained a dedicated chargeback reserve of $603,000 at our primary bank
specifically earmarked for such activity. Additionally, through our sponsoring
bank, we had access to approximately $9.2 million in merchant deposits to cover
any potential chargeback losses. Despite a long history of managing such risk,
we cannot guarantee that these systems will prevent fraudulent transactions from
being submitted and processed or that the funds set aside to address such
activity will be adequate to cover all potential situations that might occur. We
do not have insurance to protect us from these losses. There is no assurance
that our chargeback reserve will be adequate to offset against any unauthorized
or fraudulent processing losses that we may incur. Depending on the size of such
losses, our results of operations could be immediately and materially adversely
affected.
FAILURE TO PARTICIPATE IN THE VISA POS CHECK SERVICE PROGRAM WOULD CAUSE US TO
SIGNIFICANTLY SHIFT OUR OPERATING AND MARKETING STRATEGY.
We have significantly increased our infrastructure, personnel and marketing
strategy to focus on the potential growth of our check services through the Visa
POS Check Service Program. We currently provide critical back-end infrastructure
for the service, including our NCN database for verification and our access to
the Federal Reserve System's Automated Clearing House for funds settlement, for
checks written on bank accounts with banks not participating in the program.
Because we believe the market will continue to gain acceptance of the Visa POS
Check Service Program, we have expended significant resources to market our
check conversion services and verification services to our merchant base, to
solidify our strategic relationships with the various financial institutions
that have chosen us as their acquirer processor and third-party processor under
the program, and to sell our other check products such as electronic check
re-presentments and check guarantee to the Visa member banks. We have also
increased our personnel to handle the increased volume of transactions arising
directly from our participation in the program.
If we fail to adequately market our services through this relationship, this
could materially affect our marketing strategy going forward. Additionally, if
we fail to adequately grow our infrastructure to address increases in the volume
of transactions, cease providing services as a third-party processor or acquirer
processor or are otherwise removed or terminated from the VISA Program, this
would require us to dramatically shift our current operating strategy.
THE BUSINESS IN WHICH WE COMPETE IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE
THAT OUR CURRENT PRODUCTS AND SERVICES WILL STAY COMPETITIVE OR THAT WE WILL BE
ABLE TO INTRODUCE NEW PRODUCTS AND SERVICES TO COMPETE SUCCESSFULLY.
We are in the business of processing payment transactions and designing and
implementing integrated systems for our customers so that they can better use
our services. This business is highly competitive and is characterized by rapid
technological change, rapid rates of product obsolescence, and rapid rates of
new products introduction. Our market share is relatively small as compared to
most of our competitors and most of these competitors have substantially more
financial and marketing resources to run their businesses. While we believe our
small size provides us the ability to move quickly in some areas, our
competitors' greater resources enable them to investigate and embrace new and
emerging technologies quickly to respond to changes in customers needs, and to
devote more resources to product and services development and marketing. We may
face increased competition in the future and there is no assurance that current
or new competition will allow us to keep our customers. If we lose customers,
our business operations may be materially adversely affected, which could cause
us to cease our business or curtail our business to a point where we are no
longer able to generate sufficient revenues to fund operations. There
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is no assurance that our current products and services will stay competitive
with those of our competitors or that we will be able to introduce new products
and services to compete successfully in the future.
IF WE ARE UNABLE TO PROCESS SIGNIFICANTLY INCREASED VOLUME ACTIVITY, THIS COULD
AFFECT OUR OPERATIONS AND WE COULD LOSE OUR COMPETITIVE POSITION.
