<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of May, 1998
OZEMAIL LIMITED
ACN 066 387 157
OZEMAIL CENTRE, 39 HERBERT STREET, ST. LEONARDS NSW 2065, SYDNEY, AUSTRALIA
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X* Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.)
Yes No X
--- ---
- ----------------
* As a foreign private issuer, OzEmail Limited ("OzEmail") is
eligible to file annual reports under cover of Form 20-F or Form 10-K.
<PAGE> 2
OZEMAIL LIMITED
FORM 6-K
1. RESIGNATION OF DIRECTOR
On May 15, 1998, OzEmail Limited, an Australian corporation ("OzEmail"
or the "Company") filed with the Australian Securities Commission Limited a
Notification of Change to Officeholders announcing the resignation of Chris
Tyler as a director of the Company. A copy of this filing is attached as
Exhibit 99.1 to this report and is incorporated herein by reference.
2. LISTING ON AUSTRALIAN STOCK EXCHANGE
On May 15, 1998, OzEmail filed an application for listing on the
Australian Stock Exchange ("ASX") with the Australian Securities Commission
Limited which included an Information Memorandum (the "Memorandum"). In
connection with this application, three of the directors of the Company,
Messrs. Sean Howard, Trevor Kennedy and Malcolm Turnbull, offered a total
of three million (3,000,000) ordinary shares to Australian investors.
OzEmail's ordinary shares were listed on the ASX on May 29, 1998. The
listing was underwritten by ANZ Securities Limited. The Memorandum and a
copy of the press release announcing OzEmail's application for listing on
ASX are attached as Exhibits 99.2 and 99.3, respectively, to this report
and are incorporated herein by reference.
3. ANNUAL GENERAL MEETING
On May 29, 1998, the Company held its annual general meeting with
respect to the following matters: (i) receipt and consideration of the
Company's profit and loss account and statement of cash flows for the year
ended 31 December 1997, and its balance sheet as of 31 December 1997
(collectively, the "OzEmail Limited and Controlled Entities Financial
Statements"), (ii) to receive and consider the directors' report, (iii) to
receive and consider the auditor's report, (iv) to elect directors and (v)
to consider certain resolutions as noticed in the Further Notice of General
Meeting which is attached hereto as Exhibit 99.5 to this report and is
incorporated herein by reference. A copy of the OzEmail Limited and
Controlled Entities Financial Statements is attached hereto as Exhibit 99.4
to this report and is incorporated by reference.
4. SETTLEMENT OF APRA ACTION
On June 9, 1998, OzEmail announced together with the Australian Performing
Rights Association ("APRA") that they had reached an agreement as to the terms
of settlement of APRA's Federal Court action against OzEmail. Under the terms
of the agreement OzEmail will make a payment to APRA but makes no admission of
liability in connection with the proceedings in the Federal Court. The amount
of the payment is confidential. A copy of the press release announcing the
agreement is attached as Exhibit 99.6 to this report and is incorporated herein
by reference.
<PAGE> 3
5. EXHIBITS
The following documents are filed as exhibits to this report:
Exhibit 99.1 - Notification of Change to Officeholders, filed with the
Australian Securities Commission by OzEmail announcing the resignation
of Chris Tyler as a director of the Company.
Exhibit 99.2 - OzEmail Limited Information Memorandum, dated May 15,
1998, filed by OzEmail with the Australian Securities Commission
Limited for listing on ASX.
Exhibit 99.3 - Press Release, dated May 18, 1998, issued by OzEmail
announcing its application to list on the Australian Stock Exchange.
Exhibit 99.4 - OzEmail Limited and Controlled Entities Financial
Statements 31 December 1997.
Exhibit 99.5 - Further Notice of General Meeting to shareholders
regarding General Meeting of Shareholders held on May 29, 1998.
Exhibit 99.6 - Press Release, dated June 9, 1998, issued by OzEmail
announcing its agreement to settle the APRA action.
<PAGE> 4
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.
OzEmail Limited
(Registrant)
Date: June 16, 1998 By: /s/ Steven Ezzes
----------------------
Name: Steven Ezzes
Title: Director, Authorized U.S.
Representative
<PAGE> 5
EXHIBIT INDEX
Exhibit
- -------
99.1 Notification of Change to Officeholders, filed with the
Australian Securities Commission by OzEmail announcing the
resignation of Chris Tyler as a director of the Company.
99.2 OzEmail Limited Information Memorandum, dated May 15, 1998, filed
by OzEmail with the Australian Securities Commission Limited for
listing on ASX.
99.3 Press Release, dated May 18, 1998, issued by OzEmail announcing
its application to list on the Australian Stock Exchange.
99.4 OzEmail Limited and Controlled Entities Financial Statements 31
December 1997.
99.5 Further Notice of General Meeting to shareholders regarding
General Meeting of Shareholders held on May 29, 1998.
99.6 Press Release, dated June 9, 1998, issued by OzEmail announcing
its agreement to settle the APRA action.
<PAGE> 6
EXHIBIT 99.1 --
NOTIFICATION OF CHANGE
TO OFFICEHOLDERS
ASC registered agent number: 15547
lodging party:
address:
telephone: 02 9222 3100
facsimile:
DX number:
suburb/city: Sydney
reference: rjg
- ----------------------------------------------------------------------------
Australian Securities Commission form 304
Notification of Corporations Law
CHANGE TO OFFICEHOLDERS 242(2),(8) & (9),361(1)(c)
- ----------------------------------------------------------------------------
corporation name : OzEmail Limited
A.C.N. or A.R.B.N. : 066 387 157
TYPE OF CHANGE : ceasing to hold office
- ----------------------------------------------------------------------------
CEASING TO HOLD OFFICE
name (family & given names) : TYLER, Chris
date of birth : 09/03/58
place of birth : Abilene Texas
office held & date ceased : director - 14/05/98
- ----------------------------------------------------------------------------
SIGNATURE
I certify that the information in this form is true and complete.
print name : Michael S.F. Hughes
capacity : Company Secretary
SIGN HERE : __________________
date : 15/05/98
- ----------------------------------------------------------------------------
<PAGE> 7
GUIDE THIS GUIDE DOES NOT FORM PART OF THE PRESCRIBED form and is
included by the ASC to assist you in completing and lodging form
304.
- --------------------------------------------------------------------------------
Signature This form must be signed by a continuing or newly
appointed company
signatures are not acceptable.
Lodging period
of a company officer.
Within 1 month after the change of the name or
address of a company officer.
Lodging Fee
period. Late lodging fees will apply thereafter.
1 month $50
More than 1 month $210
A receipt will not be issued unless requested.
Other forms to be completed Nil.
Additional information
address of the officeholder must be the date the
change occurred. When there is a change
(appointment or cessation) in officeholders of a
company, then only their details should be
included on the form. Continuing officeholders
are NOT to be listed.
Send to Australian Securities Commission
Gippsland Mail Centre
Morwell VIC 3841
or
your nearest ASC Business Centre
Annexures To make any annexure conform to the regulations,
you must
1 use A4 size paper of white or light pastel colour
with a margin of at least 10mm on all sides
2 show the corporation name and A.C.N. or A.R.B.N.
3 number the pages consecutively
4 print or type in BLOCK letters in dark blue or
black ink so that the document is clearly legible
when photocopied
5 identify the annexure with a mark such as A, B, C,
etc
6 endorse the annexure with the words:
This is annexure (mark) of (number) pages referred
to in form (form number and title)
7 sign and date the annexure
The annexure must be signed by the same person(s)
who signed the form.
Information in this guide is intended as a guide only. Please consult
accountant or solicitor for further advice.
- --------------------------------------------------------------------------------
<PAGE> 8
EXHIBIT 99.2 --
INFORMATION MEMORANDUM
DATED MAY 15, 1998
OZEMAIL LIMITED INFORMATION MEMORANDUM
CORPORATE DIRECTORY
DIRECTORS
Malcolm Turnbull, Chairman
Sean Howard
David Spence
Steven Ezzes
Trevor Kennedy
COMPANY SECRETARY
Michael Hughes
AUDITORS
Price Waterhouse
LEAD MANAGER AND UNDERWRITER
ANZ Securities Limited
SOLICITORS
Solomon Garland Partners
SHARE REGISTRY
National Registry Services Pty Limited
Level 1, Grosvenor Place
225 George Street
Sydney New South Wales
THE AUSTRALIAN STOCK EXCHANGE LIMITED ("ASX") DOES NOT TAKE ANY
RESPONSIBILITY FOR THE CONTENTS OF THIS INFORMATION MEMORANDUM. THE FACT
THAT THE ASX MAY ADMIT OZEMAIL LIMITED TO ITS OFFICIAL LIST IS NOT TO BE
TAKEN IN ANY WAY AS AN INDICATION OF THE MERITS OF OZEMAIL LIMITED.
THE DATE OF ISSUE OF THIS INFORMATION MEMORANDUM IS 15 MAY 1998
<PAGE> 9
CHAIRMAN'S LETTER
Dear Investor,
You are invited to become an investor in a company that is Australia's
largest Internet Service Provider and a leader in innovative Internet
technology.
Since its inception in September 1994, the Company has achieved its
position in the Australian Internet connectivity market through the
provision of a strong network, a focus on customer service, and the
continued roll-out of value-added services to both the commercial and
residential market.
The Company's mission is to create shareholder value through innovative and
competitive Internet service solutions domestically and overseas. Rather
than following market trends in the world's most dynamic industry sector,
we have chosen to lead the market, with our Internet telephony service
offering being the most apparent example. It is now recognised
internationally that the Internet is a viable carrier of long distance and
international telephone calls. OzEmail Interline, an 88%-owned controlled
entity of OzEmail, is pursuing strategies to develop this exciting growth
opportunity.
Since our Initial Public Offering of American Depositary Shares on the
NASDAQ National Market in the United States, we have experienced growing
interest from the investment community in Australia. Our decision to list
on the Australian Stock Exchange will provide Australian investors with a
convenient means of investment in OzEmail.
In 1997, OzEmail Limited was pleased to be able to report on the following
key achievements:
o the acquisition of a major Australian Internet connectivity
competitor, Access One, in November 1997, cementing our predominant
position in the Australian ISP market with over 180,000 active customer
accounts at present;
o growth in the number of network affiliates who form part of the
OzEmail Interline Internet telephony service offering around the world;
o strengthen our service to enterprise customers and further enhance
specialised corporate services;
o continued innovation in the field of online content such as the
introduction of OzEmail Sportswatch, a real time sports news service,
through agreements with leading world news agencies.
In 1998, the Company is likely to face increasing competition in the
Australian Internet service market but the Company believes that it can
rise to the challenge. One of our major costs is related to the high cost
of bandwidth between Australia and the United States. We have laid the
groundwork for reducing such costs through two major infrastructure
initiatives. The first, a satellite link from the West Coast of the United
States to the Company's own earth stations in Sydney, Melbourne, Brisbane
and Auckland recently began feeding OzEmail's Australian network with data
from the United States. The Company is also joining the Southern Cross
Cable consortium to acquire fibre capacity between the United States, New
Zealand and Australia. This cable is expected to be ready for service in
approximately two years.
OzEmail has come a long way in a very short time. This is only possible
through the strong vision and unstinting efforts of the OzEmail team, which
has grown in number from 9 members at its inception in 1994 to over 450
today. We all share a great sense of excitement about the challenges and
opportunities ahead, both in Australia and around the world. We shall not
lose sight of the need for our emphasis on innovation to create shareholder
value.
This is your opportunity to buy shares as the Company seeks to list on the
Australian Stock Exchange. We welcome your involvement as a new shareholder
in the Company's home market as the Company embarks on the next phase of
its development.
Malcolm Turnbull
Chairman
<PAGE> 10
OZEMAIL LIMITED INFORMATION MEMORANDUM
CONTENTS
Chairman's Letter
1. Overview 4
2. Details of the Offer 6
3. The Internet 9
4. OzEmail Operations 10
4.1 OzEmail Products and Services 10
4.2 Customers/Pricing 13
4.3 Network 14
4.4 OzEmail Interline 15
4.5 International Operations 17
4.6 Sales & Marketing and Consumer Online Services 17
4.7 Recent and Imminent Acquisitions 19
4.8 Future Strategies 19
5. Board of Directors, Management and Employees 20
6. Risks 23
7. Financial Overview 34
8. Additional Information 38
9. Financial Statements 51
10. Glossary of Terms 95
11. Application Form
<PAGE> 11
1. OVERVIEW
AUSTRALIA'S LARGEST INTERNET SERVICE PROVIDER
OzEmail Limited with its subsidiaries ("the Company" or "OzEmail") is the
leading provider (based on number of active customer accounts) of
comprehensive Internet services in Australia. It provides access to an
extensive network, regionally-focused content, Internet implementation
services and a large customer support team. The Company's Internet services
are designed to meet the different needs of its residential, educational
and enterprise customers, ranging from low-cost dial-up to high performance
continuous access services integrating the Company's Integrated Services
Digital Network ("ISDN") capabilities and its consulting expertise. The
Company believes that it has built a strong brand identity and that it has
successfully positioned itself in the markets in which it currently
operates. As of March 31, 1998, the Company's active customer base
consisted of approximately 186,100 active customer accounts including
approximately 10,688 active customer accounts in New Zealand. Following the
acquisition in November 1997 of Access One Pty Limited ("Access One") the
Company had 80 points of presence ("POPs") in Australia which provide local
call access to over 80% of Australia's population. The Company also has
extensive hubs in Sydney, Melbourne, Brisbane and Auckland.
The Company has consolidated its position in the Australian market with the
acquisition of Access One, which is the third largest Internet service
provider in Australia, with approximately 32,500 active customer accounts
as at 31 December, 1997. The acquisition of Access One has had a negative
impact on the Company's profitability in the first half of 1998 because of
costs associated with the rationalisation and integration of the Access One
network. The Company has begun and intends to continue creating
efficiencies from the acquisition that it believes can be generated through
the elimination of duplicated infrastructure between OzEmail and Access One
and the rationalisation of excess bandwidth capacity to the United States.
Furthermore, the Company believes that the acquisition presents a strategic
opportunity to expand its presence in the enterprise and government sector
of the market. The acquisition has also given the Company a presence in the
wholesale Internet sector, which involves the re-sale of Internet bandwidth
to smaller Australian Internet service providers.
The Company has continued to enhance its presence in the Australian
Internet service market through the acquisition from Camtech (SA) Pty
Limited ("Camtech") of its Internet service business in South Australia on
31 March 1998.
HISTORY
OzEmail was formed in September 1994 through a number of simultaneous
transactions. As a result of these transactions, the proprietary electronic
mail ("E-mail") service, previously controlled by the Company's Chief
Executive Officer and principal founder, was transferred to OzEmail in
exchange for all of the then outstanding ordinary shares of OzEmail. In
July 1995 Voyager New Zealand Limited ("Voyager") was formed in New Zealand
and commenced operations in November 1995. OzEmail owns 80% of the equity
of Voyager with its founders owning the remaining 20%.
In February 1996, OzEmail became a public company. In May 1996 3,200,000
American Depositary Shares ("ADSs"), each then representing one ordinary
share of OzEmail, were listed on the NASDAQ National Market ("NASDAQ") in
the USA after a successful capital raising in the USA. In July 1996 the
underwriters of the initial public offering exercised an over-allotment
option to acquire a further 150,000 ADSs at US$14 each. Following a share
split in September 1997 each ADS now represents 10 ordinary shares.
<PAGE> 12
VOICE OVER INTERNET
OzEmail Interline, the Company's 88%-owned controlled entity, has developed
a service that allows telephone calls to be made over the Internet from
existing tone-dial phones for a significantly lower cost to the consumer
than calls made through traditional telecommunications carriers. The
service offering was developed in conjunction with Ideata Pty Limited
("Ideata"), an Australian technology company and owner of a 12% equity
interest in OzEmail Interline.
It is the ongoing intention of OzEmail Interline to create an international
network of affiliates responsible for rolling out the technology on a
networked basis throughout the world. Thus, it is intended that customers
of an individual network affiliate will be able to call locations
throughout the world through the gateways of other affiliate networks. The
international consortium of exclusive and non-exclusive network affiliates
includes the following companies:
o Hyundai (South Korea);
o Mitsubishi Electric Corporation, through Dream Train Internet (Japan);
o Concentric Network Corporation (United States of America);
o MagicTel (Hong Kong);
o OzEmail Limited (Australia);
OzEmail Interline has also finalised or is advanced in finalising affiliate
relationships in South Africa, Holland and the Peoples Republic of China.
In February 1998, Cisco Systems Inc. of the United States announced its
intent to team with OzEmail Interline to facilitate the global development
of Internet telephony gateways, roaming authentication and settlement
services. By working with Cisco, the Company intends to build
interoperability between Cisco's equipment and the OzEmail Interline
service, enabling Cisco customers to use the OzEmail Interline affiliate
network for call termination, settlement, routing and authentication
services. These teaming arrangements are a key component of OzEmail
Interline's Internet telephony strategy.
EXISTING SHAREHOLDINGS
The Company has on issue 121,508,250 Ordinary A$0.004 Shares, 34,095,000 of
which are represented by 3,409,500 American Depositary Shares which are
traded on NASDAQ.
Interests associated with S.M. Howard currently control 35 million shares,
28.8% of the issued shares. Interests associated with T.J. Kennedy
currently control 17.5 million shares, 14.4 % of the issued shares.
Interests associated with M.B. Turnbull currently control 17.5 million
shares, 14.4% of the issued shares. Companies controlled or associated with
each of these three directors are offering up to 3 million shares to
prospective purchasers under the terms set out in the Details of the Offer
section which follows.
<PAGE> 13
2. DETAILS OF THE OFFER
2.1 SHARES
Under this Offer, a total of 3 million shares in OzEmail (the "Shares") are
being offered for sale to investors by three of the existing shareholders
of OzEmail: Barzepa Pty Limited ACN 065 103 942, Arton No 001 Pty Limited
ACN 054 328 004 and Golden Research Pty Limited ACN 059 284 132 (the
"Sellers"). These companies are beneficially owned respectively by Turnbull
& Partners Holdings Pty Limited, S.M. Howard and T.J. Kennedy. Turnbull &
Partners Holdings Pty Limited is majority beneficially owned by M.B.
Turnbull. M.B. Turnbull, S.M. Howard and T.J. Kennedy are directors of
OzEmail.
The Offer will enable the Company to obtain a sufficient number of
shareholders to meet the ASX Listing Rules in respect of the number of
shareholders required for a company to list on the ASX. THIS OFFER IS NOT
RAISING ANY CAPITAL FOR THE COMPANY.
2.2 KEY DATES
-------------------------------------------------------------------------
EVENT EXPECTED DATE
-------------------------------------------------------------------------
Offer opens 19 May 1998
Offer closes 5.00 pm (Sydney time) 1 June 1998
Investors advised of allocation and
amount payable 3 June 1998
Quotation of Shares on ASX 9 June 1998
-------------------------------------------------------------------------
These dates are indicative only and are subject to change. The Sellers, in
conjunction with the Underwriter, reserve the right to close the Offer
early or to extend the closing date of the Offer without prior notice.
Prospective investors are therefore encouraged to submit their Application
Forms as soon as possible after the Offer opens.
2.3 PRICING
The Shares will be priced at 90% of the $A equivalent per Share of the
lesser of:
1. The closing US$ price of OzEmail American Depositary Shares
("ADSs") (each of which represents 10 Shares) on NASDAQ in
the USA on the last date on which the ADSs traded on NASDAQ
prior to the date of the opening of the Offer in Australia.
(As the Offer is expected to open on Tuesday 19 May 1998 in
Australia, the opening price for which purchasers must make
their payment initially will, under these circumstances, be
determined by reference to the closing price of the ADSs in
the USA on Monday 18 May 1998.)
or
2. The closing US$ price of the ADSs on NASDAQ on the last
date on which the ADSs traded on NASDAQ prior to the date
of the closing of the Offer in Australia.
(As the Offer is expected to close on Monday 1 June 1998 in
Australia, this closing price will, under these
circumstances, be determined by reference to the closing
price of the ADSs in the USA on Friday 29 May 1998.)
Purchasers are to initially pay the price as determined in 1 above for the
opening of the Offer in Australia, plus stamp duty, and will receive a
refund within one month of allocation of Shares if the price in A$ at the
closing of the Offer as determined in 2 above, is less than as determined
at the opening of the Offer. No interest is payable on any refundable
amount.
<PAGE> 14
There is a stamp duty charge of 0.6% of the amount paid per Share, payable
by the purchaser in respect of Shares purchased. An amount for stamp duty
at the rate of 0.6% must be added to the amount to be paid initially. The
total amounts for which cheques are to made payable initially will
therefore be the price payable per share at the opening of the Offer plus
stamp duty.
A summary of the monthly high and low last sale prices of the ADSs on
NASDAQ since the listing of the ADSs on NASDAQ is set out in section 8. The
prices at which the ADSs trade on NASDAQ are subject to market fluctuations
so the prices at which the ADSs will trade during the Offer cannot be
determined in advance.
The US$/A$ currency exchange rate to be applied in each instance is the
rate published by the Australian and New Zealand Banking Group Limited
(ANZ) at which US$ buy A$ for retail customers at the close of business in
Sydney on the business day immediately preceding, in the first instance,
the opening date of the Offer or, in the second instance, the closing date
of the Offer.
The exchange rate at which US$ purchased A$ as published by the ANZ for
retail customers in Sydney at the commencement of business on the last
working day of each calendar month of 1998 is set out in section 8.
Currency exchange rates are subject to variation so the applicable exchange
rate cannot be determined in advance.
The Lead Manager will provide investors with the amount payable per share
at the opening of the Offer. This amount is called the "Application Price
Per Share" in the instructions on the Application Form
2.4 FULLY UNDERWRITTEN OFFER
This Offer is fully underwritten by ANZ Securities Limited, the
"Underwriter" and "Lead Manager".
The Underwriter will receive an underwriting commission from the Sellers of
4% on the first $10 million of the proceeds on the sale of the Shares and
3% on any amount in excess of that. A handling fee of 1% will be paid by
the Underwriter to licensed securities dealers, including member
organisations of the ASX, in respect of Shares allocated in accordance with
stamped Application Forms from retail investors lodged by the relevant
dealer or member organisation. These underwriting fees are payable by the
Sellers, not the Company.
2.5 MINIMUM SUBSCRIPTION
Investors are invited to apply to purchase Shares in minimum parcels of
1000 ordinary shares plus stamp duty at 0.6%. Applications for Shares
thereafter are to be applied for in whole multiples of 100 shares.
2.6 ASX LISTING
Application will be made to the ASX on the date of this Information
Memorandum, or within 2 days of this date, for the Company to be admitted
to the official list of the ASX and for official quotation of all the
ordinary shares in the Company on issue following completion of the Offer.
2.7 CHESS
Upon admission to the Official List of the ASX, the Company will apply to
participate in the Clearing House Electronic Subregister System, known as
CHESS, in accordance with the ASX Listing Rules.
<PAGE> 15
2.8 HOW TO APPLY FOR SHARES
Applications to purchase Shares can only be made on one of the Application
Forms attached at the back of this Information Memorandum. The Application
Form must be completed in accordance with the instructions set out on the
reverse of the Application Form.
The completed Application Form must be accompanied by a cheque, in
Australian dollars, for the application monies. All cheques must be made
payable to "OzEmail Share Offer" and crossed "Not Negotiable".
The completed Application Form and cheque must be mailed to
ANZ Stockbroking Limited
PO Box 360, Collin Street West VIC 3007
or delivered to
ANZ Stockbroking Limited
Level 10, 530 Collins Street
Melbourne, Victoria.
Applications are to be received by no later than 5.00 pm (Melbourne time)
on 1 June 1998 (or such later time as the Underwriter may advise).
If investors apply for more Shares than are available under this Offer, the
Lead Manager may allot the investor a lower number of Shares than applied
for or, alternatively, allot no Shares at all. The Sellers have a
discretion not to accept any offer to acquire any of the Shares being sold
under this Offer. The Sellers have a discretion to withdraw this Offer of
the Shares at any time.
2.9 ENQUIRIES
If you have any questions concerning this Offer, you should contact your
stockbroker, other professional adviser or the Underwriter on the telephone
number 13 13 70. If an investor requires information on the allocation of
Shares and the amount, if any refundable, after the Offer closes, they
should also contact the Underwriter on the telephone number 13 13 70.
2.10 SELLING RESTRICTIONS
The Shares under this Offer are not registered with the Securities and
Exchange Commission in the USA ("SEC"). Under these circumstances, these
Shares cannot currently be lodged with a depository and traded as ADSs on
NASDAQ. The Company is not proposing to register any of these Shares with
the SEC for trading on NASDAQ. These Shares will not be able to be sold on
NASDAQ unless investors are prepared to enter into their own registration
arrangements with the SEC and NASDAQ at their own expense.
2.11 FURTHER ADVICE
Investing in the Company involves certain risks. Prospective investors
should read this Information Memorandum in its entirety and in particular
section 6 on risk factors. An investment should not be made without first
obtaining advice from a professional investment adviser or stockbroker.
<PAGE> 16
3. THE INTERNET
DEVELOPMENT OF THE INTERNET
The Internet is a global network of computer networks that enables
commercial organisations, educational institutions, government agencies and
individuals to communicate, access and share information, provide
entertainment and conduct business remotely. Use of the Internet has grown
rapidly since the commencement of its commercialisation in the early 1990s.
This rapid growth in the popularity of the Internet is due in large part to
increasing computer and modem penetration, development of the Web, the
introduction of easy-to-use navigational tools and utilities, as well as
the growth in the number of informational, entertainment and commercial
applications available on the Internet. Technological advances relating to
the Internet have occurred and continue to occur rapidly, resulting in more
robust and lower cost infrastructures, improved security and increased
value-added services and content. Growth in client/server computing,
multimedia personal computers and online computing services and the
proliferation of networking technologies have resulted in a large and
growing group of people who are accustomed to using networked computers for
a variety of purposes, including e-mail, electronic file transfers, online
computing and electronic financial transactions. These trends have led
businesses increasingly to explore opportunities to provide Internet
Protocol ("IP") based applications and services within their organisation
and to customers and business partners outside the enterprise.
In the USA, an important factor in the widespread adoption of online
services was the introduction of easy-to-access information by proprietary
content providers, including America Online, Prodigy and CompuServe. By
providing access to financial market information, "chat-rooms", and
information on sports, entertainment and travel, these companies broadened
the appeal of online services and developed significant customer bases.
With the emergence of the Web and the ensuing growth in the number,
sophistication and appeal of Web sites, a number of ISPs entered the market
to provide individuals and enterprises access to the Internet. The
resulting competition for subscribers has led to a range of Internet access
alternatives suited to different target markets, including "access-only"
providers, which provide inexpensive connections to the Internet without
providing a wide range of additional services, to "comprehensive service
providers" offering value-added services, consulting expertise and content.
AUSTRALIA AND NEW ZEALAND
With a population of over 18 million people, a diversified economy, and a
high rate of adult literacy, Australia has emerged as a technology and
information services leader in the Asian-Pacific region. Australia's
economic growth and the expansion of its information services industry have
contributed to a well-developed information infrastructure featuring high
computer penetration, high computer literacy and an advanced
telecommunications network. A leading Australian independent consultancy,
www.consult Pty Ltd, has estimated that there were 1.09 million commercial
Internet users in Australia as of December 1997. According to www.consult,
the Australian Internet market is currently served by over 600 ISPs and
online service providers. The market is highly fragmented, with the vast
majority of ISPs servicing a small subscriber base. Most of the ISPs
currently operate primarily as "access-only" providers and do not offer
extensive design and implementation services or possess the technical
resources to support the growing sophistication of products and services
available on the Internet.
New Zealand has a population of approximately 3.6 million people, an
advanced telecommunications infrastructure. The Company believes New
Zealand has experienced rapid growth in the number of domestic Internet
users. The New Zealand Internet service market is served by a number of
ISPs, including subsidiaries of New Zealand's two major telecommunications
companies.
<PAGE> 17
With Internet use increasing as an entertainment, business and
communications tool in many international markets, including Australia and
New Zealand, the Company believes there is an increasing demand for
value-added Internet services and regionally-focused content.
4. OZEMAIL OPERATIONS
4.1 OZEMAIL PRODUCTS AND SERVICES
In Australia, the Company offers a comprehensive range of Internet products
and services to both residential and enterprise customers, including a
range of Internet access alternatives, numerous distinctive service
features and a selection of value-added services such as OzEmail Newswatch,
a personalised news service, and OzEmail Stockwatch personalised equity
portfolio management service with a `real time' feed to ASX share price
information.
The Company also offers Internet access services in New Zealand, and
certain content offerings.
INTERNET ACCESS
Additional details concerning the range of access alternatives available to
the Company's customers are set out below.
Dial-up Access. The Company provides dial-up modem access services to
residential and enterprise customers. As at 31 December, 1997, the Company
maintained 80 POPs in Australia of which 38 and 42 were maintained by
OzEmail and Access One, respectively. The POPs are located in every
Australian capital city and 51 regional centres. As of May 1998, Voyager
maintained 15 POPs and an 0800 Service in New Zealand, providing local call
access to the entire population of New Zealand. Each POP offers I SLIP/PPP
access, which allows users to function as an independent "node" on the
Internet. OzEmail POPs offer terminal access, which provides menu driven
character mode access to all basic Internet services including e-mail,
newsgroups, file transfer protocol and Telnet. Access to these services can
be gained using any standard communications application, such as Windows
Terminal, and does not require specialised Internet access software. The
Company's POPs offer the ability to connect at speeds that vary from 28.8
kbps up to 56 kbps.
ISDN Capability. OzEmail offers a permanent connection ISDN service in each
of the capital cities in Australia and dial-up ISDN service to the three
Eastern Seaboard capital cities of Sydney, Melbourne and Brisbane and
regional POPs where digital terminal services have been installed. ISDN is
the industry standard in Australia for high-speed data transmissions. ISDN
access is a centrepiece of the Company's efforts to expand its corporate
customer base. OzEmail reduced its permanent modem and dial-up ISDN prices
in March 1997 in order to make access to these products more affordable for
the small business/home office market in Australia.
Instant Mail. Customers who require "e-mail only" connections to the
Internet can take advantage of the OzEmail Instant Mail product, which
provides UUCP or SMTP e-mail dial-up access.
DISTINCTIVE OZEMAIL FEATURES
Each of the Company's Internet access offerings, other than Instant Mail,
include a number of distinctive features (some of the features may not also
be available to customers of OzEmail who are or were with Access One and
Camtech (SA) Pty Ltd):
<PAGE> 18
OzEmail Customer Self Service. OzEmail offers customers access to a secure
self service administration facility on its Web site that enables customers
to change their password, their payment plan, and call up a fully itemised
account of their usage over a specified period.
7 day/24 Hour Technical Support. OzEmail makes technical support services
available 24 hours per day, 7 days a week to customers in Australia.
OzEmail's trained staff respond to the needs of its customers via
telephone, fax-back service, electronic mail and Company-supported Internet
newsgroups. OzEmail also posts responses to frequently asked questions
("FAQs") through its Web homepage.
Starter Kit. The Company provides potential customers with easy-to-use
installation software featuring either a Microsoft Internet Explorer or
Netscape Communicator browser, e-mail software and a limited number of free
hours of Internet access. The PC version of the disk contains
OzEmail-developed installation software, a Windows-based Internet tutorial
and automatic modem detection and configuration software tailored to the
Australian and New Zealand markets. The Company's starter kit allows users
to configure their systems to immediately access the Internet through
OzEmail. The starter kit is now distributed on compact disk in addition to
a 3.5 inch floppy disk.
5 Mbytes Workspace. Included with each user's registration are 5 Mbytes of
"workspace" on OzEmail's host system. The workspace serves as a type of
Internet "scratch-pad" into which OzEmail customers may download data from
the Internet, upload data from their own computers, or make data available
to others for uploading/downloading in their absence. This workspace is
housed on multiple disk arrays in order to provide customer data integrity.
World Wide Web Publishing. Each user's 5 Mbytes of workspace on OzEmail's
host system may also be used as a personalised Web site. OzEmail's host
system provides instructions on custom Web page publishing and supplies an
automatic personalised homepage creation facility. Users are entitled to up
to 20,000 free accesses per month to their personal Web site.
VALUE-ADDED SERVICES AND PRODUCTS
As part of the Company's comprehensive Internet service offering, the
Company's customers are also able to select from the following value-added
services and products:
Content Offerings. In 1996, OzEmail launched OzEmail Stockwatch, a Web site
that provides real-time data from the Australian Stock Exchange. This
service was relaunched in March, 1997, with enhanced capabilities such as:
the ability to send company announcement alerts to a Stockwatch subscriber;
the display of dividend yields; and price earnings ratios. In 1997, OzEmail
launched OzEmail Newswatch, the OzEmail Press Release Centre, and
Sportswatch. OzEmail Newswatch offers the Company's customers near
real-time access to news-breaking stories and graphics provided through
Reuters and AAP. The OzEmail Press Release Centre is an automated e-mail
and Web-based press release distribution service for business, government,
education and community groups. Participants in this service include the
Australian Bureau of Statistics, National Australia Bank, Department of
Defence, Leighton Holdings, Fuji Xerox and Greenpeace. Sportswatch is a
joint venture between Sports Monthly, an Australian sports magazine, and
OzEmail. Combining the resources of the Company, Sports Monthly and
Australian Associated Press, Sportswatch offers users access to world
sports stories from their desktop. In November 1996, OzEmail launched
OzEmail Lawnet, a Web site specifically targeted at the Australian legal
community. It features a number of services for lawyers including access to
full-text Australian case law and legislation, international legal
materials and legal information bulletins. The company also now offers a
community online chat service called "Chat City" and access into online
multi-player games through its "Online Games Network".
<PAGE> 19
ANZWERS Search Engine. The Company provides a search engine for the
Australian and New Zealand Internet market through an agreement with
Inktomi Corporation of the United States. The product is designed to
provide region and domain-specific searches, market analysis and a point
and click interface to documents available on the World Wide Web.
Internet Access Design and Implementation. In order to meet the complex
needs of its enterprise customers, the Company has formed a team of
technicians with expertise in Internet implementation, system maintenance
and Internet connection upgrades. The Company's enterprise connectivity
expertise includes desktop, server and network configuration and
capitalises on Internet connectivity, gateway and firewall technologies.
Commercial Web Site Hosting. For enterprise customers desiring more than
the allocated 20,000 free accesses per month and/or more than their
allocated 5 Mbytes of workspace, a commercial Web hosting facility is
provided. Web hosting services allow customers to house their Web site in
OzEmail's main data centre. This enables the customer to benefit from the
existing management facilities already in place at OzEmail. This service
offers access to a high speed network, use of OzEmail's uninterrupted power
supply, system monitoring, daily back up, a secure climate controlled
environment and 24 hours a day, 7 days a week technical support, without
the need for customers to set up their own facility.
Virtual Web Servers. In order to give business customers an enhanced
presence on the Internet, the Company can provide Virtual Web Servers.
These allow business customers to have their own domain addresses, making
it easier for the Web site to be found. It also enhances the impression of
a major presence on the Internet by giving the appearance that a business
has its own dedicated Web Server.
Domain Name Registration. Corporate customers may purchase individual
domain names, rather than using the OzEmail domain name in their e-mail and
Web addresses. This may be done online via an OzEmail domain order form or
by calling OzEmail's sales department.
Family Pack. In 1997, OzEmail launched an Internet Starter Kit dedicated
specifically to families. The OzEmail Internet Family Pack gives a family a
unique Internet address and separate OzEmail user identification and free
e-mail addresses for up to 4 family members. Each family has 20Mb of space
on OzEmail's Web server to publish through the Company's Web pages. The
Family Pack also gives the option of parental control by including a trial
version of the Cyber Patrol Internet filtering software.
Small Business Pack. In 1997, OzEmail launched an Internet Starter Kit
dedicated to small businesses. The OzEmail Internet Small Business pack
gives a business a unique Internet address and separate OzEmail user
identification and free e-mail addresses for up to 5 people. Each business
receives 25Mb of space on OzEmail's Web server and bonus trial software.
Virtual Private Networks. In order for enterprise customers to connect
their geographically dispersed Local Area Networks ("LANs") to the
Internet, they would, traditionally, have had to deploy expensive dedicated
lines between remote LANs for secure transmission of information. As a
result of the Internet-driven developments, it is possible to leverage from
the Internet to ensure low cost, secure transmission of data between LANs,
negating the need to recreate a high-cost and potentially under-utilised
network. The Company can create customised and cost-effective solutions for
enterprise customers wishing to connect their LANs on a secure basis
through the Internet while also gaining access to the e-mail and
Web-browsing resources of the Internet.
OzEducate. In 1996 OzEmail was awarded the New South Wales Department of
School Education tender to provide Internet connectivity to all 2300
primary and secondary schools in New South Wales. This service currently
delivers Internet access to over 1.1 million students and 70,000 teachers
around the state.
<PAGE> 20
Recognising the growing importance of the Internet in the education sector,
the Company established OzEducate in 1997 as a specialist division to
provide a national focus for its activities in this sector in order to
deliver comprehensive, cost-effective solutions for Internet access,
products and services to educational organisations.
In the area of Higher Education OzEmail is working with a number of
Universities throughout the country to provide competitively priced remote
access for University Staff and Students to the Internet and the University
Network. Understanding that the services offered by the Universities were
less than reliable, OzEmail developed a total Remote Access solution,
utilising OzEmail's national network infrastructure.
Some of the major tertiary institutions currently working with OzEmail in
this area include: Australian National University, Australian Defence Force
Academy, Australian Catholic University, Flinders University, Griffith
University, Monash University, University of Adelaide, University of South
Australia and University of Technology - Sydney.
Other current major OzEmail/OzEducate projects include:
The tender for the hosting and development of the EdNA service, a national
Web-based education directory service and database, jointly owned by all
State and Federal Education Ministers, for which in-principle agreement has
been reached.
EdVenture, a highly interactive education Web site unique to Australia,
which incorporates such functions as teacher-assisted homework help, online
exams and interactive classroom activities.
4.2 CUSTOMERS/PRICING
CUSTOMER ACCOUNTS
The Company defines "active" customer accounts as those who have utilised
the Company's Internet services within the previous 90 days. As of 31
March, 1998, the Company had approximately 186,100 active customer accounts
including approximately 10,688 active customer accounts in New Zealand.
CUSTOMER SUPPORT
The Company believes that offering superior customer support will be
increasingly important as the level of Internet users expands to include
more enterprises using the Internet for mission-critical business
applications, as well as more residential and small business users who may
be technically less sophisticated than early adopters of the Internet.
Customer support is also a differentiating factor among competing ISPs. Key
components of the Company's customer support program are described below.
Free Technical Support. The Company makes technical support services
available 24 hours per day, 7 days a week to customers in Australia and New
Zealand. The Company's support technicians undergo regular training
sessions to keep abreast of emerging Internet software and services.
Customers have access to a range of support services, including direct help
via telephone, the customer self service facility on the OzEmail Web site,
facsimiles addressing the most common problems faced by new users from the
Company's "fax-back" service, an open newsgroup where the Company's
customers and an independent consultant employed by the Company address
user problems and questions, and responses to FAQs through the Company's
homepages.
<PAGE> 21
Online Access to Account Information. The Company's OzEmail and Voyager
customers have 24-hour access to comprehensive, session-by-session customer
account information via an automated accounts inquiries service. The
Company is planning to extend this service to Access One customers in 1998.
Online Registration. Online registration for OzEmail's services is
available at all times using either one of the OzEmail-developed Internet
access packs or any standard communications program. Upon successful
registration, customers are provided with immediate access to the Internet.
The Company employs a number of pricing structures for its various
services. For its residential and enterprise dial-up access customers, the
Company's typical charges are based on the number of hours of Internet
access used during each one-month billing period. The Company requires most
of its residential customers to pay for the services by way of credit card.
The Company also offers "frequent user plans" for residential and
enterprise customers.
The Company's permanent ISDN customers receive a dedicated ISDN connection
and, as a result, are billed using a fixed monthly rate, which does not
vary with usage levels. The Company's consulting services are generally
billed based on a schedule of standard hourly fees.
As a result of increased competition in the Australian Internet access and
services industry, OzEmail launched new frequent user plans for residential
and enterprise customers in December 1996 and upgraded these plans in March
1997. OzEmail launched `OzMegaSaver', a fixed monthly fee unlimited access
pricing plan in May 1998. These plans can have the effect of creating
reductions in the average selling price of the Company's services. The
Company expects that additional changes in its pricing structure, including
price reductions, may occur in the future.
4.3 NETWORK
The Company maintains an extensive telecommunications infrastructure that
enables it to provide comprehensive Internet connectivity services to its
customers. Like most ISPs, the Company covers its service areas by creating
a network of points of presence, or POPs. Its network of POPs provides
customers in the covered areas with access to the Internet by means of a
local telephone call.