We have built transaction processing systems for check verification, check
conversion, ACH processing, and bank card processing activities. While current
estimates regarding increased volume are within the capabilities of each system,
it is possible that a significant increase in volume in one of the markets would
exceed a specific system's capabilities. To minimize this risk, ECHO has
redesigned and upgraded its check related processing systems and has purchased a
high end system to process bankcard activity. This system is not yet
operational, and even when it becomes operational, no assurance can be given
that the current systems would be able to handle a significant increase in
volume or that the operational enhancements and improvements will be completed
in such time to avoid such a situation. In the event we are unable to process
increases in volume, this could significantly adversely affect our banking
relationships, our merchant customers, and our overall competitive position, and
could potentially result in violations of service level agreements which would
require us to pay penalty fees to the other parties to those agreements. Losses
of such relationships, or the requirement to pay penalties, may severely impact
our results of operations and financial condition.
WE INCUR FINANCIAL RISK FROM OUR CHECK GUARANTEE SERVICE.
The check guarantee business is essentially a risk management business. Any
limitation of a risk management system could result in financial obligations
being incurred by ECHO relative to our check guarantee activity. While ECHO has
provided check guarantee services for several years, there can be no assurance
that our current risk management systems are adequate to assure against any
financial loss relating to check guarantee. ECHO is enhancing its current risk
management systems and it is being conservative with reference to the type of
merchants to which it offers guarantee services in order to minimize this risk
but no assurance can be given that such measures will be adequate. During the
year ended September 30, 2003, we incurred $206,000 in losses from uncollected
guaranteed checks.
SECURITY BREACHES COULD IMPACT OUR CONTINUED OPERATIONS.
We process confidential financial information and maintain several levels of
security to protect this data. Security includes hand and card-based
identification systems at our data center locations that restrict access to the
specific facilities, various employee monitoring and access restriction
policies, and various firewall and network management methodologies that
restrict unauthorized access through the Internet. While these systems have
worked effectively in the past, there can be no assurance that they will
continue to operate without a security breach in the future. Depending upon the
nature of the breach, the consequences of security breaches could be significant
and dramatic to ECHO's continued operations.
THE INDUSTRY IN WHICH WE OPERATE INVOLVES RAPIDLY CHANGING TECHNOLOGY AND OUR
FAILURE TO IMPROVE OUR PRODUCTS AND SERVICES OR TO OFFER NEW PRODUCTS AND
SERVICES COULD CAUSE US TO LOSE CUSTOMERS.
Our business industry involves rapidly changing technology. Recently, we have
observed rapid changes in technology as evidenced by the Internet and
Internet-related services and applications, new and better software, and faster
computers and modems. As technology changes, ECHO's customers desire and expect
better products and services. Our success depends on our ability to improve our
existing products and services and to develop and market new products and
services. The costs and expenses associated with such an effort could be
significant to us. There is no assurance that we will be able to find the funds
necessary to keep up with new technology or that if such funds are available
that we can successfully
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improve our existing products and services or successfully develop new products
and services. Our failure to provide improved products and services to our
customers or any delay in providing such products and services could cause us to
lose customers to our competitors. Loss of customers could have a material
adverse effect on ECHO.
OUR INABILITY TO PROTECT OR DEFEND OUR TRADE SECRETS AND OTHER INTELLECTUAL
PROPERTY COULD HURT OUR BUSINESS.
We have expended a considerable amount of time and money to develop information
systems for our merchants. We regard these information systems as trade secrets
that are extremely important to our payment processing operations. We rely on
trade secret protection and confidentiality and/or license agreements with
employees, customers, partners and others to protect this intellectual property
and have not otherwise taken steps to obtain additional intellectual property
protection or other protection on these information systems. We cannot be
certain that we have taken adequate steps to protect our intellectual property.
In addition, our third-party confidentiality agreements can be breached and, if
they are, there may not be an adequate remedy available to us. If our trade
secrets become known, we may lose our competitive position, including the loss
of our merchant and bank customers. Such a loss could severely impact our
results of operations and financial condition.