OzEmail's network includes 80 POPs covering every Australian capital city
and 30 medium-to-large regional cities. Each OzEmail POP in Australia
offers SLIP/PPP and Terminal access to the Internet. OzEmail maintains a
three-tier "star" topology with the major capital city hubs connecting to
the OzEmail main Sydney hub. Small regional sites typically connect to the
closest major hub. The topology of the network is determined by trunk costs
and network reliability considerations. POPs typically comprise digital
modems, supporting up to 56kbps connections, or analog modems supporting
28.8kbps connections or both analog and digital modems. The terminal
servers connect via a backbone to a Cisco or Bay router. ISDN customer
access in capital cities is typically provided by Ascend Communications
"Max" routers. Major capital city hubs are typically connected to the
Sydney hub by one or more 2Mbps Telstra circuits. The roll-out of support
for the new 56kbps modem standards commenced in September, 1997.
The Company believes that it will complete the roll-out in 1998.
OzEmail's Sydney hub interconnects with Telstra Internet's transfer control
protocol/Internet protocol ("TCP/IP") network through a 100Mbps fibre
distributed data interface ("FDDI") circuit and interconnects with Optus's
155Mbps ATM. The Melbourne hub also connects with Telstra Internet's TCP/IP
network through a 100Mbps FDDI circuit and interconnects with Optus's
155Mbps ATM. The Brisbane hub connects with Telstra Internet's TCP/IP
network through a 2Mbps dedicated digital service ("DDS") circuit and
interconnects with Optus's 155Mbps ATM . There is also a 2Mbps link
<PAGE> 22
to Telstra Internet from OzEmail's Perth POP and 2Mbps from Access One's
Perth POP. Telstra Internet currently maintains a 106Mbps international
circuit connecting its Sydney hub and 32Mbps international circuit connecting
its Melbourne hub to MCI in the United States. In addition, OzEmail entered
into an agreement in November 1997 with Optus Communications Limited, for
the transmission of Internet traffic over the Optus backbone, both within
Australia and to the United States. OzEmail intends to connect OzEmail's
Brisbane and Melbourne hubs to the Optus network in 1998. OzEmail intends
to expand its network infrastructure in Australia and increasing the number
of modems and routers at existing POPs as necessary to accommodate the
number of users in each geographic region.
As of December 31, 1997, Access One's network comprised 42 POPs covering
every Australian capital city and 34 regional centres, with each capital
city POP being connected directly to Telstra's Accelerated Asynchronous
Transfer Mode Network, and with POP's in regional locations connected to
POP's in capital cities via primary rate ISDN and Frame Relay. As of
December 31, 1997, Access One was connected to the United States directly
via international carriers through its Melbourne and Sydney nodes.
The Company commenced rationalisation and consolidation of the Access One
and OzEmail infrastructures in the first quarter of 1998, focusing on
consolidation of POPs, rationalisation of international bandwidth, and
rationalisation of the domestic backbone network.
Voyager maintains 15 POPs and a 0873 number, providing local call access to
the whole New Zealand market. The POPs are arranged in a "star" topology
with the Auckland hub at the center. The Auckland hub is then connected by
a Telstra New Zealand 1.92Mbps link to Telstra's international gateway in
Sydney. Each Voyager POP offers SLIP/PPP access to the Internet.
The Company believes that updating and expanding its technically advanced
network is critical to maintaining its leadership position. The Company
intends to continue to invest substantial capital resources in maintaining
and expanding its network for voice and Internet access. The Company's
expansion efforts in 1997 have included: establishing additional POPs in
Australia to provide local call access to a greater portion of the
population; enhancing POPs to accommodate 33.6kbps and 56kbps connections
and permanent-connection ISDN access; and expanding the capacity of
existing POPs.
The Company has undertaken two major network infrastructure initiatives in
1998, which are aimed at reducing communications costs as a percentage of
revenues over the long term. The first, a T-3 satellite link from the West
Coast of the United States to the Company's own earth stations in Sydney,
Melbourne, Brisbane and Auckland recently began feeding OzEmail's
Australian network with data from the United States. The Company is also
joining the Southern Cross cable consortium to acquire fibre capacity
between the United States, Australia and New Zealand. This cable is
expected to be ready for service in approximately two years.
4.4 OZEMAIL INTERLINE
OzEmail owns an 88% equity interest in OzEmail Interline. It is now to be
accounted for as a controlled entity of OzEmail. OzEmail Interline's
mission is to establish a global Internet telephony network designed to
reduce the cost of long-distance and international phone calls.
In November, 1996, the Company, through OzEmail Fax Investments Pty Limited
("OzEmail Fax Investments"), a wholly-owned subsidiary of OzEmail, entered
into a partnership agreement with Ideata Pty Limited, a company
incorporated in Australia, to develop and commercialise devices for voice
and fax digitisation and transmission through telephone, Internet and other
<PAGE> 23
communications systems as developed by or on behalf of Ideata. In June,
1997, Interline AG ("Interline"), a subsidiary of Metro Holding AG
("Metro"), a company incorporated in Switzerland, acquired from the
partnership the exclusive licence of the technology in Europe, the United
Kingdom and Ireland. The voice/fax system, business, intellectual property
in the system, and other assets of this partnership were then transferred
to OzEmail Interline and the partnership was dissolved. Ligapart AG
("Ligapart"), a subsidiary of Metro, then acquired a 40% equity interest in
OzEmail Interline. Following this transaction, OzEmail Fax Investments
owned a 48% equity interest in OzEmail Interline, with Metro and Ideata
holding 40% and 12% equity interests, respectively.
In April, 1998, OzEmail bought out Metro's 40% interest in OzEmail
Interline to regain control of OzEmail Interline and give it the
flexibility required to more effectively manage and develop the European
market potential.
OzEmail Limited issued 5,400,000 Ordinary Shares (equivalent to 540,000
ADSs) with a market value of US$2.2125 per Ordinary Share at close of
business on 15 April, 1998 in consideration for the 40% interest acquired
in OzEmail Interline, giving rise to a total consideration of A$18,381,000.
Metro also agreed to forgive a debt of A$2,043,000 owed by OzEmail
Interline. At the same time, OzEmail and Metro agreed to terminate the
Metro licence agreement for no consideration.
Technology. Since March 1997, OzEmail (the licensee of the OzEmail
Interline technology in Australia) has offered Voice over Internet Protocol
("VoIP") services to Australians for domestic long distance calls and calls
to a limited number of international destinations. OzEmail Interline has
commenced the process of extending the functionality of its technology by
extending its core authorisation, call routing, bill and settlement system
to become interoperable with Internet voice gateways from third-party
vendors. This move is designed to accelerate the growth of Internet
telephony services through the facilitation of commercial and technical
interaction among VoIP service providers. In moving to support third-party
gateways, OzEmail Interline intends adopting the telecommunications
industry standard H.323 protocol throughout its VoIP range of products. The
Company believes that the planned inter-operation of OzEmail Interline's
core routing and settlement technology with voice gateways from other
vendors of H.323-standard equipment will be an important step in the
potential development of a viable global Internet-based telephony network.
Distribution. OzEmail Interline has entered into licensing agreements for
the provision of the service offering throughout the world including those
with the following companies:
Hyundai (South Korea);
Mitsubishi Electric Corporation, through Dream Train Internet (Japan);
Concentric Network Corporation (United States of America);
MagicTel (Hong Kong);
OzEmail Limited (Australia);
OzEmail Interline has also finalised or is advanced in finalising
affiliate relationships in South Africa, Holland and The Peoples
Republic of China.
OzEmail Interline intends to expand the consortium of service providers
around the world in order to attain the goal of a significant portion of
the western world's population being able to dial a local access number,
dial anywhere in the world, and reach the recipient at a significant
discount to the cost of a standard call over the same distance. In order to
cover regions where OzEmail Interline does not have local gateways, it
intends to contract with international telecommunications companies to
wholesale traffic to its final destination.
In February 1998, Cisco announced its intent to team with OzEmail Interline
to facilitate the deployment of Internet telephony gateways, roaming
authentication and settlement services. The companies intend to jointly
<PAGE> 24
develop an interface between OzEmail Interline's Control Node gatekeeper
and the Cisco IOS(TM) software, based on the H.323 multimedia standard
adopted by the International Telecommunications Union. By working with
Cisco, the Company intends to build interoperability between Cisco's
equipment and the OzEmail Interline service, enabling Cisco customers to
use the OzEmail Interline affiliate network for call termination,
settlement, routing and authentication services. OzEmail Interline's long
term strategy is built on being a "service provider to service providers",
and the teaming agreement is an important part of that strategy.
4.5 INTERNATIONAL OPERATIONS
NEW ZEALAND
In November 1995, Voyager entered the Internet access market in New
Zealand. Voyager had approximately 10,688 active customer accounts as of 31
March, 1998. Voyager currently competes with 59 commercial ISPs servicing
New Zealand's population of approximately 3.6 million people.
Voyager has introduced ISDN and DDS services to the cities of Auckland and
Wellington and introduced ISDN and DDS services to Christchurch. Voyager
does not offer Terminal interface services in New Zealand. Voyager
maintains 15 POPs and a 0873 number providing local call access to all of
the New Zealand market.
OzEmail owns an 80% equity interest in Voyager, with the remaining 20%
equity interest held by Messrs. John O'Hara and Alistair Stevens, formerly
two directors of Voyager (the "Minority Shareholders"). OzEmail and the
Minority Shareholders are parties to a Shareholders Agreement setting out
certain rights and restrictions on the employment and stock ownership of
the Minority Shareholders. Pursuant to the Shareholders Agreement and other
agreements between OzEmail and Voyager, OzEmail provides its services and
intellectual property to Voyager. OzEmail has the power to select a
majority of the board of directors of Voyager. In the event of termination
of employment of the Minority Shareholders, the Shareholders Agreement
provides that the Minority Shareholders have a right to sell their equity
interest in Voyager to the Company at fair value. The Minority Shareholders
is also entitled to participate on a pro rata basis in any sale by OzEmail
of its equity interest in Voyager. This agreements between OzEmail and the
Minority Shareholders are currently the subject of litigation. A summary of
this litigation is set out in section 8 "Additional Information" under the
heading Litigation.
ASIA AND OTHER REGIONS
OzEmail has explored opportunities to provide Internet services in a number
of Asian countries, including India, Malaysia and Indonesia. The Company
has decided to devote its efforts to expanding its presence in Australia
and New Zealand and participating in the development of Internet telephony
and fax services through OzEmail Interline. The Company currently does not
expect to proceed with other international operations of Internet access
services.
4.6 SALES AND MARKETING AND CONSUMER ONLINE SERVICES
The goals of the Company's marketing and consumer programs are: to increase
brand awareness of the Company; expand the Company's presence in the
enterprise, educational and government sectors; increase the overall number
of customers by attracting new customers to the Company and by reducing the
churn of customers from the Company to alternative ISPs; and to increase
the average Internet usage time per customer. The Company attempts to reach
new customers and create demand for its services through a variety of sales
and marketing efforts. Current sales and marketing efforts within the
Australian and New Zealand markets are set out below.
<PAGE> 25
AUSTRALIA
Direct Customer Response. OzEmail's sales and marketing program makes
extensive use of advertising and other promotional vehicles. These efforts
have included advertising in computer and general purpose publications,
outdoor and cinema advertising, participating in trade shows, attaching
software to magazines, direct mailings, telemarketing programs, and
building relationships with industry groups and the media. OzEmail's sales
personnel are divided into functional groups to handle inquiries from
enterprise and residential customers responding to the Company's
advertising and other promotional efforts.
Retail Distribution. A portion of the Company's new accounts are generated
through retail distribution of the Internet starter kits containing all of
the necessary software for a potential customer to register of a customer
account. Prior to 1997, the Internet starter kits were distributed in the
form of diskettes only. In 1997, OzEmail launched easy-to-use compact disk
("CD") starter kits that are distributed through a range of prominent
retailers, including Myer/Grace Bros. These products are supported by
advertising in the major metropolitan print media.
OzEmail Reseller Program. In 1996 OzEmail launched a program to provide
rewards and incentives to selected suppliers of network equipment and
services who enter into teaming arrangements with OzEmail for tender
proposals or who sell OzEmail's Internet products and services to the
suppliers' existing client base. This sales model is intended to maximise
selling opportunities for OzEmail's corporate sales department.
Other Equipment Manufacturer ("OEM") Relationships. OEM arrangements with
computer hardware, software and modem manufacturers also account for a
portion of the Company's new accounts. The Company has entered into
agreements with a number of major computer and modem manufacturers to
bundle the Company's access software with their products. The Company has
previously run bundling promotions with several computer and modem
manufacturers. In December, 1996, the Company announced Microsoft Internet
Explorer as its preferred browser. In 1997, the Company negotiated
exclusive bundling agreements with a number of major Australian
manufacturers of 56kbps modems.
Online Content. OzEmail has developed a range of online tutorials, through
its web site, that are designed to increase brand loyalty and encourage
Internet usage. By increasing a customer's Internet skills, and thereby
creating a more satisfying Internet experience, it is intended that usage
per customer increases over time. Services such as OzEmail Newswatch,
OzEmail Stockwatch and ANZWERS are also intended to enhance the Internet
experience of the customer and increase loyalty to the OzEmail brand.
NEW ZEALAND
In 1997, Voyager launched a corporate marketing plan that promoted the use
of high-speed digital Internet access to small to medium enterprises.
Voyager also has a strong presence in the larger enterprise sector.
In 1996, Voyager entered into a strategic partnership with Bell South which
involves the mutual promotion of each company's products to their
respective customer bases and the launch of various joint venture products
such as e-mail to a short message service text messages on Bell South
digital mobile phones.
In the residential sector, Voyager has distribution channel agreements with
Harvey Norman and Dick Smith, both major New Zealand retail chains, for the
distribution of the Voyager Internet Starter CD. In addition, Voyager has
launched a comprehensive independent dealer channel program.
<PAGE> 26
4.7 RECENT AND IMMINENT ACQUISITIONS
On November 25, 1997 OzEmail completed the acquisition of Access One, the
Internet business of Solution 6, from which date the results of Access One
have been incorporated into the consolidated results of the Company. The
transaction was completed through the payment of A$5,000,000 and on the
basis of the issue of 10,000,000 ordinary A$0.004 OzEmail shares. Of such
shares, 7,200,000 were issued to Solution 6, with the balance to be issued
conditional on payment by Solution 6 of a working capital adjustment
representing the adjustment to fair value of net assets acquired as
determined in accordance with the terms of the agreement for the sale and
purchase of the Internet business of Solution 6. The remaining 2,800,000
shares have been valued under the terms of the agreement at the fair value
at the date of the sale, being A$4,407,000 and are included in "other
accounts payable" in the Company's and Consolidated Balance Sheets as of 31
December 1997, with an expectation of being issued before 31 December 1998.
As part of the transaction, Solution 6 granted to OzEmail a call option to
acquire 4,160,000 Solution 6 ordinary shares at an exercise price of
A$0.75. The option has a term of three years from the completion of the
acquisition. Mr Chris Tyler, chief executive officer of Solution 6, joined
the Board of Directors of OzEmail, but resigned on 14 May 1998. There is
disagreement between the parties as to the working capital adjustment, the
timing of a requirement on the company to ensure Solutions 6's shares in
OzEmail are tradable on NASDAQ and ASX, and when dividends commence on the
remaining shares. The amount claimed by the company is $2.9 million and the
amount of dividend in dispute is not material. There is only exposure in
respect of delay in tradability if the market price of OzEmail shares falls
between 25 May 1998 and the listing date pursuant to this Information
Memorandum.
On 31 March, 1998, the Company acquired from Camtech its Internet access
business in South Australia. The consideration of the acquisition will be
equal to two-thirds of Camtech's revenues over the twelve months from 31
March, 1998. The immediate payment to Camtech was 1,103,240 Ordinary
Shares, which is equal to two-thirds of Camtech's annualised revenue of
approximately $4,000,000 at the time of acquisition. Any balance will be
made at the end of the March quarter of 1999. Secondly, as an incentive to
assist the development of its business, the principals of Camtech will
receive from OzEmail a payment of 5% of the revenues arising from business
over the next two years.
On 8 May 1998 the Company signed binding heads of Agreement with PowerUp
Pty Limited a Queensland based ISP and WebCentral Pty Limited, a Queensland
based web hosting business and the owners of those two companies. OzEmail
has an option to acquire and, subject to certain conditions, the sellers
have an option to require OzEmail to acquire 55% of that group from 1 July
1998 for the issue of ordinary shares in OzEmail plus $666,666 in cash. For
the purposes of these options the value of the company is determined to be
60% of the annualised March revenues of part of that group, and 80% of
those revenues for the other part. The total consideration is expected to
be of the order of $2 million. OzEmail also has an option to acquire the
outstanding interests after 2 years, and if this is not exercised within 2
1/2 years, the sellers have an opportunity to buy back OzEmail's interest.
4.8 FUTURE STRATEGIES
The Company's primary strategic goals are to maintain its leadership in the
Australian Internet service market by offering a service that is price
competitive and ahead of its competitors in the provision of online
content, sales and marketing, and customer service. In order to achieve the
goals, the Company continues to undertake initiatives that add to its
online content services, reduce communications costs as a percentage of
revenues and improve the quality of customer service.
<PAGE> 27
The Company intends to increase its leadership in the enterprise,
educational and government sector through such initiatives as an expanded
and experienced enterprise sales team and the operation of its Product
Management Group, which has a specific mission to develop leading-edge
services to these markets. The Company will also seek to expand its market
presence through appropriate acquisitions of synergistic businesses.
The Company intends to continue to lever off its considerable intellectual
capital base to provide innovative Internet-related services. The
development and commercialisation of the OzEmail Interline Internet
telephony service offering is the most obvious example of this strategy to
date. The Company believes that long term shareholder wealth will be
created through "in-house" implementation of innovative and
price-competitive Internet connectivity solutions.
5. BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES
DIRECTORS
MALCOLM TURNBULL, CHAIRMAN Age 43
Malcolm Turnbull has served as Chairman of the Board of OzEmail since
December 1995. Mr Turnbull is the Chairman and Managing Director of Goldman
Sachs Australia LLC. From 1987 until 1998 he was the managing director and
principal of Turnbull & Partners Limited, an investment banking firm based
in Sydney. Mr Turnbull has extensive experience of and involvement in the
publishing and broadcasting industry in Australia both as a journalist and
as a lawyer. A former Rhodes Scholar, he received his Bachelor of Arts and
Bachelor of Laws degrees from the University of Sydney and his Bachelor of
Civil Laws degree from the University of Oxford.
TREVOR KENNEDY Age 55
Trevor Kennedy has been a director of OzEmail since December 1995. Mr
Kennedy was previously managing director of Consolidated Press Holdings
Limited. Mr Kennedy is currently chairman of: AWA Limited, an Australian
gaming company listed on the ASX; Oil Search Limited, an oil production and
exploration company listed on the ASX; Cypress Lakes Group Limited, a
resort management and development company listed on the ASX and Kilkenny
Gold NL a mineral exploration company listed on the ASX. He serves as
Deputy Chairman of Darowa Corporation Limited, a diversified industrial
company listed on the ASX. He also serves as a director of Qantas Airways
Limited, Interactive Television Australia Limited, Downer Group Limited,
Kalmet Resources NL and other concerns. Mr Kennedy is also a member of the
Australian Government Remuneration Tribunal.
SEAN HOWARD Age 38
Sean Howard is the founder of OzEmail and has served as its Chief Executive
Officer since its inception in September 1994. Mr Howard also served as
Managing Director of OzEmail until September 1995. Prior to forming
OzEmail, Mr Howard owned an electronic mail services company which he ran
from 1992 to September 1994. Prior to that he founded Australian Personal
Computer, a computer magazine, in 1980. In 1984 he sold a majority share of
that business to Consolidated Press (Holdings) Limited, a publishing
company, forming Computer Publications Pty Ltd ("Computer Publications")
for which he served as Managing Director until 1992.
<PAGE> 28
STEPHEN EZZES Age 51
Steven Ezzes has been a director of OzEmail since April 1996. Mr Ezzes is a
Managing Director of Scotia Capital Markets in New York. Prior to that, he
was a partner of Airlie Enterprises, LLC, an investment partnership. Prior
to joining Airlie Enterprises, Mr Ezzes was a managing director of the High
Yield Securities Group at Lehman Brothers from 1992 to 1994. He has also
held senior management positions at investment banks including Lehman
Brothers, Goldman Sachs & Co, Lazard Freres & Co and Morgan Stanley. Mr.
Ezzes received his Master of Business Administration and Bachelor of Arts
degrees from the University of California, Los Angeles.
DAVID SPENCE Age 46
David Spence has served as President and Chief Operating Officer of OzEmail
since August 1995, and has served as a director since December 1995. Prior
to joining the Company, Mr Spence was the Chief Financial Officer of
Freedom Furniture, an Australian furniture and homewares manufacturer and
retailer, from July 1992 to August 1995. Prior to such time, he served as
the Assistant General Manager at Australian Consolidated Press Limited,
from January 1992 to July 1992, and the General Manager of Computer
Publications from 1989 to 1991. Prior to that time, he was the South
African Director of AW Faber-Castell, a German stationery company, from
1981 to 1989. Mr. Spence received his Bachelor of Commerce degree from the
University of Natal, South Africa and holds a Diploma of Financial
Accounting C.A. (S.A.).
The Board of Directors has a Compensation Committee comprising Messrs.
Turnbull, Kennedy and Ezzes, that recommends salaries and incentive
compensation for executive officers of the Company and an Audit Committee
comprising Messrs. Turnbull, Spence, Kennedy and Ezzes, that reviews the
results and scope of the audit and other services provided by the Company's
independent auditors.
MANAGEMENT
In addition to the Chief Executive Officer, Sean Howard and the Chief
Operating Officer, David Spence, the executive officers and key employees
of the Company are as follows:
ERIC HAMILTON Age 42
Eric has served as Vice President of Networks since February 1998, and
General Manager of Access One since September 1997. From November 1996 to
September 1997, he held the position of Senior Product Manager, Online
Services with Telstra Multimedia with responsibility for the development
and bringing into service of a range of Internet content products. Prior to
that, he held a number of positions with Telstra and OTC including: General
Manager of On Australia, an Internet service provider; business development
and product development; manager cable planning; and supervising engineer,
satellite planning. Eric received a Doctorate in Electrical Engineering
from the University of Canterbury, New Zealand.
MICHAEL HUGHES Age 33
Michael has served as Company Secretary of the Company since June 1996.
Prior to that he was retained as consultant to assist with the initial
public offering of the Company on the NASDAQ National Market that was
consummated in May, 1996. Prior to joining the Company, Michael held
positions as Associate Director and Manager at Turnbull & Partners Limited,
an investment banking firm based in Sydney, from 1990 to 1994. Prior to
that, Michael was employed at Ord Minnett Securities, an Australian
securities broking house. Michael received his Master of Applied Finance
degree from Macquarie University and Bachelor of Arts degree from the
University of Sydney.
<PAGE> 29
GEOFFREY ISAAC Age 36
Geoffrey has served as Vice President of Consumer sales and Marketing since
March 1997. Prior to that, Geoffrey served as national media research
director at Clemenger / BBDO, an advertising agency operating in Australia
and New Zealand. From 1994 to 1996, Geoffrey served as account director at
Wilson MLI, an Australian market research agency. From 1990 to 1994,
Geoffrey served as market research manager for Computer Publications.
Geoffrey received his Bachelor of Arts honours degree in business studies
from Bristol Polytechnic, England.
ANDREW KENT Age 35
Andrew has served as Vice President of Technology Services of OzEmail since
February 1995. Andrew initially served as Network Manager with OzEmail from
September 1994 to February 1995. From December 1992 to September 1994, he
served as a software developer for Arton No. 001 Pty Limited, a company
owned by Sean Howard, which at that time provided electronic mail services.
Prior to such time, he worked for Litton Systems Canada Ltd, a Canadian
defence contractor, from 1984 to 1990, where he served as a Project
Engineer, a Technical Liaison Officer, and as a hardware and software
developer. Andrew received his Bachelor of Applied Science degree in
electronic engineering from the University of Waterloo, Ontario, Canada.
GEORGIA LEE Age 32
Georgia has served as Vice President of Product Management of OzEmail since
February 1998. Prior to that she served as National Sales Manager of
OzEmail since September 1997. Before joining OzEmail Georgia served as
southern region sales and marketing manager for Optus Vision from 1995 to
1997. Prior to that, Georgia served as national account manager for
Telstra. Georgia received her Bachelor of Business (Marketing) degree for
the University of Technology Sydney in 1987.
IAN MCGREGOR Age 41
Ian has served as the Company's Chief Financial Officer since December,
1996. Prior to joining the Company, Ian served as the Finance and
Administration Manager and Director of Business Operations of
Computervision Pty Limited, the Australian subsidiary of Computervision
Inc, a United States company listed on the New York Stock Exchange, from
1993 to 1996. He joined Computervision in 1984, holding various financial
and accounting positions, including Asia Region Finance and Administration
Manager, Technical Project Leader, and Senior Financial Accountant. Ian
received his Bachelor of Business Studies from the University of Technology
Sydney, and he is an Associate of the Institute of Chartered Accountants in
Australia, a Fellow of the Institute of Corporate Managers, Secretaries and
Administrators, and a Fellow of the Institute of Chartered Secretaries and
Administrators - London.
DAVID MACKEY Age 34
David has served as General Manager of Voyager New Zealand since April
1997. From July 1996 to April 1997, he served as National Sales Manager of
OzEmail. In addition, David served as a corporate sales manager of OzEmail
from November 1995 to July 1996. From 1993 to 1995, David was employed by
Mars Incorporated as merchandising manager in New South Wales. Prior to
that, he was employed as advertising and sales manager for Seed and Grain
Sales Pty Limited in New South Wales. David received his Bachelor of
Applied Science degree from the University of Western Sydney.
MICHAEL WARD Age 39
Michael has served as Vice President of Corporate Relations since October,
1996. Prior to joining OzEmail, Michael served as Executive Director of the
Australian Republican Movement from 1994 to 1996. Prior to that, he was
employed as Manager of the Health Promotion Unit of the New South Wales
Department of Health from 1989 to 1994 and as Senior Campaign and Projects
Coordinator for the Health Department of the State of Victoria. Michael
received his Bachelor of Science Honours degree and Dip Ed from the
University of New South Wales.
<PAGE> 30
6. RISKS
The Company has risk management processes in place, including a risk
management committee, corporate governance guidelines that include
financial authority levels, foreign currency hedging procedures, and an
in-house counsel dealing with statutory obligations and intellectual
property and contracts.
The Company has a YEAR 2000 COMPLIANCE PROJECT to review all the Company's
services with a view to ensuring they remain operational before during and
after the transition to the year 2000. Many existing computer systems use
two digit data fields which recognise dates using the assumption that the
first two digits are "19" (i.e., the number 97 is recognised as the year
1997). Date critical functions relating to the year 2000 and beyond may be
adversely affected unless changes are made to existing systems. The Company
is assessing the internal readiness of its existing computer systems to
handle the advent of the year 2000. The Company is seeking to implement any
system and programming changes necessary to address the year 2000 issues
and does not believe that the cost of such actions will have a material
effect on the Company's results of operations or financial conditions. In
addition, the Company is engaged in a review of its major suppliers to
assess the extent of their preparations for the year 2000. The Company does
not anticipate any material expense to be incurred in the process of its
review. However, there can be no assurance that the systems operated by
third parties that interface with the Company's systems will achieve year
2000 compliance in a timely manner.
The Company has ADSs trading on NASDAQ in the USA so it is subject to the
requirements of the USA Securities and Exchange Commission ("SEC"). Under
those requirements, the Company identifies relevant risks in its periodic
filings with the SEC. The following factors have been identified in the
Company's US SEC filings and should be taken into account in assessing the
business, operations and financial condition of the Company.
COMPETITION
The bases for competition in the Australian and New Zealand Internet
services markets include: availability and reliability of network
infrastructure; customer service; pricing; the quality and quantity of
online content; the timing of introductions of new products and services;
and support of existing and emerging industry standards.
The Company believes it generally compares favourably on these bases.
Each of the geographic markets in which the Company operates is highly
competitive, with over 600 access providers competing for customers in
Australia and 59 commercial access providers competing for customers in New
Zealand. Internet connections in Australia are typically effected either by
dial-up access, or in the case of users wanting greater speed and capacity,
by ISDN access, and OzEmail faces multiple competitors in each of these
market segments.
OzEmail's major Australian competitors in the dial-up market utilised by
residential and small business customers are Telstra's Big Pond,
CompuServe, Connect.com, Magnadata, Magnet, Hutchison, Internet Access
Australia, Microplex, Ausnet, and IBM. In the ISDN market, Telstra, and
Connect.com are the Company's major competitors. Connect.com is part owned
by Australian modem manufacturer Netcomm Limited, National Australia Bank
Limited and AAP Telecommunications. In 1996, the Australian Internet access
and services industry experienced increased competition. OzEmail's
competitors undertook a range of strategies to expand market share,
including the introduction of new products and services, increased
advertising presence, increased price competition, network upgrades and
increased network coverage. This high level of competition has intensified
in the wake of deregulation of the Australian telecommunications industry
in July 1997.
<PAGE> 31
There are no substantial barriers to entry to initiating service as an ISP
in either Australia or New Zealand. Other considerably larger ISPs from
other countries are seeking to enter the Company's current markets. America
Online announced in September 1997 its intention to introduce its online
service within twelve months, following an agreement to form a joint
venture with German multimedia company Bertelsmann. NETCOM, UUNET
Technologies, PSINet, MCI, Sprint, and BBN Corporation (Bolt, Beranek &
Newman, Inc.) are all potential entrants into the Australian and New
Zealand markets. However, the Company believes that none of these companies
has yet announced plans to enter Australia or New Zealand, other than
PSINet in New Zealand. Many of these companies are significantly larger
than the Company and have substantially greater marketing, financial
resources, and in some cases, name recognition, than the Company. In
addition, many of the Company's smaller competitors may merge or
consolidate in the future, or form alliances with domestic or foreign
telecommunications carriers, in which case the Company will face a greater
number of competitors with resources equivalent or superior to those of the
Company.
OzEmail also faces competition from Australia's two general
telecommunications carriers, each of which has stated intent to expand its
presence in the Internet market. Telstra, Australia's largest
telecommunications carrier and a provider of data transmission services to
the Company, currently offers an Internet access service competitive with
that of the Company. Optus, the other significant telecommunications
carrier in Australia and a provider of data transmission services to the
Company, has stated its intent to provide Internet services. AAP
Telecommunications, a telecommunications carrier, has entered the ISP
market through its part ownership of Connect.com. While the Company
believes it currently has the largest share of the Internet dial-up market
in Australia, there can be no assurance that an existing competitor or new
entrant will not increase its resources or marketing activity or otherwise
attract new customers, thus reducing the Company's share of the dial-up
market. Similarly, since OzEmail's commencement in the fourth quarter of
1995 of targeted efforts to promote its ISDN services, it has faced strong
competition. As such, there can be no assurance that OzEmail will be able
to obtain and retain customers in that market. Failure to compete
successfully in either of these markets could have a material adverse
effect on the Company's business, results of operations and financial
condition.
Despite the existence of a general statutory framework in Australia
intended to protect against certain anti-competitive practices, there can
be no assurance that specific regulations will be promulgated or enforced
sufficiently to protect OzEmail from predatory pricing or other potentially
anti-competitive practices by Telstra, or that Telstra or other competitors
will not use their strategic positions to gain a competitive advantage in
some future period, including by means of price reductions, service
bundling, transmission capacity rationing or by other means.
The Internet access market in New Zealand is highly competitive. The
Company's major New Zealand competitor is XTRA, a division of Telecom New
Zealand, which launched in 1996. In September 1996, Voyager lowered its
peak connection time rate in response to XTRA significantly reducing its
access charges in August, 1996. In March, 1997, Voyager further reduced its
standard hourly rate from NZ$4.95 to NZ$2.99. Voyager's performance has
been materially affected by the entry of XTRA into the New Zealand Internet
market, with the resultant impact on price competition. Voyager also faces
competition from Clear Communications, New Zealand's second largest
telecommunications provider, which commenced Internet access services in
1996. There can be no assurance that the competitive pricing practices will
not intensify in the future. To the extent the Company expands into
additional international regions, it is likely to encounter similar
competition from private and government operated Internet services.
Competition in any of these markets could have a material adverse effect on
operations in that country, which could in turn have a material adverse
effect on the Company's business, results of operations and financial
condition.
<PAGE> 32
As a result of increased competition in the Internet access and services
industry, the Company expects to continue to encounter significant pricing
pressure, which in turn could result in significant reductions in the
average selling price of the Company's services as discussed previously in
the section discussing pricing.
The introduction by the Company of new products and services, including
Internet telephony services, and the establishment of an international
network for the provision of voice and facsimile services over the Internet
could result in the Company competing with other companies offering
products with similar functionality or technology, including large
corporations with significantly more resources and experience in the
telecommunications industry.
INTELLECTUAL PROPERTY
The Company principally relies upon copyright, trade secret and contract
law to protect its proprietary technology. The Company has developed and
continues to develop a range of Internet-based communications products and
services through the acquisition and licensing of third-party properties
and through its own in-house development. Since its inception, the Company
has acquired, licensed and/or developed an array of proprietary
technologies, including installation and configuration software used in its
starter kits, a Web-based 24-hour per day online registration facility, an
Internet tutorial in Microsoft Windows "Help" format, its own customer
billing system and a wide range of host-based software applications,
including software which allows customers to access the Internet through
simple on-screen menus and monitoring software used by Company personnel in
maintaining the host system.
While the Company uses care in protecting its proprietary technology, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorisation or to develop
similar technology independently, and there can be no assurance that any
protective measures taken have been, or will be, adequate to protect the
Company's proprietary technology. In addition, the Company intends to
expand into additional countries in the future, and the laws of many
foreign countries treat the protection of proprietary rights differently
from, and may not protect the Company's proprietary rights to the same
extent as do, laws in Australia and New Zealand.
On March 18, 1997, the Australasian Performing Rights Association ("APRA")
filed a statement of claim against the Company. APRA claims that the
Company has infringed copyright in a variety of musical works owned and
controlled by APRA by permitting the Company's customers to download those
works. APRA seeks injunctive relief and damages against the Company. The
Company has been advised by its litigation counsel that, in view of the
fact that APRA has offered to license the download of music through
Internet service providers for a fee to the Internet service provider of
A$1.00 per customer per year, the thrust of this litigation is to attempt
to establish a legal precedent which impels the payment of a licence fee by
an Internet service provider. The Company is defending this action. The
Company does not believe that this action will give rise to any material
liability. However, there can be no assurance that the ultimate disposition
of this claim will not have a material adverse impact on the business,
results of operations or financial condition of the Company, or that the
Company will not be required to obtain a licence or pay a licence fee. The
failure to obtain such a licence could have a material adverse impact on
the Company.
<PAGE> 33
More generally, patents have been granted recently on fundamental
technologies in the communications and multimedia areas, and patents may
issue which relate to fundamental technologies incorporated in the
Company's technology. Although the Company is not aware of any other action
or threatened action alleging patent infringement or improper use of
proprietary information by the Company, the Company could incur substantial
costs and diversion of management resources with respect to the defence of
any such claims, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief, which
could effectively block the Company's ability to offer its services and
software products. Such a judgment could have a material adverse effect on
the Company's business, financial condition and results of operations. In
the event a claim relating to proprietary technology or information is
asserted against the Company, the Company may seek licences to such
intellectual property. There can be no assurance, however, that licences
could be obtained on commercially reasonable terms, if at all, or that the
terms of any offered licences will be acceptable to the Company. The
failure to obtain the necessary licences or other rights could have a
material adverse effect on the Company's business, financial condition and
results of operations.
GOVERNMENTAL REGULATION
The Australian telecommunications industry operates in a largely
deregulated market and has done so since July 1, 1997. There is neither
restriction on the number of general carrier licences, nor restriction on
the number of ISPs and the limits on ISP operations are largely performed
through self-regulatory practices. Such practices as anti-competitive
pricing structures and abuse of market power remain in place (through the
Commonwealth Trade Practices Act) and the interests of industry
participants and consumers are protected via the Australian Consumer and
Competition Commission ("ACCC"). As this new regulatory regime is very
recent, there can be no assurances as to the effect of deregulation on the
cost of data transmission to the Company, the quality of such service or
the advantages that may be able to be obtained by other companies operating
in such environment. Changes in the regulatory environment could result in
increased price competition and other competition in the Company's markets,
which could in turn have a material adverse impact on the Company's
business, results of operations and financial condition. Under existing
regulations and proposals it may be possible to make charges to parties
receiving calls, and, if time charging to these parties were introduced,
the Company could potentially have a costs exposure.
As an ISP with substantial infrastructure, the Company would be allowed to
apply for a general carrier licence in Australia if it so wished. OzEmail
has not yet made any decisions in this regard. The Federal Communications
Commission in the USA has also indicated moves towards more active
regulation of the Internet access market
It is the ongoing intention of OzEmail Interline to create a network of
affiliates responsible for commercialising the Internet telephony service
offering on a networked basis throughout the world. Each country in which
potential network affiliate members are located has different regulatory
environments in which the Internet and telecommunications industry
operates. It is possible that different regulatory issues pertaining to
each country could result in delays and obstruction to the
commercialisation of these products and services internationally. Such
regulatory issues could include rejection by a national regulatory agency
of applications to establish the service, delays in receiving requisite
approvals, imposition of limitations on the manner in which the products or
services are provided and introduction of new licensing requirements.
Accordingly, there can be no assurances as to the extent of the
international network that the affiliates propose to create or assurances
as to the speed in which the proposed network will be created. Such delays
or obstruction to the establishment of an international network by OzEmail
Interline could have a material adverse impact on the Company's business,
results of operation and financial condition.
<PAGE> 34
LIMITED OPERATING HISTORY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
OzEmail was incorporated and commenced offering Internet services in
Australia in September, 1994. Voyager, the Company's majority-owned and
controlled subsidiary, commenced offering Internet services in New Zealand
in November, 1995. The Company's Internet telephony service commenced
operations on a limited scale in January 1997. Accordingly, the Company has
only a limited operating history upon which an evaluation of the Company
and its prospects can be based. The Company's prospects should be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets. Although the Company has
experienced growth in revenues since its incorporation, the Company
believes that the growth rates may not be sustainable and are not
indicative of future operating results. The Company's operating results may
fluctuate significantly in the future as a result of a variety of factors
including user demand for Internet access and services, capital
expenditures and other costs relating to the maintenance and expansion of
operations, the number and mix of residential and business customers,
customer retention rates, pricing changes by the Company and its
competitors, new service introductions by the Company and its competitors,
delays or expense in obtaining necessary equipment, access to
telecommunications transmission capacity supplied by telecommunications
carriers, economic conditions in the Internet access and services
industries and general economic conditions. There can be no assurance that
the Company will be able to offset the effects of any such price reductions
with an increase in the number of customers, higher revenue from enhanced
services, cost reductions or otherwise. There can be no assurance that
revenue growth will continue or that the Company will in the future sustain
profitability on either a quarterly or annual basis.
The Company's expense levels are based in significant part on its
expectations regarding future revenues and are fixed to a large extent in
the short term. Accordingly, the Company may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall. Any
significant revenue shortfall would therefore have a material adverse
effect on the Company's results of operations. Since OzEmail became a
public company, it has hired a significant number of employees and the
Company expects to continue hiring in future periods. The Company expects
that this rapid increase in employee expense will have a negative impact on
the Company's operating margins in these periods and may also negatively
impact operating margins in future periods. Similarly, to the extent the
Company commits financial resources to geographic expansion or investment
in infrastructure, the Company's operating results may be adversely
impacted for an extended period.
The Company expects a decrease in consumer dial-up demand during Australia
and New Zealand's summer months in December, January and February of each
year. There can be no assurance that the Company's results in any future
quarter will not be negatively affected by such trends.
DEPENDENCE ON THIRD-PARTY SUPPLIERS OF HARDWARE AND SOFTWARE; SHORTAGE OF
MODEMS
The Company is dependent on certain third-party suppliers with respect to
purchase of certain key products including digital modems, terminal server
equipment, and UNIX and Windows NT server equipment. Although alternate
sources of supply are available for these products, making a transition
could prove costly and cause interruption in service. The supply of modems,
a critical component of the Company's networks, has been adversely affected
in the past by the lack of availability of modem chips necessary for many
brands of modems. The Company has in the past had modems on back order and
has experienced delays in obtaining modems. The delays in obtaining modems
that the Company experienced in the past abated during 1996. There is no
current indication that such shortages will re-occur.
The Company also promotes third-party software for use by its customers.
Access to and the cost of such software is critical to the Company's
<PAGE> 35
ability to compete for customers. For example, the Company currently has an
agreement enabling the Company to distribute to its customers Web browsers
offered by Microsoft Corporation ("Microsoft") and Netscape Communications
Corporation ("Netscape"). Loss of access to popular software or software
upgrades, grants of exclusive rights to the Company's competitors or price
increases could have a material adverse effect on the Company's business,
results of operations and financial condition.
DEPENDENCE ON TELECOMMUNICATIONS CARRIERS
The Company's services are provided using data communications capacity
leased from third parties. The Company is substantially dependent upon
Telstra and Optus for the provision of data transmission and Internet
backbone services. Access to these services is critical to the Company's
business. While Optus, Australia's second largest telecommunications
carrier, provides some competition to Telstra. Telstra has a capacity to
impose price increases on its customers, including the Company. Although
both Telstra and Optus are currently subject to supervision and regulation
by the ACCC, telecommunications charges to Internet service providers may
be increased over time. Telstra currently offers Internet access services
in competition with those offered by the Company, and has expanded its
service offering and its subscriber base. Optus has publicised its
intention to offer Internet access services There can be no assurance as to
the future regulatory environment in which the Company will operate or that
Telstra or others will not use their strategic positions to gain a
competitive advantage in some future period, including by price reductions,
service bundling, or by some other means. Any such actions by Telstra,
Optus or other significant telecommunications carriers could have a
material adverse effect on the Company's business, results of operations or
financial condition. In addition, the Commonwealth Government has
successfully completed an initial public offering of approximately
one-third of the issued capital of Telstra in 1997. Legal restrictions will
prevent a material holding by any single party in the shares to be offered
under the initial public offering. The introduction of market scrutiny on
Telstra's management performance may affect the manner in which Telstra
conducts its business, including those upon which OzEmail is dependent.
The Company will need access to expanded bandwidth capacity if its customer
base increases. Inability to obtain necessary additional transmission
capacity from Telstra or Optus or by other means could have a material
adverse effect on the Company's business, results of operations and
financial condition. In addition, failure of the Telstra and/or Optus
network, even for a short period, could have a material adverse effect on
the Company's business, results of operations and financial condition.
OzEmail is substantially dependent on Telstra and Optus for the provision
of certain services related to maintenance and expansion of the Company's
networks. OzEmail has, from time to time, experienced delays in the receipt
of telecommunications services from Telstra. These delays have in the past
and could in the future inhibit the Company's ability to deliver its
services and expand the capacity of its network. Telstra is the sole
supplier of ISDN service connections for the Company.
Voyager is substantially dependent upon Telecom New Zealand, New Zealand's
largest licensed telecommunications carrier, for network access. The
Company's major New Zealand competitor is XTRA, a division of Telecom New
Zealand, which launched its service in the second quarter of 1996. In
September, 1996, Voyager lowered its peak connection time rate in response
to XTRA reducing its access charges in August, 1996. Voyager further
reduced its peak connection time rate in March, 1997. There can be no
assurance that pricing practices engaged in by XTRA will not intensify in
the future.
MANAGEMENT OF GROWTH
The Company's recent growth has placed, and in the future may continue to
place, a significant strain on the Company's administrative, operational
and financial resources and has increased demands on its systems and
controls. The Company anticipates that its continued growth will require it
to recruit and hire a substantial number of new managerial, technical and
sales and marketing personnel.
<PAGE> 36
Competition for qualified personnel in the Internet industry is intense and
there are a limited number of people in the Company's markets with
knowledge of and experience in the Internet service industry. The process
of locating, training and successfully integrating such personnel into the
Company's operations is often lengthy and expensive. There can be no
assurance that the Company will be successful in attracting, integrating
and retaining such personnel.
Although the Company has devoted significant resources to establishing
systems and controls suited to the Company's operations, many of these
systems are relatively new and, therefore, there can be no assurance that
these systems and infrastructure will be adequate to maintain and
effectively monitor future growth. The Company has in the past experienced
delays in invoicing customers and verifying customer creditworthiness.
These delays were caused primarily by staffing shortages resulting from the
Company's growth. The Company requires most of its residential customers to
pay for its services using their credit cards. The Company primarily bills
its users based on obtaining valid credit card authorisations, prior to
recognising revenues for financial statement reporting purposes. The
Company is in the process of identifying and installing additional systems
to be used for billing, customer service and customer tracking, but there
can be no assurance as to the time necessary or the expense associated with
implementing such systems. The Company may from time to time be exposed to
credit card fraud or malpractice which may have a material adverse effect
if practised on a wide scale and/or over an extended period. Any system
failures could have a material adverse effect on the Company's business,
results of operations and financial condition.
LIMITED MARKET; RISK OF INTERNATIONAL EXPANSION
To date, the Company has only limited experience providing Internet and
Internet telephony services internationally. There can be no assurance that
these operations will be profitable in the short term or at all. Failure in
any of these international expansion efforts could have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that the Company will be
able to obtain or retain the permits and operating licences required for it
to operate its networks, to hire and train employees, to market, sell and
deliver its services in these markets or to provide regionally-focused
content that reflects the culture, needs, and markets of the new countries.
Any of these factors could result in cessation of operations and a complete
loss of the investment in the affected countries, which could have a
material adverse effect on the Company's business, results of operations
and financial condition.
OzEmail Interline has licensed the Internet telephony service offering to
third parties internationally and it intends to extend the number of
international licences. There are certain risks inherent in licensing these
services to third parties internationally. There can be no assurance that
licensees of these services will be able to: obtain or retain regulatory
approval to operate the services; expand the network in their territory of
operation; operate the services in their territory in an efficient and
commercially viable manner; pay licence fees to the Company for the
operation of the services in a timely manner or at all; and hire and train
employees to operate, sell, market and deliver the services to an
appropriate standard of expertise. Any of these factors could result in a
failure to expand the OzEmail Interline service to a commercially viable
extent, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
There are certain risks inherent to doing business on an international
level, such as unexpected changes in regulatory requirements, tariffs,
customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political instability, expropriation, nationalisation,
war and other political risks, fluctuations in currency exchange rates,
foreign exchange controls which restrict or prohibit repatriation of funds,
<PAGE> 37
technology exports and import restrictions or prohibitions, delays from
customs brokers or government agencies, seasonal reductions in business
activity and potentially adverse tax consequences, any of which could
adversely impact the success of the Company's international operations.
Specific to the Internet industry, companies conducting business in foreign
countries may require operating licences in new and uncertain regulatory
environments. Such licences may be difficult to obtain and retain depending
on government policies, customs, changes in political leadership, and other
factors. In many countries, the Company may need to enter into a joint
venture or other strategic relationship with one or more third parties in
order to successfully conduct its operations, and may be required by law to
hold only a minority interest in any operating entity. To the extent the
Company is a party to joint ventures, the Company may be subject to loss of
proprietary information, risky business practices and other strategic
decisions contrary to the Company's business judgment. In addition,
international expansion could require a significant diversion of financial
and technical resources and management attention from operations in
Australia and New Zealand. In addition, there can be no assurance that laws
or administrative practice relating to taxation, foreign exchange or other
matters of countries in which the Company operates will not change.
NEW AND UNCERTAIN MARKET; CUSTOMER RETENTION
The market for Internet connectivity services and related software products
is at an early stage of development. Since this market is relatively new
and because current and future competitors are likely to introduce
competing Internet connectivity services, online services and products, it
is difficult to predict the rate at which the market will grow or at which
new or increased competition will result in market saturation. The novelty
of the market for Internet access services may also adversely affect the
Company's ability to retain new customers, as customers may discontinue the
Company's services after an initial trial period. To continue to realise
customer growth in all its markets, the Company must continue to replace
terminating customers and attract additional customers. If demand for
Internet services fails to grow, or grows more slowly than anticipated, the
Company's business, results of operations and financial condition could be
materially adversely affected.
The sales and marketing expenses and customer acquisition costs associated
with attracting new customers are substantial. Accordingly, the Company's
ability to improve operating margins will depend in part on the Company's
ability to retain its customers. The Company continues to invest
significant resources in its telecommunication infrastructure and customer
support resources, but there can be no assurance that these investments
will improve customer retention. Since the Internet market is new and the
utility of available services is not well understood by many new and
potential customers, the Company is unable to predict future customer
retention rates. Any deterioration in customer retention rates or increased
costs associated with retaining customers could have a material adverse
effect on the Company's business, results of operations and financial
condition.
RAPID TECHNOLOGICAL CHANGE
The Internet services industry in which the Company operates is
characterised by rapidly changing technology, evolving industry standards,
emerging competition and frequent new service, software and other product
innovations. There can be no assurance that the Company can successfully
identify new service opportunities and develop and bring new products and
services to market in a timely and cost-effective manner, or that products,
software and services or technologies developed by others will not render
the Company's products, software, services or technologies non-competitive
or obsolete. In addition there can be no assurance that product or service
developments or enhancements introduced by the Company will achieve or
sustain market acceptance or be able to effectively address the
compatibility and interoperability issues raised by technological changes
or new industry standards.
DEVELOPMENT OF TRANSMISSION MEDIA, SOFTWARE AND TECHNOLOGY
As of December 31, 1997, the Company employed 47 people dedicated to
software development. The Company's software development personnel have
been engaged in: integration of third-party software products into its
<PAGE> 38
service offerings; development of Internet telephony service offering; and
development of the Company's management information systems, online content
delivery systems, host systems, and billing systems.
As Internet-related industries evolve, the Company may be required to
develop or acquire additional technological capabilities. In particular,
there is substantial uncertainty as to the transmission media for future
Internet service providers. Currently, the Company provides access to
Internet services through both analog and digital telephone lines and ISDN
lines. Several companies outside of Australia have recently introduced
delivery of Internet access services through cable television lines. In
Australia, cable lines have coverage over large proportions of the main
capital cities. Much of the rest of the country is expected to gradually
gain cable or wireless access. As in the rest of the world, Australians are
eventually expected to be able to access the Internet by cable modem,
screen-based telephones, television set-top boxes and other consumer
electronic devices. In addition, customer requirements may change the way
Internet access is provided. Thus, the Company may need to develop new
services or modify its existing services to accommodate these developments.
The Company's pursuit of these technological advances may require
substantial time and expense and there can be no assurance that the Company
will succeed in adapting its Internet service business to handle such
requirements.
SECURITY RISKS
Despite the implementation of network security measures by the Company,
such as limiting physical and network access to its routers and host
systems, the Company's Internet infrastructure is vulnerable to computer
viruses, break-ins and similar disruptive problems caused by its customers,
employees or other Internet users. Computer viruses, break-ins or other
security problems could lead to interruption, delays or cessation in
service to the Company's Internet customers. Further, such inappropriate
use of the Internet could also potentially jeopardise the security of
confidential information stored in the computer systems of the Company, the
Company's customers and other parties connected to the Internet, which may
deter potential customers and give rise to uncertain liability to users
whose security or privacy has been infringed. The security and privacy
concerns of existing and potential customers may inhibit the growth of the
Internet service industry in general and the Company's customer base and
revenues in particular. A significant security breach could result in loss
of customers, damage to the Company's reputation, direct damages, costs of
repair and detection and other expenses. The occurrence of any of the
foregoing events could have a material adverse effect on the Company's
business, results of operations and financial condition.
RISK OF SYSTEM FAILURE
The success of the Company is largely dependent upon its ability to deliver
high quality, uninterrupted access to the Internet. Any system failure that
causes interruptions in the Company's operations could have a material
adverse effect on the Company. The Company has experienced mechanical,
network and other failures relating to individual POPs, and the Company's
subscribers have, from time to time, experienced difficulties in accessing
and maintaining connection to the Internet. The Company's
telecommunications network is carried primarily on lines leased from
Telstra, Optus and Telecom New Zealand. Failures in these or other
communications networks relied on by the Company will result in customers
receiving no or diminished access to the Internet. The Company also leases
the properties where its POPs are located. Any relocation that may be
required as a result of expired or changing lease terms may result in
increased costs or temporary disruption of service. The Company seeks to
regularly upgrade its POPs to reduce congestion and improve efficiency.
This process has, in the past been slowed down by the inability of the
Company to obtain necessary modems and other equipment. Such difficulties
in the future could cause a loss of customers or slow the growth of new
customers, and could have a material adverse effect on the Company's
business, results of operations and financial condition.
<PAGE> 39
The Company's operations are dependent on its ability to protect its
computer equipment and the information stored in its data centers, POPs,
and fax and voice gateways against damage by fire, earthquake, natural
disaster, power loss, telecommunications failures, unauthorised intrusion
and other catastrophic events. The Company believes it has taken prudent
measures to reduce the risk of interruption to its operations. However,
there can be no assurance that these measures are sufficient. Any damage or
failure that causes interruptions in the Company's operations could have a
material adverse effect on its business, results of operations and
financial condition. In particular, a catastrophic failure at any or all of
its Sydney, Melbourne, Brisbane or Auckland hubs would result in decreased
network performance and, if prolonged, could result in reduced revenues,
loss of customers and damage to the Company's reputation, any of which
could in turn have a material adverse effect on the Company's business,
results of operations and financial condition. While the Company carries
property and business interruption insurance to cover its operations, the
coverage may not be adequate to compensate for losses that may occur.
FORMAL LICENSING AND JOINT MARKETING AGREEMENTS
The Company is currently a party to a number of contractual agreements
whereby the Company licenses software for its own systems, obtains rights
to distribute software to its customers and establishes marketing
arrangements pursuant to which its products are delivered to customers and
potential customers. Among these agreements, the Company has agreements
enabling the Company to supply Microsoft Internet Explorer or Netscape Web
browser software to each of its customers. The Company believes that the
ability to supply the Web browser software is important in its efforts to
attract and retain customers, but there can be no assurance that the
Company will be able to continue to obtain necessary browser and other
software at favourable prices or at all. The Company has also entered into
agreements with a number of modem and computer suppliers and magazine
publishers to bundle the Company's installation software with their
products. The Company believes that these arrangements have contributed to
the Company's efforts to expand its customer base, but there can be no
assurance that these agreements will be renewed or that future agreements
will be on terms as favourable to the Company as those currently available.
In addition, as the Australian modem market changes and new entrants gain
market share, there can be no assurance that the Company will be able to
enter similar bundling agreements with the new entrants, or that the
companies currently bundling the Company's software will maintain their
current market shares. Such promotional techniques may be less effective in
the future. Any decrease in the effectiveness of these agreements could
have a material adverse effect on the Company's business, results of
operation and financial condition.
RISKS ASSOCIATED WITH PROVIDING CONTENT
As an online content provider, the Company faces uncertainty as to its
ability to develop marketable content in a cost-effective manner. The
Company also depends substantially on obtaining and retaining licences to
content developed by third parties for its online service offering . There
can be no assurance that such third-party providers will continue to
develop and provide such content, will provide content at the necessary
quality level, or will provide such content to the Company on a
cost-effective basis. Failure to develop, maintain and continue to provide
high-quality content could cause a reduction in both the number of new
customers and the use of the Company's service by existing customers, which
could in turn have a material adverse effect on the Company's business,
financial condition and results of operations. The Company may experience
these difficulties to an even greater extent in international markets that
it enters in the future. For example, providing online content exposes the
Company to liability for copyright infringement, defamation and other
claims. Providing real time stock quotes from the Australian Stock Exchange
through OzEmail Stockwatch also exposes the Company to the possibility of
legal action if the Company fails to exercise reasonable care in providing
accurate stock quotes, and quoted companies or investors in such quoted
companies suffer economic loss from resultant inaccuracies in the provision
of stock quotes.
<PAGE> 40
POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH THE NETWOR
Internet service providers may face potential liability in Australia and
worldwide for the actions of customers and others whose publications are
viewed or otherwise accessed by people using their systems, including
liability for defamation or the dissemination of obscene or other
uncensored material. A number of Internet service providers in the United
States have been sued for libel and copyright infringement arising out of
the acts of others.
In response to the proposals in the Australian Federal Government
Discussion Paper, Copyright Reform and the Digital Agenda (July 1997),
carriers and ISPs expressed considerable concern about the uncertainty of
the circumstances in which they could be liable for copyright infringement
by others. Bearing in mind these concerns, the Federal Government has
decided that the Copyright Act will be amended to make it clear that the
carriers and ISPs will not be liable for copyright infringements on their
customers' web sites by reason only of the fact that the infringements
occurred on the facilities of the carrier or ISP. There can however be no
assurance, that the laws of Australia or New Zealand or other countries in
which the Company may establish a presence will not impose liability on
Internet service providers for the acts of those using their networks.
In addition to civil liability that might be imposed on the Company for
violations of privacy or intellectual property rights, the Company may face
action by governmental authorities in respect of certain sexually explicit
or otherwise offensive or illegal material available on the Company's
servers and other servers connected to the Internet and accessible via the
Company's network. One U.S. online service provider faced demands from
German authorities demanding that it deny access to certain sexually
explicit news groups. The Company believes that no such action has been
taken in Australia or New Zealand to date, but there can be no assurance
that such actions will not be taken in the future.
NEED FOR ADDITIONAL CAPITAL TO FINANCE GROWTH AND CAPITAL REQUIREMENTS
There can be no assurance that the Company will not seek to exploit
business opportunities of a kind which will require it to raise additional
capital from equity or debt sources. In particular, acquisition of
complementary businesses, entrance into certain countries and
commercialisation of new technology and products to expand and complement
the business could require a significant commitment of resources, which
could in turn require the Company to obtain additional financing. There can
be no assurance that the Company will be able to raise such capital on
favourable terms or at all. If the Company is unable to obtain such
additional capital, the Company may be required to reduce the scope of its
anticipated expansion, which could adversely affect the Company's business,
financial condition and results of operations.
EARLY STAGE OF DEVELOPMENT IN NEW AND EVOLVING MARKETS
The Company's prospects should be considered in the light of the risks,
expenses and difficulties frequently encountered by companies in the early
stage of development, particularly companies in new and evolving markets.
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, including user demand for Internet
access and services, capital expenditures and other costs relating to the
maintenance and expansion of operations, the number and mix of residential
and business customers, customer retention rates, pricing changes by the
Company and its competitors, new service introductions by the Company and
its competitors, delays or expense in obtaining necessary equipment, access
to telecommunications transmission capacity supplied by telecommunication
carriers, economic conditions in the Internet access and services industry,
and economic conditions. There can be no assurance that the Company will be
able to offset the effects of any future price reductions or cost increases
with increased numbers of customers, higher revenue from enhanced services,
cost reductions or otherwise. There can be no assurance that revenue growth
will continue or that the Company will in the future sustain profitability
on either a quarterly or annual basis.
<PAGE> 41
7. FINANCIAL OVERVIEW
OzEmail Limited and Controlled Entities
ACN 066 387 157
Consolidated Profit and Loss Accounts (A$000's)
<TABLE>
<CAPTION>
FROM INCORPORATION ON YEAR ENDED DECEMBER YEAR ENDED DECEMBER 3 MONTHS ENDED
SEPTEMBER 12, 1994 TO 31, 1996 31, 1997 MARCH 31, 1998
DECEMBER 31, 1995 (AUDITED) (AUDITED) (UNAUDITED)
(AUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE 10,140 33,533 75,090 22,743
========================================================================================
Operating profit 808 973 6,012 (3,384)
before income tax
Income tax 449 556 3,024 (463)
----------------------------------------------------------------------------------------
OPERATING PROFIT AFTER 359 417 2,988 (2,921)
INCOME TAX
Outside equity
interest in operating 60 16 - -
profit after income tax
----------------------------------------------------------------------------------------
OPERATING PROFIT AFTER
INCOME TAX
ATTRIBUTABLE TO 419 433 2,988 (2,921)
MEMBERS OF THE COMPANY
Retained profits at
the beginning of the - 419 852 940
year
----------------------------------------------------------------------------------------
Aggregate of amounts
available for - 852 3,840 (1,981)
distribution
Dividends provided for - - (2,900) -
----------------------------------------------------------------------------------------
RETAINED PROFITS AT
THE END OF THE YEAR 419 852 940 (1,981)
========================================================================================
</TABLE>
It should be noted that goodwill relating to the acquisition of OzEmail
Interline will be amortised over the period of expected benefits which has
been assessed as between two to five years, in accordance with the
Company's accounting policies. This will have an impact on the Company's
Australian GAAP profit and loss of additional amortisation expense of
approximately $3,730,000 per annum commencing 15 April 1998.
These consolidated profit and loss accounts have been prepared under
Australian GAAP and differ from those prepared in US GAAP.
<PAGE> 42
COMMENTS ON 1998 FIRST QUARTER RESULT
Revenues for the first quarter of 1998 were A$22,743,000, an increase of
85.7% over 1997 first quarter revenues of A$12,248,000. The growth in
revenues is primarily attributable to the November 1997 acquisition of
Access One and increased residential and enterprise revenue from OzEmail's
Australian Internet connectivity business.
The main reasons for the increase in costs as a percentage of revenues were
Communication, Goodwill and General and Administrative expenses. The higher
communications costs were due to the significant bandwidth commitments of
Access One. Management has addressed these costs by obtaining early
termination on dedicated links inline with the restructure plan related to
the access one purchase. Goodwill amortisation as a result of the purchase
of Access One in November 1997, amounted to $1,130,000 in the first
quarter. Additional General and Administrative expense was primarily
attributable to the hiring of a corporate management team in order to
expand Interline's international Internet telephony network.
Tax benefits related to earnings in non-wholly owned subsidiaries have not
been brought to account.
Management believes that the core Internet business was strengthened in the
quarter with the purchase of Camtech Internet Services and, with the
acquisition of Access One, will result in integration benefits to the
group.
<PAGE> 43
.............................................................................
OzEmail Limited and Controlled Entities
Consolidated Balance Sheet Data (A$'000)
<TABLE>
<CAPTION>
PROFORMA
DEC 31, 1996 DEC 31, 1997 MAR 31, 1998 MAR 31, 1998
(audited) (audited) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and bank balances 44,615 49,166 43,138 43,672
Receivables 5,512 10,678 13,105 13,279
Inventories - 43 51 217
Other 1,365 1,400 1,215 1,215
--------------------------------------------------------------------
TOTAL CURRENT ASSETS 51,492 61,287 57,509 58,383
--------------------------------------------------------------------
NON-CURRENT ASSETS
Receivables - 4,257 5,254 -
Plant and equipment 17,055 22,494 21,790 26,836
Investments 24 2,582 2,559 2,559
Goodwill on consolidation - 20,164 22,123 40,775
Other 386 1,415 1,305 1,305
--------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS 17,465 50,912 53,031 71,475
--------------------------------------------------------------------
TOTAL ASSETS 68,957 112,199 110,540 129,858
--------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable 8,831 26,664 26,511 28,640
Borrowings 1,528 3,673 4,409 4,574
Provisions 1,413 10,589 8,594 7,180
--------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 11,772 40,926 39,514 40,394
--------------------------------------------------------------------
NON-CURRENT LIABILITIES
Borrowings 2,175 4,145 3,677 3,913
Provisions 505 1,106 377 394
--------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES
2,680 5,251 4,054 4,307
--------------------------------------------------------------------
TOTAL LIABILITIES 14,452 46,177 43,568 44,701
--------------------------------------------------------------------
NET ASSETS 54,505 66,022 66,972 85,157
====================================================================
EQUITY
Share capital 414 444 462 483
Reserves 53,239 64,638 68,491 86,850
Retained profits 852 940 (1,981) (1,981)
Outside equity interests - - - (195)
--------------------------------------------------------------------
TOTAL EQUITY 54,505 66,022 66,972 85,157
====================================================================
</TABLE>
<PAGE> 44
NOTES TO THE FINANCIAL OVERVIEW
The unaudited pro forma balance sheet presents, on an Australian GAAP
basis, condensed consolidated balance sheet information of OzEmail giving
effect to the purchase by OzEmail of Metro's 40% interest in OzEmail
Interline Pty Limited as if it had occurred at 31 March 1998. Metro
originally acquired this 40% interest in June 1997 from OzEmail (32%) and
Ideata Pty Limited (8%).
OzEmail regained control of OzEmail Interline in April 1998 when it
increased its equity interest to 88% by acquiring the 40% interest under an
independent transaction. OzEmail will therefore consolidate OzEmail
Interline from 15 April 1998, for the purposes of Australian GAAP. Further
details of these transactions are included in Notes 22 and 25 of the
Company's financial statements for the year ended 31 December 1997.
OzEmail issued 5,400,000 ordinary shares (equivalent to 540,000 ADSs) with
a market value of US$2.2125 per share at close of business on 15 April 1998
in consideration for the 40% of shares acquired in OzEmail Interline giving
rise to total consideration of $18,380,769. Metro also agreed to forgive a
debt of $2,043,000 owed by OzEmail Interline. This debt forgiveness was in
respect of its obligation to contribute to running costs under clause 6 of
the Shareholders' Deed. This has been reflected as part of the net cost of
the additional 40% interest in OzEmail Interline in the pro forma balance
sheet.
The pro forma condensed balance sheet reflects pro forma adjustments to
include the issue of the shares, the forgiveness of debt and to consolidate
OzEmail Interline based on its unaudited financial statements at 31 March
1998. The directors have used the carrying amounts of the assets and
liabilities in these financial statements as an estimate of the fair values
of OzEmail Interline's tangible assets and liabilities at the date OzEmail
gained control of the company and for the purposes of calculating the
goodwill on consolidation in the pro forma balance sheet. The resulting
goodwill on consolidation of approximately $18,651,000 may change as the
acquisition accounting entries recorded in OzEmail's financial statements
for the year ended 31 December 1998 will be based on the fair values of
OzEmail Interline's identifiable assets and liabilities at the date of
acquisition.
There are significant differences between the Company's Consolidated
Balance Sheet under US GAAP and Australian GAAP in respect of the
accounting treatment for the repurchase of Metro's 40% interest in OzEmail
Interline.
For the purposes of US GAAP reporting, as the equity interest in OzEmail
Interline held by Metro was repurchased within one year of sale, in
accordance with the Securities and Exchange Commission Staff Accounting
Bulletin Topic 5-H the Company has restated its previously reported second
quarter results to reverse the gain recorded on the initial sale of the
equity interest in OzEmail Interline. The Company has also reversed
previously recorded license revenues from Metro recognised in the second
quarter of 1997. As a result of the change in ownership under Securities
and Exchange Commission Staff Accounting Bulletin Topic 5-H a restatement
has also been made to the previously released second and third quarter
results. The impact of this restatement was that the monies received from
Metro were treated as deposits pending the issue of shares by OzEmail on 15
April 1998 and no profit was recorded in June 1997 in respect of license
fees received or profit on the original sale of the equity interest in
OzEmail Interline. This restatement has had the effect of the Company
reporting for US GAAP purposes a net loss of $16,768,000 for the year to 31
December 1997.
<PAGE> 45
8. ADDITIONAL INFORMATION
NASDAQ LISTING
In May 1996 3,200,000 American Depositary Shares ("ADSs"), each
representing one ordinary share of OzEmail, were listed on the NASDAQ
market in the United States of America ("USA") after a successful capital
raising in the USA. In July 1996 the underwriter to the initial public
offering in the USA exercised an over allotment option to acquire a further
150,000 American Depositary Shares at US$14.00 per share.
On 18 September 1997 a general meeting of shareholders approved a share
split of 10 ordinary shares for every 1 ordinary share. The ADSs therefore
now represent 10 ordinary shares per ADS.
As at 7 May, 1998, there were 121,508,250 Ordinary A$0.004 Shares on issue,
34,095,000 of which were represented by 3,409,500 American Depositary
Shares.
A table, setting out the monthly high and low last sale prices of OzEmail's
ADSs on NASDAQ since listing appears below.
MONTH GH LAST SALE (US$) LOW LAST SALE (US$)
1998
May (up to 14 May) 28.19 19.06
April 22.81 16.00
March 16.88 9.50
February 12.75 8.00
January 9.63 8.00
1997
December 10.25 7.25
November 13.56 9.75
October 13.63 10.50
September 16.00 12.25
August 13.88 6.63
July 7.13 6.13
June 8.25 6.81
May 6.50 5.75
April 8.50 6.50
March 11.50 7.00
February 14.13 11.13
January 14.13 9.00
1996
December 11.00 8.00
November 8.13 6.75
October 9.25 6.38
September 9.13 6.75
August 9.88 6.25
July 13.63 6.50
June 15.38 11.00
<PAGE> 46
A table setting out the exchange rate at which US$ purchased A$ as
published by the ANZ Banking Group Limited for retail customers in Sydney
at the commencement of business on the last working day of each calendar
month in 1998 is set out below
MONTH END A$ /US$ RETAIL BUY RATE
April 0.6490
March 0.6624
February 0.6711
January 0.6735
The ordinary shares being sold to investors by the Sellers pursuant to the
offer contained in this Information Memorandum are not registered with the
Securities and Exchange Commission in the United States of America ("SEC").
Under these circumstances these ordinary shares cannot currently be lodged
with a depositary and traded as ADSs on NASDAQ. The Company is not
proposing to register any of the ordinary shares sold by the Sellers
pursuant to this offer with the SEC for trading on the NASDAQ National
Market in the USA. Unless investors are prepared to enter into their own
registration procedures with the SEC and depositary arrangements with
NASDAQ in the USA at their own expense, these ordinary shares will not be
able to be traded on NASDAQ in the USA.
LITIGATION
On March 18, 1997, the Australasian Performing Rights Association ("APRA")
filed a statement of claim against the Company. APRA claims that the
Company has infringed copyright in a variety of musical works owned and
controlled by APRA by permitting the Company's customers to download those
works. APRA seeks injunctive relief and damages against the Company. The
Company has been advised by its litigation counsel that, in view of the
fact that APRA has offered to license the download of music through
Internet service providers for a fee to the Internet service provider of
A$1.00 per customer per year, the thrust of this litigation is to attempt
to establish a legal precedent which impels the payment of a licence fee by
an Internet service provider. The Company is defending this action. The
Company does not believe that this action will give rise to any material
liability. However, there can be no assurance that the ultimate disposition
of this claim will not have a material adverse impact on the business,
results of operations or financial condition of the Company, or that the
Company will not be required to obtain a licence or pay a licence fee. The
failure to obtain such a licence could have a material adverse impact on
the Company.
OzEmail owns an 80% equity interest Voyager, with the remaining 20% equity
interest held by two former directors of Voyager (the "Minority
Shareholders"). OzEmail and the Minority Shareholders are parties to a
Shareholders Agreement setting out certain rights and restrictions on the
employment and stock ownership of the Minority Shareholders. On January 2,
1997 the Minority Shareholders provided formal notice to OzEmail that they
wished to exercise their option under the Shareholders Agreement to sell
their shares in Voyager to OzEmail at fair value. The parties could not
reach a consensus on the price at which such sale of shares would take
place and the Minority Shareholders commenced proceedings in September,
1997, in the High Court of New Zealand for recovery of the share sale
price. OzEmail has sought legal advice from legal counsel and is defending
the matter. The Company has provided for an amount that it believes
adequately covers the fair value of the shares and all other costs
associated with this claim.
From time to time, the Company has received, and may in the future receive,
notice of claims by other parties against the Company. As of the date of
this Information Memorandum, the Company is not a party to any other legal
proceedings, and is not aware of any other pending or threatened
proceedings the outcome of which, in the opinion of management, would have
a material adverse impact on the Company's business, results of operations
or financial condition.
<PAGE> 47
TAXATION CONSIDERATIONS FOR INVESTORS
The following is a summary of the tax position for Australian resident
individual investors based on the current law. It is not meant to be an
authoritative or complete statement of the law. Investors, and in
particular corporations, trustees and non-Australian residents, should seek
their own advice in relation to their taxation circumstances.
TAX ON DIVIDENDS
Dividends received by Australian residents are normally taxable as income.
Individual shareholders who are residents of Australia may be entitled to a
rebate of tax in respect of franked dividends received from OzEmail. The
availability of this rebate may be restricted by proposed legislation.
Subject to certain exemptions and elections, the proposed legislation
requires taxpayers (and their associates) to hold OzEmail shares "at risk"
for not less than 45 days (excluding acquisition and disposal days) during
a qualification period in order to qualify for the franking rebate.
A franked dividend is one which is paid out of profits in respect of which
Australian company income tax (currently levied at 36%) has been paid. The
income tax paid by OzEmail determines the available franking credit
attached to the dividend which in turn determines the franking rebate.
Shareholders who are in receipt of franked dividends from OzEmail and are
entitled to a franking rebate should include an amount equal to the
dividend received plus the franking credit as income in their tax returns.
A rebate equal to the franking credit is then available to offset tax on
the dividend and on other income. The amount of the franking credit
available for any dividend will be shown separately on the dividend
statements provided by OzEmail to each shareholder.
To the extent that a dividend is unfranked, there is no franking credit.
The unfranked portion of the dividend is taxable
TAX ON DISPOSAL OF SHARES
Shareholders who dispose of their shares at a price in excess of their cost
base may be subject to capital gains tax. Tax is imposed on the gain
realised on the disposal, subject to an adjustment of the cost base for
inflation over the period of the shareholding if the shares are held for
more than 12 months. Averaging of capital gains may reduce the tax payable
on the gain realised on disposal.
Shareholders who dispose of shares at a price which is less than their cost
base may incur a capital loss. A capital loss may be able to offset against
capital gains that arise in the same year of income or a subsequent year of
income. A capital loss may not be offset against ordinary income. The
capital loss will not include any inflation adjustment.
Gains realised by certain categories of shareholders (such as share
traders) may be taxed as ordinary income, without any adjustment for
inflation.
STAMP DUTY
Prior to listing on the Australian Stock Exchange ("ASX"), a transfer of
shares in OzEmail will attract NSW stamp duty as to 0.6% payable by the
purchaser on the sale price or market value of the shares, whichever is
higher.
After listing on the ASX, a transfer of shares in OzEmail on the ASX
through a stockbroker will attract NSW stamp duty as to 0.15% by the seller
and 0.15% by the purchaser on the sale price of the shares. A transfer of
<PAGE> 48
OzEmail shares otherwise than through a stockbroker will attract NSW stamp
duty as to 0.3% payable by the purchaser on the sale price or market value
of the shares, whichever is higher.
OTHER MATERIAL CONTRACTS
Agreement for sale of shares in OzEmail Interline, dated in April, 1998,
between Ligapart, OzEmail Fax Investments, OzEmail, and Ideata.
Transfer by Ligapart AG of 3,700,000 shares in OzEmail Interline to OzEmail
Fax Investments in April 1998 in consideration of the issue of 5,400,000
Ordinary Shares in OzEmail Limited.
Deed, dated in April, 1998, between OzEmail Fax Investments, Ideata,
Ligapart, Interline Telco, OzEmail and the directors of OzEmail Interline,
whereby the parties agreed to: terminate the Shareholders' Deed entered
into by the shareholders of OzEmail Interline on 26 June, 1997; terminate
the European Licence Agreements between the Company and Interline Telco;
and otherwise generally dissolve their contractual relationship on terms
and conditions which are contained in the covenants contained within the
Deed and in accordance with the terms of the Agreement for Sale and
Purchase of Shares for no consideration in OzEmail Interline dated in
April, 1998.
Deed of assignment, dated April 1998, between OzEmail Interline and
Interline Telco whereby Interline Telco agreed to assign a sub licence
agreement with Telefuture Antilles N.V. to OzEmail Interline.
Agreement for the sale and purchase of the Internet business of Solution 6,
dated 8 November, 1997, between OzEmail and Solution 6.
Amending Deed, dated 25 November, 1997, between Solution 6 and OzEmail.
Share option deed between Solution 6 and OzEmail.
Shareholders' Agreement between OzEmail Pty Limited, John O'Hara and
Alistair Stevens dated 14 March 1996. This agreement formalised the venture
for the conducting of business of Internet access provision, using Voyager
New Zealand Limited as the operating entity. This agreement is the subject
of litigation as disclosed above under the heading Litigation.
Service Provider Agreement (Internet Services) between Optus Networks Pty
Limited and OzEmail, dated 18 November, 1997, whereby Optus provides
OzEmail with managed access to the Internet.
Deed, made on 18 November, 1997, between OzEmail and Optus Networks Pty
Limited agreeing to release Access One from future liability under Access
One links agreements on terms and conditions set out in this Deed.
Capacity Use Agreement between Southern Cross Cables Limited ("Southern
Cross"), a company incorporated in New Zealand, and OzEmail, entered into
in April 1998, regarding the basis on which Southern Cross will grant to
OzEmail use of part of the capacity on the fibre optic submarine cable
network ("network")to be developed, constructed and operated by Southern
Cross Cables Limited, a company incorporated in Bermuda, for a period of 15
years from the ready for service date (expected to be approximately two
years from the date of the Agreement). The agreement provides for 45Mbps of
capacity in the first four years following the ready for service date,
growing to 90Mbps thereafter.
Letter from Southern Cross confirming the grant of an option to OzEmail
(exercisable prior to 30 June 1998) to double its capacity under the
agreement entered into in April 1998.
<PAGE> 49
Sale of business agreement between Camtech (SA) Pty Limited and OzEmail
Limited, dated 31 March, 1998.
Agreement between OzEmail and Telstra Corporation dated 20 November 1997,
releasing Access One from certain ongoing commitments with Telstra,
provided OzEmail satisfy certain conditions such as: the payment of overdue
accounts owed by Access One; the acceptance of liability by OzEmail of all
debts incurred by Access One which may have been incurred prior to its
acquisition but not previously advised to Access One by Telstra provided
they are invoiced within 60 days of acquisition; and the provision of a
company guarantee by OzEmail in respect to the liabilities of Access One.
Agreement between OzEmail and AT&T, signed 9 July 1997, for the provision
of a 2.048Mbps half circuit from the United States for a term of two years.
Proposal for telecommunication services to Voyager by New Zealand Telecom,
accepted by Voyager on 11 August, 1997.
Internet sign up referral and Microsoft Internet Explorer Licence and
distribution agreement, with an effective date of 25 November, 1996.
Service and maintenance agreement between Bay Networks Inc. and OzEmail
Limited
Global Solution Services Comprehensive Agreement between Cisco Systems
Australia and OzEmail Limited for the provision of support services.
Global Solution Services SMARTnet Agreement between Cisco Systems Australia
and OzEmail Limited
Comprehensive Agreement between Cisco Systems Australia and OzEmail Limited
APNIC Ltd agreement dated 9 July 1997 whereby Internet resources are
enabled to be registered by OzEmail for the Asia/Pacific Region.
Development and Licence Agreement between OzEmail an Inkomi Corporation
dated 11 December 1996 whereby Inkomi licences the search engine technology
that underlies the ANZWERS search engine.
i-Pass Alliance membership Agreement between i-Pass Alliance Inc and
OzEmail Limited dated 19 December 1996 by which OzEmail becomes a member of
the IPASS alliance which allows it to offer the Global Roaming service.
Head agreement between the Commonwealth of Australia (represented by the
Office of Government Information Technology) and OzEmail Limited.
Deed of agreement dated 27 March 1996 between the New South Wales State
Contracts Control Board for Contract (ITS 2028 for provision of Internet
Services and products)
Letter from the New South Wales Department of School Education regarding
acceptance of OzEmail's quote for the provision of Internet services.
A letter agreement with the Queensland TAFE for the provision of Internet
connectivity.
<PAGE> 50
Licence agreement and termination agreement between OzEmail Interline and
Concentric Network Corporation, date 11 July, 1997
Equipment lease agreements between OzEmail and Macquarie Bank for equipment
valued at $2,930,000, entered into in 1996.
Uplink and Downlink Facility Agreement between AAPT Sat-Tel Pty Limited and
OzEmail, dated 24 October, 1997.
Space Segment Customer Service Agreement between AAPT Sat-Tel Pty Limited
and OzEmail, dated 24 October, 1997.
Master Rental Agreement, dated 16 May, 1997, between OzEmail and ARM
Equipment Finance Pty Limited.
Rental Agreement, dated 16 May 1997, between OzEmail and ARM Equipment
Finance Pty. Limited.
Lease agreement between Lymquoir Pty. Limited and OzEmail, dated 3 March,
1997, for premises at Level 2, 607 Bourke Street, Melbourne
Lease agreement between Waterfront Place (No. 2) Pty. Limited and
Waterfront Place (No. 3) Pty. Limited and OzEmail Limited for premises at
level 13, Waterfront Place, 1 Eagle Street, Brisbane.
Lease agreement between SAS Trustee Corporation and OzEmail, commencing 1
November 1996, for premises at Unit 21, 39 Herbert Street St Leonards, New
South Wales
Lease agreement between SAS Trustee Corporation and OzEmail, commencing 1
November 1996, for premises at Unit 22, 39 Herbert Street, St Leonards, New
South Wales.
Lease agreement between SAS Trustee Corporation and OzEmail, commencing 15
September 1997, for premises located at ground Floor Warehouse Building B,
Ground Floor, Floor 2 and Floor 3 of Building B Stage II, St Leonards
Corporate Centre, 39 Herbert Street, St Leonards, New South Wales.
Term deposit letter of set-off between National Australia Bank and OzEmail
for a bank guarantee provided by the bank for an amount of $15,738,000.