Additionally, while we believe that the technology underlying our information
systems does not infringe upon the rights of any third parties, there is no
assurance that third parties will not bring infringement claims against us. We
also have the right to use the technology of others through various license
agreements. If a third party claimed our activities and/or these licenses were
infringing their technology, while we may have some protection from our third
party licensors, we could face additional infringement claims or otherwise be
obligated to stop utilizing intellectual property critical to our technology
infrastructure. If we are not able to implement other technology to substitute
the intellectual property underlying a claim, our business operations could be
severely effected. Additionally, infringement claims would require us to incur
significant defense costs and expenses and, to the extent we are unsuccessful in
defending these claims, could cause us to pay monetary damages to the person or
entity making the claim. Continuously having to defend such claims or otherwise
making monetary damages payments could materially adversely affect our results
of operations.
IF WE DO NOT CONTINUE TO INVEST IN RESEARCH AND DEVELOPMENT, WE COULD LOSE OUR
COMPETITIVE POSITION.
Because technology in the payment processing industry evolves rapidly, we need
to continue to invest in research and development in both the bankcard
processing business segment and the check-related products segment in order to
remain competitive. Although research and development expenses decreased 18.3%
from $1,719,000 in fiscal 2002 to $1,405,000 in fiscal 2003, because of the fact
that most of our development project costs were capitalized once we entered into
coding and testing phases, we continue to evaluate projects which we believe
will assist us in our efforts to stay competitive. Although we believe that our
investment in these projects will ultimately increase earnings, there is no
assurance as to when or if these new products will show profitability or if we
will ever be able to recover the costs invested in these projects. Additionally,
if we fail to commit adequate resources to grow our technology on pace with
market growth, we could quickly lose our competitive position, including the
loss of our merchant and bank customers.
FAILURE TO OBTAIN ADDITIONAL FUNDS CAN IMPACT OUR OPERATIONS AND FUTURE GROWTH.
We use funds generated from operations, as well as funds obtained through credit
facilities and equity financing, to finance our operations. In light of our
recent financing efforts, and as a result of the cash flow generated from
operations, we believe we have sufficient cash to support our business
activities,
8
including research, development and marketing costs. However, future growth may
depend on our ability to continue to raise additional funds, either through
operations, bank borrowings, or equity or debt financings. There is no assurance
that we will be able to continue to raise the funds necessary to finance growth
or continue to generate the funds necessary to finance operations, and even if
such funds are available, that the terms will be acceptable to us. The inability
to generate the necessary funds from operations or from third parties in the
future may require us to scale back our research, development and growth
opportunities, which could harm our overall operations.
WHILE WE MAINTAIN INSURANCE PROTECTION AGAINST CLAIMS RELATED TO OUR SERVICES,
THERE IS NO ASSURANCE THAT SUCH PROTECTION WILL BE ADEQUATE TO COVER POTENTIAL
CLAIMS AND OUR INABILITY TO OTHERWISE PAY SUCH CLAIMS COULD HARM OUR BUSINESS.
We maintain errors and omissions insurance for the services we provide. While we
believe the limit on our errors and omissions insurance policy is adequate and
consistent with industry practice, if claims are brought by our customers or
other third parties, we could be required to pay the required claim or make
significant expenditures to defend against such claims in amounts that exceed
our current insurance coverage. There is no assurance that we will have the
money to pay potential plaintiffs for such claims if they arise beyond the
amounts insured by us. Making these payments could have a material adverse
effect on our business.
INVOLVEMENT IN LITIGATION COULD HARM OUR BUSINESS.
We are involved in various lawsuits arising in the ordinary course of business.
Although we believe that the claims asserted in such lawsuits are without merit,
the cost to us for the fees and expenses to defend such lawsuits could have a
material adverse effect on our financial condition, results of operations or
cash flow. In addition, there can be no assurance that we will not at some time
in the future experience significant liability in connection with such claims.
As of September 30, 2003, we have spent approximately $50,000 in legal fees and
expenses defending these claims.