Application Documents, lodged with the Australian Communications Authority
on Friday, 13 March 1998, prepared by OzEmail for the 1.8GHz and 800MHz
Band Spectrum Licence Application. Application documents comprise an
Application Form; Deed of Acknowledgment; and a bank cheque for the entry.
Network Licence and Support Agreement between Oracle Corporation Australia
Pty Limited and OzEmail, entered into in May 1998 for the provision of
internal software to OzEmail over 3 years.
Licence Agreement, entered into on 15 October 1996, between Portal
Information Network Inc and OzEmail for the grant of a non-exclusive
licence to customer care and billing software.
Agreement, dated 23 January 1998, between OzEmail and Portal, confirming
variations to milestone dates set out in the Licence Agreement of 15
October, 1996.
Letter agreement between ANZ Securities Limited and OzEmail Limited in May
1998 for ANZ Securities Limited to lead manage the ASX Listing of the
<PAGE> 51
OzEmail's ordinary shares for a fee of $100,000 and a success fee of
$115,000 if the Offer closes successfully within 10 working days of
opening. The Company must apply for Listing on the ASX and endeavour to
obtain ASX approval for ASX listing before the closing of the Offer.
OzEmail has given certain warranties to ANZ Securities Limited in respect
of the information in this Information Memorandum.
The Company is also currently negotiating to enter into a reciprocal
interconnect agreement with Telstra to exchange traffic between their
respective customers. This may result in material cost savings for the
Company in the future if finalised.
DIRECTORS INTERESTS
Interests of the directors in the promotion of, or any property proposed to
be acquired by OzEmail and any amounts, whether in cash or securities or
otherwise, that may have been paid or agreed to be paid to any director or
proposed director of OzEmail (or to any firm in which he or she is a
partner) either to induce him or her to become, or to qualify him or her
as, a director, or otherwise for services rendered by him or her or by the
firm in connection with the promotion or formation of OzEmail are set out
hereunder.
DIRECTORS' SHAREHOLDINGS
The Directors and associates of Directors have the following shares in the
Company at the date of this Information Memorandum
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES HELD PERCENTAGE OF TOTAL NUMBER OF
ISSUED OPTIONS HELD
<S> <C> <C> <C>
Mr Sean Howard (1) 35,000,000 28.8%
Mr Trevor Kennedy (2) 17,500,000 14.4%
Turnbull & Partners Holdings
Limited (3) 17,500,000 14.4%
Mr David Spence 3,333,000 2.7% 2,042,600
Mr Steve Ezzes 150,000 0.1% 100,000
</TABLE>
(1) Beneficially held through Arton No. 001 Pty Limited
(2) Beneficially held through Golden Research Pty Limited
(3) Beneficially held through Barzepa Pty Limited
Steve Ezzes has 100,000 US$1.40 options granted under the 1996 employee
option plan and beneficially owns 15,000 OzEmail ADSs (equivalent to
150,000 OzEmail Ordinary Shares). David Spence has 2,042,600 A$0.33
options.
In September 1996, the Company entered into an agreement with FTR Holdings
Limited ("FTR"), an entity affiliated with Turnbull & Partners Limited
("TPL"). Mr Malcolm Turnbull, a director of the Company, is a controlling
shareholder of TPL. The agreement appointed FTR as the Company's sole and
exclusive representative in Western Australia to seek new accounts, service
existing Company accounts and market the Company's services and products.
The Company is required to pay FTR a monthly fee based on 25% of the
Internet access charges paid to the Company by Western Australia customers
net of any amounts paid to third parties who introduce customers to the
Company and net of 3% of all national access charges paid to the Company.
Hitherto, the Company has had no representation in Western Australia. FTR's
operations are based in that State.
On 10 September 1997 OzEmail entered into an agreement with FTR Holdings
Limited ("FTR"), an entity affiliated with Mr Malcolm Turnbull, a director
of OzEmail. Under this agreement, the above agreement of September 1996 was
<PAGE> 52
cancelled and OzEmail purchased all of the issued share capital of
Microweb Pty Limited ("Microweb"), a subsidiary of FTR, for a lump sum of
A$1.00 and deferred consideration equal to 10% of Microweb's revenues in
respect of those areas of Microweb business as outlined in the agreement
for a period of two years from the effective date of the agreement of 1
July 1997. Such revenues include, but are not limited to:
I. all revenue received by OzEmail in respect of any services
delivered to any person who at the time of invoice has an account
with OzEmail and an invoice address in Western Australia; and
II. any software products or web developments, developed by
Microweb which are sold, licensed, assigned or otherwise
deal with, whether such revenue is earned by Microweb, or
any other entity which OzEmail owns or controls.
In October 1997, Microweb underwent a change of name to OzEmail West Pty
Limited ("OzEmail West").
Details of this transaction are also disclosed at note 21.1(b) of OzEmail's
Financial Statements for the year to 31 December 1997, which are contained
in this Information Memorandum.
DIRECTORS FEES & EXPENSES
Fees were paid to Directors during the 2 years to 30 April, 1998 as
follows:
Name Fees paid during previous 2 years (A$)
Mr Sean Howard $436,891
Mr David Spence $470,765
Mr Malcolm Turnbull $396,704*
Mr Steven Ezzes $145,340
Mr Trevor Kennedy $33,333
* Includes amounts paid to Turnbull & Partners Limited, a company in which
Mr Turnbull has a beneficial interest, for the provision of corporate
advisory services to the Company and amounts paid to Goldman Sachs
Australia LLC, a company of which Mr Turnbull is a director and chairman,
for the provision of corporate advisory services to the Company.
The Company's Articles of Association provide that Directors may be paid by
way of remuneration for their services as Director such sums as determined
by the Company at general meetings from time to time.
In the normal course of business, the Directors are entitled to be
reimbursed for reasonable travelling, hotel and other expenses incurred by
them in the performance of their duties as Directors.
The Financial Statements of OzEmail for the year to 31 December 1997 which
are attached to this Information Memorandum contain disclosure of Related
Party Information at note 24, "Acquisition and Disposal of Controlled
Entities" at note 21.1 and Remuneration of Directors and Executives at note
3(b).
DIVIDENDS
The directors of the Company may from time to time declare such dividends
as appear to the directors to be justified by the available profits and the
cash and capital requirements of the Company, having regard to the fact
that the Company is a growth company and that it may be in the interests of
the company to reinvest the whole or a proportion of available profits in
ongoing or new capital projects.
<PAGE> 53
OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted by the
Board of Directors (the "Board") on May 1, 1996 and approved by the
shareholders on May 1 1996. A total of 650,000 Ordinary A$0.04 Shares were
authorised for issuance under the 1996 Plan, 325,000 of which were granted
in June, 1996, and 19,500 of which were granted in November 1996. The
options granted under the 1996 Plan in the year to December 31, 1996, vest
over two years. Following the second vesting date of December 31 1997, for
the options that were granted in November, 1996, the Company has
re-calculated the number of options under the 1996 Plan that have been
vested. On the basis of the re-calculation, and following the 10 for 1
share split approved by shareholders in September, 1997, 3,069,990 A$0.004
ordinary shares had vested under the 1996 Plan as at December 31 1997. Of
such options, 2,912,490 and 157,500 were vested with an exercise price of
the Australian dollar equivalent of US$1.40 and US$0.75 per A$0.004
Ordinary Share, respectively. The options with an exercise price of US$1.40
and US$0.75 must be exercised by July, 2000 and November 2001,
respectively. Under the 1996 Plan, employees, non-employee Board members
and consultants may, at the discretion of the Plan Administrator, be
granted options to purchase Ordinary Shares at an exercise price not less
than 85% of their fair market value on the grant date. As of December 31,
1997, 114,990 Ordinary Shares called for by such options were held by
directors and officers as a group.
In January 1998, a further grant of options to acquire 1,080,000 Ordinary
A$0.004 Shares was made under the 1996 Plan. The exercise price is A$1.20.
Of these options, 50% vest in the option holders on 31 December 31, 1998,
and 50% vest on 31 December, 1999.
As of 14 May, 1998, 562,000 options granted under the 1996 Plan had been
exercised by employees. Of such options, 120,000 were exercised at an
exercise price of US$0.75 per share and 442,000 were exercised at an
exercise price of US$1.40 per share.
In August, 1995, Mr David Spence, the President and Chief Operating Officer
of the Company, was granted an option to purchase 5,675600 Ordinary A$0.004
Shares in the Company at an exercise price of A$0.33, which expire in July
2000. The option vests ratably over three years, with one-third of the
Ordinary Shares vesting on each of June 30, 1996, 1997 and 1998.
In August, 1997, Mr Spence acquired 300,000 shares by exercising a portion
of his options, which he subsequently sold on the NASDAQ National Market.
In March 1998, Mr Spence acquired a further 3,333,000 shares by exercising
a portion of his options.
CONSENTS
Price Waterhouse consent to being named as the Auditors of OzEmail in this
Information Memorandum. Price Waterhouse have given and have not before
lodgment of this Information Memorandum withdrawn their consent to the
issue of this Information Memorandum with the Independent Audit Report on
the financial statements for the year ended 31 December 1997 and other
references to the Audited Financial Statements in the form and context in
which they are included. Price Waterhouse has not caused or authorised the
issue of the Information Memorandum and do not make any statement in the
Information Memorandum and are not aware of any statement in the
Information Memorandum based on a statement made by them in the Information
Memorandum other than the Independent Audit Report and the reference to the
Audited Financial Statements. Price Waterhouse take no responsibility for
any other statements in, or omissions from, the Information Memorandum.
Price Waterhouse have acted as the Company's auditors during the last 2
years and charged fees at their usual hourly professional rates and have
<PAGE> 54
provided professional services to the Company in respect of this
Information Memorandum and have charged fees at their usual hourly
professional rates.
www.consult Pty Limited has given , and has not before lodgment of this
Information Memorandum with the ASX withdrawn, its consent to the issue of
this Information Memorandum with the statements attributed to it being made
in the form and context in which they are included.
OTHER MATTERS
This Information Memorandum contains all the information that would be
required under section 1022 of the Corporations Law if this Information
Memorandum were a registrable prospectus offering for subscription the same
number of securities for which quotation will be sought.
OzEmail has not raised any capital for the 3 months before the date of
issue of this Information Memorandum and will not need to raise any capital
for 3 months after the date of issue of this Information Memorandum. The
Company has enough working capital to carry out its stated objectives.
While the Company will not need to raise any additional capital in the next
three months, the Company is mindful that in the dynamic business
environment in which it operates opportunities for raising capital on
favourable terms may present themselves and should, subject to ASX
requirements, be taken advantage of in advance of such capital being
required for the Company's business operations.
A supplementary information memorandum will be issued if the entity becomes
aware of any of the following between the issue of this Information
Memorandum and the date OzEmail's securities are quoted.
A material statement in the Information Memorandum is false or misleading .
There is a material omission from the information memorandum. There has
been a significant change affecting a matter included in the Information
Memorandum. A significant new matter has arisen and it would have been
required to be included in the Information Memorandum.
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum and Articles of Association may be inspected at the
registered office of the Company by shareholders during normal business
hours without charge.
A summary of the provisions in the articles of association relating to
capital, dividends and voting rights is set out in the copy of the
Secondary Sales Notice which follows.
SECONDARY SALES NOTIC
The following notice was lodged with the Australian Securities Commission
in accordance with the Corporations Law.
OZEMAIL LIMITED
ACN 066 387 157
NOTICE UNDER SECTIONS 1043B AND 1043D OF THE CORPORATIONS LAW OF NEW
SOUTH WALES
This Notice is prepared and lodged by each of Barzepa Pty Limited ACN 065
103 942, Arton No. 001 Pty Limited ACN 054 328 004 and Golden Research Pty
<PAGE> 55
Limited ACN 059 284 132 in compliance with sections 1043B and 1043D of the
Corporations Law of New South Wales. The information contained in this
Notice is current as at the date of this Notice. Each of Barzepa Pty
Limited, Arton No. 001 Pty Limited and Golden Research Pty Limited is a
seller of shares in OzEmail Limited (the "Company") as a principal.
1. The Company was incorporated in New South Wales.
2. The address of the registered office of the Company is Ground Floor,
Building B, 39 Herbert Street, St Leonards, NSW, 2065.
3. a) The authorised share capital of the Company is $5,000,010
divided into 1,250,000,000 shares of $0.004 each.
b) The issued share capital for the Company is 121,508,250 fully paid
$0.004 ordinary shares.
c) The paid-up capital of the Company is $486,033.
d) The share capital of the Company is divided into ordinary
shares.
e) The rights of each class of shareholders (being ordinary
shareholders) in respect of capital, dividends and voting
are as follows:
i) CAPITAL
If the Company is wound up then subject to any preferential or
special rights attaching to any class of shares, shareholders will
be entitled to participate in any surplus assets of the Company in
proportion to the capital paid up on their shares when the winding
up begins. If the assets available for distribution amongst
shareholders are insufficient to repay the whole of the paid up
capital, then those assets will be distributed in proportion to
the capital paid upon shares when the winding up begins.
Notwithstanding the above, the liquidator may with the sanction of
a special resolution, divide among the members in kind the whole
or any part of the assets of the Company and may for that purpose
set such value as he deems fair upon any property to be divided
and may determine how the division is to be carried out as between
the members or different classes of members. The liquidator may
with the like sanction vest the whole or any part of any such
assets in trustees upon such trusts for the benefit of the
contributories as the liquidator with the like sanction thinks fit
but so that no Member shall be compelled to accept any shares or
other securities whereon there is any liability.
ii) DIVIDENDS
The directors of the Company may from time to time declare a
dividend to be paid to the members entitled to such dividend and
may fix a time for payment. The directors may from time to time
declare such interim dividends to be paid to the members entitled
to such dividends as appear to the directors to be justified by
the profits of the Company. No dividend shall be paid otherwise
than out of profits nor bear interest against the Company. Subject
to the rights of persons (if any) entitled to shares with special
rights as to dividends all dividends shall be declared and paid
equally in respect of fully paid shares and in respect of each
<PAGE> 56
partly paid share according to the ratio of the amount paid (not
credited) on the shares to the total amounts paid and payable
(excluding amounts credited) on the shares in respect of which the
dividend is paid but no amount paid in advance of calls shall be
treated as paid on the share. All dividends shall be apportioned
and paid proportionally to the ratio of the amount paid (not
credited) on the shares to the total amounts paid and payable
(excluding amounts credited) on the shares during any portion of
the period in respect of which the dividend is paid.
iii) VOTING
Subject to any rights or restrictions for the time being attached
to any class of shares, votes may be given either personally or by
proxy or by attorney under power or in the case of a corporation
by its duly authorised representative. No person shall be entitled
to vote unless he is a member and present in person or by proxy or
attorney or is the representative, duly appointed in accordance
with the Law, of a corporation which is a member. Subject to the
rights or restrictions attached to any class of shares, on a show
of hands every member present shall have one vote. On a poll every
member present shall have one vote for every share held by him in
the Company, provided that on a poll contributing shares entitle
the holder thereof or his proxy, attorney or representative to
vote but the value of any vote so cast shall be in the same
proportion to the value of a vote cast by the holder of a fully
paid shares as the amount paid (not credited) on the said
contributing share bears to the total amounts paid and payable
(excluding amounts credited) of such contributing share. Amounts
paid in advance of a call are to be ignored in determining this
proportion.
Every question submitted to a general meeting shall be decided by
a show of hands unless a poll (before or on the declaration of the
result of the show of hands) is demanded by the chairman of the
meeting or at least 5 members present having the right to vote at
the meeting or and members representing not less than 10% of the
total voting rights of all members having the right to vote at the
meeting or any members present holding shares on which the
aggregate sum has been paid up to not less than one tenth of the
total sum paid up on all shares. Subject to the ASX Listing Rules
if applicable, a member shall not be entitled to vote at a general
meeting unless all calls and other sums presently payable by him
in respect of his shares have been paid.
4. The dividends paid in respect of ordinary shares of the Company in
the five financial year preceding the date of this Notice are as
follows:
DATE OF PAYMENT AMOUNT PAID PER SHARE
1994 Nil
1995 Nil
1996 Nil
1997 Nil
1998 $0.025
5. Other than as specified in paragraph 4, no amount has been paid in
respect of the rights or interests of any class of shares of the
Company in the five years preceding the date of this Notice.
6. There are no outstanding debentures of the Company.
7. A copy of the most recent audited balance sheet of the Company is
attached.
8. The names and addresses of the directors of the Company are as
follows:
<PAGE> 57
NAME ADDRESS
Malcolm Bligh Turnbull 46 Wunulla Road
Point Piper NSW 2027
Sean Martin Howard 150 Cammeray Road
Cammeray NSW 2062
Trevor John Kennedy 15 Elamang Ave
Kirribilli NSW 2061
Steven Leo Ezzes 7 Sipperleys Hill Road
Westport, Connecticut, USA,
06680
David Moray Spence 42 Vista Street
Pymble NSW 2073
Executed for and on behalf )
of Barzepa Pty Limited )
by its duly appointed Attorney, )
MSF Hughes, under Power of Attorney )
Executed for and on behalf )
of Arton No. 001 Pty Limited )
by its duly appointed Attorney )
MSF Hughes, under Power of Attorney )
Executed for and on behalf )
of Golden Research Pty Limited )
by its duly appointed Attorney )
LC Hawkins, under Power of Attorney )
Dated: 15 May 1998
DIRECTORS SIGNATURES
This Information Memorandum is signed by the directors of OzEmail Limited.
M B Turnbull*
SM Howard*
SL Ezzes*
TJ Kennedy*
DM Spence*
* By his agent duly authorised in writing, MSF Hughes.
<PAGE> 58
9. FINANCIAL STATEMENTS
OzEmail Limited and Controlled Entities
ACN 066 387 157
Directors' Report
In respect of the period ended 31 December 1997, the directors of OzEmail
Limited, the Company and chief entity, submit the following report made out
in accordance with a resolution of the directors:
1. THE NAMES OF THE DIRECTORS OF THE COMPANY IN OFFICE AT THE DATE OF
THIS REPORT
M Turnbull (Chairman)
D Spence
S Howard (Chief Executive Officer)
T Kennedy
S Ezzes
C Tyler (appointed 25/11/97)
2. PRINCIPAL ACTIVITIES OF THE ECONOMIC ENTITY
The principal activity of the economic entity during the year was
the provision of Internet access and Internet related services.
3. TRADING RESULTS
The consolidated net profit of the economic entity for the period was
$2,987,742 (1996: $433,779) after deducting income tax expense of
$3,023,793 (1996: $556,090).
4. DIVIDENDS
The Directors of the Company have declared a fully franked
dividend of $0.025 per share (A$0.25) per ADS) on February 26,
1998 with an Australian ex-dividend date of March 26, 1998 and an
Australian dividend payable date of March 27, 1998. The dividend
was paid in Australian dollars to those holders of Ordinary
Shares. The Bank of New York is responsible for distributing the
dividend holders of ADSs in the US dollar equivalent of the
Australian dollar payment. The Bank of New York, as depository of
the ADSs, has set the ex-dividend date for holders of ADSs as
March 21, with a dividend payable date of April 6, 1998.
5. REVIEW OF OPERATIONS
The amount of consolidated operating revenue for the year of
operation was $75,089,928 (1996: $33,532,836).
The amounts of operating revenue for the year, represent Internet
usage, registration, licence fees and other.
<PAGE> 59
6. EVENTS SUBSEQUENT TO BALANCE DATE
EQUITY INTEREST IN OZEMAIL INTERLINE
As discussed in note 22 to the accounts OzEmail originally
acquired an 80% interest in OzEmail Interline when it transferred
assets from an 80% owned partnership to OzEmail Interline in June
1997. OzEmail subsequently sold 32% of its interest to Metro and
recorded a profit on the sale of $4,791,885.
OzEmail has equity accounted its interest in OzEmail Interline in
its consolidated accounts during the 31 December 1997 year.
OzEmail's results for the year therefore include its 48% interest
in the net loss of OzEmail Interline being $1,960,829.
On 15 April 1998, OzEmail bought out Metro's 40% interest in
OzEmail Interline to regain control of the company and give it the
flexibility required to more effectively manage and develop the
European market potential. OzEmail issued 540,000 ADSs with a
market value of US$22.125 per ADS at close of business on that
date in consideration for the shares acquired in OzEmail Interline
giving rise to total consideration of $18,380,769. Metro also
agreed to forgive a debt of $2,043,000 currently owed by OzEmail
Interline. This debt forgiveness was in respect of its obligation
to contribute to running costs under Clause 6 of the shareholders'
deed. OzEmail will therefore consolidate OzEmail Interline from 15
April 1998, being the date it increased its equity interest to
88%.
At the same time OzEmail and Metro agreed to terminate the Metro
licence agreement for no consideration due to a number of factors
including the fact that no material sub-licences had been issued
in Europe and no network rollout had been undertaken.
It should be noted that under US GAAP as this repurchase occurred
within 12 months of the original sale, the Company is required
under SEC staff accounting bulletin to reverse the original sale
and restate its US filings accordingly. The impact of this is that
under US GAAP the Company has recorded a net loss after tax of
approximately $14,290,000 for the year to 31 December 1997.
OTHER
In January 1997, the Company sold the Australian Net Guide
business and its 50% equity holding in New Zealand Net Guide
Limited to Industrial Press Limited, a third party New Zealand
company.
Options to acquire 1,080,000 Ordinary Shares (equivalent to
108,000 ADSs) were granted on 6 January 1998 to certain employees
of the Company. The exercise price of the options is A$12. Of
these options, 50% vest in the option holders on 31 December 1998
and the remaining 50% vest on 31 December 1999.
At 31 December 1996 the Company had a note receivable of A$27,000
from a director. The balance on this note receivable as at 31
December 1997, was A$32,000. The note has an interest rate of 10%
and is due on demand. Subsequent to 31 December 1997 this amount
has been repaid.
On March 31 1998, the Company acquired from Camtech (SA) Pty
Limited ("Camtech") its Internet access business in South
Australia. The consideration for the acquisition will be equal to
two thirds of Camtech's revenues over the next twelve months. The
immediate payment to Camtech was 1,103,240 Ordinary Shares
(equivalent to 110,324 ADSs) which is equal to two thirds of
Camtech's revenue run rate of approximately $4,000,000 at the time
of acquisition. Any balance payment will be made at the end of the
first quarter 1999. Secondly as an incentive to assist in this
development of the business, the principals of Camtech will
receive from OzEmail a payment of 5% of the Internet access
revenues arising from the business over the next two years.
7. OPTIONS
The Company's 1996 Stock Option Plan ("1996 Plan") was approved by
shareholders on 1 May 1996. A total of 6,500,000 Ordinary $0.004
Shares have been authorised for issuance under the 1996 Plan.
<PAGE> 60
Under the 1996 Plan, employees, non-employee Board members and
consultants may, at the discretion of the Plan Administrator, be
granted options to purchase Ordinary Shares at an exercise price
of not less than 85% of their fair market value on the grant date.
A total of 3,250,000 options were granted to employees under a
Prospectus lodged with the Australian Securities Commission on 7
June 1996. The exercise price of the options shall be the A$
equivalent of a price of US$1.40 on the day of exercise. The first
half of these granted options vested in the option holders on 30
June 1996, provided the option holders remained as employees of
the Company on that date. The remaining granted options vest in
the option holders on 30 June 1997, provided the option holders
remain employees of the Company on that date. Currently 68 persons
are eligible to participate in the scheme.
A further 195,000 options were granted to employees under a
Prospectus lodged with the Australian Securities Commission on 14
November 1996. The exercise price of the options shall be the A$
equivalent of a price of US$0.75 on the day of exercise. The first
half of these granted options vested in the option holders on 31
December 1996, provided the option holders remained as employees
of the Company on that date. The remaining granted options vest in
the option holders on 31 December 1997, provided the option
holders remain employees of the Company on that date. Currently 2
employees are eligible to participate in the scheme.
3,069,990 A$0.004 ordinary shares have been vested under the 1996
Plan as at 31 December 1997. Of such options, 2,912,490 and 157,500
were vested with an exercise price of the Australian dollar
equivalent of US$1.40 and US$0.75 per A$0.004 Ordinary Shares
respectively. The options with an exercise price of US$1.40 and
US$0.75 must be exercised by July 2000 and November 2001,
respectively. Under the 1996 Plan, employees, non-employee Board
members and consultants may, at the discretion of the Plan
Administrator, be granted options to purchase Ordinary Shares at an
exercise price not less than 85% of their fair market value on the
grant date. As at 31 December 1997, 114,990 Ordinary Shares called
for by such options were held by directors and officers as a group.
Subsequent to year end options to acquire 1,080,000 ordinary
shares were granted on January 6, 1998 with an exercise price of
A$12. Of these options 50% vest in the option holders on December
31, 1998 and 50% vest on December 31, 1999
These options do not entitle the holder to participate, by virtue
of the options, in any share issue of any other corporation. No
options have been exercised as at the date of this report. No
unissued shares, other than those referred to above, are under
option as at the date of this report.
8. DIRECTORS' BENEFITS
No director of the Company has since the end of the previous
financial period, received or become entitled to receive a benefit
(other than a benefit included in the total amount of emoluments
received or due and receivable by directors shown in the financial
statements), by reason of a contract made by the Company, a
controlled entity or a related body corporate with the directors
or with a firm of which the director is a member, or with an
entity in which the director has a substantial financial interest
other than the transactions detailed in Note 24 of the financial
statements.
9. INFORMATION ON DIRECTORS
<TABLE>
<CAPTION>
PARTICULARS OF DIRECTORS'
QUALIFICATIONS AND EXPERIENCE SPECIAL INTEREST IN SHARES OF
DIRECTOR RESPONSIBILITIES OZEMAIL LIMITED
<S> <C> <C> <C> <C>
M Turnbull Chairman, BA, LLB (Sydney), Chairman of the Board of 17,500,000
BCL (Oxon) Directors, Member of
Executive Committee
D Spence B.Com,Dip.Fin.Acc.CA(SA) Chief Operating Officer
Managing Director -
<PAGE> 61
S Howard Director Founding shareholder and 35,000,000
Chief Executive Officer
T Kennedy Director Non-executive Director 17,500,000
S Ezzes Director, BA, MBA (UCLA) Authorised U.S
representative 150,000
C Tyler Director - -
</TABLE>
The particular of directors' interests in shares are as at the
date of this directors' report.
10. INDEMNIFICATION AND INSURANCE OF OFFICERS
During the financial year the Company entered into agreements to
indemnify all directors of the Company named in paragraph 1 of
this report and current and former executive officers of the
Company and its controlled entities against all liabilities to
persons (other than the Company or a related body corporate) which
arise out of the performance of their normal duties as director or
executive officer unless the liability relates to conduct
involving a lack of good faith. The Company has agreed to
indemnify the directors and executive officers against all costs
and expenses incurred in defending an action that falls within the
scope of the indemnity and any resulting payments.
During the financial year the Company paid insurance premiums
totalling $154,700 in respect of directors' and officers'
liability insurance, named in this report. The policies do not
specify the premium for individual directors and executive
officers.
The directors' and officers' liability insurance provides cover
against all costs and expenses involved in defending legal action
and any resulting payments arising from a liability to persons
(other than the Company or a related body corporate) incurred in
their position as director or executive officer unless the conduct
involves a wilful breach of duty or an improper use of inside
information or position to gain advantage.
For and on behalf of the board
M Turnbull
Chairman
Sydney S Howard
24 April 1998 Chief Executive Officer
<PAGE> 62
<TABLE>
<CAPTION>
Schedule 1
OzEmail Limited and Controlled Entities
ACN 066 387 157
Profit and Loss Accounts
31 December 1997
CONSOLIDATED COMPANY
NOTE 1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE 2 75,089,928 33,532,836 53,154,605 30,037,254
=======================================================================
Operating profit before income tax 3 6,011,535 973,274 707,811 2,554,315
Income tax 4 3,023,793 556,090 504,396 207,610
----------------------------------------------------------------------
OPERATING PROFIT AFTER INCOME TAX 2,987,742 417,184 203,415 2,346,705
Outside equity interest in operating
profit after income tax 21 - 16,595 - -
----------------------------------------------------------------------
OPERATING PROFIT AFTER INCOME TAX
ATTRIBUTABLE TO MEMBERS OF THE COMPANY
2,987,742 433,779 203,415 2,346,705
Retained profits at the beginning of
the year 852,557 418,778 3,006,525 659,820
----------------------------------------------------------------------
Aggregate of amounts available for
distribution 3,840,299 852,557 3,209,940 3,006,525
Dividends provided for 16 (2,900,000) - (2,900,000) -
----------------------------------------------------------------------
RETAINED PROFITS AT THE END OF THE YEAR
940,299 852,557 309,940 3,006,525
======================================================================
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
Schedule 2
OzEmail Limited and Controlled Entities
Balance Sheets
As at 31 December 1997
CONSOLIDATED COMPANY
NOTE 1997 1996 1997 1996
$ $ $ $
CURRENT ASSETS
<S> <C> <C> <C> <C> <C>
Cash and bank balances 49,166,028 44,615,309 46,969,254 44,443,187
Receivables 5 10,678,963 5,511,963 8,213,723 5,100,054
Inventories 6 42,891 - - -
Other 8 1,400,436 1,365,402 1,180,709 1,193,361
---------------- --------------- ---------------- ---------------
TOTAL CURRENT ASSETS 61,288,318 51,492,674 56,363,686 50,736,602
---------------- --------------- ---------------- ---------------
NON-CURRENT ASSETS
Receivables 5 4,256,318 - 5,303,914 3,167,276
Plant and equipment 7 22,494,030 17,054,939 19,593,053 14,788,296
Investments 9 2,582,379 23,621 21,194,546 659,680
Intangibles 10 20,163,820 - - -
Other 8 1,415,370 385,593 1,732,077 828,529
---------------- --------------- ---------------- ---------------
TOTAL NON-CURRENT ASSETS 50,911,917 17,464,153 47,823,590 19,443,781
---------------- --------------- ---------------- ---------------
TOTAL ASSETS 112,200,235 68,956,827 104,187,276 70,180,383
---------------- --------------- ---------------- ---------------
CURRENT LIABILITIES
Accounts payable 11 26,663,727 8,830,808 17,112,265 8,018,266
Borrowings 12 3,673,453 1,527,605 9,660,663 1,411,051
Provisions 13 10,589,472 1,412,662 6,825,740 1,500,428
---------------- --------------- ---------------- ---------------
TOTAL CURRENT LIABILITIES 40,926,652 11,771,075 33,598,668 10,929,745
---------------- --------------- ---------------- ---------------
NON-CURRENT LIABILITIES
Borrowings 12 4,145,362 2,175,364 4,053,271 2,091,396
Provisions 13 1,105,771 504,525 1,145,405 504,525
---------------- --------------- ---------------- ---------------
TOTAL NON-CURRENT LIABILITIES
5,251,133 2,679,889 5,198,676 2,595,921
---------------- --------------- ---------------- ---------------
TOTAL LIABILITIES 46,177,785 14,450,964 38,797,344 13,525,666
---------------- --------------- ---------------- ---------------
NET ASSETS 66,022,450 54,505,863 65,389,932 56,654,717
================ =============== ================ ===============
EQUITY
Share capital 14 444,000 414,000 444,000 414,000
Reserves 15 64,638,151 53,239,306 64,635,992 53,234,192
Retained profits 940,299 852,557 309,940 3,006,525
---------------- --------------- ---------------- ---------------
TOTAL EQUITY 66,022,450 54,505,863 65,389,932 56,654,717
================ =============== ================ ===============
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
Schedule 3
OzEmail Limited and Controlled Entities
Statements of Cash Flows
For the year ended 31 December 1997
CONSOLIDATED COMPANY
NOTE 1997 1996 1997 1996
$ $ $ $
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Receipts from trade and other 62,261,956 25,033,438 47,084,068 22,000,659
debtors
Payments of accounts payable and to
other suppliers, creditors and
employees (47,613,832) (21,188,865) (35,670,381) (16,036,856)
Interest paid - (126,133) - (101,757)
Interest received 3,279,281 2,148,647 3,279,281 2,072,193
Finance charges on finance leases (393,415) (1,957) (366,747) (1,957)
Net income taxes (paid)/received paid 156,571 (453,336) 156,571 (453,336)
----------------- -------------------- ------------------ ----------------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 27 17,690,561 5,411,794 14,482,792 7,478,946
----------------- -------------------- ------------------ ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant and equipment (11,549,014) (12,641,560) (10,401,448) (10,507,697)
Payments for controlled and
associated entities (5,000,000) (52,714) (5,000,000) (688,697)
Proceeds from part sale of
controlled entity 6,028,757 - - -
Proceeds from sale of plant and
equipment 37,000 - 37,000 -
Advances to controlled and
associated entities (4,256,318) (1,184,217) (4,256,318) (4,668,825)
Advances from controlled entities - - 5,955,989 -
Advances to minority shareholders - - - (82,157)
Repayments received from controlled
and associated entities - 48,697 - 253,329
Advances to shareholders - (90,235) - (90,235)
Repayments received from
shareholders (4,733) 221,165 (4,733) 221,165
Payments for deferred expenditure - (306,667) - (306,667)
Payments for current investment - (3,102,384) - (3,102,384)
Proceeds from sale of current
investments - 3,214,783 - 3,214,783
----------------- -------------------- ------------------ ----------------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES (14,744,308) (13,893,132) (13,669,510) (15,757,385)
----------------- -------------------- ------------------ ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 99,000 52,708,848 99,000 52,548,192
Repayment of borrowings - (736,086) - (759,113)
Principal repayments under finance
leases (3,491,346) - (3,444,651) -
Proceeds from borrowings 5,000,000 3,639,091 5,000,000 3,525,384
----------------- -------------------- ------------------ ----------------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES 1,607,654 52,346,680 1,654,349 52,049,290
----------------- -------------------- ------------------ ----------------------
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
Schedule 3/2
OzEmail Limited and Controlled Entities
Statements of Cash Flows
For the year ended 31 December 1997
CONSOLIDATED COMPANY
NOTES 1997 1996 1997 1996
$ $ $ $
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS)
<S> <C> <C> <C> <C> <C>
NET INCREASE/(DECREASE) IN CASH HELD 4,553,907 43,865,342 2,467,631 43,770,851
CASH AT THE BEGINNING OF THE FINANCIAL
PERIOD 44,551,526 (187,287) 44,443,187 (194,813)
Effect of exchange rate change on the
balance of cash held in foreign currency
60,595 873,471 58,436 867,149
--------------- ------------------- --------------- ------------------
CASH AT THE END OF THE FINANCIAL PERIOD
27 49,166,028 44,551,526 46,969,254 44,443,187
=============== =================== =============== ==================
</TABLE>
<PAGE> 66
Schedule 4
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are a general purpose financial report
prepared in accordance with Accounting Standards and Urgent Issues
Group Consensus Views.
The financial statements comprise the accounts of the Company,
OzEmail Limited, and the consolidated accounts of the economic
entity comprising the Company, as the chief entity, and the
entities it controlled at the end of, or during, the financial
year. The accounting policies adopted in preparing the financial
statements have been consistently applied by entities in the
economic entity except as otherwise indicated.
(a) Basis of accounting
The financial statements have been prepared on the basis of
historical costs and except where stated do not take into account
current valuations of non-current assets. Cost is based on the
fair values of the consideration given in exchange for assets. The
fair value of c ash consideration with deferred settlement terms
is determined by discounting any amounts payable in the future to
their present value as at the date of acquisition. Present values
are calculated using rates applicable to similar borrowing
arrangements of the economic entity.
The economic entity has not adopted a policy of revaluing its
non-current assets on a regular basis. Non-current assets are
revalued from time to time as considered appropriate by the
directors and are not stated at amounts in excess of their
recoverable amounts. Except where stated recoverable amounts are
not determined using discounted cash flows.
(b) Foreign currency
Transactions denominated in a foreign currency are converted at
the exchange rate at the date of the transaction. Foreign currency
receivables and payables at balance date are translated at
exchange rates at balance date. Exchange gains and losses are
brought to account in determining the profit or loss for the
period.
Assets and liabilities of the self-sustaining overseas controlled
entity are translated at exchange rates existing at balance date
and the exchange gain or loss arising on translation is carried
directly to a foreign currency translation reserve.
(c) Investments
Investments have been brought to account as follows:
INTERESTS IN COMPANIES - The Company's interests in companies are
brought to account at cost and dividends and other distributions
are recognised in the profit and loss account when received.
Where, in the opinion of the directors, there has been a permanent
diminution in the value of an investment, the carrying amount of
the investment is written down to its recoverable amount.
Equity accounting principles are applied in accounting for the
economic entity's investments in associates in the consolidated
accounts.
<PAGE> 67
Schedule 4/2
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
The directors have applied the ASC Class Order [97/0798] which
provides relief from the requirements of AASB 1016, Disclosure of
Information about Investments in Associated Companies, on the
condition that they comply with the proposed revised AASB 1016,
Accounting for Investment in Associates, circulated by the
Australian Accounting Standards Board.
(d) Inventories
Finished goods are stated at the lower of cost and net realisable
value.
(e) Depreciation and amortisation of plant and equipment
Plant and equipment are depreciated over their estimated useful
lives using the straight line method.
Profits and losses on disposal of plant and equipment are taken
into account in determining the profit or loss for the period.
(f) Leased assets
Where plant and equipment is acquired by means of finance leases,
the present value of the minimum lease payments is recognised as
an asset at the beginning of the lease term and amortised on a
straight line basis over the expected useful life of the leased
asset. A corresponding liability is also established and each
lease payment is allocated between the liability and finance
charge.
(g) Expenditure carried forward
Certain software development costs are capitalised once
technological feasibility is established, which the Company
defines as the completion of a working model. The capitalised
costs are then amortised on a straight line basis over the
estimated product life, or on the ratio of current revenues to
total projected product revenues, whichever is greater.
(h) Receivables, accounts payable, provisions and borrowings
Trade accounts receivable which are generally settled within 30-45
days are carried at amounts due.
A provision is raised for any doubtful debts based on a review of
all outstanding amounts at balance date. Bad debts are written off
during the period in which they are identified.
Trade accounts payable, including accruals not yet billed, are
recognised when the economic entity becomes obliged to make future
payments as a result of a purchase of assets or services. Trade
accounts payable are generally settled within 30-45 days.
<PAGE> 68
Schedule 4/3
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(i) Income tax
Income tax has been brought to account using the liability method
of tax effect accounting.
(j) Employee entitlements
Liabilities for employees' entitlements to wages and salaries,
annual leave, sick leave and other current employee entitlements
are accrued at nominal amounts calculated on the basis of current
wage and salary rates. This method of calculation was not
materially different to the employee entitlements balance
calculated in accordance with AASB 1028 Accounting for Employee
Entitlements.
(k) Operating revenue
Sales revenue represents revenue earned by the economic entity
from the provision of Internet service access and related
services, licence fees for the licensing of Internet telephony and
fax technology to network affiliates, and timed charges for the
provision of Internet telephony services in Australia. Revenue is
generally recognised at point of billing after the service has
been provided and there are no remaining obligations the Company
is required to meet. Proceeds on sales of licence rights are
recognised as revenue when the fee is received and there are no
significant ongoing obligations. Other revenue includes interest
income and proceeds on sale of current and non-current assets.
(l) Goodwill
Goodwill is amortised on a straight line basis over the period of
expected benefits, which has been assessed as between 2 to 5
years.
(m) Net fair values of financial assets and liabilities
Net fair values of financial instruments are determined on the
following bases:
MONETARY FINANCIAL ASSETS AND LIABILITIES NOT TRADED IN AN
ORGANISED FINANCIAL MARKET - cost basis carrying amounts of trade
debtors, trade accounts payable, accruals and dividends payable
(which approximates net market value); and
INVESTMENTS IN SHARES AND OTHER EQUITY SECURITIES AND DEBENTURES
AND OTHER DEBT SECURITIES NOT TRADED IN AN ORGANISED FINANCIAL
MARKET (OTHER INVESTMENTS) - directors' estimates of net market
values based on future net cash flows, including transaction costs
necessary to realise the securities, discounted at current risk
adjusted market rates.
(n) Cash flows
For the purpose of the statements of cash flows, cash includes
cash on hand, net of bank overdrafts.
<PAGE> 69
Schedule 4/4
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(o) Comparative figures
Where necessary, comparative figures have been adjusted to conform
with changes in presentation in the current year.