Litigation costs and expenses, including the cost to settle claims,
significantly affected our results of operations during the year ended September
30, 2002. Net loss for fiscal 2002 was $2,376,000, as compared to net income of
$434,000 in fiscal 2001. The decline was primarily due to a $2.5 million legal
settlement paid to Premiere Lifestyles International Corporation, Inc. In
connection with the settlement, we made a one-time cash payment of $1,200,000 to
Premier and executed a long-term promissory note collateralized by our Agoura
Hills, California office building in favor of that plaintiff for an additional
$1,300,000, payable over 15 years, with an interest rate of 8%. Additionally, we
incurred approximately $1,000,000 in legal fees in connection with the suit of
which $400,000 was incurred in fiscal 2002.
OUR INABILITY TO RECOVER FROM NATURAL DISASTERS COULD HARM OUR BUSINESS.
We currently maintain four data centers: one in Agoura Hills, California, one in
Camarillo, California, one in Albuquerque, New Mexico and one in Boulder,
Colorado. Should a natural disaster occur in any of the locations, it is
possible that ECHO would not be able to fully recover full functionality at one
of its data centers. To minimize this risk, ECHO will centralize its data
processing functionality in Camarillo in 2004 and will make Albuquerque a fully
redundant site. Prior to that time, it is possible a natural disaster could
limit or completely disable a specific service offered by ECHO until such time
that the specific location could resume its functionality. Our inability to
provide such service could have a material adverse effect on our business and
results of operations.
9
INCREASES IN THE COSTS OF TECHNICAL COMPLIANCE COULD HARM OUR BUSINESS.
The services which ECHO offers require significant technical compliance. This
includes compliance to both Visa and MasterCard regulations and association
rules, NACHA guidelines and regulations with regard to the Federal Reserve
System's Automated Clearing House and check related issues, and various banking
requirements and regulations. ECHO has personnel dedicated to monitoring our
compliance to the specific industries we serve and, when possible, ECHO is
moving the technical compliance responsibility to other parties, as is the case
with the recent purchase of the Oasis Technologies bankcard processing system
wherein the vendor, Oasis Technologies, assumes much of the compliance
obligations regularly updated by Visa and MasterCard. As the compliance issues
become more defined in each industry, the costs associated with that compliance
may present a risk to ECHO. These costs could be in the form of additional
hardware, software or technical expertise that ECHO must acquire and/or
maintain. While ECHO currently has these costs under control, we have no control
over those entities that set the compliance requirements so no assurance can be
given that ECHO will always be able to underwrite the costs of compliance in
each industry wherein we compete.
RISKS ASSOCIATED WITH OUR COMMON STOCK
IF WE NEED TO SELL OR ISSUE ADDITIONAL SHARES OF COMMON STOCK OR ASSUME
ADDITIONAL DEBT TO FINANCE FUTURE GROWTH, OUR STOCKHOLDERS' OWNERSHIP COULD BE
DILUTED OR OUR EARNINGS COULD BE ADVERSELY IMPACTED.
Our business strategy may include expansion through internal growth, by
acquiring complementary businesses or by establishing strategic relationships
with targeted customers and suppliers. In order to do so, or to fund our other
activities, we may issue additional equity securities that could dilute our
stockholders' stock ownership. We may also assume additional debt and incur
impairment losses related to goodwill and other tangible assets if we acquire
another company and this could negatively impact our results of operations. As
of the date of this report, management has no plan to raise additional capital
through the sale of securities and believes that our cash flow from operations
together with cash on hand and our established line of credit with Bank of the
West will be sufficient to meet our working capital and other commitments.
WE HAVE ADOPTED A NUMBER OF ANTI-TAKEOVER MEASURES THAT MAY DEPRESS THE PRICE OF
OUR COMMON STOCK.
Our rights agreement, our ability to issue additional shares of preferred stock
and some provisions of our articles of incorporation and bylaws could make it
more difficult for a third party to make an unsolicited takeover attempt of us.