<TABLE>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
2. OPERATING REVENUE
<S> <C> <C> <C> <C>
SALES REVENUE
- Net Access revenues 55,617,550 28,260,376 49,834,840 24,750,812
- Licence fee revenues 10,123,856 - - -
OTHER REVENUE
Interest revenue 3,282,765 2,058,211 3,282,765 2,072,193
Proceeds from sale of
Part interest in 6,028,757 - - -
controlled entity
Plant and equipment 37,000 - 37,000 -
Current investments - 3,214,249 - 3,214,249
----------------- ----------------- ----------------- -----------------
75,089,928 33,532,836 53,154,605 30,037,254
================= ================= ================= =================
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
Schedule 4/5
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
3. OPERATING PROFIT
(a) Operating profit before income tax has
been determined after:
<S> <C> <C> <C> <C>
CREDITING
Interest attributable to
Related corporations 3,484 - 3,484 25,666
Other persons 3,279,281 2,058,211 3,279,281 2,046,527
Net gain on disposal of
partnership assets 940,679 - - -
CHARGING AS EXPENSE
Interest attributable to
Related corporations - 68,122 - 68,122
Other persons - 44,092 - 33,635
Provision for
Doubtful debts - trade debtors 308,257 381,192 429,910 344,043
Employee entitlements 251,595 703,420 267,906 696,732
Doubtful debts - other - - 2,174,973 764,817
Bad and doubtful debts written
off - trade debtors 1,372,072 493,816 1,124,287 493,816
Depreciation of plant and
equipment 5,804,508 1,991,983 5,459,363 1,820,825
Amortisation
Deferred expenditure 275,933 30,734 275,933 30,734
Goodwill 532,767 - - -
Plant and equipment under
finance lease 2,354,707 393,964 2,270,857 360,296
Finance charges relating to
finance leases 393,415 39,406 366,747 28,461
Rental expense on operating
leases 1,415,941 367,842 1,049,559 366,157
Research and development expense
3,984,603 2,284,016 1,659,901 436,973
Net amounts provided for
diminution in the value of
Investments - shares 1,546,240 - 1,546,240 -
Share of net losses of associates 1,960,829 - - -
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
Schedule 4/6
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
(b) Remuneration of directors and
executives
<S> <C> <C> <C> <C>
DIRECTORS' REMUNERATION AND
RETIREMENT BENEFITS
Income paid or payable, or
otherwise made available to:
Directors of the Company in
connection with the
management of affairs of the
Company or its controlled
entities by the Company 612,324 414,717
================= =================
Benefits from options
exercised 357,770 -
================= =================
Directors of entities in
the economic entity in
connection with the management
of affairs of those entities by
the Company and its controlled
entities*
from corporations of
which they are directors 612,324 414,717
================= =================
Benefits from options
exercised 357,770 -
================= =================
</TABLE>
* Excluding executives of the Company who are only directors of wholly-owned
Australian controlled entities
<TABLE>
<CAPTION>
COMPANY
1997 1996
NUMBER NUMBER
The number of directors of the Company included in these figures
are shown below in their relevant income bands:
<S> <C> <C>
Income of:
$Nil - $9,999 1 1
$20,000 - $29,999 1 1
$40,000 - $49,999 - 1
$60,000 - $69,999 1 -
$70,000 - $79,999 1 -
$110,000 - $119,999 - 1
$220,000 - $229,999 - 1
$230,000 - $239,999 1 -
$580,000 - $589,999 1 -
================= =================
</TABLE>
No retirement benefits were paid to directors of entities in the
economic entity during the period.
<PAGE> 72
<TABLE>
<CAPTION>
Schedule 4/7
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
EXECUTIVE OFFICERS OF EXECUTIVE OFFICERS
ENTITIES IN THE ECONOMIC ENTITY OF THE COMPANY
1997 1996 1997 1996
<S> <C> <C> <C> <C>
$ $ $ $
EXECUTIVES' REMUNERATION Income
received by Australian based
executive officers whose income
is $100,000 or more
from the Company and
related parties
1,633,742 873,025
================= ==================
benefits from options
exercised 357,770 -
================= ==================
from entities in the
economic entity and related
parties 1,633,742 873,025
================= ===================
benefits from options
exercised 357,770 -
================= ===================
</TABLE>
COMPANY
1997 1996
NUMBER NUMBER
The number of Australian based
executive officers whose income
is $100,000 or more are shown
below in their relevant income
bands:
NUMBER NUMBER
1997 1996
Income of:
$100,001 to $110,000 - 1
$110,001 to $120,000 2 1
$120,001 to $130,000 1 1
$130,001 to $140,000 1 1
$140,001 to $150,000 - -
$150,001 to $160,000 2 -
$160,001 to $170,000 1 -
$170,001 to $180,000 - 1
$180,001 to $190,000 - -
$200,001 to $210,000 1 -
$220,001 to $230,000 - 1
$230,001 to $240,000 1 -
$580,000 - $589,999 1 -
============== =================
<TABLE>
<CAPTION>
<PAGE> 73
Schedule 4/8
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
SUPERANNUATION AND RETIREMENT
BENEFITS
Superannuation benefits:
Amounts paid to a superannuation
fund for directors are
disclosed in aggregate as the
directors believe the provision of
full particulars would be
unreasonable 14,557 11,690 14,557 11,690
================================================== ===================
(c) uditors' remuneration
Amounts received, or due and
receivable by the auditors of
the Company for:
- Auditing the financial
statements 250,000 227,000 235,000 227,000
- Other services 740,058 250,325 698,433 250,325
----------------------------------------------------------------------
990,058 477,325 933,343 477,325
======================================================================
(d) bnormal items included in
perating profit before income tax
(i) Profit on disposal of
part interest in controlled 4,791,885 - - -
entity
Income tax applicable thereto 1,725,079 - - -
================= ================= ================= =================
(ii) Profit on sale of
exclusive licence rights for
provision of Internet telephony
and fax services 9,711,671 - - -
Income tax applicable thereto 3,496,202 - - -
================= ================= ================= =================
(iii) Devaluation of
investment in unlisted securities
1,546,240 - 1,546,240 -
Income tax applicable thereto - - - -
================= ================= ================= =================
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
Schedule 4/9
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
4. INCOME TAX
<S> <C> <C> <C> <C>
The income tax on the operating
profit/(loss) differs from the
amount prima facie payable on that
profit/(loss) as follows:
PRIMA FACIE INCOME TAX ON THE
OPERATING PROFIT/(LOSS) AT 36% 2,164,153 350,379 254,812 919,553
Tax effect of permanent differences:
Non-deductible expenses 17,062 13,207 7,185 10,781
Non-assessable income - (24,914) - (24,914)
Amortisation of goodwill 191,796 - - -
Devaluation of investment 556,646 - 556,646 -
Non-deductible items of a
capital nature 244,178 - 244,175 -
Accelerated research and
development allowance (1,072,830) - (369,028) -
Equity accounted losses of
associates 705,898 - - -
Tax losses not recognised 571,251 217,418 - -
Utilisation of group tax losses - - - (697,810)
Over provision in prior year (354,361) - (189,394) -
----------------- ----------------- ----------------- -----------------
INCOME TAX ON OPERATING
PROFIT/(LOSS) 3,023,793 556,090 504,396 207,610
================= ================= ================= =================
COMPRISING:
Current taxation provision 3,452,324 286,370 767,064 380,824
Deferred income tax provision 601,246 481,540 640,880 481,542
Future income tax benefit (1,029,777) (211,820) (903,548) (654,756)
----------------- ----------------- ----------------- -----------------
3,023,793 556,090 504,396 207,610
================= ================= ================= =================
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
Schedule 4/10
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
5. RECEIVABLES
<S> <C> <C> <C> <C>
CURRENT
Trade debtors 9,171,107 5,323,983 6,566,326 4,874,562
Less: provision for doubtful
debts (1,442,589) (545,704) (938,601) (508,690)
----------------- ----------------- ----------------- -----------------
7,728,518 4,778,279 5,627,725 4,365,872
Loan to related body corporate**
- 706,889 - 707,387
Loan to director related
entity*** 31,528 26,795 31,528 26,795
Amounts receivable from other
persons**** 2,918,917 - 2,554,470 -
----------------- ----------------- ----------------- -----------------
10,678,963 5,511,963 8,213,723 5,100,054
================= ================= ================= =================
NON-CURRENT
Loans to controlled entities* - - 23,347,738 3,932,093
Less: provision for doubtful
receivables - - (22,300,142) (764,817)
----------------- ----------------- ----------------- -----------------
- - 1,047,596 3,167,276
Loans to associates 4,256,318 - 4,256,318 -
----------------- ----------------- ----------------- -----------------
4,256,318 - 5,303,914 -
================= ================= ================= =================
</TABLE>
(i) Significant terms and conditions
* Loans to controlled entities are interest free, with the
exception of a loan to Access One Pty Ltd which is
charged interest at 9.5% per annum.
** The above represented an investment in an associated
partnership, Web Wide Media Partnership, in which Web
Wide Media Pty Limited, a wholly owned subsidiary, held a
50%, non controlling interest.
*** Loan to director related entity is repayable at call and is
charged interest at 10% per annum **** Amounts receivable from
other persons includes an amount owing from Solution 6 Holdings
Pty Limited, in relation to the purchase of Access One Pty
Limited. Terms and conditions are further detailed in
Note 21(a) to the financial statements.
(ii) Credit risk
The economic entity does not have any significant exposure to any
individual customer or counterparty.
<PAGE> 76
Schedule 4/11
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(iii) Net fair values
The directors consider the carrying amount of trade debtors and
other receivables to approximate their net fair values.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
6. INVENTORIES
<S> <C> <C> <C> <C>
CURRENT
Finished goods (at lower of cost
and net realisable value) 42,891 - - -
================= ================= ================ =================
7. PLANT AND EQUIPMENT
PLANT AND EQUIPMENT
At cost 11,912,486 7,019,357 8,888,810 6,665,796
Less: accumulated depreciation (5,090,726) (1,537,646) (3,574,141) (1,436,929)
----------------- ----------------- ---------------- -----------------
6,821,760 5,481,711 5,314,669 5,228,867
----------------- ----------------- ---------------- -----------------
Under finance lease 6,483,514 3,134,584 6,298,676 2,941,878
Less: accumulated amortisation (1,602,915) (306,116) (1,508,162) (272,448)
----------------- ----------------- ---------------- -----------------
4,880,599 2,828,468 4,790,514 2,669,430
----------------- ----------------- ---------------- -----------------
FURNITURE AND FITTINGS
At cost 618,145 261,969 410,098 208,636
Less: accumulated depreciation (192,742) (43,260) (96,252) (37,707)
----------------- ----------------- ---------------- -----------------
425,403 218,709 313,846 170,929
----------------- ----------------- ---------------- -----------------
Under finance lease 180,291 67,141 67,141 67,141
Less: accumulated amortisation (34,818) (6,984) (24,043) (6,984)
----------------- ----------------- ---------------- -----------------
145,473 60,157 43,098 60,157
----------------- ----------------- ---------------- -----------------
COMPUTER EQUIPMENT
At cost 11,497,015 8,529,435 10,231,357 6,661,234
Less: accumulated depreciation (3,594,527) (818,661) (3,405,143) (787,441)
----------------- ----------------- ---------------- -----------------
7,902,488 7,710,774 6,826,214 5,873,793
----------------- ----------------- ---------------- -----------------
Under finance lease 3,077,829 835,893 3,054,531 835,893
Less: accumulated amortisation (759,522) (80,773) (749,819) (80,773)
----------------- ----------------- ---------------- -----------------
2,318,307 755,120 2,304,712 755,120
----------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
Schedule 4/12
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
SUMMARY
<S> <C> <C> <C> <C>
At cost 33,769,280 19,848,379 28,950,613 17,410,578
Less: accumulated depreciation (11,275,250) (2,793,440) (9,357,560) (2,622,282)
------------------ ------------------ ------------------ ----------------
22,494,030 17,054,939 19,593,053 14,788,296
================== ================== ================== ================
8. OTHER ASSETS
CURRENT
Deferred expenditure 306,667 306,667 306,667 306,667
Deduct accumulated amortisation
(306,667) (30,734) (306,667) (30,734)
------------------ ------------------ ------------------ ----------------
- 275,933 - 275,933
Prepayments 1,400,436 1,089,469 1,180,709 917,428
------------------ ------------------ ------------------ ----------------
1,400,436 1,365,402 1,180,709 1,193,361
================== ================== ================== ================
NON CURRENT
Future income tax benefit 1,415,370 385,593 1,732,077 828,529
================== ================== ================== ================
9. INVESTMENTS
NON CURRENT
Unlisted securities 3,081,638 - 3,081,638 -
Deduct provision for diminution in value
(1,546,240) - (1,546,240) -
------------------ ------------------ ------------------ ----------------
1,535,398 - 1,535,398 -
Unlisted equity securities 1,023,360 - 1,023,360 -
Shares in controlled entities - at
cost (see Note 21) - - 18,612,167 636,059
Shares in associated entities 23,621 23,621 23,621 23,621
------------------ ------------------ ------------------ ----------------
2,582,379 23,621 21,194,546 659,680
================== ================== ================== ================
</TABLE>
<PAGE> 78
Schedule 4/13
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(i) Significant terms and conditions
UNLISTED SECURITIES
On 13 March 1997, the Company transferred the assets of the Web
Wide Media business to Softbank Interactive Marketing Inc.
("Softbank") in return for the issue of 7.25% (subsequently
reduced to 6.25% as a consequence of the allotment of stock
options to Softbank employees) of the total share capital of
Softbank. The equity holding in Softbank was valued at A$3,081,638
as at 31 March 1997. This valuation was based on an independent
valuation of the Company's interest in Softbank. Subsequent to the
year ended 31 December 1997, an offer has been made and accepted
by the Company to sell its shares in Softbank in return for Series
C redeemable shares in ZULU-tek. This transaction was triggered by
the earlier sale by Softbank Holdings of its majority Softbank
shareholding to ZULU-tek. The preference shares can be redeemed in
equal instalments during 1999, 2001, and 2002 respectively. The
carrying value of the Company's investment has been written down
from A$3,081,638 to A$1,535,398 as at 31 December 1997
(representing the offer price made by ZULU-tek for the SIM
shares).
(ii) Diminution in value
The provision for diminution in value was recognised in the
current year to write the investments down to their recoverable
amounts based on the directors' regular assessment of their
estimated realisable values to identify any permanent diminution
in the values of the investments.
(iii) Net fair values
The directors consider the carrying amount of both unlisted
securities and investments in associated entities to approximate
their fair values.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
10. INTANGIBLES
<S> <C> <C> <C> <C>
Goodwill 20,696,587 - - -
Deduct accumulated amortisation
(532,767) - - -
----------------- ----------------- ----------------- -----------------
20,163,820 - - -
================= ================= ================= =================
11. ACCOUNTS PAYABLE
Trade 15,039,478 6,793,072 7,587,314 6,221,580
Other * 11,624,249 2,037,736 9,524,951 1,796,686
----------------- ----------------- ----------------- -----------------
26,663,727 8,830,808 17,112,265 8,018,266
================= ================= ================= =================
</TABLE>
* Other payables include an amount of $4,407,200 in relation to
the acquisition of Access One Pty Limited and is further
detailed in Note 21(a) to the financial statements.
<PAGE> 79
<TABLE>
<CAPTION>
Schedule 4/14
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
12. BORROWINGS
<S> <C> <C> <C> <C>
CURRENT
Bank overdraft (unsecured) - 63,783 - -
Lease liabilities 3,673,453 1,463,822 3,561,421 1,411,051
Amounts owing to controlled
entities (unsecured) - - 6,099,242 -
----------------- ----------------- ----------------- -----------------
3,673,453 1,527,605 9,660,663 1,411,051
================= ================= ================= =================
NON CURRENT
Lease liabilities 4,145,362 2,175,364 4,053,271 2,091,396
================= ================= ================= =================
</TABLE>
(i) Significant terms and conditions
Lease liabilities are effectively secured as the rights to the
leased assets revert to the lessor in the event of default
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
13. PROVISIONS
<S> <C> <C> <C> <C>
CURRENT
Employee entitlements 1,066,869 815,274 531,510 808,586
Dividend 2,900,000 - 2,900,000 -
Taxation 4,041,270 432,388 1,278,638 526,842
Share of losses in excess of
cost of investment in associate
(unsecured) 465,741 - - -
Other 2,115,592 165,000 2,115,592 165,000
----------------- ----------------- ----------------- -----------------
10,589,472 1,412,662 6,825,740 1,500,428
================= ================= ================= =================
NON-CURRENT
Deferred income tax 1,105,771 504,525 1,145,405 504,525
================= ================= ================= =================
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
Schedule 4/15
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
14. SHARE CAPITAL
<S> <C> <C> <C> <C>
ISSUED SHARE CAPITAL
111,000,010
(1996: 103,500,010) ordinary
shares at $0.004 each 444,000 414,000 444,000 414,000
================= ================= ================= =================
</TABLE>
On 18 September 1997, a general meeting of shareholders approved
the subdivision of each of the issued and unissued OzEmail A$0.04
ordinary shares into ten A$0.004 ordinary shares. Each American
Depositary Share (ADS) represents ten A$0.004 OzEmail ordinary
shares.
In May 1996, the Company consummated an initial public offering of
32,000,000 Ordinary Shares, which are represented by one American
Depositary Share ("ADS") per ten Ordinary Shares, at a price per
ADS of US$14. The Company granted an option to the Underwriters,
exercisable during the 30 day period after the date of the
Prospectus, to purchase up to a maximum of 480,000 additional
ADSs, to cover over-allotments, if any, at the same price per ADS
to be purchased by the Underwriters. In July 1996, the
Underwriters exercised the option to purchase 150,000 additional
ADSs on the aforementioned terms.
On 11 August 1997, 300,000 employee options were exercised,
thereby increasing the issued share capital to 103,800,000
Ordinary Shares. In November 1997, OzEmail issued a further
7,200,000 ordinary fully paid A$0.004 shares to Solution 6 as
partial consideration for the acquisition of Access One Pty
Limited. Consequently, OzEmail had on issue a total of 111,000,010
ordinary fully paid A$0.004 shares as at 31 December 1997. Of
these shares, 33,800,000 are represented by 3,380,000 ADSs which
are in the ratio of one ADS for every ten Ordinary shares.
<PAGE> 81
<TABLE>
<CAPTION>
Schedule 4/16
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
15. RESERVES
<S> <C> <C> <C> <C>
Share premium account 64,635,992 53,234,192 64,635,992 53,234,192
Foreign currency translation reserve 2,159 5,114 - -
------------------- ------------------- ------------------ -----------------
64,638,151 53,239,306 64,635,992 53,234,192
=================== =================== ================== =================
MOVEMENTS IN RESERVES WERE:
SHARE PREMIUM RESERVE
Balance at the beginning of the period 53,234,192 820,000 53,234,192 820,000
Share issue (net of issue expenses) 11,401,800 52,414,192 11,401,800 52,414,192
------------------- ------------------- ------------------ -----------------
Balance at the end of the period 64,635,992 53,234,192 64,635,992 53,234,192
=================== =================== ================== =================
FOREIGN CURRENT TRANSLATION RESERVE
Balance at the beginning of the period 5,114 (1,304) - -
Net exchange difference on
translation of overseas controlled
entity (2,955) 6,418 - -
------------------- ------------------- ------------------ -----------------
Balance at the end of the period 2,159 5,114 - -
=================== =================== ================== =================
16. DIVIDENDS
ORDINARY
Final dividend proposed
Franked at 36% 2,900,000 - 2,900,000 -
=================== =================== ================== =================
FRANKING CREDITS
Franking credits available
at the 36% corporate tax rate
after allowing for tax payable
in respect of the current year's
profits and the payment of th
proposed dividends 4,821,869 1,574,602 44,237 1,742,520
=================== =================== ================== =================
</TABLE>
<PAGE> 82
Schedule 4/17
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
17. CONTINGENT LIABILITIES
Details and estimated maximum amounts of contingent liabilities
(for which no amounts are recognised in the financial statements)
arising in respect of:
COMPANY
On 11 July 1996 the Company reported that an adverse ruling had
been rendered by the Federal Court of Australia in the lawsuit
against it by Trumpet over alleged copyright infringements and
violations of Australia's Trade Practices Act. In August 1997, the
Company put forward an Offer of Compromise for the sum of
A$500,000 (inclusive of interest but exclusive of legal fees
expended by Trumpet), which offer was duly accepted by Trumpet in
settlement of the litigation. While the issue of the amount of the
Company's exposure with respect to legal fees previously expensed
by Trumpet remained outstanding as at 31 December 1997, agreement
has since been reached between the parties within the estimated
amount accrued by the Company.
On 18 March 1997, the Australasian Performing Rights Association
("APRA") filed a statement of claim against the Company. APRA
claims that the Company has infringed copyright in a variety of
musical works owned and controlled by APRA by permitting the
Company's customers to download those works. APRA seeks injunctive
relief and damages against the Company. The Company is defending
this action and has received the financial support of the
Australian Internet industry to defend it. The Company does not
believe that this action will give rise to any material liability.
OzEmail owns an 80% equity interest Voyager, with the remaining
20% equity interest held by two former directors of Voyager (the
"Minority Shareholders"). OzEmail and the Minority Shareholders
are parties to a Shareholders Agreement setting out certain rights
and restrictions on the employment and stock ownership of the
Minority Shareholders. On 2 January 1997 the Minority Shareholders
provided formal notice to OzEmail that they wished to exercise
their option under the Shareholders Agreement to sell their shares
in Voyager to OzEmail at fair value. The parties could not reach a
consensus on the price at which such sale of shares would take
place and the Minority Shareholders commenced proceedings in
September 1997, in the High Court of New Zealand for recovery of
the share sale price. OzEmail has sought legal advice from legal
counsel and intends to defend the matter. The Company has provided
for an amount that it believes adequately covers the fair value of
the shares and all other costs associated with this claim.
However, the Company can give no assurance that the liability will
not exceed the ultimate disposition of this proceeding nor that it
will not have a material adverse effect.
CONTROLLED BODIES CORPORATE
The Company has guaranteed leases of controlled entities in
relation to monthly rentals of NZ$2,500(1996: NZ$2,500) and in
relation to a finance lease for network equipment totalling
NZ$123,507 at 31 December 1997 (1996 NZ$153,000).
<PAGE> 83
<TABLE>
<CAPTION>
Schedule 4/18
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
18. LEASE COMMITMENTS
Total lease expenditure contracted
for at balance date, but not
provided for in the financial
statements:
<S> <C> <C> <C> <C>
Payable no later than one year 1,538,503 1,034,230 1,469,926 1,007,451
Payable later than one, not
later than two years 1,425,415 996,053 1,333,254 969,274
Payable later than two, not
later than five years 1,145,256 1,522,659 1,023,964 1,474,680
----------------- ----------------- ----------------- -----------------
4,109,174 3,552,942 3,827,144 3,451,405
================= ================= ================= =================
REPRESENTING:
Non-cancellable operating leases
4,109,174 3,552,942 3,827,144 3,451,405
================= ================= ================= =================
ANALYSIS OF FINANCE LEASE
COMMITMENTS:
Payable not later than one year 4,160,875 1,488,268 4,029,253 1,420,708
Payable later than one, not
later than two years 3,540,536 1,504,915 3,458,568 1,437,364
Payable later than two, not
later than five years 791,653 982,669 776,469 958,099
----------------- ----------------- ----------------- -----------------
8,493,064 3,975,852 8,264,290 3,816,171
Deduct future finance charges on
finance leases 674,249 336,666 649,598 313,724
----------------- ----------------- ----------------- -----------------
Recognised as a liability 7,818,815 3,639,186 7,614,692 3,502,447
================= ================= ================= =================
Representing lease liabilities
Current 3,673,453 1,463,822 3,561,421 1,411,051
Non current 4,145,362 2,175,364 4,053,271 2,091,396
----------------- ----------------- ----------------- -----------------
7,818,815 3,639,186 7,614,692 3,502,447
================= ================= ================= =================
</TABLE>
<PAGE> 84
Schedule 4/19
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
19. SHARE OWNERSHIP PLANS
The Company's 1996 Stock Option Plan ("1996 Plan") was approved by
shareholders on 1 May 1996. A total of 6,500,000 Ordinary $0.004
Shares have been authorised for issuance under the 1996 Plan.
Under the 1996 Plan, employees, non-employee Board members and
consultants may, at the discretion of the Plan Administrator, be
granted options to purchase Ordinary Shares at an exercise price
of not less than 85% of their fair market value on the grant date.
A total of 3,250,000 options were granted to employees under a
Prospectus lodged with the Australian Securities Commission on 7
June 1996. The exercise price of the options shall be the A$
equivalent of a price of US$1.40 on the day of exercise. The first
half of these granted options vested in the option holders on 30
June 1996, provided the option holders remained as employees of
the Company on that date. The remaining granted options vest in
the option holders on 30 June 1997, provided the option holders
remain employees of the Company on that date.
Currently 68 persons are eligible to participate in the scheme.
A further 195,000 options were granted to employees under a
Prospectus lodged with the Australian Securities Commission on 14
November 1996. The exercise price of the options shall be the A$
equivalent of a price of US$0.75 on the day of exercise. The first
half of these granted options vested in the option holders on 31
December 1996, provided the option holders remained as employees
of the Company on that date. The remaining granted options vest in
the option holders on 31 December 1997, provided the option
holders remain employees of the Company on that date. Currently 2
employees are eligible to participate in the scheme.
3,069,990 A$0.004 ordinary shares have been vested under the 1996
Plan as at 31 December 1997. Of such options, 2,912,490 and
157,500 were vested with an exercise price of the Australian
dollar equivalent of US$1.40 and US$0.75 per A$0.004 Ordinary
Shares respectively. The options with an exercise price of US$1.40
and US$0.75 must be exercised by July 2000 and November 2001,
respectively. Under the 1996 Plan, employees, non-employee Board
members and consultants may, at the discretion of the Plan
Administrator, be granted options to purchase Ordinary Shares at
an exercise price not less than 85% of their fair market value on
the grant date. As at 31 December 1997, 114,990 Ordinary Shares
called for by such options were held by directors and officers as
a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND OPTIONS
31 DECEMBER 31 DECEMBER
1997 1996
<S> <C> <C>
Shares and options employees acquired or became
entitled to acquire under the plan during the
period - 6,500,000
Still available to employees under the plan at
balance date 3,069,990 3,055,000
================= =================
Market price per share or option at balance date US$7.625 US$ 8.500
================= =================
* Comparative figures have been adjusted to account
for the 10 for 1 share split approved by shareholders in
September 1997.
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
Schedule 4/20
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
20. CAPITAL EXPENDITURE COMMITMENTS
<S> <C> <C> <C> <C>
Total capital expenditure contracted
for at balance date but not
provided for in the financial
statements:
Payable no later than one year 1,997,397 1,015,922 1,997,397 1,015,922
================= ================= ================= =================
</TABLE>
The above commitments relate to telecommunications plant and
equipment and computer equipment, contracted for but not provided
in the financial statements.
21. INVESTMENTS IN CONTROLLED ENTITIES
<TABLE>
<CAPTION>
NAME OF ENTITY COUNTRY OF THE COMPANY'S DIRECT OR
INCORPORATION INDIRECT INTEREST IN ORDINARY
SHARES/EQUITY
31 DECEMBER 31 DECEMBER
1997 1996
% %
OzEmail Limited
DIRECTLY CONTROLLED BY OZEMAIL
LIMITED
<S> <C> <C> <C>
Voyager New Zealand Limited (i) New Zealand 80 80
Cyber Publications Pty Limited Australia 100 100
Web Wide Media Pty Limited Australia 100 100
OzEmail Fax Investments Pty
Limited Australia 100 100
OzEmail Telecommunications Pty
Limited Australia 80 80
Access One Pty Ltd Australia 100 -
OzEmail West Pty Ltd (formerly
Microweb Pty Ltd) Australia 100 -
DIRECTLY CONTROLLED BY OZEMAIL
FAX INVESTMENTS LIMITED
OzEmail Telecommunications
Partnership Australia - 80
</TABLE>
(i) Voyager New Zealand Limited carries on business in New
Zealand. During the 1996 year Voyager New Zealand Limited
increased the value of its issued capital to A$795,074.
OzEmail Limited maintained its 80% share through an increase
in capital of A$635,977. On 2 January 1997 the Minority
Shareholders provided formal notice to OzEmail that they
wished to exercise their option under the Shareholders
Agreement to sell their shares in Voyager to OzEmail at fair
value. The parties could not reach a consensus on the price
at which such sale of shares would take place and the
Minority Shareholders commenced proceedings in September
1997, in the High Court of New Zealand for recovery of the
share sale price.
<PAGE> 86
Schedule 4/21
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(i) Acquisition and disposal of controlled entities
(A) ACCESS ONE PTY LIMITED
On 25 November 1997 OzEmail completed the acquisition of Access
One Pty Limited ("Access One"), the Internet business of Solution
6 from which date the results of Access One have been incorporated
into the consolidated results of the Company. The transaction was
completed through the payment of A$5,000,000 and on the basis of
the issue of 10,000,000 ordinary A$0.004 OzEmail shares. Of such
shares, 7,200,000 were issued to Solution 6 Holdings, with the
balance to be issued on satisfaction of determining a working
capital adjustment representing the adjustment to the fair value
of net assets acquired as determined in accordance with the terms
of the agreement for the sale and purchase of the Internet
business of Solution 6. The total working capital adjustment
represents the best estimate by the Company's management of the
amount considered to be repayable by Solution 6. The remaining
2,800,000 shares have been valued under the terms of the agreement
at the fair value at the date of the sale, being A$4,407,200 and
are included in other accounts payable in the Company's and
Consolidated Balance Sheets as of 31 December 1997, with an
expectation of being issued before 31 December 1998. As part of
the transaction, Solution 6 granted to OzEmail unlisted equity
securities being options to acquire 4,160,000 Solution 6 ordinary
shares at an exercise price of A$0.75. The option has a term of
three years from the completion of the acquisition. These options
have been valued at the fair market value as determined on 25
November 1997, being the date of issuance. Additionally, Mr Chris
Tyler, chief executive officer of Solution 6, accepted an
invitation to join the Board of Directors of OzEmail.
Details of the aggregate cashflows and consideration relating to
the acquisition of Access One Pty Limited and the aggregate assets
and liabilities at the date of acquisition were as follows:
ACQUISITION
1997
$
Cash outflow 5,000,000
Issued share consideration 11,332,800
Deferred share consideration 4,407,200
----------------
Consideration paid/(received) by the Company 20,740,000
================
Solution 6 call options 1,023,360
Property, plant and equipment 2,302,598
Receivables (net) 4,650,755
Accounts payable and borrowings (5,922,227)
Lease liabilities (602,240)
Liability for restructure provision (985,952)
Inventories 65,079
Goodwill on acquisition 20,208,627
----------------
Net assets acquired 20,740,000
================
<PAGE> 87
Schedule 4/22
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(B) OZEMAIL WEST PTY LTD
On 10 September 1997 OzEmail entered into an agreement with FTR
Holdings Limited ("FTR"), an entity affiliated with Mr Malcolm
Turnbull, a director of OzEmail. Under this agreement, OzEmail
purchased all of the issued share capital of Microweb Pty Limited
("Microweb"), a subsidiary of FTR, for a lump sum of A$1.00 and
deferred consideration equal to 10% of Microweb's revenues in
respect of those areas of Microweb business as outlined in the
agreement for a period of two years from the effective date of the
agreement of 1 July 1997. Such revenues include, but are not
limited to:
A. all revenue received by OzEmail in respect of any services
delivered to any person who at the time of invoice has an
account with OzEmail and an invoice address in Western
Australia; and
B. any software products or web developments, developed by
Microweb which are sold, licensed, assigned or otherwise
deal with, whether such revenue is earned by Microweb, or
any other entity which OzEmail owns or controls.
In October 1997, Microweb underwent a change of name to OzEmail
West Pty Limited ("OzEmail West").
Details of the aggregate cashflows and consideration relating to
the acquisition of OzEmail West Pty Ltd and the aggregate assets
and liabilities at the date of acquisition were as follows:
ACQUISITION
1997
$
Cash acquired (26,980)
Deferred consideration as calculated under the
agreement 400,000
---------------
373,020
===============
Receivables 82,925
Other assets 205
Property, plant and equipment 105,178
Trade creditors, other accruals and provisions (220,365)
Lease liabilities (82,883)
Goodwill on acquisition 487,960
---------------
Net assets acquired 373,020
===============
<PAGE> 88
Schedule 4/23
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(ii) Outside equity interests in controlled entities
VOYAGER NEW ZEALAND LIMITED
Outside equity interests hold 180,000 NZ$1 ordinary shares in
Voyager New Zealand Limited being 20% of the ordinary issued
capital.
OzEmail owns an 80% equity interest Voyager, with the remaining
20% equity interest held by two former directors of Voyager (the
"Minority Shareholders"). OzEmail and the Minority Shareholders
are parties to a Shareholders Agreement setting out certain rights
and restrictions on the employment and stock ownership of the
Minority Shareholders. On 2 January 1997 the Minority Shareholders
provided formal notice to OzEmail that they wished to exercise
their option under the Shareholders Agreement to sell their shares
in Voyager to OzEmail at fair value. The parties could not reach a
consensus on the price at which such sale of shares would take
place and the Minority Shareholders commenced proceedings in
September 1997, in the High Court of New Zealand for recovery of
the share sale price. OzEmail has sought legal advice from legal
counsel and intends to defend the matter. The Company has provided
for an amount that it believes adequately covers the fair value of
the shares and all other costs associated with this claim.
However, the Company can give no assurance that the liability will
not exceed the ultimate disposition of this proceeding nor that it
will not have a material adverse effect.
<TABLE>
<CAPTION>
CONSOLIDATED
1997 1996
$ $
Outside equity interest in Voyager comprises:
<S> <C> <C>
Share capital 159,012 159,012
Retained losses- opening (181,048) (60,260)
Losses recognised by the chief entity - opening 104,193 -
Retained earning -current year (317,361) (120,788)
Losses recognised by the chief entity - current
year 317,361 104,193
----------------- -----------------
- (16,595)
----------------- -----------------
Amount booked as a receivable 82,157 82,157
Less: provision against receivables (82,157) (82,157)
----------------- -----------------
- -
================= =================
</TABLE>
<PAGE> 89
Schedule 4/24
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
22. INVESTMENT IN ASSOCIATES
(a) OzEmail Interline
In November 1996, OzEmail Fax Investments Pty Limited ("OzEmail
Fax Investments"), a wholly owned subsidiary of OzEmail and Ideata
Pty Limited ("Ideata"), a third party company incorporated in
Australia, entered into a partnership agreement, in the
proportions 80% OzEmail Fax Investments and 20% Ideata, to develop
and commercialise devices for voice and fax digitisation and
transmission through telephone, Internet and other communications
systems as developed by or on behalf of Ideata. In June 1997,
Interline AG ("Interline"), a subsidiary of Metro Holding AG
("Metro"), a company incorporated in Switzerland, acquired from
the partnership the exclusive licence of the technology in Europe,
the United Kingdom and Ireland. The voice/fax system, business,
intellectual property in the system, and other assets of this
partnership were then transferred to OzEmail Interline Pty Limited
("OzEmail Interline") and the partnership was dissolved on 26 June
1997. Ligapart AG ("Ligapart"), a subsidiary of Metro, then
acquired a 40% equity interest in OzEmail Interline for
US$5,600,000 from which OzEmail Fax Investments recorded a profit
of A$4,791,885. Following this transaction, OzEmail Fax
Investments owns a 48% equity interest in OzEmail Interline, with
Metro and Ideata holding 40% and 12% equity interests,
respectively.
1997
$
(i) RESULTS OF ASSOCIATES
The economic entity's share of the results of
its associates is as follows:
Operating loss before income tax (2,076,452)
Income tax benefit attributable to operating loss 115,623
---------------
Operating loss after income tax (1,960,829)
===============
(ii) SHARE OF RESERVES ATTRIBUTABLE TO
ASSOCIATES
Retained profits
- at the beginning of the year -
- at the end of the year (1,960,829)
===============
Share premium reserve
- at the beginning of the year -
- at the end of the year (2,944,922)
===============
Share capital
- at the beginning of the year -
- at the end of the year 4,440,000
===============
<PAGE> 90
Schedule 4/25
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
1997
$
(iii) MOVEMENT IN CARRYING AMOUNT OF INVESTMENT
Carrying amount at the beginning of the year -
Share of assets transferred/cost of investment 2,491,717
Less: Share of investment disposed of (996,629)
--------------
1,495,088
Share of net losses for the year (1,960,829)
--------------
Carrying amount at the end of the year (465,741)
==============
(iv) CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
There are no contingent liabilities or capital commitments in
existence at year end.
(v) SUMMARY PERFORMANCE AND FINANCIAL POSITION OF ASSOCIATES
The aggregate of assets, liabilities and losses of associates are
as follows:
1997
$
Net losses after income tax (4,085,060)
Assets 26,303,042
Liabilities (8,268,354)
=================
The difference between the carrying amount of the investment
accounted for under the equity method and the underlying equity in
net assets results from OzEmail Limited not recognising its
proportionate share of the intellectual property valued at
$19,005,000 as this asset has been recognised upon assets being
transferred from the controlled partnership to OzEmail Interline,
and is therefore deemed to be an internally generated asset.
23. SEGMENT REPORTING
The group operates predominantly in Australasia and predominantly
in the Internet service industry.
<PAGE> 91
Schedule 4/26
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
24. RELATED PARTY INFORMATION
CONTROLLING ENTITY
OzEmail Limited is the immediate and ultimate chief entity in the
economic entity comprising the Company and its controlled
entities.
DIRECTORS AND DIRECTOR-RELATED ENTITIES
The following directors each held office as a director of the
Company during the period ended 31 December 1997:
Sean Howard
Trevor Kennedy
Malcolm Turnbull
David Spence
Steve Ezzes
Chris Tyler (appointed 25/11/97)
Remuneration received or receivable by the directors of entities
in the economic entity and aggregate amounts paid in connection
with the retirement of directors of entities in the economic
entity are disclosed in Note 3.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
Loans to directors of entities in the
economic entity and their director-related
entities are disclosed in Note 5 to the
financial statements.
<S> <C> <C> <C> <C>
Loan advanced from:
at 10% interest per annum -
S Howard - 400,000 - 400,000
T Kennedy - 450,000 - 450,000
M Turnbull - 450,000 - 450,000
Loan repayments:
at 10% interest per annum - to:
S Howard - (1,136,086) - (1,136,086)
T Kennedy - (450,000) - (450,000)
M Turnbull - (450,000) - (450,000)
Loan repayments:
at 10% interest per annum - from:
S Howard - 130,930 - 130,930
Interest income/(expense) on loan
to/from director related entities
charged against operating profit
before income tax 3,484 (68,122) 3,484 (68,122)
</TABLE>
<PAGE> 92
Schedule 4/27
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
SHARE AND SHARE OPTION TRANSACTIONS WITH DIRECTORS AND THEIR
DIRECTOR-RELATED ENTITIES
The aggregate number of shares and share options issued to directors of the
Company and the economic entity and their director-related entities during
the year were:
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
ISSUING ENTITY CLASS OF SHARE OR NUMBER NUMBER NUMBER NUMBER
OPTION
<S> <C> <C> <C> <C> <C>
OzEmail Limited Options over ordinary
shares
- 100,000 - 100,000
================== =============== ================== ==================
</TABLE>
All issues were made on terms and conditions no more favourable than those
offered to other share and option holders.
The aggregate number of shares and share options held by directors of the
Company and the economic entity and their director-related entities at
balance date were:
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
ISSUING ENTITY CLASS OF SHARE OR 1997 1996 1997 1996
OPTION $ $ $ $
<S> <C> <C> <C> <C> <C>
OzEmail Limited Ordinary shares 70,150,000 70,000,000 70,150,000 70,000,000
Options over ordinary
shares
5,475,600 5,775,600 5,475,600 5,775,600
================== =============== ================== ==================
</TABLE>
In August 1995, Mr David Spence, the President and Chief Operating Officer
of OzEmail, was granted an option to purchase 5,675,600 ordinary shares in
OzEmail at an exercise price of A$0.33 per share, which will expire in July
2000. The option vests rateably over three years, with one-third of the
ordinary shares vesting on each of 30 June 1996, 1997, and 1998. In August
1997, Mr Spence acquired 300,000 shares by exercising a portion of his
options, which he subsequently sold on the NASDAQ National Market.
OTHER TRANSACTIONS WITH DIRECTORS OF THE COMPANY AND THEIR DIRECTOR RELATED
ENTITIES.
Directors receive free usage of the Internet as part of their integral
daily duties and management of the Company.
In March 1996, the original shareholders of the Company agreed to provide
the Company with financial assistance as and when required, through 31 May
1997. The Company and the shareholders did not formalise the terms by which
any advances would be made under the arrangement.
Consulting services were provided by a director-related entity, Turnbull
and Partners Limited. Aggregate remuneration paid during the period was
$185,742 (1996: $Nil).
In the year ended 31 December 1997 the Company paid $7,980 to a company
affiliated with one of its non-executive directors for rental of office
accommodation.
<PAGE> 93
Schedule 4/28
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
In September 1996, the Company entered into an agreement with FTR
Holdings Limited ("FTR"), an entity affiliated with Turnbull &
Partners Limited ("TPL"). Mr Malcolm Turnbull, a director of the
Company, is a controlling shareholder of TPL. The agreement
appointed FTR as the Company's sole and exclusive representative
in Western Australia to seek new accounts, service existing
Company accounts and market the Company's services and products.
The Company is required to pay FTR a monthly fee based on 25% of
the Internet access charges paid to the Company by Western
Australia customers net of any amounts paid to third parties who
introduce customers to the Company and net of 3% of all national
access charges paid to the Company. Hitherto, the Company has had
no representation in Western Australia. FTR's operations are based
in that State.
On 10 September 1997 OzEmail entered into an agreement with FTR
Holdings Limited ("FTR"), an entity affiliated with Mr Malcolm
Turnbull, a director of OzEmail. Under this agreement, OzEmail
purchased all of the issued share capital of Microweb Pty Limited
("Microweb"), a subsidiary of FTR, for a lump sum of A$1.00 and
deferred consideration equal to 10% of Microweb's revenues in
respect of those areas of Microweb business as outlined in the
agreement for a period of two years from the effective date of the
agreement of 1 July 1997. Such revenues include, but are not
limited to:
A. all revenue received by OzEmail in respect of any services
delivered to any person who at the time of invoice has an
account with OzEmail and an invoice address in Western
Australia; and
B. any software products or web developments, developed by
Microweb which are sold, licensed, assigned or otherwise
deal with, whether such revenue is earned by Microweb, or
any other entity which OzEmail owns or controls.
In October 1997, Microweb underwent a change of name to OzEmail
West Pty Limited ("OzEmail West").
Transactions entered into during the period with directors of the
Company and its controlled entities and their director-related
entities were made on normal terms and conditions.
TRANSACTIONS WITH ENTITIES IN THE WHOLLY-OWNED GROUP
OzEmail Limited is the immediate chief entity in the economic
entity comprising the Company and its controlled entities.
The Company advanced and repaid loans, received loans and provided
accounting assistance and management services to other entities in
the wholly owned group during the current and previous financial
years. With the exception of interest free loans provided by the
Company, these transactions were on commercial terms and
conditions.
<PAGE> 94
<TABLE>
<CAPTION>
Schedule 4/29
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
TRANSACTIONS WITH OTHER RELATED PARTIES
The aggregate amounts bought to account in respect of the
following types of transactions and each class of related party
involved were:
CONSOLIDATED COMPANY
TRANSACTION TYPE CLASS OF OTHER 1997 1996 1997 1996
RELATED PARTY $ $ $ $
<S> <C> <C> <C> <C> <C>
Loans advanced to Controlling entities - - (3,987,738) (4,668,825)
Associates 4,256,318 - 4,256,318 -
Loan repayments from
Controlling entities - - - 253,328
Loans advanced from
Controlling entities - - 9,614,049 -
Loan repayments to Controlling entities - - (3,514,807) -
=============== =============== =============== ==============
</TABLE>
The above loans are interest free.
AMOUNTS RECEIVABLE FROM AND PAYABLE TO ENTITIES IN THE
WHOLLY-OWNED GROUP AND OTHER RELATED PARTIES
Amounts receivable from and payable to controlled entities and
other related parties have been disclosed in Note 5 and Note 12
respectively.
OWNERSHIP INTEREST IN RELATED PARTIES
Interests held in controlled entities and associated companies are
set out in Note 9, Note 21 and Note 22.
25. SUBSEQUENT EVENTS
EQUITY INTEREST IN OZEMAIL INTERLINE
As previously discussed in note 22 to the accounts OzEmail
originally acquired an 80% interest in OzEmail Interline when it
transferred assets from an 80% owned partnership to OzEmail
Interline in June 1997. OzEmail subsequently sold 32% of its
interest to Metro and recorded a profit on the sale of $4,791,885.
OzEmail has equity accounted its interest in OzEmail Interline in
its consolidated accounts during the 31 December 1997 year.
OzEmail's results for the year therefore include its 48% interest
in the net loss of OzEmail Interline being $1,960,829.
<PAGE> 95
Schedule 4/30
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
On 15 April 1998, OzEmail bought out Metro's 40% interest in
OzEmail Interline to regain control of the company and give it the
flexibility required to more effectively manage and develop the
European market potential. OzEmail issued 540,000 ADSs with a
market value of US$22.125 per ADS at close of business on that
date in consideration for the 40% of shares acquired in OzEmail
Interline giving rise to total consideration of $18,380,769. Metro
also agreed to forgive a debt of $2,043,000 currently owed by
OzEmail Interline. This debt forgiveness was in respect of its
obligation to contribute to running costs under Clause 6 of the
shareholders' deed. OzEmail will therefore consolidate OzEmail
Interline from 15 April 1998, being the date it increased its
equity interest to 88%.
At the same time OzEmail and Metro agreed to terminate the Metro
licence agreement for no consideration due to a number of factors
including the fact that no material sub-licences had been issued
in Europe and no network rollout had been undertaken.
It should be noted that under US GAAP as this repurchase occurred
within 12 months of the original sale, the Company is required
under SEC staff accounting bulletin to reverse the original sale
and restate its US filings accordingly. The impact of this is that
under US GAAP the Company has recorded a net loss after tax of
approximately $14,290,000 for the year to 31 December 1997.
OTHER
In January 1997, the Company sold the Australian Net Guide
business and its 50% equity holding in New Zealand Net Guide
Limited to Industrial Press Limited, a third party New Zealand
company.
Options to acquire 1,080,000 Ordinary Shares (equivalent to
108,000 ADSs) were granted on 6 January 1998 to certain employees
of the Company. The exercise price of the options is A$12. Of
these options, 50% vest in the option holders on 31 December 1998
and the remaining 50% vest on 31 December 1999.
At 31 December 1996 the Company had a note receivable of A$27,000
from a director. The balance on this note receivable as at 31
December 1997, was A$32,000. The note has an interest rate of 10%
and is due on demand. Subsequent to 31 December 1997 this amount
has been repaid.
On March 31 1998, the Company acquired from Camtech (SA) Pty
Limited ("Camtech") its Internet access business in South
Australia. The consideration for the acquisition will be equal to
two thirds of Camtech's revenues over the next twelve months. The
immediate payment to Camtech was 1,103,240 Ordinary Shares
(equivalent to 110,324 ADSs) which is equal to two thirds of
Camtech's revenue run rate of approximately $4,000,000 at the time
of acquisition. Any balance payment will be made at the end of the
first quarter 1999. Secondly as an incentive to assist in this
development of the business, the principals of Camtech will
receive from OzEmail a payment of 5% of the Internet access
revenues arising from the business over the next two years.
<PAGE> 96
<TABLE>
<CAPTION>
Schedule 4/31
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
26. EARNINGS PER SHARE
CONSOLIDATED
1997 1996
CENTS PER SHARE
<S> <C> <C>
Basic earnings per share $0.008 $0.005
================== =====================
Diluted earnings per share is not
materially different from
basic earnings per share.
NUMBER
Weighted average number of ordinary
shares on issue used in the calculation
of basic earnings per share. 104,347,407 89,246,580
================== =====================
</TABLE>
CLASSIFICATION OF SECURITIES
In August 1995 the Company granted to an employee options to
purchase 5,675,600 Ordinary Shares at a price of A$0.33 per share
of which 300,000 options have been exercised. The options expire
on 31 July 2000. A total of 3,250,000 additional options were
granted to employees under a Prospectus lodged with the Australian
Securities Commission on 7 June 1996. The exercise price of the
options shall be the A$ equivalent of a price of US$14 on the day
of exercise. These potential shares have been excluded from the
earnings per share calculation as they are not considered dilutive
in the calculation of diluted earnings per share.
A further 195,000 options were granted to employees under a
Prospectus lodged with the Australian Securities Commission on 14
November 1996. The exercise price of the options shall be the A$
equivalent of a price of US$0.75 on the day of the exercise. These
potential shares have been excluded from the earnings per share
calculation as they are not considered dilutive in the calculation
of diluted earnings per share.
2,800,000 shares are still to be issued, within the next six
months, as consideration in relation to the purchase of Access One
Pty Limited, upon satisfaction of the Solution 6 working capital
adjustment. These unissued shares have been excluded from the
earnings per share calculation as they are not considered dilutive
in the calculation of diluted earnings per share.
<PAGE> 97
<TABLE>
<CAPTION>
Schedule 4/32
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
27. CASH FLOW INFORMATION
<S> <C> <C> <C> <C>
(i) Reconciliation of cash
Cash at the end of the financial year
as shown in the statements of cash
flows is reconciled to the related
items in the balance sheets as
follows:
Cash 49,166,028 44,615,309 46,969,254 44,443,187
Bank overdraft - (63,783) - -
------------------ ------------------- --------------- --------------------
49,166,028 44,551,526 46,969,254 44,443,187
================== =================== =============== ====================
(ii) Reconciliation of net cash flows from
operating activities to operating
profit after income tax
Operating profit after income tax 2,987,742 417,184 203,415 2,346,705
Depreciation and amortisation 8,967,915 2,022,717 8,006,153 1,851,559
Write down/ Loss on investment 1,546,240 29,091 1,546,240 29,091
Gain on sale of investment in
securities - (112,399) - (112,399)
Gain on sale of interests in
associates and subsidiaries (5,732,564) - - -
Foreign exchange gain (58,436) (873,252) (58,436) (867,149)
Amounts credited to provisions
against assets 1,680,329 - 3,729,170 1,242,145
Writeback of provisions (1,452,003) - - -
Other 44,388 - 44,388 -
Share of associates accumulated losses 1,960,829 - - -
Changes in assets and liabilities
Increase in trade and other debtors (2,969,194) (2,440,712) (3,498,797) (2,551,869)
Increase in prepayments 224,704 (1,064,923) (263,281) (892,882)
Increase in trade and other
creditors, net interest payable and
employee entitlements 7,235,706 7,331,332 5,863,102 6,679,471
Increase/(decrease) in net deferred
tax benefits (428,531) 269,722 (262,668) (173,214)
(Decrease)/increase in tax payable 3,683,436 (166,966) (826,350) (72,512)
------------------ ------------------- --------------- --------------------
Net cash inflows/(outflows) from
operating activities 17,690,561 5,411,794 14,482,936 7,478,946
================== =================== =============== ====================
</TABLE>
<PAGE> 98
Schedule 4/33
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(iii) Non-cash financing and investing activities
TRANSFER OF ASSETS
During the financial year, subsidiaries of the Company transferred
assets to both unrelated companies and associate companies in
return for equity investments. These transactions are further
detailed in note 9 and note 22 to the financial statements, and
have not been reflected in the statements of cash flows.
The Company also acquired and disposed of subsidiaries during the
year which comprised part non cash consideration. These amounts
are further detailed in note 21 to the financial statements.
PROPERTY, PLANT AND EQUIPMENT
During the financial period the parent entity and a controlled
entity acquired plant and equipment with an aggregate fair value
of $5,000,000 (1996: $3,614,301) by means of finance leases.
These acquisitions are not reflected in the statements of
cashflows.
28. FUTURE INCOME TAX BENEFIT
Potential future income tax benefits of $897,137 (1996: $325,886)
attributable to tax losses carried forward by a controlled entity
have not been bought to account in the consolidated accounts at
balance date because the directors do not believe it is
appropriate to regard realisation of the future income tax benefit
as virtually certain.
This benefit will only be obtained if:
(i) the controlled entity derives future assessable income
of a nature and of an amount sufficient to enable the
benefit from the deduction for the losses to be realised:
or
(ii) the controlled entity continues to comply with the
conditions for deductibility imposed by the law; and
(iii) no change in tax legislation adversely affect the
controlled entity or the economic entity in realising the
benefit from the deductions for the loss.
<PAGE> 99
<TABLE>
<CAPTION>
Schedule 4/34
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
29. ADDITIONAL FINANCIAL INSTRUMENT DISCLOSURES
(i) Interest rate risk
WEIGHTED
AVERAGE FIXED INTEREST RATE
EFFECTIVE FLOATING MATURITIES NON
INTEREST INTEREST 1 YEAR OR 1 TO 5 INTEREST
31 DECEMBER 1997 RATE RATE LESS YEARS BEARING TOTAL
% $ $ $ $ $
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash 5.8% 49,166,028 49,166,028
Trade debtors 7,728,518 7,728,518
Loan to director related 10% 31,528 31,528
entity
Amounts receivable from
other persons 2,918,917 2,918,917
Shares and other equity
investments 1,559,019 1,559,019
Loans to associates 7.3% 4,256,318 4,256,318
------------- ------------- ------------ -------------- ------------
Total financial assets 53,422,346 31,528 - 12,206,454 65,660,318
------------- ------------- ------------ -------------- ------------
LIABILITIES
Trade accounts payable 19,446,478 19,446,478
Other accounts payable 7,217,249 7,217,249
Lease liabilities 7.7% 3,673,453 4,145,362 7,818,815
Employee entitlements 1,066,689 1,066,689
Dividends payable 2,900,000 2,900,000
------------- ------------- ------------ -------------- ------------
Total financial liabilities - 3,673,453 4,145,362 30,630,416 38,449,411
------------- ------------- ------------ -------------- ------------
Net financial assets/
(liabilities) 53,422,346 (3,641925) (4,145,362) (18,423,962) 27,211,097
------------- ------------- ------------ -------------- ------------
</TABLE>
<PAGE> 100
Schedule 5
OzEmail Limited and Controlled Entities
ACN 066 387 157
Directors' Statement
In accordance with a resolution of the directors of OzEmail Limited, in the
opinion of the directors:
(a) the accounts of the Company are drawn up so as to give a true and
fair view of the profit of the Company for the period ended 31
December 1997 and the state of affairs of the Company as at 31
December 1997;
(b) at the date of this statement there are reasonable grounds to
believe that the Company will be able to pay its debts as and when
they fall due; and
(c) the consolidated accounts of the economic entity have been made
out in accordance with Divisions 4A and 4B of the Corporations Law
and so as to give a true and fair view of the profit of the
economic entity for the period ended 31 December 1997 and the
state of affairs of the economic entity as at 31 December 1997.
The accounts have been made out in accordance with applicable accounting
standards and Urgent Issues Group Consensus Views.
For and on behalf of the board
M Turnbull
Chairman
Sydney S Howard
24 April 1998 Chief Executive Officer
<PAGE> 101
Independent Audit Report to the Members of
OzEmail Limited
SCOPE
We have audited the financial statements of OzEmail Limited (the Company)
for the period ended 31 December 1997 as set out on schedules 1 to 5. The
financial statements consist of the accounts of the Company and the
consolidated accounts of the economic entity comprising the Company and the
entities it controlled at the end of, or during, the financial year. The
Company's directors are responsible for the preparation and presentation of
the financial statements and the information they contain. We have
conducted an independent audit of these financial statements in order to
express an opinion on them to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing
Standards to provide reasonable assurance as to whether the financial
statements are free of material misstatement. Our procedures included
examination, on a test basis, of evidence supporting the amounts and other
disclosures in the financial statements, and the evaluation of accounting
policies and significant accounting estimates. These procedures have been
undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Accounting
Standards, other mandatory professional reporting requirements, being
Urgent Issues Group Consensus Views, and the Corporations Law so as to
present a view which is consistent with our understanding of the Company's
and the economic entity's state of affairs, the results of their operations
and their cash flows.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of the Company are properly drawn
up:
(a) so as to give a true and fair view of:
(i) the state of affairs as at 31 December 1997 and the
results and cash flows for the financial year ended on
that date of the Company and the economic entity; and
(ii) the other matters required by Divisions 4, 4A and 4B of
Part 3.6 of the Corporations Law to be dealt with in the
financial statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other
mandatory professional reporting requirements.
Price Waterhouse
Chartered Accountants
Sydney MJ Mitchell
24 April 1998 Partner
<PAGE> 102
10. GLOSSARY OF TERMS
ASX Australian Stock Exchange Limited
ADS American Depository Share (each representing
10 OzEmail ordinary shares)
56 kbps Equivalent to a single high-speed telephone service
line; capable of transmitting one voice call or 56
kbps of data. Currently in widespread use by medium
and large businesses primarily for entry level
high-speed data and very low-speed video
applications.
ATM Asynchronous Transfer Mode. A low
latency, fixed delay information transfer
standard for routing traffic. The ATM
format can be used by many different
information systems, including LANs, to
deliver traffic at varying rates,
permitting a mix of data, voice and
video.
Australian GAAP Australian Accounting Standards and
other mandatory professional reporting
requirements, being Urgent Issues Group
Consensus Views.
backbone A centralized high-speed network that interconnects
smaller, independent networks.
bandwidth The number of bits of information that
can move through a communications medium
in given amount of time; the capacity of
a telecommunications circuit/network to
carry voice, data and video information.
Typically measured in kbps and Mbps.
Bandwidth from public networks is
typically available to business and
residential end-users in increments from
64 kbps.
Company OzEmail Limited ACN 066 387 157 and/or its
controlled entities, as appropriate.
E-mail An application that allows a user to send
or receive text messages to or from any
other user with an Internet address,
commonly termed an E-mail address.
firewall A system placed between networks that
filters data passing through it and
removes unauthorized traffic, thereby
enhancing the security of the network.
frame relay A variable delay information
transfer standard for relaying traffic.
Frame relay can be an economical means to
backhaul traffic to an ATM network.
FTP File Transfer Protocol. A protocol that allows
file transfer between a host and a remote computer.
gateway A point within a network that interconnects with
other network(s).
hub A location within a network where there
is an agglomeration of links and
equipment through which traffic is routed
to other points in the network.
<PAGE> 103
Internet A global collection of interconnected
computer networks which use TCP/IP, a
common communications protocol.
IP Internet Protocol
ISDN Integrated Services Digital Network. An
information transfer standard for
transmitting digital voice and data over
telephone lines at speeds up to 128 kbps.
ISP Internet Service Provider
kbps Kilobits per second. A transmission rate. One
kilobit equals 1,024 bits of information.
LAN Local Area Network. A data communications
network designed to interconnect personal
computers, workstations, minicomputers,
file servers and other communications and
computing devices within a localized
environment.
Leased line Telecommunications line dedicated to
a particular customer along a predetermined route.
Mbps Megabits per second. A transmission rate.
One Megabit equals 1,024 kilobits of information.
Modem A device for transmitting digital information over an
analog telephone line.
NASDAQ The Nasdaq Stock Market operated by the Nasdaq Stock
Market, Inc. a subsidiary of the National Association
of Securities Dealers, Inc. in the USA.
NAP Network Access Point. A location at which ISPs
exchange each other's traffic.
Offer The offer to sell shares in OzEmail set out in the
Section 2 of this Memorandum
Online services Commercial information services
that offer a computer user access to a
specified slate of information,
entertainment and communications menus on
what appears to be a single system.
Optus Optus Communications Pty Limited ACN 052 833 208
OzEmail OzEmail Limited ACN 066 387 157 and/or its controlled
entities, as appropriate.
OzEmail Interline OzEmail Interline Pty Limited ACN 078 742 891
Peering The commercial practice under which
nationwide ISPs exchange each other's
traffic without the payment of settlement
charges.
POPs Points-of-presence. Geographic areas
within which the Company provides local
call access to company services.
<PAGE> 104
Router A system placed between networks that
relays data to those networks based upon
a destination address contained in the
data packets being routed.
Server Software that allows a computer to offer
a service to another computer. Other
computers contact the server program by
means of matching client software. In
addition, such term means the computer on
which server software runs.
SLIP/PPP A protocol used to encapsulate IP data over point
to point links.
SMTP Simple Mail Transfer Protocol, used in pin relay
and delivery of electronic mail (Email).
TCP/IP Transmission Control Protocol/Internet
Protocol. A suite of network protocols that allow
computers with different architectures and operating
system software to communicate with other computers
on the Internet.
Telstra Telstra Corporation Limited ACN 051 775 556
Telnet Remote access to a server or network via a terminal.
T-3 A data communications circuit capable of transmitting
data at 45 Mbps.
Underwriter ANZ Securities Limited ACN 004 997 111
UNIX A computer operating system frequently found on
workstations and PCs and noted for its portability
and communications functionality.
UUCP Unix to Unix copy - a batch made file transfer typically
used for news and email services.
VPN Virtual Private Network. A network capable of
providing the tailored services of a private network
(i.e., low latency, high throughput, security and
customization) while maintaining the benefits of a
public network (i.e. ubiquity and economies of scale)
World Wide Web or Web A system that supports easy access to
documents that have been linked across the Internet.
The documents contain links to each other, hence the
term Web. Users do not have to know the locations of
particular documents and work through a user friendly
interface.
Webserver A server connected to the Internet from which Internet
users can obtain information.
<PAGE> 105
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Pin cheque(s) here. Do not staple.
APPLICATION FORM FOR PURCHASE OF SHARES IN OZEMAIL LIMITED ("THE COMPANY")
<S> <C> <C>
Share registry's use only Broker's stamp only,
including current
ASX number
Broker's use only
FOR ITEMS A TO G REFER TO THE GUIDE ON REVERSE.
PLEASE USE BLOCK LETTERS
A I/We apply to purchase Shares
B I/We lodge full Application Moneys $ .00
C COMPLETE FULL NAME DETAILS
Applicant's given name or company name Surname
Joint applicant 2 or designated account Surname
Joint applicant 3 or designated account Surname
D COMPLETE ADDRESS DETAILS
Number and Street
Suburb, City or Town State Postcode
E TELEPHONE DETAILS
Home Work Contact name
F TAX FILE NUMBER/EXEMPTION(S)
Applicant 1: TFN Applicant 2: TFN Applicant 3: TFN
I/We authorise the Company to apply these Tax File Number(s) or
Exemption(s) to all my/our investments in the Company.
CHEQUE DETAILS
Drawer Cheque No. BSB A$
</TABLE>
G DECLARATION: I/We make the declaration and, if appropriate, give the
representation and warranties listed on the reverse of the form and
agree to be bound by the Memorandum and Articles of Association of the
Company if I/We become shareholders. No signature required. YOU SHOULD
READ THE INFORMATION MEMORANDUM CAREFULLY BEFORE COMPLETING THIS
APPLICATION FORM. Return your completed Application Form with cheque
payable to "OzEmail Share Offer" to: ANZ Stockbroking Limited PO Box
360, Collins Street West, VIC 3007 Level 10, 530 Collin St, Melbourne
VIC 3000
- ------------------------------------------------------------------------------
<PAGE> 106
YOUR GUIDE TO THE APPLICATION FORM
Please complete all relevant sections of the Application Form using BLOCK
LETTERS. These instructions are cross-referenced to each section of the
Application Form. Further particulars and the correct forms of registrable
names to use on the Application Form are contained in the table below. IF
YOU HAVE ANY QUERIES CONCERNING THE COMPLETION OF THIS APPLICATION FORM
PLEASE CALL THIS TELEPHONES NUMBER:
13 13 70
A Insert the number of Shares you wish to apply for. The Application
must be for a minimum of 1000 Shares and thereafter in multiples of
100 Shares.
B Insert the relevant amount of Application Moneys. To calculate your
Application Moneys, multiply the number of Shares applied for by the
Application Price Per Share as specified in the accompanying letter
from ANZ Securities Limited. The final price per share payable will be
set in accordance with the formula set out in the "Details of Offer"
section in the Information Memorandum. It will not be more than the
Application Price Per Share. If it is less, a refund of the difference
will be made to the applicant within one month of allocation of
shares.
C Write the full name you wish to appear on your statements of
shareholding. This must be either your own name or the name of a
company. Up to three joint Applicants may register. You should refer
to the table below for the correct forms of registrable name.
Applications using the wrong form of name will be rejected. CHESS
participants should complete their name and address in the same format
as they are presently registered in the CHESS system.
D Please enter your postal address for all correspondence. All
communications to you from the OzEmail Share Registry will be mailed
to the person(s) and address as shown. For joint Applicants, only one
address can be entered. All Applicants must provide an address in
Australia.
E Please enter your telephone number(s), area code and contact name in
case we need to contact you in relation to your Application.
F Enter your Tax File Number (TFN) or exemption category. Where
applicable, please enter the TFN for each joint Applicant. Quotation
of your TFN is not compulsory and failure to do so will not affect
your Applicant.
G Please complete cheque details as requested:
o Make your cheque payable to "OzEmail Share Offer" in Australian
currency and cross it Not Negotiable.
o Your cheque must be drawn on an Australian bank
o The amount should agree with the amount show in B.
o Sufficient cleared funds should be held in your account, as cheques
returned unpaid will result in your Application being rejected.
o Pin (do not staple) your cheque(s) to the Application Form where
indicated.
APPLICATION FORMS MUST BE RECEIVED NO LATER THAN 5.00 PM ON 1 JUNE 1998
(ANZ SECURITIES LIMITED MAY NOTIFY YOU THAT THIS DATE IS EXTENDED)
OVERSEAS RESIDENTS ONLY
By By applying for Shares and completing this Application Form I/we
represent and warrant that I am/we are not in the United States and are not
acting for the account or benefit of a person within the United States
unless I am/we are so acting with investment discretion with respect to an
account of that person. I/we acknowledge that the Shares I/we have applied
for have not been, and will not be, registered under the US Securities Act
of 1933 and may not be offered, sold or resold in the United States, except
in accordance with an available exemption from registration.
CORRECT FORM OF REGISTRABLE TITLE
Only legal entitles are allowed to hold Shares. Applications must be in the
name(s) of a natural person(s), companies or other legal entitles. At least
one full given name and the surname is required for each natural person.
The name of the beneficiary or any other non-registrable name may be
included by way of an account designation if completed exactly as described
in the example of correct forms of registrable title below:
<TABLE>
<CAPTION>
<S> <C> <C>
TYPE OF INVESTOR CORRECT FORM OF INCORRECT FORM OF
REGISTRABLE TITLE REGISTRABLE TITLE
INDIVIDUAL John Andrew Smith J A Smith
O Use given names, not initials
COMPANY ABC Pty Ltd ABC P/L
O Use company title, not ABC Co
abbreviations
TRUSTS Sue Smith Sue Smith Family Trust
O Use trustee(s), personal name(s), Sue Smith Family A/C
do not use the name of the trust.
DECEASED ESTATES Joan Smith Estate of late George Smith
O Use executor(s) personal name(s), Est George Smith A/C
do not use the name of the
deceased
PARTNERSHIPS John Smith and Joan Smith Smith and Partners
O Use partners' personal names,
do Smith and Partners A/C
not use the name of the
partnership
CLUBS/INCORPORATED BODIES/BUSINESS Sue Smith ABC Tennis Association
NAMES ABC Tennis Association A/C
O Use office bearer(s) personal
name(s), do not use the name of
the club etc.
SUPERANNUATION FUNDS Joan Smith Pty Ltd Joan Smith Pty Ltd Superannuation
O Use name of trustee of fund, do Super Fund A/C
not use the name of the fund
</TABLE>
<PAGE> 107
<TABLE>
- -----------------------------------------------------------------------------------------------
Pin cheque(s) here. Do not staple.
<CAPTION>
APPLICATION FORM FOR PURCHASE OF SHARES IN OZEMAIL LIMITED ("THE COMPANY")
<S> <C> <C>
Share registry's use only Broker's stamp only,
including current
ASX number
Broker's use only
FOR ITEMS A TO G REFER TO THE GUIDE ON REVERSE.
PLEASE USE BLOCK LETTERS
A I/We apply to purchase Shares
B I/We lodge full Application Moneys $ .00
C COMPLETE FULL NAME DETAILS
Applicant's given name or company name Surname
Joint applicant 2 or designated account Surname
Joint applicant 3 or designated account Surname
D COMPLETE ADDRESS DETAILS
Number and Street
Suburb, City or Town State Postcode
E TELEPHONE DETAILS
Home Work Contact name
F TAX FILE NUMBER/EXEMPTION(S)
Applicant 1: TFN Applicant 2: TFN Applicant 3: TFN
I/We authorise the Company to apply these Tax File Number(s) or
Exemption(s) to all my/our investments in the Company.
G CHEQUE DETAILS
Drawer Cheque No. BSB A$
</TABLE>
DECLARATION: I/We make the declaration and, if appropriate, give the
representation and warranties listed on the reverse of the form and agree
to be bound by the Memorandum and Articles of Association of the Company if
I/We become shareholders. No signature required. YOU SHOULD READ THE
INFORMATION MEMORANDUM CAREFULLY BEFORE COMPLETING THIS APPLICATION FORM.
Return your completed Application Form with cheque payable to "OzEmail
Share Offer" to: ANZ Stockbroking Limited PO Box 360, Collins Street West,
VIC 3007 or Level 10, 530 Collin St, Melbourne VIC 3000
- -----------------------------------------------------------------------------
<PAGE> 108
YOUR GUIDE TO THE APPLICATION FORM
Please complete all relevant sections of the Application Form using BLOCK
LETTERS. These instructions are cross-referenced to each section of the
Application Form. Further particulars and the correct forms of registrable
names to use on the Application Form are contained in the table below.
IF YOU HAVE ANY QUERIES CONCERNING THE COMPLETION OF THIS APPLICATION FORM
PLEASE CALL THIS TELEPHONES NUMBER: 13 13 70
A Insert the number of Shares you wish to apply for. The Application must
be for a minimum of 1000 Shares and thereafter in multiples of 100
Shares.
B Insert the relevant amount of Application Moneys. To calculate your
Application Moneys, multiply the number of Shares applied for by the
Application Price Per Share as specified in the accompanying letter
from ANZ Securities Limited. The final price per share payable will be
set in accordance with the formula set out in the "Details of Offer"
section in the Information Memorandum. It will not be more than the
Application Price Per Share. If it is less, a refund of the difference
will be made to the applicant within one month of allocation of shares.
C Write the full name you wish to appear on your statements of
shareholding. This must be either your own name or the name of a
company. Up to three joint Applicants may register. You should refer to
the table below for the correct forms of registrable name. Applications
using the wrong form of name will be rejected. CHESS participants
should complete their name and address in the same format as they are
presently registered in the CHESS system.
D Please enter your postal address for all correspondence. All
communications to you from the OzEmail Share Registry will be mailed to
the person(s) and address as shown. For joint Applicants, only one
address can be entered. All Applicants must provide an address in
Australia.
E Please enter your telephone number(s), area code and contact name in
case we need to contact you in relation to your Application.
F Enter your Tax File Number (TFN) or exemption category. Where
applicable, please enter the TFN for each joint Applicant. Quotation of
your TFN is not compulsory and failure to do so will not affect your
Applicant.
G Please complete cheque details as requested:
o Make your cheque payable to "OzEmail Share Offer" in Australian
currency and cross it Not Negotiable.
o Your cheque must be drawn on an Australian bank.
o The amount should agree with the amount show in B.
o Sufficient cleared funds should be held in your account, as cheques
returned unpaid will result in your Application being rejected.
o Pin (do not staple) your cheque(s) to the Application Form where
indicated.
APPLICATION FORMS MUST BE RECEIVED NO LATER THAN 5.00 PM ON 1 JUNE 1998
(ANZ SECURITIES LIMITED MAY NOTIFY YOU THAT THIS DATE IS EXTENDED)
OVERSEAS RESIDENTS ONLY
By applying for Shares and completing this Application Form I/we represent
and warrant that I am/we are not in the United States and are not acting
for the account or benefit of a person within the United States unless I
am/we are so acting with investment discretion with respect to an account
of that person. I/we acknowledge that the Shares I/we have applied for have
not been, and will not be, registered under the US Securities Act of 1933
and may not be offered, sold or resold in the United States, except in
accordance with an available exemption from registration.
CORRECT FORM OF REGISTRABLE TITLE
Only legal entitles are allowed to hold Shares. Applications must be in the
name(s) of a natural person(s), companies or other legal entitles. At least
one full given name and the surname is required for each natural person.
The name of the beneficiary or any other non-registrable name may be
included by way of an account designation if completed exactly as described
in the example of correct forms of registrable title below:
<TABLE>
<CAPTION>
TYPE OF INVESTOR CORRECT FORM OF INCORRECT FORM OF
REGISTRABLE TITLE REGISTRABLE TITLE
<S> <C> <C>
INDIVIDUAL John Andrew Smith J A Smith
o Use given names, not initials
COMPANY ABC Pty Ltd ABC P/L
o Use company title, not ABC Co
abbreviations
TRUSTS Sue Smith Sue Smith Family Trust
o Use trustee(s), personal name(s), Sue Smith Family A/C
do not use the name of the trust.
DECEASED ESTATES Joan Smith Estate of late George Smith
o Use executor(s) personal name(s), Est George Smith A/C
do not use the name of the
deceased
PARTNERSHIPS John Smith and Joan Smith Smith and Partners
o Use partners' personal names, do Smith and Partners A/C
not use the name of the
partnership
CLUBS/INCORPORATED BODIES/BUSINESS Sue Smith ABC Tennis Association
NAMES ABC Tennis Association A/C
o Use office bearer(s) personal
name(s), do not use the name
of the club etc.
SUPERANNUATION FUNDS Joan Smith Pty Ltd Joan Smith Pty Ltd Superannuation
o Use name of trustee of fund, do Super Fund A/C
not use the name of the fund
</TABLE>
<PAGE> 109
EXHIBIT 99.3 --
PRESS RELEASE DATED
MAY 18, 1998
N E W S R E L E A S E
OzEmail Seeks Listing on Australian Stock Exchange
FOR MORE INFORMATION CONTACT:
Sean Howard - Sydney, Australia - (+612) 9433 2400
Sydney, Australia, May 18, 1998 - OzEmail Limited (Nasdaq: OZEMY), the
leading provider of comprehensive Internet services in Australasia, today
announced that on Friday May 15 it filed an application for listing on the
Australian Stock Exchange.
"Since our Initial Public Offering of American Depositary Shares ("ADSs")
on the NASDAQ National Market in the United States, we have experienced
growing interest from the investment community in Australia," said OzEmail
Chairman, Malcolm Turnbull. "Our decision to list on the Australian Stock
Exchange will provide Australian investors with a convenient means of
investment in OzEmail."
Since its inception in September 1994, the Company has achieved its
position in the Australian Internet connectivity market through the
provision of a strong network, a focus on customer service, and the
continued roll-out of value-added services to both the commercial and
residential market. Rather than following market trends in the world's
most dynamic industry sector, OzEmail has chosen to lead the market, with
our Internet telephony service offering being the most apparent example.
It is now recognised internationally that the Internet is a viable carrier of
long distance and international telephone calls. OzEmail Interline, an
88%-owned controlled entity of OzEmail, is pursuing strategies to develop
this exciting growth opportunity.
"OzEmail has been a significant part of the growth of the Internet in
Australia. Many of our approximately 200,000 corporate, educational and
residential subscribers have been with the company for years," said OzEmail
Chief Executive Officer, Sean Howard. "Listing on the ASX makes it easier
for those customers who have an interest in our future to become more than
customers."
The Company is seeking a compliance listing, which requires it to have at
least 500 shareholders, and is not seeking to raise capital through the
issuance of new shares.
In order to meet this requirement, three founding Directors have offered
shares. Under this Secondary Offer, a total of 3 million shares (the
equivalent of 300,000 ADSs) in OzEmail are being made available for sale
from share holdings controlled by Sean Howard, Malcolm Turnbull and
Trevor Kennedy.
The offer is expected to open on Tuesday 19 May, 1998 and will only be open
for a limited time. The Shares will be priced at 90% of the $A equivalent
per Share of the closing US$ price of OzEmail American Depositary Shares
(each of which represents 10 Shares) on NASDAQ in the USA on Monday May 18
1998. If the price, based on the same formula, at the closing of the offer
period is lower, then this price will apply.
<PAGE> 110
The listing is being underwritten by ANZ Securities. A Share Offer
Document has been prepared and is available from ANZ Securities. To
register to receive a copy of the Share Offer Document call 13 13 70.
Australian resident investors are invited to apply to purchase Shares in
minimum parcels of 1000 ordinary shares plus stamp duty at 0.6%.
Applications for Shares thereafter are to be applied for in whole multiples
of 100 shares.
About OzEmail
OzEmail is the leading provider of comprehensive Internet services in
Australia. The Company's Internet services are designed to meet the
different needs of its residential and enterprise customers ranging from
low cost dial up to high performance, continuous access services
integrating the Company's ISDN offering and consulting expertise.
Certain statements made herein that are not historical are forward-looking
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements may differ materially from actual future events or
results. The future performance of the Company involves risks and
uncertainties that could cause actual results to differ markedly from those
anticipated by such forward-looking statements. Such risks include but are
not limited to the following: a limited operating history for the Company;
potential fluctuations in operating results; competition; pricing pressure;
dependence on third-party suppliers of hardware and software; shortage of
modems; dependence on telecommunications carriers; management of growth;
limited market; a need for and risks of international expansion; the
existence of a new and uncertain market; customer retention issues; rapid
technological change; security risks; the risk of system failure; formal
licensing and joint marketing agreements; patents and proprietary rights;
infringement claims; changes in government regulation; risks associated
with providing content including potential liability; dependence on key
personnel and need to hire additional qualified personnel; uncertainty of
currency exchange rates; need for additional capital; enforceability of
civil liabilities; antitakeover impact of Australian foreign investment
restrictions; control of the Company by the Board of Directors; and
possible volatility of ADS price. For a more complete description of
certain of such risks and uncertainties, we refer you to the documents that
the Company has filed from time to time with the Securities and Exchange
Commission ("SEC") including its registration statement on Form F-1 dated
May 28, 1996, its 1996 Form 10-K dated March 31, 1997, and its Form 10-Qs
dated August 13, 1996, November 14, 1996, May 8, 1997, August 13, 1997, and
November 14, 1997.