These anti-takeover measures may depress the price of our common stock by making
it more difficult for third parties to acquire us by offering to purchase shares
of our stock at a premium to its market price.
OUR STOCK PRICE HAS BEEN VOLATILE.
Our common stock is quoted on the NASDAQ SmallCap Market, and there can be
substantial volatility in the market price of our common stock. Over the course
of the quarter ended September 30, 2003, the market price of our common stock
has been as high as $9.59, which is the highest market price our common stock
has had over the course of the year ended September 30, 2003, and as low as
$3.20. Additionally, over the course of the year ended September 30, 2003, the
market price of our common stock has been as low as $1.09. The market price of
our common stock has been, and is likely to continue to be, subject to
significant fluctuations due to a variety of factors, including quarterly
variations in operating results, operating results which vary from the
expectations of securities analysts and investors,
10
changes in financial estimates, changes in market valuations of competitors,
announcements by us or our competitors of a material nature, loss of one or more
customers, additions or departures of key personnel, future sales of common
stock and stock market price and volume fluctuations. In addition, general
political and economic conditions such as a recession, or interest rate or
currency rate fluctuations may adversely affect the market price of our common
stock.
WE HAVE NOT PAID AND DO NOT CURRENTLY PLAN TO PAY DIVIDENDS, AND YOU MUST LOOK
TO PRICE APPRECIATION ALONE FOR ANY RETURN ON YOUR INVESTMENT.
Some investors favor companies that pay dividends, particularly in general
downturns in the stock market. We have not declared or paid any cash dividends
on our common stock. We currently intend to retain any future earnings for
funding growth, and we do not currently anticipate paying cash dividends on our
common stock in the foreseeable future. Because we may not pay dividends, your
return on this investment likely depends on your selling our stock at a profit.
FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934, both as amended. These forward-looking
statements are subject to various risks and uncertainties. The forward-looking
statements include, without limitation, statements regarding our future business
plans and strategies and our future financial position or results of operations,
as well as other statements that are not historical. You can find many of these
statements by looking for words like "will", "may", "believes", "expects",
"anticipates", "plans" and "estimates" and for similar expressions. Because
forward-looking statements involve risks and uncertainties, there are many
factors that could cause the actual results to differ materially from those
expressed or implied. These include, but are not limited to, economic
conditions. Any forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those projected in this prospectus, for the reasons, among
others, described in the Risk Factors section beginning on page 4. You should
read the Risk Factors section carefully, and should not place undue reliance on
any forward-looking statements, which speak only as of the date of this
prospectus. We undertake no obligation to release publicly any updated
information about forward-looking statements to reflect events or circumstances
occurring after the date of this prospectus or to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
The proceeds from the sales of the selling stockholders' common stock
will belong to the respective selling stockholders. We will not receive any
proceeds from such sales.
In an October 2003 private placement, we sold 437,957 shares of our
common stock at a price per share of $6.85 for net proceeds to us of
approximately $2,800,000, after payment of commissions and expenses, which we
presently intend to use to increase the capacity of our payment processing
infrastructure, expedite various research and development efforts, and for
general working capital purposes.
11
SELLING STOCKHOLDERS
COMMON STOCK FINANCING
In October 2003, we entered into a securities purchase agreement,
pursuant to which we sold shares of our common stock to the following investors:
The Thomas B. Fordham Foundation, Kentucky State District Council Annuity Trust
Fund, Kentucky State District Council of Carpenters, Novant Health,
RaytheonMaster Pension Trust, Raytheon Company Combined DB/DC Master Trust, Rush
Presbyterian St. Lukes Medical Center Endowment, Rush Presbyterian St. Lukes
Medical Center Pension, and William Blair Small Cap Growth Fund. Each investor
is a selling stockholder. Pursuant to the terms of the securities purchase
agreement, we sold to the selling stockholders an aggregate of 437,957 shares of
our common stock at a price per share of $6.85 for gross proceeds to us of
approximately $2,800,000, after commissions and expenses.