___________________________
Michael Ward
Vice President Corporate Relations
OzEmail Ltd
p 612 9433 2498
f 612 9906 5222
e [email protected]
m 0411 53 3000
_____________________
<PAGE> 111
EXHIBIT 99.4 --
FINANCIAL STATEMENTS
31 DECEMBER 1997
OzEmail Limited and Controlled Entities
ACN 066 387 157
Financial Statements
31 December 1997
Schedule 1
OzEmail Limited and Controlled Entities
ACN 066 387 157
Profit and Loss Accounts
31 December 1997
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
NOTE 1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE 2 75,089,928 33,532,836 53,154,605 30,037,254
========================================================
Operating profit before income tax 3 6,011,535 973,274 707,811 2,554,315
Income tax 4 3,023,793 556,090 504,396 207,610
--------------------------------------------------------
OPERATING PROFIT AFTER INCOME TAX 2,987,742 417,184 203,415 2,346,705
Outside equity interest in operating
profit after income tax 21 - 16,595 - -
--------------------------------------------------------
OPERATING PROFIT AFTER INCOME TAX
ATTRIBUTABLE TO MEMBERS OF THE
COMPANY 2,987,742 433,779 203,415 2,346,705
Retained profits at the beginning of the
year 852,557 418,778 3,006,525 659,820
--------------------------------------------------------
Aggregate of amounts available for
distribution 3,840,299 852,557 3,209,940 3,006,525
Dividends provided for 16 (2,900,000) - (2,900,000) -
--------------------------------------------------------
RETAINED PROFITS AT THE END OF THE
YEAR 940,299 852,557 309,940 3,006,525
========================================================
</TABLE>
<PAGE> 112
Schedule 2
OzEmail Limited and Controlled Entities
Balance Sheets
As at 31 December 1997
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
NOTE 1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and bank balances 49,166,028 44,615,309 46,969,254 44,443,187
Receivables 5 10,678,963 5,511,963 8,213,723 5,100,054
Inventories 6 42,891 - - -
Other 8 1,400,436 1,365,402 1,180,709 1,193,361
--------------------------------------------------------
TOTAL CURRENT ASSETS 61,288,318 51,492,674 56,363,686 50,736,602
--------------------------------------------------------
NON-CURRENT ASSETS
Receivables 5 4,256,318 - 5,303,914 3,167,276
Plant and equipment 7 22,494,030 17,054,939 19,593,053 14,788,296
Investments 9 2,582,379 23,621 21,194,546 659,680
Intangibles 10 20,163,820 - - -
Other 8 1,415,370 385,593 1,732,077 828,529
--------------------------------------------------------
TOTAL NON-CURRENT ASSETS 50,911,917 17,464,153 47,823,590 19,443,781
--------------------------------------------------------
TOTAL ASSETS 112,200,235 68,956,827 104,187,276 70,180,383
--------------------------------------------------------
CURRENT LIABILITIES
Accounts payable 11 26,663,727 8,830,808 17,112,265 8,018,266
Borrowings 12 3,673,453 1,527,605 9,660,663 1,411,051
Provisions 13 10,589,472 1,412,662 6,825,740 1,500,428
--------------------------------------------------------
TOTAL CURRENT LIABILITIES 40,926,652 11,771,075 33,598,668 10,929,745
--------------------------------------------------------
NON-CURRENT LIABILITIES
Borrowings 12 4,145,362 2,175,364 4,053,271 2,091,396
Provisions 13 1,105,771 504,525 1,145,405 504,525
--------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES 5,251,133 2,679,889 5,198,676 2,595,921
--------------------------------------------------------
TOTAL LIABILITIES 46,177,785 14,450,964 38,797,344 13,525,666
--------------------------------------------------------
NET ASSETS 66,022,450 54,505,863 65,389,932 56,654,717
========================================================
EQUITY
Share capital 14 444,000 414,000 444,000 414,000
Reserves 15 64,638,151 53,239,306 64,635,992 53,234,192
Retained profits 940,299 852,557 309,940 3,006,525
--------------------------------------------------------
TOTAL EQUITY 66,022,450 54,505,863 65,389,932 56,654,717
========================================================
</TABLE>
Schedule 3
OzEmail Limited and Controlled Entities
Statements of Cash Flows
For the year ended 31 December 1997
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
NOTE 1997 1996 1997 1996
$ $ $ $
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from trade and other debtors 62,261,956 25,033,438 47,084,068 22,000,659
Payments of accounts payable and to
other suppliers, creditors and
employees (47,613,832) (21,188,865) (35,670,381) (16,036,856)
Interest paid - (126,133) - (101,757)
Interest received 3,279,281 2,148,647 3,279,281 2,072,193
Finance charges on finance leases
paid (393,415) (1,957) (366,747) (1,957)
Net income taxes (paid)/received 156,571 (453,336) 156,571 (453,336)
--------------------------------------------------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 27 17,690,561 5,411,794 14,482,792 7,478,946
--------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant and equipment (11,549,014) (12,641,560) (10,401,448) (10,507,697)
Payments for controlled and
associated entities (5,000,000) (52,714) (5,000,000) (688,697)
Proceeds from part sale of
controlled entity 6,028,757 - - -
Proceeds from sale of plant and
equipment 37,000 - 37,000 -
Advances to controlled and
associated entities (4,256,318) (1,184,217) (4,256,318) (4,668,825)
Advances from controlled entities - - 5,955,989 -
Advances to minority shareholders - - - (82,157)
Repayments received from controlled
and associated entities - 48,697 - 253,329
Advances to shareholders - (90,235) - (90,235)
Repayments received from shareholders (4,733) 221,165 (4,733) 221,165
Payments for deferred expenditure - (306,667) - (306,667)
Payments for current investment - (3,102,384) - (3,102,384)
Proceeds from sale of current
investments - 3,214,783 - 3,214,783
--------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (14,744,308) (13,893,132) (13,669,510) (15,757,385)
--------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 99,000 52,708,848 99,000 52,548,192
Repayment of borrowings - (736,086) - (759,113)
Principal repayments under finance
leases (3,491,346) - (3,444,651) -
Proceeds from borrowings 5,000,000 3,639,091 5,000,000 3,525,384
--------------------------------------------------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES 1,607,654 52,346,680 1,654,349 52,049,290
--------------------------------------------------------
</TABLE>
Schedule 3/2
OzEmail Limited and Controlled Entities
Statements of Cash Flows
For the year ended 31 December 1997
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
NOTE 1997 1996 1997 1996
$ $ $ $
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS)
<S> <C> <C> <C> <C> <C>
NET INCREASE/(DECREASE) IN CASH HELD 4,553,907 43,865,342 2,467,631 43,770,851
CASH AT THE BEGINNING OF THE
FINANCIAL PERIOD 44,551,526 (187,287) 44,443,187 (194,813)
Effect of exchange rate change on
the balance of cash held in foreign
currency 60,595 873,471 58,436 867,149
--------------------------------------------------------
CASH AT THE END OF THE FINANCIAL
PERIOD 27 49,166,028 44,551,526 46,969,254 44,443,187
========================================================
</TABLE>
Schedule 4
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are a general purpose financial report prepared in
accordance with Accounting Standards and Urgent Issues Group Consensus
Views.
The financial statements comprise the accounts of the Company, OzEmail
Limited, and the consolidated accounts of the economic entity comprising
the Company, as the chief entity, and the entities it controlled at the end
of, or during, the financial year. The accounting policies adopted in
preparing the financial statements have been consistently applied by
entities in the economic entity except as otherwise indicated.
(a) Basis of accounting
The financial statements have been prepared on the basis of historical
costs and except where stated do not take into account current
valuations of non-current assets. Cost is based on the fair values of
the consideration given in exchange for assets. The fair value of
cash consideration with deferred settlement terms is determined by
discounting any amounts payable in the future to their present value
as at the date of acquisition. Present values are calculated using
rates applicable to similar borrowing arrangements of the economic
entity.
The economic entity has not adopted a policy of revaluing its
non-current assets on a regular basis. Non-current assets are
revalued from time to time as considered appropriate by the directors
and are not stated at amounts in excess of their recoverable amounts.
Except where stated recoverable amounts are not determined using
discounted cash flows.
(b) Foreign currency
Transactions denominated in a foreign currency are converted at the
exchange rate at the date of the transaction. Foreign currency
receivables and payables at balance date are translated at exchange
rates at balance date. Exchange gains and losses are brought to
account in determining the profit or loss for the period.
Assets and liabilities of the self-sustaining overseas controlled
entity are translated at exchange rates existing at balance date and
the exchange gain or loss arising on translation is carried directly
to a foreign currency translation reserve.
(c) Investments
Investments have been brought to account as follows:
INTERESTS IN COMPANIES - The Company's interests in companies are
brought to account at cost and dividends and other distributions are
recognised in the profit and loss account when received.
Where, in the opinion of the directors, there has been a permanent
diminution in the value of an investment, the carrying amount of the
investment is written down to its recoverable amount.
Equity accounting principles are applied in accounting for the
economic entity's investments in associates in the consolidated
accounts.
The directors have applied the ASC Class Order [97/0798] which provides
relief from the requirements of AASB 1016, Disclosure of Information about
Investments in Associated Companies, on the condition that they comply with
the proposed revised AASB 1016, Accounting for Investment in Associates,
circulated by the Australian Accounting Standards Board.
OzEmail Limited and Controlled Entities
Notes to and forming part of the financial statements
(d) Inventories
Finished goods are stated at the lower of cost and net realisable value.
(e) Depreciation and amortisation of plant and equipment
Plant and equipment are depreciated over their estimated useful lives using
the straight line method.
Profits and losses on disposal of plant and equipment are taken into
account in determining the profit or loss for the period.
(f) Leased assets
Where plant and equipment is acquired by means of finance leases, the
present value of the minimum lease payments is recognised as an asset at
the beginning of the lease term and amortised on a straight line basis
over the expected useful life of the leased asset. A corresponding
liability is also established and each lease payment is allocated between
the liability and finance charge.
(g) Expenditure carried forward
Certain software development costs are capitalised once technological
feasibility is established, which the Company defines as the completion of
a working model. The capitalised costs are then amortised on a straight
line basis over the estimated product life, or on the ratio of current
revenues to total projected product revenues, whichever is greater.
(h) Receivables, accounts payable, provisions and borrowings
Trade accounts receivable which are generally settled within 30-45 days are
carried at amounts due.
A provision is raised for any doubtful debts based on a review of all
outstanding amounts at balance date. Bad debts are written off during
the period in which they are identified.
Trade accounts payable, including accruals not yet billed, are
recognised when the economic entity becomes obliged to make future
payments as a result of a purchase of assets or services. Trade
accounts payable are generally settled within 30-45 days.
(i) Income tax
Income tax has been brought to account using the liability method of tax
effect accounting.
(j) Employee entitlements
Liabilities for employees' entitlements to wages and salaries, annual
leave, sick leave and other current employee entitlements are accrued
at nominal amounts calculated on the basis of current wage and salary
rates. This method of calculation was not materially different to the
employee entitlements balance calculated in accordance with AASB 1028
Accounting for Employee Entitlements.
(k) Operating revenue
Sales revenue represents revenue earned by the economic entity from the
provision of Internet service access and related services, licence fees
for the licensing of Internet telephony and fax technology to network
affiliates, and timed charges for the provision of Internet telephony
services in Australia. Revenue is generally recognised at point of billing
after the service has been provided and there are no remaining obligations
the Company is required to meet. Proceeds on sales of licence rights are
recognised as revenue when the fee is received and there are no significant
ongoing obligations. Other revenue includes interest income and proceeds
on sale of current and non-current assets.
(l) Goodwill
Goodwill is amortised on a straight line basis over the period of
expected benefits, which has been assessed as between 2 to 5 years.
(m) Net fair values of financial assets and liabilities
Net fair values of financial instruments are determined on the following
bases:
MONETARY FINANCIAL ASSETS AND LIABILITIES NOT TRADED IN AN ORGANISED
FINANCIAL MARKET - cost basis carrying amounts of trade debtors, trade
accounts payable, accruals and dividends payable (which approximates net
market value); and
INVESTMENTS IN SHARES AND OTHER EQUITY SECURITIES AND DEBENTURES AND
OTHER DEBT SECURITIES NOT TRADED IN AN ORGANISED FINANCIAL MARKET
(OTHER INVESTMENTS) - directors' estimates of net market values based
on future net cash flows, including transaction costs necessary to
realise the securities, discounted at current risk adjusted market rates.
(n) Cash flows
For the purpose of the statements of cash flows, cash includes cash on
hand, net of bank overdrafts.
(o) Comparative figures
Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
2. OPERATING REVENUE
SALES REVENUE
- Net Access revenues 55,617,550 28,260,376 49,834,840 24,750,812
- Licence fee revenues 10,123,856 - - -
OTHER REVENUE
Interest revenue 3,282,765 2,058,211 3,282,765 2,072,193
Proceeds from sale of
Part interest in controlled entity 6,028,757 - - -
Plant and equipment 37,000 - 37,000 -
Current investments - 3,214,249 - 3,214,249
--------------------------------------------------------
75,089,928 33,532,836 53,154,605 30,037,254
========================================================
3. OPERATING PROFIT
(a) Operating profit before income tax
has been determined after:
CREDITING
Interest attributable to
Related corporations 3,484 - 3,484 25,666
Other persons 3,279,281 2,058,211 3,279,281 2,046,527
Net gain on disposal of partnership
assets 940,679 - - -
CHARGING AS EXPENSE
Interest attributable to
Related corporations - 68,122 - 68,122
Other persons - 44,092 - 33,635
Provision for
Doubtful debts - trade debtors 308,257 381,192 429,910 344,043
Employee entitlements 251,595 703,420 267,906 696,732
Doubtful debts - other - - 2,174,973 764,817
Bad and doubtful debts written off
- trade debtors 1,372,072 493,816 1,124,287 493,816
Depreciation of plant and equipment 5,804,508 1,991,983 5,459,363 1,820,825
Amortisation
Deferred expenditure 275,933 30,734 275,933 30,734
Goodwill 532,767 - - -
Plant and equipment under finance
lease 2,354,707 393,964 2,270,857 360,296
Finance charges relating to finance
leases 393,415
39,406 366,747 28,46
Rental expense on operating leases 1,415,941 367,842 1,049,559 366,157
Research and development expense 3,984,603 2,284,016 1,659,901 436,973
Net amounts provided for diminution
in the value of Investments - shares 1,546,240 - 1,546,240 -
Share of net losses of associates 1,960,829 - - -
(b) Remuneration of directors and
executives
DIRECTORS' REMUNERATION AND
RETIREMENT BENEFITS
Income paid or payable, or otherwise
made available to:
Directors of the Company in
connection with the management of
affairs of the Company or its
controlled entities by the Company 612,324 414,717
==========================
Benefits from options exercised 357,770 -
==========================
Directors of entities in the
economic entity in connection with
the management of affairs of those
entities by the Company and its
controlled entities*
from corporations of which they are
directors 612,324 414,717
==========================
Benefits from options exercised 357,770 -
==========================
</TABLE>
* Excluding executives of the Company who are only directors of wholly-owned
Australian controlled entities
<TABLE>
<CAPTION>
COMPANY
1997 1996
NUMBER NUMBER
<S> <C> <C>
The number of directors of the Company included in these figures
are shown below in their relevant income bands:
Income of:
$Nil - $9,999 1 1
$20,000 - $29,999 1 1
$40,000 - $49,999 - 1
$60,000 - $69,999 1 -
$70,000 - $79,999 1 -
$110,000 - $119,999 - 1
$220,000 - $229,999 - 1
$230,000 - $239,999 1 -
$580,000 - $589,999 1 -
</TABLE>
No retirement benefits were paid to directors of entities in the economic entity
during the period.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF EXECUTIVE OFFICERS
ENTITIES IN THE ECONOMIC OF THE
ENTITY COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
EXECUTIVES' REMUNERATION
Income received by Australian based
executive officers whose income is
$100,000 or more from the Company
and related parties 1,633,742 873,025
==========================
benefits from options exercised 357,770 -
==========================
from entities in the economic entity
and related parties 1,633,742 873,025
==========================
benefits from options exercised 357,770 -
==========================
</TABLE>
<TABLE>
<CAPTION>
COMPANY
1997 1996
NUMBER NUMBER
The number of Australian based executive officers whose income is
$100,000 or more are shown below in their relevant income bands:
NUMBER NUMBER
1997 1996
<S> <C> <C>
Income of:
$100,001 to $110,000 - 1
$110,001 to $120,000 2 1
$120,001 to $130,000 1 1
$130,001 to $140,000 1 1
$140,001 to $150,000 - -
$150,001 to $160,000 2 -
$160,001 to $170,000 1 -
$170,001 to $180,000 - 1
$180,001 to $190,000 - -
$200,001 to $210,000 1 -
$220,001 to $230,000 - 1
$230,001 to $240,000 1 -
$580,000 - $589,999 1 -
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
SUPERANNUATION AND RETIREMENT
BENEFITS
Superannuation benefits:
Amounts paid to a superannuation fund
for directors are disclosed in
aggregate as the directors believe
the provision of full particulars
would be unreasonable 14,557 11,690 14,557 11,690
========================================================
(c) Auditors' remuneration
Amounts received, or due and
receivable by the auditors of the
Company for:
- Auditing the financial statements 250,000 227,000 235,000 227,000
- Other services 740,058 250,325 698,433 250,325
--------------------------------------------------------
990,058 477,325 933,343 477,325
========================================================
(d) Abnormal items included in operating
profit before income tax
(i) Profit on disposal of part
interest in controlled entity 4,791,885 - - -
Income tax applicable thereto 1,725,079 - - -
========================================================
(ii) Profit on sale of exclusive
licence rights for provision of
Internet telephony and fax services 9,711,671 - - -
Income tax applicable thereto 3,496,202 - - -
========================================================
(iii) Devaluation of investment in
unlisted securities 1,546,240 - 1,546,240 -
Income tax applicable thereto - - - -
========================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
4. INCOME TAX
The income tax on the operating
profit/(loss) differs from the
amount prima facie payable on that
profit/(loss) as follows:
PRIMA FACIE INCOME TAX ON THE
OPERATING PROFIT/(LOSS) AT 36% 2,164,153 350,379 254,812 919,553
Tax effect of permanent differences:
Non-deductible expenses 17,062 13,207 7,185 10,781
Non-assessable income - (24,914) - (24,914)
Amortisation of goodwill 191,796 - - -
Devaluation of investment 556,646 - 556,646 -
Non-deductible items of a capital
nature 244,178 - 244,175 -
Accelerated research and development
allowance (1,072,830) - (369,028) -
Equity accounted losses of associates 705,898 - - -
Tax losses not recognised 571,251 217,418 - -
Utilisation of group tax losses - - - (697,810)
Overprovision in prior year (354,361) - (189,394) -
INCOME TAX ON OPERATING PROFIT/(LOSS) 3,023,793 556,090 504,396 207,610
COMPRISING:
Current taxation provision 3,452,324 286,370 767,064 380,824
Deferred income tax provision 601,246 481,540 640,880 481,542
Future income tax benefit (1,029,777) (211,820) (903,548) (654,756)
3,023,793 556,090 504,396 207,610
========================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
5. RECEIVABLES
CURRENT
Trade debtors 9,171,107 5,323,983 6,566,326 4,874,562
Less: provision for doubtful debts (1,442,589) (545,704) (938,601) (508,690)
--------------------------------------------------------
7,728,518 4,778,279 5,627,725 4,365,872
Loan to related body corporate** - 706,889 - 707,387
Loan to director related entity*** 31,528 26,795 31,528 26,795
Amounts receivable from other
persons**** 2,918,917 - 2,554,470 -
--------------------------------------------------------
10,678,963 5,511,963 8,213,723 5,100,054
========================================================
NON-CURRENT
Loans to controlled entities* - - 23,347,738 3,932,093
Less: provision for doubtful
receivables - - (22,300,142) (764,817)
--------------------------------------------------------
- - 1,047,596 3,167,276
Loans to associates 4,256,318 - 4,256,318 -
-------------------------------------------------------
4,256,318 - 5,303,914 -
</TABLE>
(i) Significant terms and conditions
* Loans to controlled entities are interest free, with the
exception of a loan to Access One Pty Ltd which is charged
interest at 9.5% per annum.
** The above represented an investment in an associated partnership,
Web Wide Media Partnership, in which Web Wide Media Pty Limited,
a wholly owned subsidiary, held a 50%, non controlling interest.
*** Loan to director related entity is repayable at call and is
charged interest at 10% per annum
**** Amounts receivable from other persons includes an amount owing
from Solution 6 Holdings Pty Limited, in relation to the purchase
of Access One Pty Limited. Terms and conditions are further
detailed in Note 21(a) to the financial statements.
(ii) Credit risk
The economic entity does not have any significant exposure to any
individual customer or counterparty.
(iii) Net fair values
The directors consider the carrying amount of trade debtors and other
receivables to approximate their net fair values.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
6. INVENTORIES
CURRENT
Finished goods (at lower of cost
and net realisable value) 42,891 - - -
========================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
7. PLANT AND EQUIPMENT
PLANT AND EQUIPMENT
At cost 11,912,486 7,019,357 8,888,810 6,665,796
Less: accumulated depreciation (5,090,726) (1,537,646) (3,574,141) (1,436,929)
--------------------------------------------------------
6,821,760 5,481,711 5,314,669 5,228,867
--------------------------------------------------------
Under finance lease 6,483,514 3,134,584 6,298,676 2,941,878
Less: accumulated amortisation (1,602,915) (306,116) (1,508,162) (272,448)
--------------------------------------------------------
4,880,599 2,828,468 4,790,514 2,669,430
--------------------------------------------------------
FURNITURE AND FITTINGS
At cost 618,145 261,969 410,098 208,636
Less: accumulated depreciation (192,742) (43,260) (96,252) (37,707)
--------------------------------------------------------
425,403 218,709 313,846 170,929
--------------------------------------------------------
Under finance lease 180,291 67,141 67,141 67,141
Less: accumulated amortisation (34,818) (6,984) (24,043) (6,984)
--------------------------------------------------------
145,473 60,157 43,098 60,157
--------------------------------------------------------
COMPUTER EQUIPMENT
At cost 11,497,015 8,529,435 10,231,357 6,661,234
Less: accumulated depreciation (3,594,527) (818,661) (3,405,143) (787,441)
--------------------------------------------------------
7,902,488 7,710,774 6,826,214 5,873,793
--------------------------------------------------------
Under finance lease 3,077,829 835,893 3,054,531 835,893
Less: accumulated amortisation (759,522) (80,773) (749,819) (80,773)
--------------------------------------------------------
2,318,307 755,120 2,304,712 755,120
--------------------------------------------------------
SUMMARY
At cost 33,769,280 19,848,379 28,950,613 17,410,578
Less: accumulated depreciation (11,275,250) (2,793,440) (9,357,560) (2,622,282)
--------------------------------------------------------
22,494,030 17,054,939 19,593,053 14,788,296
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
8. OTHER ASSETS
CURRENT
Deferred expenditure 306,667 306,667 306,667 306,667
Deduct accumulated amortisation (306,667) (30,734) (306,667) (30,734)
--------------------------------------------------------
- 275,933 - 275,933
Prepayments 1,400,436 1,089,469 1,180,709 917,428
--------------------------------------------------------
1,400,436 1,365,402 1,180,709 1,193,361
========================================================
NON CURRENT
Future income tax benefit 1,415,370 385,593 1,732,077 828,529
========================================================
9. INVESTMENTs
NON CURRENT
Unlisted securities 3,081,638 - 3,081,638 -
Deduct provision for diminution in
value (1,546,240) - (1,546,240) -
--------------------------------------------------------
1,535,398 - 1,535,398 -
Unlisted equity securities 1,023,360 - 1,023,360 -
Shares in controlled entities - at
cost (see Note 21) - - 18,612,167 636,059
Shares in associated entities 23,621 23,621 23,621 23,621
--------------------------------------------------------
2,582,379 23,621 21,194,546 659,680
========================================================
</TABLE>
(i) Significant terms and conditions
UNLISTED SECURITIES
On 13 March 1997, the Company transferred the assets of the Web Wide
Media business to Softbank Interactive Marketing Inc. ("Softbank") in
return for the issue of 7.25% (subsequently reduced to 6.25% as a
consequence of the allotment of stock options to Softbank employees)
of the total share capital of Softbank. The equity holding in
Softbank was valued at A$3,081,638 as at 31 March 1997. This
valuation was based on an independent valuation of the Company's
interest in Softbank. Subsequent to the year ended 31 December 1997,
an offer has been made and accepted by the Company to sell its shares
in Softbank in return for Series C redeemable shares in ZULU-tek.
This transaction was triggered by the earlier sale by Softbank
Holdings of its majority Softbank shareholding to ZULU-tek. The
preference shares can be redeemed in equal instalments during 1999,
2001, and 2002 respectively. The carrying value of the Company's
investment has been written down from A$3,081,638 to A$1,535,398 as at
31 December 1997 (representing the offer price made by ZULU-tek for
the SIM shares).
(ii) Diminution in value
The provision for diminution in value was recognised in the current
year to write the investments down to their recoverable amounts based
on the directors' regular assessment of their estimated realisable
values to identify any permanent diminutions in the values of the
investments.
(iii) Net fair values
The directors consider the carrying amount of both unlisted securities
and investments in associated entities to approximate their fair
values.
<TABLE>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
10. INTANGIBLES
Goodwill 20,696,587 - - -
Deduct accumulated amortisation (532,767) - - -
--------------------------------------------------------
20,163,820 - - -
========================================================
11. ACCOUNTS PAYABLE
Trade 15,039,478 6,793,072 7,587,314 6,221,580
Other * 11,624,249 2,037,736 9,524,951 1,796,686
26,663,727 8,830,808 17,112,265 8,018,266
* Other payables include an amount of $4,407,200 in relation to the acquisition of Access One Pty
Limited and is further detailed in Note 21(a) to the financial statements.
12. BORROWINGS
CURRENT
Bank overdraft (unsecured) - 63,783 - -
Lease liabilities 3,673,453 1,463,822 3,561,421 1,411,051
Amounts owing to controlled
entities (unsecured) - - 6,099,242 -
--------------------------------------------------------
3,673,453 1,527,605 9,660,663 1,411,051
NON CURRENT
Lease liabilities 4,145,362 2,175,364 4,053,271 2,091,396
========================================================
</TABLE>
(i) Significant terms and conditions
Lease liabilities are effectively secured as the rights to the leased
assets revert to the lessor in the event of default
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
13. PROVISIONS
CURRENT
Employee entitlements 1,066,869 815,274 531,510 808,586
Dividend 2,900,000 - 2,900,000 -
Taxation 4,041,270 432,388 1,278,638 526,842
Share of losses in excess of cost
of investment in associate
(unsecured) 465,741 - - -
Other 2,115,592 165,000 2,115,592 165,000
--------------------------------------------------------
10,589,472 1,412,662 6,825,740 1,500,428
========================================================
NON-CURRENT
Deferred income tax 1,105,771 504,525 1,145,405 504,525
========================================================
14. SHARE CAPITAL
ISSUED SHARE CAPITAL
111,000,010
(1996: 103,500,010) ordinary
shares at $0.004 each 444,000 414,000 444,000 414,000
========================================================
</TABLE>
On 18 September 1997, a general meeting of shareholders approved the
subdivision of each of the issued and unissued OzEmail A$0.04 ordinary
shares into ten A$0.004 ordinary shares. Each American Depositary Share
(ADS) represents ten A$0.004 OzEmail ordinary shares.
In May 1996, the Company consummated an initial public offering of
32,000,000 Ordinary Shares, which are represented by one American
Depositary Share ("ADS") per ten Ordinary Shares, at a price per ADS of
US$14. The Company granted an option to the Underwriters, exercisable
during the 30 day period after the date of the Prospectus, to purchase up
to a maximum of 480,000 additional ADSs, to cover over-allotments, if any,
at the same price per ADS to be purchased by the Underwriters. In July
1996, the Underwriters exercised the option to purchase 150,000 additional
ADSs on the aforementioned terms.
On 11 August 1997, 300,000 employee options were exercised, thereby
increasing the issued share capital to 103,800,000 Ordinary Shares. In
November 1997, OzEmail issued a further 7,200,000 ordinary fully paid
A$0.004 shares to Solution 6 as partial consideration for the acquisition
of Access One Pty Limited. Consequently, OzEmail had on issue a total of
111,000,010 ordinary fully paid A$0.004 shares as at 31 December 1997. Of
these shares, 33,800,000 are represented by 3,380,000 ADSs which are in the
ratio of one ADS for every ten Ordinary shares.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
15. RESERVES
Share premium account 64,635,992 53,234,192 64,635,992 53,234,192
Foreign currency translation reserve 2,159 5,114 - -
--------------------------------------------------------
64,638,151 53,239,306 64,635,992 53,234,192
MOVEMENTS IN RESERVES WERE:
SHARE PREMIUM RESERVE
Balance at the beginning of the
period 53,234,192 820,000 53,234,192 820,000
Share issue (net of issue expenses) 11,401,800 52,414,192 11,401,800 52,414,192
--------------------------------------------------------
Balance at the end of the period 64,635,992 53,234,192 64,635,992 53,234,192
========================================================
FOREIGN CURRENT TRANSLATION RESERVE
Balance at the beginning of the
period 5,114 (1,304) - -
Net exchange difference on
translation of overseas controlled
entity (2,955) 6,418 - -
--------------------------------------------------------
Balance at the end of the period 2,159 5,114 - -
========================================================
16. DIVIDENDS
ORDINARY
Final dividend proposed
Franked at 36% 2,900,000 - 2,900,000 -
========================================================
FRANKING CREDITS
Franking credits available at the
36% corporate tax rate after
allowing for tax payable in respect
of the current year's profits and
the payment of the proposed
dividends 4,821,869 1,574,602 44,237 1,742,520
=======================================================
</TABLE>
17. CONTINGENT LIABILITIES
Details and estimated maximum amounts of contingent liabilities (for which
no amounts are recognised in the financial statements) arising in respect of:
COMPANY
On 11 July 1996 the Company reported that an adverse ruling had been
rendered by the Federal Court of Australia in the lawsuit against it by
Trumpet over alleged copyright infringements and violations of Australia's
Trade Practices Act. In August 1997, the Company put forward an Offer of
Compromise for the sum of A$500,000 (inclusive of interest but exclusive of
legal fees expended by Trumpet), which offer was duly accepted by Trumpet
in settlement of the litigation. While the issue of the amount of the
Company's exposure with respect to legal fees previously expensed by
Trumpet remained outstanding as at 31 December 1997, agreement has since
been reached between the parties within the estimated amount accrued by the
Company.
On 18 March 1997, the Australasian Performing Rights Association ("APRA")
filed a statement of claim against the Company. APRA claims that the
Company has infringed copyright in a variety of musical works owned and
controlled by APRA by permitting the Company's customers to download those
works. APRA seeks injunctive relief and damages against the Company. The
Company is defending this action and has received the financial support of
the Australian Internet industry to defend it. The Company does not
believe that this action will give rise to any material liability.
OzEmail owns an 80% equity interest Voyager, with the remaining 20% equity
interest held by two former directors of Voyager (the "Minority
Shareholders"). OzEmail and the Minority Shareholders are parties to a
Shareholders Agreement setting out certain rights and restrictions on the
employment and stock ownership of the Minority Shareholders. On 2 January
1997 the Minority Shareholders provided formal notice to OzEmail that they
wished to exercise their option under the Shareholders Agreement to sell
their shares in Voyager to OzEmail at fair value. The parties could not
reach a consensus on the price at which such sale of shares would take
place and the Minority Shareholders commenced proceedings in September
1997, in the High Court of New Zealand for recovery of the share sale
price. OzEmail has sought legal advice from legal counsel and intends to
defend the matter. The Company has provided for an amount that it believes
adequately covers the fair value of the shares and all other costs
associated with this claim. However, the Company can give no assurance
that the liability will not exceed the ultimate disposition of this
proceeding nor that it will not have a material adverse effect.
CONTROLLED BODIES CORPORATE
The Company has guaranteed leases of controlled entities in relation to
monthly rentals of NZ$2,500(1996: NZ$2,500) and in relation to a finance
lease for network equipment totalling NZ$123,507 at 31 December 1997
(1996 NZ$153,000).
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
18. LEASE COMMITMENTS
Total lease expenditure contracted
for at balance date, but not provided
for in the financial statements:
Payable no later than one year 1,538,503 1,034,230 1,469,926 1,007,451
Payable later than one, not later
than two years 1,425,415 996,053 1,333,254 969,274
Payable later than two, not later
than five years 1,145,256 1,522,659 1,023,964 1,474,680
--------------------------------------------------------
4,109,174 3,552,942 3,827,144 3,451,405
========================================================
REPRESENTING:
Non-cancellable operating leases 4,109,174 3,552,942 3,827,144 3,451,405
========================================================
ANALYSIS OF FINANCE LEASE
COMMITMENTS:
Payable not later than one year 4,160,875 1,488,268 4,029,253 1,420,708
Payable later than one, not later
than two years 3,540,536 1,504,915 3,458,568 1,437,364
Payable later than two, not later
than five years 791,653 982,669 776,469 958,099
--------------------------------------------------------
8,493,064 3,975,852 8,264,290 3,816,171
Deduct future finance charges on
finance leases 674,249 336,666 649,598 313,724
--------------------------------------------------------
Recognised as a liability 7,818,815 3,639,186 7,614,692 3,502,447
========================================================
Representing lease liabilities
Current 3,673,453 1,463,822 3,561,421 1,411,051
Non current 4,145,362 2,175,364 4,053,271 2,091,396
--------------------------------------------------------
7,818,815 3,639,186 7,614,692 3,502,447
=========================================================
</TABLE>
19. SHARE OWNERSHIP PLANS
The Company's 1996 Stock Option Plan ("1996 Plan") was approved by
shareholders on 1 May 1996. A total of 6,500,000 Ordinary $0.004 Shares
have been authorised for issuance under the 1996 Plan. Under the 1996
Plan, employees, non-employee Board members and consultants may, at the
discretion of the Plan Administrator, be granted options to purchase
Ordinary Shares at an exercise price of not less than 85% of their fair
market value on the grant date. A total of 3,250,000 options were granted
to employees under a Prospectus lodged with the Australian Securities
Commission on 7 June 1996. The exercise price of the options shall be the
A$ equivalent of a price of US$1.40 on the day of exercise. The first half
of these granted options vested in the option holders on 30 June 1996,
provided the option holders remained as employees of the Company on that
date. The remaining granted options vest in the option holders on 30 June
1997, provided the option holders remain employees of the Company on that
date. Currently 68 persons are eligible to participate in the scheme.
A further 195,000 options were granted to employees under a Prospectus
lodged with the Australian Securities Commission on 14 November 1996. The
exercise price of the options shall be the A$ equivalent of a price of
US$0.75 on the day of exercise. The first half of these granted options
vested in the option holders on 31 December 1996, provided the option
holders remained as employees of the Company on that date. The remaining
granted options vest in the option holders on 31 December 1997, provided
the option holders remain employees of the Company on that date. Currently
2 employees are eligible to participate in the scheme.
3,069,990 A$0.004 ordinary shares have been vested under the 1996 Plan as
at 31 December 1997. Of such options, 2,912,490 and 157,500 were vested
with an exercise price of the Australian dollar equivalent of US$1.40 and
US$0.75 per A$0.004 Ordinary Shares respectively. The options with an
exercise price of US$1.40 and US$0.75 must be exercised by July 2000 and
November 2001, respectively. Under the 1996 Plan, employees, non-employee
Board members and consultants may, at the discretion of the Plan
Administrator, be granted options to purchase Ordinary Shares at an
exercise price not less than 85% of their fair market value on the grant
date. As at 31 December 1997, 114,990 Ordinary Shares called for by such
options were held by directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND OPTIONS
31 DECEMBER 31 DECEMBER
1997 1996
<S> <C> <C>
Shares and options employees acquired or became
entitled to acquire under the plan during the period - 6,500,000
Still available to employees under the plan at balance
date 3,069,990 3,055,000
==========================
Market price per share or option at balance date US$7.625 US$ 8.500
==========================
</TABLE>
* Comparative figures have been adjusted to account for the 10 for 1
share split approved by shareholders in September 1997.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
20. CAPITAL EXPENDITURE COMMITMENTS
Total capital expenditure
contracted for at balance date but
not provided for in the financial
statements:
Payable no later than one year 1,997,397 1,015,922 1,997,397 1,015,922
========================================================
</TABLE>
The above commitments relate to telecommunications plant and equipment
and computer equipment, contracted for but not provided in the
financial statements.
21. INVESTMENTS IN CONTROLLED ENTITIES
<TABLE>
<CAPTION>
THE COMPANY'S DIRECT OR INDIRECT
COUNTRY OF INTEREST IN ORDINARY
NAME OF ENTITY INCORPORATION SHARES/EQUITY
31 DECEMBER 31 DECEMBER
1997 1996
% %
<S> <C> <C> <C>
OzEmail Limited
DIRECTLY CONTROLLED BY OZEMAIL LIMITED
Voyager New Zealand Limited (i) New Zealand 80 80
Cyber Publications Pty Limited Australia 100 100
Web Wide Media Pty Limited Australia 100 100
OzEmail Fax Investments Pty Limited Australia 100 100
OzEmail Telecommunications Pty Limited Australia 80 80
Access One Pty Ltd Australia 100 -
OzEmail West Pty Ltd (formerly Microweb Pty Ltd) Australia 100 -
DIRECTLY CONTROLLED BY OZEMAIL FAX INVESTMENTS LIMITED
OzEmail Telecommunications Partnership Australia - 80
</TABLE>
(i) Voyager New Zealand Limited carries on business in New Zealand.
During the 1996 year Voyager New Zealand Limited increased the value
of its issued capital to A$795,074. OzEmail Limited maintained its
80% share through an increase in capital of A$635,977. On 2 January
1997 the Minority Shareholders provided formal notice to OzEmail that
they wished to exercise their option under the Shareholders Agreement
to sell their shares in Voyager to OzEmail at fair value. The parties
could not reach a consensus on the price at which such sale of shares
would take place and the Minority Shareholders commenced proceedings
in September 1997, in the High Court of New Zealand for recovery of
the share sale price.
(i) Acquisition and disposal of controlled entities
(a) ACCESS ONE PTY LIMITED
On 25 November 1997 OzEmail completed the acquisition of Access One
Pty Limited ("Access One"), the Internet business of Solution 6 from
which date the results of Access One have been incorporated into the
consolidated results of the Company. The transaction was completed
through the payment of A$5,000,000 and on the basis of the issue of
10,000,000 ordinary A$0.004 OzEmail shares. Of such shares,
7,200,000 were issued to Solution 6 Holdings, with the balance to be
issued on satisfaction of determining a working capital adjustment
representing the adjustment to the fair value of net assets acquired
as determined in accordance with the terms of the agreement for the
sale and purchase of the Internet business of Solution 6. The total
working capital adjustment represents the best estimate by the
Company's management of the amount considered to be repayable by
Solution 6. The remaining 2,800,000 shares have been valued under the
terms of the agreement at the fair value at the date of the sale,
being A$4,407,200 and are included in other accounts payable in the
Company's and Consolidated Balance Sheets as of 31 December 1997, with
an expectation of being issued before 31 December 1998. As part of
the transaction, Solution 6 granted to OzEmail unlisted equity
securities being options to acquire 4,160,000 Solution 6 ordinary
shares at an exercise price of A$0.75. The option has a term of three
years from the completion of the acquisition. These options have been
valued at the fair market value as determined on 25 November 1997,
being the date of issuance. Additionally, Mr Chris Tyler, chief
executive officer of Solution 6, accepted an invitation to join the
Board of Directors of OzEmail.
Details of the aggregate cashflows and consideration relating to the
acquisition of Access One Pty Limited and the aggregate assets and
liabilities at the date of acquisition were as follows:
<TABLE>
<CAPTION>
ACQUISITION
1997
$
<S> <C>
Cash outflow 5,000,000
Issued share consideration 11,332,800
Deferred share consideration 4,407,200
----------
Consideration paid/(received) by the Company 20,740,000
==========
Solution 6 call options 1,023,360
Property, plant and equipment 2,302,598
Receivables (net) 4,650,755
Accounts payable and borrowings (5,922,227)
Lease liabilities (602,240)
Liability for restructure provision (985,952)
Inventories 65,079
Goodwill on acquisition 20,208,627
----------
Net assets acquired 20,740,000
==========
</TABLE>
(b) OZEMAIL WEST PTY LTD
On 10 September 1997 OzEmail entered into an agreement with FTR Holdings
Limited ("FTR"), an entity affiliated with Mr Malcolm Turnbull, a
director of OzEmail. Under this agreement, OzEmail purchased all of the
issued share capital of Microweb Pty Limited ("Microweb"), a subsidiary
of FTR, for a lump sum of A$1.00 and deferred consideration equal to 10%
of Microweb's revenues in respect of those areas of Microweb business as
outlined in the agreement for a period of two years from the effective
date of the agreement of 1 July 1997. Such revenues include, but are not
limited to:
o all revenue received by OzEmail in respect of any services delivered
to any person who at the time of invoice has an account with OzEmail
and an invoice address in Western Australia; and
o any software products or web developments, developed by Microweb
which are sold, licensed, assigned or otherwise deal with, whether
such revenue is earned by Microweb, or any other entity which OzEmail
owns or controls.
In October 1997, Microweb underwent a change of name to OzEmail West Pty
Limited ("OzEmail West").
Details of the aggregate cashflows and consideration relating to the
acquisition of OzEmail West Pty Ltd and the aggregate assets and
liabilities at the date of acquisition were as follows:
<TABLE>
<CAPTION>
ACQUISITION
1997
$
<S> <C>
Cash acquired (26,980)
Deferred consideration as calculated under
the agreement 400,000
-------
373,020
=======
Receivables 82,925
Other assets 205
Property, plant and equipment 105,178
Trade creditors, other accruals and provisions (220,365)
Lease liabilities (82,883)
Goodwill on acquisition 487,960
-------
Net assets acquired 373,020
=======
</TABLE>
(ii) Outside equity interests in controlled entities
VOYAGER NEW ZEALAND LIMITED
Outside equity interests hold 180,000 NZ$1 ordinary shares in Voyager
New Zealand Limited being 20% of the ordinary issued capital.
OzEmail owns an 80% equity interest Voyager, with the remaining 20%
equity interest held by two former directors of Voyager (the "Minority
Shareholders"). OzEmail and the Minority Shareholders are parties to
a Shareholders Agreement setting out certain rights and restrictions
on the employment and stock ownership of the Minority Shareholders.
On 2 January 1997 the Minority Shareholders provided formal notice to
OzEmail that they wished to exercise their option under the
Shareholders Agreement to sell their shares in Voyager to OzEmail at
fair value. The parties could not reach a consensus on the price at
which such sale of shares would take place and the Minority
Shareholders commenced proceedings in September 1997, in the High
Court of New Zealand for recovery of the share sale price. OzEmail
has sought legal advice from legal counsel and intends to defend the
matter. The Company has provided for an amount that it believes
adequately covers the fair value of the shares and all other costs
associated with this claim. However, the Company can give no
assurance that the liability will not exceed the ultimate disposition
of this proceeding nor that it will not have a material adverse
effect.
<TABLE>
<CAPTION>
CONSOLIDATED
1997 1996
$ $
<S> <C> <C>
Outside equity interest in Voyager comprises:
Share capital 159,012 159,012
Retained losses- opening (181,048) (60,260)
Losses recognised by the chief entity - opening 104,193 -
Retained earning -current year (317,361) (120,788)
Losses recognised by the chief entity - current year 317,361 104,193
---------------------------
- (16,595)
--------------------------
Amount booked as a receivable 82,157 82,157
Less: provision against receivables (82,157) (82,157)
--------------------------
- -
===========================
</TABLE>
22. INVESTMENT IN ASSOCIATES
(a) OzEmail Interline
In November 1996, OzEmail Fax Investments Pty Limited ("OzEmail
Fax Investments"), a wholly owned subsidiary of OzEmail and
Ideata Pty Limited ("Ideata"), a third party company incorporated
in Australia, entered into a partnership agreement, in the
proportions 80% OzEmail Fax Investments and 20% Ideata, to
develop and commercialise devices for voice and fax digitisation
and transmission through telephone, Internet and other
communications systems as developed by or on behalf of Ideata.