Roth Capital Partners acted as placement agent in connection with the
October 2003 private placement financing transaction. For their services as
placement agent, we paid Roth Capital Partners a fee equal to 6%, or $180,000,
of our gross proceeds from the financing. We also paid for the reasonable
out-of-pocket expenses incurred by Roth Capital Partners in an amount equal to
$3,000.00.
REGISTRATION RIGHTS
In connection with the October 2003 private placement financing
transaction, we entered into a registration rights agreement with the investors.
Pursuant to the registrant rights agreement, we agreed to file a registration
statement on Form S-3 registering the resale by the investors of the shares of
common stock purchased by them in the transaction and to keep the registration
statement effective until the earlier of two years and the date that all the
common shares may be sold by the investors pursuant to Rule 144 promulgated
under the Securities Act of 1933. This registration rights agreement also
provides that if we do not register for resale the common shares by January 28,
2004, which date may be extended to March 27, 2004 in the event the registration
statement is reviewed by the Securities and Exchange Commission, then upon such
failure to register the shares, we must pay each of the investors a fee equal to
1% of the aggregate purchase price paid by each such investor pursuant to the
Securities Purchase Agreement for the shares of common stock then held by each
such investor, and for each month after such date that the common shares are not
registered, we must additionally pay each of the investors a fee equal to 1% of
the aggregate purchase price paid by each such investor pursuant to the
Securities Purchase Agreement for the shares of common stock then held by each
such investor. Pursuant to this agreement, we filed the registration statement
of which this prospectus is a part with the Securities and Exchange Commission
to register for resale the shares of common stock identified in this prospectus
and owned by the selling stockholders.
Other than the transactions described above, we had no material
relationship with the selling stockholders during the three years preceding the
date of this prospectus.
SELLING STOCKHOLDER TABLE
The following table sets forth: (1) the name of the stockholder for
whom we are registering shares under this registration statement; (2) the number
of shares of our common stock beneficially owned by such stockholder prior to
this offering; (3) the number of shares of our common stock offered by such
stockholder pursuant to this prospectus; and (4) the number of shares, and (if
one percent or more) the percentage of the total of the outstanding shares, of
our common stock to be beneficially owned by such stockholder after this
offering, assuming that all of the shares of our common stock beneficially owned
by such stockholder and offered pursuant to this prospectus are sold and that
the stockholder acquires no
12
additional shares of our common stock prior to the completion of this offering.
Such data is based upon information provided by the selling stockholders.
PERCENTAGE OF
COMMON STOCK COMMON STOCK COMMON STOCK
COMMON STOCK BEING OFFERED OWNED UPON OWNED UPON
OWNED PRIOR TO PURSUANT TO THIS COMPLETION OF COMPLETION OF
NAME THE OFFERING PROSPECTUS THIS OFFERING THIS OFFERING
---- ------------ ---------- ------------- -------------
The Thomas B. Fordham Foundation (1) 4,450 4,450 0 --
Kentucky State District Council Annuity 1,000 1,000 0 --
Trust Fund (2)
Kentucky State District Council of 7,850 7,850 0 --
Carpenters (3)
Novant Health (4) 8,250 8,250 0 --
Raytheon Master Pension Trust (5) 85,000 85,000 0 --
Raytheon Company Combined DB/DC Master 19,650 19,650 0 --
Trust (6)
Raytheon Company Combined DB/DC Master 11,900 11,900 0 --
Trust (7)
Rush Presbyterian St Lukes Medical Center 18,000 18,000 0 --
Endowment (8)
Rush Presbyterian St Lukes Medical Center 16,600 16,600 0 --
Pension (9)
William Blair Small Cap Growth Fund (10) 265,257 265,257 0 --
TOTAL 437,957 437,957 0 --
----------
(1) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of The
Thomas B. Fordham Foundation.
(2) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of
Kentucky State District Council Annuity Trust Fund.
(3) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of
Kentucky State District Council of Carpenters.
(4) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of Novant
Health.
13
(5) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of Ratheon
Master Pension Trust.
(6) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of
Raytheon Company Combined DB/DC Master Trust.
(7) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of
Raytheon Company Combined DB/DC Master Trust.
(8) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of Rush
Presbyterian St Lukes Medical Center Endowment.
(9) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of Rush
Presbyterian St Lukes Medical Center Pension.
(10) Karl W. Brewer and Michael P. Balkin, Portfolio Managers at William Blair
& Company, LLC, the agent and attorney-in-fact for this selling
stockholder, exercise voting and investment authority over the shares held
by this selling stockholder. William Blair & Company, LLC is a registered
broker/dealer and is a member of the NASD. These securities were purchased
and are held in the ordinary course of business for the account of William
Blair Small Cap Growth Fund.
PLAN OF DISTRIBUTION
The shares of our common stock offered pursuant to this prospectus may
be offered and sold from time to time by the selling stockholders listed in the
preceding section, or its donees, transferees, pledgees or other successors in
interest that receive such shares as a gift or other non-sale related transfer.
The selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale.
The selling stockholders and any of their respective pledgees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
14
o Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o Block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o An exchange distribution in accordance with the rules of the
applicable exchange;
o Privately negotiated transactions;
o Settlement of short sales;
o Broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
o A combination of any such methods of sale; and
o Any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by it and,
if it defaults in the performance of its secured obligations, the pledgees or
secured parties may offer and sell the shares of common stock from time to time
under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as a selling stockholder under this prospectus.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933. The selling
stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute the common
stock.
We are required to pay all fees and expenses incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against specified losses, claims, damages and liabilities, including liabilities
under the Securities Act of 1933, all of which are described in the Registration
Rights Agreement described above.
15
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the SEC with
respect to the common stock offered by this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules that are part of the registration statement. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. We refer you to the registration statement and the
exhibits and schedules thereto for further information with respect to us and
our common stock. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference room. Our SEC filings are also available to the public
from the SEC's website at www.sec.gov.
We are subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934 and, in accordance with those
requirements, will continue to file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's website referred to above.
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. We incorporate by reference the documents listed
below and any additional documents filed by us with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering of
securities is terminated. The information we incorporate by reference is an
important part of this prospectus, and any information that we file later with
the SEC will automatically update and supersede this information.
The documents we incorporate by reference are:
1. Our Annual Report on Form 10-K for the year ended September
30, 2003 (File No. 000-15245);
2. Our Registration Statements on Form 8-A as filed on December
15, 1986 and February 10, 2003 (File Nos. 000-15245),
containing a description of our common stock, par value $.01
per share, and the separate preferred share purchase rights,
and any amendment or report filed for the purpose of updating
such description; and
3. All other reports filed by us pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 since September
30, 2002, including all such reports filed after the date of
the initial registration statement and prior to effectiveness
of the registration statement.
You may request a copy of these filings, at no cost, by writing or
calling us at Electronic Clearing House, Inc., 730 Paseo Camarillo, Camarillo,
California 93010, telephone number (800) 233-0406, Attention: Alice Cheung.
You should rely only on the information contained in this prospectus or
any supplement and in the documents incorporated by reference above. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any supplement or in the
documents incorporated by reference is accurate on any date other than the date
on the front of those documents.
16
LEGAL MATTERS
Stubbs Alderton & Markiles, LLP, Encino, California, has rendered to
Electronic Clearing House, Inc. a legal opinion as to the validity of the common
stock covered by this prospectus.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K for the year ended September, 30, 2003 have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
17
--------------------------------------------------------------------------------
You should rely only on the information incorporated by reference or provided in
this prospectus or any supplement to this prospectus. We have not authorized
anyone else to provide you with different information. The selling stockholders
should not make an offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement to this prospectus is accurate as of any date other than the date on
the cover page of this prospectus or any supplement.
--------------------------------------------------------------------------------
--------------------
ELECTRONIC CLEARING HOUSE, INC.
PROSPECTUS
--------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering. All the amounts shown are estimates except the
Securities and Exchange Commission registration fee.
Registration fee - Securities and Exchange Commission ............ $ 261
Legal Fees and Expenses .......................................... 20,000
Accounting Fees and Expenses ..................................... 15,000
Miscellaneous Expenses ........................................... 2,500
-------
Total ....................................................... $47,761
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.7502 of the Nevada Revised Statutes provides in relevant
part that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person is not otherwise liable to the corporation pursuant to specific
provisons of the Nevada Revised Statutes or has acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
In addition, Section 78.7502 provides that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person is not otherwise liable to the corporation
pursuant to specific provisons of the Nevada Revised Statutes or has acted in
good faith and in a manner such person reasonably believed to be in the best
interests of the corporation and its stockholders. No indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation in the performance of that
person's duty to the corporation and its stockholders, unless and only to the
extent that the court in which such action or suit is or was pending shall
determine upon application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses and
then only to the extent that the court shall determine.
II-1
Nevada law further provides that a corporation may purchase and
maintain insurance or make other financial arrangements on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise for any liability asserted against such person and liability
and expenses incurred by such person in such person's capacity as a director,
officer, employee or agent, or arising out of such person's status as such,
whether or not the corporation has the authority to indemnify such person
against such liability and expenses.
The Registrant has purchased an insurance policy intended to provide
coverage to any person who was or is a party or is threatened to be made a
party, in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------
4.2 Specimen Common Stock Certificate (1)
5.1 Opinion and Consent of Stubbs Alderton & Markiles, LLP (4)
10.54 Form of Securities Purchase Agreement dated October 23, 2003, by
and among the Registrant and the Purchasers identified therein
(2)
10.55 Form of Registration Rights Agreement dated October 23, 2003, by
and among the Registrant and the Purchasers identified therein
(2)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Stubbs Alderton & Markiles, LLP (3)(4)
24.1 Power of Attorney (4)
----------
(1) Filed as an Exhibit to Registrant's Form S-1, Amendment No. 3,
effective November 13, 1990 and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 30, 2003 and incorporated herein by reference.
(3) Included in Exhibit 5.1.
(4) Previously filed.
II-2
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of the appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Camarillo, State of California, on December 29, 2003.
ELECTRONIC CLEARING HOUSE, INC.
By: /s/ Joel M. Barry
------------------------------
Joel M. Barry
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joel M. Barry Chairman of the Board December 29, 2003
------------------------- and Chief Executive Officer
Joel M. Barry
* Director December 29, 2003
-------------------------
Aristides W. Georgantas
* Director December 29, 2003
-------------------------
Hubert L. Lucas
* Director December 29, 2003
-------------------------
Carl R. Terzian
/s/ Alice L. Cheung Chief Financial Officer December 29, 2003
------------------------- and Treasurer
Alice L. Cheung
* By: /s/ Joel M. Barry
-------------------
Joel M. Barry
Attorney-in-Fact
S-1
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------
4.2 Specimen Common Stock Certificate (1)
5.1 Opinion and Consent of Stubbs Alderton & Markiles, LLP (4)
10.54 Form of Securities Purchase Agreement dated October 23, 2003, by
and among the Registrant and the Purchasers identified therein
(2)
10.55 Form of Registration Rights Agreement dated October 23, 2003, by
and among the Registrant and the Purchasers identified therein
(2)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Stubbs Alderton & Markiles, LLP (3)(4)
24.1 Power of Attorney (4)
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(1) Filed as an Exhibit to Registrant's Form S-1, Amendment No. 3,
effective November 13, 1990 and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
October 30, 2003 and incorporated herein by reference.
(3) Included in Exhibit 5.1.
(4) Previously filed.
EX-1