In June 1997, Interline AG ("Interline"), a subsidiary of Metro
Holding AG ("Metro"), a company incorporated in Switzerland,
acquired from the partnership the exclusive licence of the
technology in Europe, the United Kingdom and Ireland. The
voice/fax system, business, intellectual property in the system,
and other assets of this partnership were then transferred to
OzEmail Interline Pty Limited ("OzEmail Interline") and the
partnership was dissolved on 26 June 1997. Ligapart AG
("Ligapart"), a subsidiary of Metro, then acquired a 40% equity
interest in OzEmail Interline for US$5,600,000 from which OzEmail
Fax Investments recorded a profit of A$4,791,885. Following this
transaction, OzEmail Fax Investments owns a 48% equity interest
in OzEmail Interline, with Metro and Ideata holding 40% and 12%
equity interests, respectively.
<TABLE>
<CAPTION>
1997
$
<S> <C>
(i) RESULTS OF ASSOCIATES
The economic entity's share of the results of its associates
is as follows:
Operating loss before income tax (2,076,452)
Income tax benefit attributable to operating loss 115,623
----------
Operating loss after income tax (1,960,829)
==========
(ii) SHARE OF RESERVES ATTRIBUTABLE TO ASSOCIATES
Retained profits
- at the beginning of the year -
- at the end of the year (1,960,829)
==========
Share premium reserve
- at the beginning of the year -
- at the end of the year (2,944,922)
==========
Share capital
- at the beginning of the year -
- at the end of the year 4,440,000
==========
(iii) MOVEMENT IN CARRYING AMOUNT OF INVESTMENT\
Carrying amount at the beginning of the year -
Share of assets transferred/cost of investment 2,491,717
Less: Share of investment disposed of (996,629)
----------
1,495,088
Share of net losses for the year (1,960,829)
----------
Carrying amount at the end of the year (465,741)
==========
</TABLE>
(iv) CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
There are no contingent liabilities or capital commitments
in existence at year end.
(v) SUMMARY PERFORMANCE AND FINANCIAL POSITION OF ASSOCIATES
The aggregate of assets, liabilities and losses of associates
are as follows:
<TABLE>
<CAPTION>
1997
$
<S> <C>
Net losses after income tax (4,085,060)
Assets 26,303,042
Liabilities (8,268,354)
==========
</TABLE>
The difference between the carrying amount of the investment accounted
for under the equity method and the underlying equity in net assets
results from OzEmail Limited not recognising its proportionate share
of the intellectual property valued at $19,005,000 as this asset has
been recognised upon assets being transferred from the controlled
partnership to OzEmail Interline, and is therefore deemed to be an
internally generated asset.
23. SEGMENT REPORTING
The group operates predominantly in Australasia and predominantly in
the Internet service industry.
24. RELATED PARTY INFORMATION
CONTROLLING ENTITY
OzEmail Limited is the immediate and ultimate chief entity in the
economic entity comprising the Company and its controlled entities.
DIRECTORS AND DIRECTOR-RELATED ENTITIES
The following directors each held office as a director of the Company
during the period ended 31 December 1997:
Sean Howard
Trevor Kennedy
Malcolm Turnbull
David Spence
Steve Ezzes
Chris Tyler (appointed 25/11/97)
Remuneration received or receivable by the directors of entities in
the economic entity and aggregate amounts paid in connection with the
retirement of directors of entities in the economic entity are
disclosed in Note 3.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C> <C> <C> <C>
Loans to directors of entities
in the economic entity and
their director-related entities
are disclosed in Note 5 to the
financial statements.
Loan advanced from:
at 10% interest per annum -
S Howard - 400,000 - 400,000
T Kennedy - 450,000 - 450,000
M Turnbull - 450,000 - 450,000
Loan repayments:
at 10% interest per annum - to:
S Howard - (1,136,086) - (1,136,086)
T Kennedy - (450,000) - (450,000)
M Turnbull - (450,000) - (450,000)
Loan repayments:
at 10% interest per annum -
from: S Howard - 130,930 - 130,930
Interest income/(expense) on
loan to/from director related
entities charged against
operating profit before income
tax 3,484 (68,122) 3,484 (68,122)
</TABLE>
SHARE AND SHARE OPTION TRANSACTIONS WITH DIRECTORS AND THEIR
DIRECTOR-RELATED ENTITIES
The aggregate number of shares and share options issued to directors
of the Company and the economic entity and their director-related
entities during the year were:
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
ISSUING ENTITY CLASS OF SHARE NUMBER NUMBER NUMBER NUMBER
OR OPTION
<S> <C> <C> <C> <C> <C>
OzEmail Limited Options over
ordinary shares - 100,000 - 100,000
========================================================
</TABLE>
All issues were made on terms and conditions no more favourable than
those offered to other share and option holders.
The aggregate numbe
of shares and share options held by directors of the Company and the
economic entity and their director-related entities at balance date
were:
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
ISSUING ENTITY CLASS OF SHARE 1997 1996 1997 1996
OR OPTION $ $ $ $
<S> <C> <C> <C> <C> <C>
OzEmail Limited Ordinary shares 70,150,000 70,000,000 70,150,000 70,000,000
Options over
ordinary shares 5,475,600 5,775,600 5,475,600 5,775,600
=======================================================
</TABLE>
In August 1995, Mr David Spence, the President and Chief Operating Officer
of OzEmail, was granted an option to purchase 5,675,600 ordinary shares in
OzEmail at an exercise price of A$0.33 per share, which will expire in July
2000. The option vests rateably over three years, with one-third of the
ordinary shares vesting on each of 30 June 1996, 1997, and 1998. In August
1997, Mr Spence acquired 300,000 shares by exercising a portion of his
options, which he subsequently sold on the Nasdaq National Market.
OTHER TRANSACTIONS WITH DIRECTORS OF THE COMPANY AND THEIR DIRECTOR
RELATED ENTITIES.
Directors receive free usage of the Internet as part of their integral
daily duties and management of the Company.
In March 1996, the original shareholders of the Company agreed to provide
the Company with financial assistance as and when required, through 31 May
1997. The Company and the shareholders did not formalise the terms by
which any advances would be made under the arrangement.
Consulting services were provided by a director-related entity, Turnbull
and Partners Limited. Aggregate remuneration paid during the period was
$185,742 (1996: $Nil).
In the year ended 31 December 1997 the Company paid $7,980 to a company
affiliated with one of its non-executive directors for rental of office
accommodation.
In September 1996, the Company entered into an agreement with FTR Holdings
Limited ("FTR"), an entity affiliated with Turnbull & Partners Limited
("TPL"). Mr Malcolm Turnbull, a director of the Company, is a controlling
shareholder of TPL. The agreement appointed FTR as the Company's sole and
exclusive representative in Western Australia to seek new accounts, service
existing Company accounts and market the Company's services and products.
The Company is required to pay FTR a monthly fee based on 25% of the
Internet access charges paid to the Company by Western Australia customers
net of any amounts paid to third parties who introduce customers to the
Company and net of 3% of all national access charges paid to the Company.
Hitherto, the Company has had no representation in Western Australia.
FTR's operations are based in that State.
On 10 September 1997 OzEmail entered into an agreement with FTR Holdings
Limited ("FTR"), an entity affiliated with Mr Malcolm Turnbull, a director
of OzEmail. Under this agreement, OzEmail purchased all of the issued
share capital of Microweb Pty Limited ("Microweb"), a subsidiary of FTR,
for a lump sum of A$1.00 and deferred consideration equal to 10% of
Microweb's revenues in respect of those areas of Microweb business as
outlined in the agreement for a period of two years from the effective
date of the agreement of 1 July 1997. Such revenues include, but are not
limited to:
o all revenue received by OzEmail in respect of any services delivered
to any person who at the time of invoice has an account with OzEmail
and an invoice address in Western Australia; and
o any software products or web developments, developed by Microweb which
are sold, licensed, assigned or otherwise deal with, whether such
revenue is earned by Microweb, or any other entity which OzEmail owns
or controls.
In October 1997, Microweb underwent a change of name to OzEmail West Pty
Limited ("OzEmail West").
Transactions entered into during the period with directors of the Company
and its controlled entities and their director-related entities were made
on normal terms and conditions.
TRANSACTIONS WITH ENTITIES IN THE WHOLLY-OWNED GROUP
OzEmail Limited is the immediate chief entity in the economic entity
comprising the Company and its controlled entities.
The Company advanced and repaid loans, received loans and provided
accounting assistance and management services to other entities in the
wholly owned group during the current and previous financial years. With
the exception of interest free loans provided by the Company, these
transactions were on commercial terms and conditions.
TRANSACTIONS WITH OTHER RELATED PARTIES
The aggregate amounts bought to account in respect of the following types
of transactions and each class of related party involved were:
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
TRANSACTION TYPE CLASS OF OTHER 1997 1996 1997 1996
RELATED PARTY $ $ $ $
<S> <C> <C> <C> <C> <C>
Loans advanced to Controlling entities - - (3,987,738) (4,668,825)
Associates 4,256,318 - 4,256,318 -
Loan repayments from Controlling entities - - - 253,328
Loans advanced from Controlling entities - - 9,614,049 -
Loan repayments to Controlling entities - - (3,514,807) -
========================================================
</TABLE>
The above loans are interest free.
AMOUNTS RECEIVABLE FROM AND PAYABLE TO ENTITIES IN THE WHOLLY-OWNED
GROUP AND OTHER RELATED PARTIES
Amounts receivable from and payable to controlled entities and other
related parties have been disclosed in Note 5 and Note 12 respectively.
OWNERSHIP INTEREST IN RELATED PARTIES
Interests held in controlled entities and associated companies are set
out in Note 9, Note 21 and Note 22.
25. SUBSEQUENT EVENTS
EQUITY INTEREST IN OZEMAIL INTERLINE
As previously discussed in note 22 to the accounts OzEmail originally
acquired an 80% interest in OzEmail Interline when it transferred
assets from an 80% owned partnership to OzEmail Interline in June
1997. OzEmail subsequently sold 32% of its interest to Metro and
recorded a profit on the sale of $4,791,885.
OzEmail has equity accounted its interest in OzEmail Interline in its
consolidated accounts during the 31 December 1997 year. OzEmail's
results for the year therefore include its 48% interest in the net
loss of OzEmail Interline being $1,960,829.
On 15 April 1998, OzEmail bought out Metro's 40% interest in OzEmail
Interline to regain control of the company and give it the flexibility
required to more effectively manage and develop the European market
potential. OzEmail issued 540,000 ADSs with a market value of
US$22.125 per ADS at close of business on that date in consideration
for the 40% of shares acquired in OzEmail Interline giving rise to
total consideration of $18,380,769. Metro also agreed to forgive a
debt of $2,043,000 currently owed by OzEmail Interline. This debt
forgiveness was in respect of its obligation to contribute to running
costs under Clause 6 of the shareholders' deed. OzEmail will
therefore consolidate OzEmail Interline from 15 April 1998, being the
date it increased its equity interest to 88%.
At the same time OzEmail and Metro agreed to terminate the Metro
licence agreement for no consideration due to a number of factors
including the fact that no material sub-licences had been issued in
Europe and no network rollout had been undertaken.
It should be noted that under US GAAP as this repurchase occurred
within 12 months of the original sale, the company is required under
SEC staff accounting bulletin to reverse the original sale and restate
its US filings accordingly. The impact of this is that under US GAAP
the company has recorded a net loss after tax of approximately
$14,290,000 for the year to 31 December 1997.
OTHER
In January 1997, the Company sold the Australian Net Guide business
and its 50% equity holding in New Zealand Net Guide Limited to
Industrial Press Limited, a third party New Zealand company.
Options to acquire 1,080,000 Ordinary Shares (equivalent to 108,000
ADSs) were granted on 6 January 1998 to certain employees of the
Company. The exercise price of the options is A$12. Of these
options, 50% vest in the option holders on 31 December 1998 and the
remaining 50% vest on 31 December 1999.
At 31 December 1996 the Company had a note receivable of A$27,000 from
a director. The balance on this note receivable as at 31 December
1997, was A$32,000. The note has an interest rate of 10% and is due
on demand. Subsequent to 31 December 1997 this amount has been
repaid.
On March 31 1998, the Company acquired from Camtech (SA) Pty Limited
("Camtech") its internet access business in South Australia. The
consideration for the acquisition will be equal to two thirds of
Camtech's revenues over the next twelve months. The immediate payment
to Camtech was 1,103,240 Ordinary Shares (equivalent to 110,324 ADSs)
which is equal to two thirds of Camtech's revenue run rate of
approximately $4,000,000 at the time of acquisition. Any balance
payment will be made at the end of the first quarter 1999. Secondly as
an incentive to assist in this development of the business, the
principals of Camtech will receive from OzEmail a payment of 5% of the
Internet access revenues arising from the business over the next two
years.
26. EARNINGS PER SHARE
<TABLE>
<CAPTION>
CONSOLIDATED
1997 1996
CENTS PER SHARE
<S> <C> <C>
Basic earnings per share $0.008 $0.005
=========================
Diluted earnings per share is not materially
different from basic earnings per share.
NUMBER
Weighted average number of ordinary shares
on issue used in the calculation of basic
earnings per share. 104,347,407 89,246,580
=========================
</TABLE>
CLASSIFICATION OF SECURITIES
In August 1995 the Company granted to an employee options to purchase
5,675,600 Ordinary Shares at a price of A$0.33 per share of which
300,000 options have been exercised. The options expire on 31 July
2000. A total of 3,250,000 additional options were granted to
employees under a Prospectus lodged with the Australian Securities
Commission on 7 June 1996. The exercise price of the options shall be
the A$ equivalent of a price of US$14 on the day of exercise. These
potential shares have been excluded from the earnings per share
calculation as they are not considered dilutive in the calculation of
diluted earnings per share.
A further 195,000 options were granted to employees under a Prospectus
lodged with the Australian Securities Commission on 14 November 1996.
The exercise price of the options shall be the A$ equivalent of a
price of US$0.75 on the day of the exercise. These potential shares
have been excluded from the earnings per share calculation as they are
not considered dilutive in the calculation of diluted earnings per
share.
2,800,000 shares are still to be issued, within the next six months,
as consideration in relation to the purchase of Access One Pty
Limited, upon satisfaction of the Solution 6 working capital
adjustment. These unissued shares have been excluded from the earnings
per share calculation as they are not considered dilutive in the
calculation of diluted earnings per share.
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1997 1996 1997 1996
$ $ $ $
<S> <C><C><C><C><C>
27. CASH FLOW INFORMATION
(i) Reconciliation of cash
Cash at the end of the financial
year as shown in the statements
of cash flows is reconciled to
the related items in the balance
sheets as follows:
Cash 49,166,028 44,615,309 46,969,254 44,443,187
Bank overdraft - (63,783) - -
--------------------------------------------------------
49,166,028 44,551,526 46,969,254 44,443,187
========================================================
(ii) Reconciliation of net cash flows
from operating activities to
operating profit after income tax
Operating profit after income tax 2,987,742 417,184 203,415 2,346,705
Depreciation and amortisation 8,967,915 2,022,717 8,006,153 1,851,559
Write down/ Loss on investment 1,546,240 29,091 1,546,240 29,091
Gain on sale of investment in
securities - (112,399) - (112,399)
Gain on sale of interests in
associates and subsidiaries (5,732,564) - - -
Foreign exchange gain (58,436) (873,252) (58,436) (867,149)
Amounts credited to provisions
against assets 1,680,329 - 3,729,170 1,242,145
Writeback of provisions (1,452,003) - - -
Other 44,388 - 44,388 -
Share of associates accumulated
losses 1,960,829 - - -
Changes in assets and liabilities
Increase in trade and other
debtors (2,969,194) (2,440,712) (3,498,797) (2,551,869)
Increase in prepayments 224,704 (1,064,923) (263,281) (892,882)
Increase in trade and other
creditors, net interest payable
and employee entitlements 7,235,706 7,331,332 5,863,102 6,679,471
Increase/(decrease) in net
deferred tax benefits (428,531) 269,722 (262,668) (173,214)
(Decrease)/increase in tax
payable 3,683,436 (166,966) (826,350) (72,512)
--------------------------------------------------------
Net cash inflows/(outflows) from
operating activities 17,690,561 5,411,794 14,482,936 7,478,946
========================================================
</TABLE>
(iii) Non-cash financing and investing activities
TRANSFER OF ASSETS
During the financial year, subsidiaries of the Company transferred
assets to both unrelated companies and associate companies in return
for equity investments. These transactions are further detailed in
note 9 and note 22 to the financial statements, and have not been
reflected in the statements of cash flows.
The company also acquired and disposed of subsidiaries during the year
which comprised part non cash consideration. These amounts are further
detailed in note 21 to the financial statements.
PROPERTY, PLANT AND EQUIPMENT
During the financial period the parent entity and a controlled entity
acquired plant and equipment with an aggregate fair value of
$5,000,000 (1996: $3,614,301) by means of finance leases.
These acquisitions are not reflected in the statements of cashflows.
28. FUTURE INCOME TAX BENEFIT
Potential future income tax benefits of $897,137 (1996: $325,886)
attributable to tax losses carried forward by a controlled entity have
not been bought to account in the consolidated accounts at balance
date because the directors do not believe it is appropriate to regard
realisation of the future income tax benefit as virtually certain.
This benefit will only be obtained if:
(i) the controlled entity derives future assessable income of a
nature and of an amount sufficient to enable the benefit from the
deduction for the losses to be realised: or
(ii) the controlled entity continues to comply with the conditions for
deductibility imposed by the law; and
(iii) no change in tax legislation adversely affect the controlled
entity or the economic entity in realising the benefit from
the deductions for the loss.
29. ADDITIONAL FINANCIAL INSTRUMENT DISCLOSURES
(i) Interest rate risk
<TABLE>
<CAPTION>
WEIGHTED FIXED INTEREST RATE
AVERAGE MATURITIES
EFFECTIVE FLOATING 1 YEAR OR NON
INTEREST INTEREST LESS INTEREST
RATE RATE $1 TO 5 YEARS BEING TOTAL
30 June 1997 % $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash 5.8% 49,166,028 49,166,028
Trade debtors 7,728,518 7,728,518
Loan to director related entity 10% 31,528 31,528
Amounts receivable from other
persons 2,918,917 2,918,917
Shares and other equity
investments 1,559,019 1,559,019
Loans to associates 7.3% 4,256,318 4,256,318
--------------------------------------------------------------------
Total financial assets 53,422,346 31,528 - 12,206,454 65,660,318
--------------------------------------------------------------------
LIABILITIES
Trade accounts payable 19,446,478 19,446,478
Other accounts payable 7,217,249 7,217,249
Lease liabilities 7.7% 3,673,453 4,145,362 7,818,815
Employee entitlements 1,066,689 1,066,689
Dividends payable 2,900,000 2,900,000
--------------------------------------------------------------------
Total financial liabilities - 3,673,453 4,145,362 30,630,416 38,449,411
--------------------------------------------------------------------
Net financial assets/
(liabilities) 53,422,346 (3,641,925) (4,145,362) (18,423,962) 27,211,097
--------------------------------------------------------------------
</TABLE>
SCOPE
We have audited the financial statements of OzEmail Limited (the Company)
for the period ended 31 December 1997 as set out on schedules 1 to 5. The
financial statements consist of the accounts of the Company and the
consolidated accounts of the economic entity comprising the Company and the
entities it controlled at the end of, or during, the financial year. The
Company's directors are responsible for the preparation and presentation
of the financial statements and the information they contain. We have
conducted an independent audit of these financial statements in order to
express an opinion on them to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing
Standards to provide reasonable assurance as to whether the financial
statements are free of material misstatement. Our procedures included
examination, on a test basis, of evidence supporting the amounts and other
disclosures in the financial statements, and the evaluation of accounting
policies and significant accounting estimates. These procedures have been
undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Accounting
Standards, other mandatory professional reporting requirements, being
Urgent Issues Group Consensus Views, and the Corporations Law so as to
present a view which is consistent with our understanding of the Company's
and the economic entity's state of affairs, the results of their
operations and their cash flows.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of the Company are properly drawn
up:
(a) so as to give a true and fair view of:
(i) the state of affairs as at 31 December 1997 and the results and
cash flows for the financial year ended on that date of the
Company and the economic entity; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part 3.6
of the Corporations Law to be dealt with in the financial
statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other mandatory
professional reporting requirements.
Price Waterhouse
Chartered Accountants
Sydney MJ Mitchell
24 April 1998 Partner
OzEmail Limited and Controlled Entities
ACN 066 387 157
Directors' Report
In respect of the period ended 31 December 1997, the directors of OzEmail
Limited, the Company and chief entity, submit the following report made out
in accordance with a resolution of the directors:
1. THE NAMES OF THE DIRECTORS OF THE COMPANY IN OFFICE AT THE DATE OF THIS
REPORT
M Turnbull (Chairman)
D Spence
S Howard (Chief Executive Officer)
T Kennedy
S Ezzes
C Tyler (appointed 25/11/97)
2. PRINCIPAL ACTIVITIES OF THE ECONOMIC ENTITY
The principal activity of the economic entity during the year was the
provision of Internet access and Internet related services.
3. TRADING RESULTS
The consolidated net profit of the economic entity for the period was
$2,987,742 (1996: $433,779) after deducting income tax expense of
$3,023,793 (1996: $556,090).
4. DIVIDENDS
The Directors of the Company have declared a fully franked dividend of
$0.025 per share (A$0.25) per ADS) on February 26, 1998 with an
Australian ex-dividend date of March 26, 1998 and an Australian
dividend payable date of March 27, 1998. The dividend was paid in
Australian dollars to those holders of Ordinary Shares. The Bank of
New York is responsible for distributing the dividend holders of ADSs
in the US dollar equivalent of the Australian dollar payment. The
Bank of New York, as depositary of the ADSs, has set the ex-dividend
date for holders of ADSs as March 21, with a dividend payable date of
April 6, 1998.
5. REVIEW OF OPERATIONS
The amount of consolidated operating revenue for the year of operation
was $75,089,928 (1996: $33,532,836).
The amounts of operating revenue for the year, represent Internet
usage, registration, licence fees and other.
6. EVENTS SUBSEQUENT TO BALANCE DATE
EQUITY INTEREST IN OZEMAIL INTERLINE
As discussed in note 22 to the accounts OzEmail originally acquired an
80% interest in OzEmail Interline when it transferred assets from an
80% owned partnership to OzEmail Interline in June 1997. OzEmail
subsequently sold 32% of its interest to Metro and recorded a profit
on the sale of $4,791,885.
OzEmail has equity accounted its interest in OzEmail Interline in its
consolidated accounts during the 31 December 1997 year. OzEmail's
results for the year therefore include its 48% interest in the net
loss of OzEmail Interline being $1,960,829.
On 15 April 1998, OzEmail bought out Metro's 40% interest in OzEmail
Interline to regain control of the company and give it the flexibility
required to more effectively manage and develop the European market
potential. OzEmail issued 540,000 ADSs with a market value of
US$22.125 per ADS at close of business on that date in consideration
for the shares acquired in OzEmail Interline giving rise to total
consideration of $18,380,769. Metro also agreed to forgive a debt of
$2,043,000 currently owed by OzEmail Interline. This debt forgiveness
was in respect of its obligation to contribute to running costs under
Clause 6 of the shareholders' deed. OzEmail will therefore
consolidate OzEmail Interline from 15 April 1998, being the date it
increased its equity interest to 88%.
At the same time OzEmail and Metro agreed to terminate the Metro
licence agreement for no consideration due to a number of factors
including the fact that no material sub-licences had been issued in
Europe and no network rollout had been undertaken.
It should be noted that under US GAAP as this repurchase occurred
within 12 months of the original sale, the Company is required under
SEC staff accounting bulletin to reverse the original sale and restate
its US filings accordingly. The impact of this is that under US GAAP
the company has recorded a net loss after tax of approximately
$14,290,000 for the year to 31 December 1997.
OTHER
In January 1997, the Company sold the Australian Net Guide business
and its 50% equity holding in New Zealand Net Guide Limited to
Industrial Press Limited, a third party New Zealand company.
Options to acquire 1,080,000 Ordinary Shares (equivalent to 108,000
ADSs) were granted on 6 January 1998 to certain employees of the
Company. The exercise price of the options is A$12. Of these
options, 50% vest in the option holders on 31 December 1998 and the
remaining 50% vest on 31 December 1999.
At 31 December 1996 the Company had a note receivable of A$27,000 from
a director. The balance on this note receivable as at 31 December
1997, was A$32,000. The note has an interest rate of 10% and is due
on demand. Subsequent to 31 December 1997 this amount has been
repaid.
On March 31 1998, the Company acquired from Camtech (SA) Pty Limited
("Camtech") its internet access business in South Australia. The
consideration for the acquisition will be equal to two thirds of
Camtechs revenues over the next twelve months. The immediate payment
to Camtech was 1,103,240 Ordinary Shares (equivalent to 110,324 ADSs)
which is equal to two thirds of Camtech's revenue run rate of
approximately $4,000,000 at the time of acquisition. Any balance
payment will be made at the end of the first quarter 1999. Secondly as
an incentive to assist in this development of the business, the
principals of Camtech will receive from OzEmail a payment of 5% of the
Internet access revenues arising from the business over the next two
years.
7. OPTIONS
The Company's 1996 Stock Option Plan ("1996 Plan") was approved by
shareholders on 1 May 1996. A total of 6,500,000 Ordinary $0.004
Shares have been authorised for issuance under the 1996 Plan. Under
the 1996 Plan, employees, non-employee Board members and consultants
may, at the discretion of the Plan Administrator, be granted options
to purchase Ordinary Shares at an exercise price of not less than 85%
of their fair market value on the grant date. A total of 3,250,000
options were granted to employees under a Prospectus lodged with the
Australian Securities Commission on 7 June 1996. The exercise price
of the options shall be the A$ equivalent of a price of US$1.40 on the
day of exercise. The first half of these granted options vested in
the option holders on 30 June 1996, provided the option holders
remained as employees of the Company on that date. The remaining
granted options vest in the option holders on 30 June 1997, provided
the option holders remain employees of the Company on that date.
Currently 68 persons are eligible to participate in the scheme.
A further 195,000 options were granted to employees under a Prospectus
lodged with the Australian Securities Commission on 14 November 1996.
The exercise price of the options shall be the A$ equivalent of a
price of US$0.75 on the day of exercise. The first half of these
granted options vested in the option holders on 31 December 1996,
provided the option holders remained as employees of the Company on
that date. The remaining granted options vest in the option holders
on 31 December 1997, provided the option holders remain employees of
the Company on that date. Currently 2 employees are eligible to
participate in the scheme.
3,069,990 A$0.004 ordinary shares have been vested under the 1996 Plan
as at 31 December 1997. Of such options, 2,912,490 and 157,500 were
vested with an exercise price of the Australian dollar equivalent of
US$1.40 and US$0.75 per A$0.004 Ordinary Shares respectively. The
options with an exercise price of US$1.40 and US$0.75 must be
exercised by July 2000 and November 2001, respectively. Under the
1996 Plan, employees, non-employee Board members and consultants may,
at the discretion of the Plan Administrator, be granted options to
purchase Ordinary Shares at an exercise price not less than 85% of
their fair market value on the grant date. As at 31 December 1997,
114,990 Ordinary Shares called for by such options were held by
directors and officers as a group.
Subsequent to year end options to acquire 1,080,000 ordinary shares
were granted on January 6, 1998 with an exercise price of A$12. Of
these options 50% vest in the option holders on December 31, 1998 and
50% vest on December 31, 1999
These options do not entitle the holder to participate, by virtue of
the options, in any share issue of any other corporation. No options
have been exercised as at the date of this report. No unissued
shares, other than those referred to above, are under option as at the
date of this report.
8. DIRECTORS' BENEFITS
No director of the Company has since the end of the previous financial
period, received or become entitled to receive a benefit (other than a
benefit included in the total amount of emoluments received or due and
receivable by directors shown in the financial statements), by reason
of a contract made by the Company, a controlled entity or a related
body corporate with the directors or with a firm of which the director
is a member, or with an entity in which the director has a substantial
financial interest other than the transactions detailed in Note 24 of
the financial statements.
9. INFORMATION ON DIRECTORS
<TABLE>
<CAPTION>
PARTICULARS OF DIRECTORS'
QUALIFICATIONS AND INTEREST IN SHARES OF
DIRECTOR EXPERIENCE SPECIAL RESPONSIBILITIES OZEMAIL LIMITED
<S> <C> <C> <C>
M Turnbull Chairman, BA, LLB Chairman of the Board of 17,500,000
(Sydney), BCL (Oxon) Directors, Member of Executive
Committee
D Spence B.Com,Dip.Fin.Acc.CA(SA) Chief Operating Officer -
Managing Director
S Howard Director Founding shareholder and Chief 35,000,000
Executive Officer
T Kennedy Director Non-executive Director 17,500,000
S Ezzes Director, BA, MBA (UCLA) Authorised U.S representative 150,000
C Tyler Director - -
</TABLE>
The particular of directors' interests in shares are as at the date of
this directors' report.
10. INDEMNIFICATION AND INSURANCE OF OFFICERS
During the financial year the Company entered into agreements to
indemnify all directors of the Company named in paragraph 1 of this
report and current and former executive officers of the Company and
its controlled entities against all liabilities to persons (other than
the Company or a related body corporate) which arise out of the
performance of their normal duties as director or executive officer
unless the liability relates to conduct involving a lack of good
faith. The Company has agreed to indemnify the directors and
executive officers against all costs and expenses incurred in
defending an action that falls within the scope of the indemnity and
any resulting payments.
During the financial year the Company paid insurance premiums
totalling $154,700 in respect of directors' and officers' liability
insurance, named in this report. The policies do not specify the
premium for individual directors and executive officers.
The directors' and officers' liability insurance provides cover
against all costs and expenses involved in defending legal action and
any resulting payments arising from a liability to persons (other than
the Company or a related body corporate) incurred in their position as
director or executive officer unless the conduct involves a wilful
breach of duty or an improper use of inside information or position to
gain advantage.
For and on behalf of the board
M Turnbull
Chairman
Sydney S Howard
24 April 1998 Chief Executive Officer
Schedule 5
OzEmail Limited and Controlled Entities
ACN 066 387 157
Directors' Statement
In accordance with a resolution of the directors of OzEmail Limited, in the
opinion of the directors:
(a) the accounts of the Company are drawn up so as to give a true and fair
view of the profit of the Company for the period ended 31 December
1997 and the state of affairs of the Company as at 31 December 1997;
(b) at the date of this statement there are reasonable grounds to believe
that the Company will be able to pay its debts as and when they fall
due; and
(c) the consolidated accounts of the economic entity have been made out in
accordance with Divisions 4A and 4B of the Corporations Law and so as
to give a true and fair view of the profit of the economic entity for
the period ended 31 December 1997 and the state of affairs of the
economic entity as at 31 December 1997.
The accounts have been made out in accordance with applicable accounting
standards and Urgent Issues Group Consensus Views.
For and on behalf of the board
M Turnbull
Chairman
Sydney S Howard
24 April 1998 Chief Executive Officer
<PAGE> 113
EXHIBIT 99.5 --
FURTHER NOTICE OF GENERAL
MEETING TO SHAREHOLDERS
REGARDING GENERAL MEETING
OF SHAREHOLDERS HELD ON
MAY 29, 1998
FURTHER NOTICE OF GENERAL MEETING
OZEMAIL LIMITED
ACN 066 387 157
FURTHER to the NOTICE OF ANNUAL GENERAL MEETING of OzEmail Limited (the
"Company") for a general meeting to be held at Ground Floor, the OzEmail
Centre, 39 Herbert Street, St Leonards, Sydney, Australia, on Friday,
May 29, 1998 at 10 am Australian eastern standard time to conduct the
following business:
1. To receive and consider the profit and loss account and statement
of cash flows of the Company for the year ended 31 December 1997,
and the balance sheet of the Company as at 31 December 1997.
2. To receive and consider the directors' report
3. To receive and consider the auditor's report
4. To elect directors:
(a) Mr. Trevor Kennedy who retires by rotation in accordance with
Article 14.7 of the Company?s Articles of Association and,
being eligible, offers himself for re-election.
(b) Mr. David Spence who retires by rotation in accordance with
Article 14.7 of the Company's Articles of Association and,
being eligible, offers himself for re-election.
(c) Mr. Chris Tyler, who retires in accordance with Article 14.4
of the Company's Articles of Association after being appointed
by the Board of the Company since the last Annual General
Meeting and, being eligible, offers himself for re-election.
FURTHER NOTICE IS HEREBY GIVEN that at the annual general meeting of the
Company on 29 May 1998 at 10.00 am Australian Eastern Standard time at
Ground Floor, the OzEmail Centre, 39 Herbert Street, St Leonards,
Sydney, New South Wales, Australia, the following additional items of
business are to be to be considered as items of ordinary business.
5. To consider and, if thought fit, pass the following resolution as
an ordinary resolution:
<PAGE> 114
"That approval is given to, pursuant to a Sale and
Purchase Agreement relating to Access One between the
Company and Solution 6 Holdings Limited ("Solution 6")
dated 25 November 1997 (the "Agreement") , the allotment
on 25 November, 1997 of 7,200,000 ordinary fully paid
A$0.004 shares of the Company to Solution 6 and in
accordance with, and subject to the conditions of, the
Agreement the allotment of up to a further 2,800,000
ordinary fully paid $A0.004 shares of the Company to
Solution 6 all such shares having an issue price of
US$1.0875, convertible to an Australian dollar equivalent
on the date of allotment, per ordinary share."
(see Explanatory Statement)
6. To consider and, if thought fit, pass the following resolution as
an ordinary resolution:
"The allotment of 1,103,240 ordinary fully paid A$0.004
shares of the Company to Camtech (SA) Pty Limited
("Camtech") for an issue price per ordinary share of
A$2.5379 on 31 March, 1998 is approved."
(see Explanatory Statement)
7. To consider and, if thought fit, pass the following resolution as
an ordinary resolution:
"The allotment of 5,400,000 ordinary fully paid A$0.004
shares of the Company to ANZ Nominees Limited, as trustee
for Ligapart AG, for an issue price of A$3.4072 per
ordinary share on 24 April, 1998, is approved."
(see Explanatory Statement)
By order of the Board,
Michael Hughes
Company Secretary
<PAGE> 115
NOTES
A member entitled to attend and vote at the annual general meeting may
appoint 1 or 2 persons to attend and vote at the meeting as the member's
proxy.
A proxy need not be a member. If 2 proxies are appointed, each proxy
must be appointed to represent a specified proportion of the member's
voting rights.
Proxies may only be appointed by returning the enclosed proxy form to
the secretary at the Company's registered office no later than 10:00 am
Australian eastern standard time, Wednesday May 27, 1998. The proxy form
must be signed by the member or an attorney duly authorized in writing.
If the member is a company, the form must be executed under the seal of
the company, or by its duly authorised officer or attorney.
A proxy form in respect of the above items of business is included with
this Notice.
EXPLANATORY STATEMENT
TO FURTHER NOTICE OF ANNUAL GENERAL MEETING
ITEM 5
These fully paid shares were issued as part consideration for the
acquisition by the Company of Access One Pty Limited, the Internet
service business of Solution 6 on 25 November, 1997. The Company is
seeking subsequent approval of this issue to satisfy the requirements of
Australian Stock Exchange Limited (ASX) Listing Rule 7.4 for its listing
on the ASX. These fully paid ordinary shares are entitled to all the
rights all existing issued ordinary shares of the Company are entitled
to under the Company's Articles of Association.
Pursuant to the Agreement of 25 November, 1997 up to a further 2,800,000
shares are to be issued to Solution 6 by the Company subject to
resolution of certain outstanding adjustments provided for in that
Agreement. If these shares are issued to Solution 6 pursuant to this
approval, they will be issued within three months from the date of this
meeting. The allotment of these shares will occur progressively. The
Company is seeking approval from the meeting under Listing Rule 7.1
prior to this issue.
The Company will disregard any votes cast on a resolution by Solution 6
and an associate of Solution 6. However, the Company need not disregard
a vote if it is cast by a person as proxy for a person who is entitled
to vote, in accordance with the directions on the proxy form; or it is
cast by the person chairing the meeting as proxy for a person who is
entitled to vote, in accordance with a direction on the proxy form to
vote as the proxy decides.
<PAGE> 116
ITEM 6
These fully paid ordinary shares were issued as part consideration for
the acquisition by the Company from Camtech of its Internet service
business The Company is seeking subsequent approval of this issue to
satisfy the requirements of ASX Listing Rule 7.4 for its listing on the
ASX. These fully paid ordinary shares are entitled to all the rights all
existing issued ordinary shares of the Company are entitled to under the
Company's Articles of Association.
The Company will disregard any votes cast on a resolution by Camtech
and an associate of Camtech. However, the Company need not disregard a
vote if it is cast by a person as proxy for a person who is entitled to
vote, in accordance with the directions on the proxy form; or it is cast
by the person chairing the meeting as proxy for a person who is entitled
to vote, in accordance with a direction on the proxy form to vote as the
proxy decides.
ITEM 7
These fully paid ordinary shares were issued as consideration for the
acquisition by OzEmail Fax Investments Pty Limited (a controlled entity
of the Company) of 3,700,000 fully paid Ordinary Shares in OzEmail
Interline Pty Limited. The Company is seeking subsequent approval of
this issue to satisfy the requirements of Australian Stock Exchange
Limited (ASX) Listing Rule 7.4 ahead for its listing on the ASX. These
fully paid ordinary shares are entitled to all the rights all existing
issued ordinary shares of the Company are entitled to under the
Company's Articles of Association.
The Company will disregard any votes cast on a resolution by Ligapart
and an associate of Ligapart. However, the Company need not disregard a
vote if it is cast by a person as proxy for a person who is entitled to
vote, in accordance with the directions on the proxy form; or it is cast
by the person chairing the meeting as proxy for a person who is entitled
to vote, in accordance with a direction on the proxy form to vote as the
proxy decides.
<PAGE> 117
OZEMAIL LIMITED
ACN 066 387 157
FURTHER PROXY FORM FOR ANNUAL GENERAL MEETING ON 29 MAY 1998
The Company Secretary
OzEmail Limited
Level 1, 39 Herbert Street
ST LEONARDS NSW 2065
Name: ________________________________________________________________
Address: _____________________________________________________________
being a member/members of OzEmail Limited, hereby appoint
(name of first proxy) ________________________________________________
(address) ____________________________________________________________
to represent _______ per cent of my/our voting rights, and
(name of second proxy) _______________________________________________
(address) ____________________________________________________________
to represent _______ per cent of my/our voting rights, or in their
absence the chairman of the meeting, as my/our proxy to vote for me/us
on my/our behalf at the general meeting of the Company to be held May
29, 1998 and at any adjournment of that meeting.
I/we direct my/our proxy to vote as indicated below.
(If you wish to indicate how your proxy is to vote, please tick the
appropriate spaces below. If no directions are made, the proxy may
abstain or vote at his or her discretion.)
RESOLUTION FOR AGAINST
5. Pursuant to a Sale and Purchase Agreement relating
to Access One between the Company and Solution 6
Holdings Limited ("Solution 6") dated 25 November
1997 (the "Agreement"), the allotment on 25
November, 1997 of 7,200,000 ordinary fully paid
A$0.004 shares of the Company to Solution 6 and in
accordance with, and subject to the conditions of,
the Agreement the allotment of up to a further
2,800,000 ordinary fully paid $A0.004 shares of the
Company to Solution 6 all such shares having an
issue price of US$1.0875, convertible to an
Australian dollar equivalent on the date of
allotment, per ordinary share.
<PAGE> 118
6. The allotment of 1,103,240 ordinary fully paid
A$0.004 shares of the Company to Camtech (SA) Pty
Limited ("Camtech") for an issue price per ordinary
share of A$2.5379 on 31 March, 1998 is approved.
7. The allotment of 5,400,000 ordinary fully paid
A$0.004 shares of the Company to ANZ Nominees
Limited, as trustee for Ligapart AG, for an issue
price of A$3.4072 per ordinary share on 24 April,
1998, is approved.
Signed: ___________________________
Date: _____________________________
<PAGE> 119
EXHIBIT 99.6 --
PRESS RELEASE, DATED
JUNE 9, 1998, ISSUED BY
OZEMAIL ANNOUNCING ITS
AGREEMENT TO SETTLE THE
APRA ACTION
To the Australian Stock Exchange for release to the market:
OzEmail Limited ("OzEmail") and the Australian Performing Rights Association
("APRA") are pleased to announce that they have reached an agreement as to the
terms of settlement of the APRA's Federal Court action against OzEmail. The
action dates back to March 1997 when APRA commenced proceedings against OzEmail
for infringement of its copyright by providing a service to subscribers which
included the transmission of music over the Internet.
Under the terms of the agreement OzEmail will make payment to APRA but makes no
admission of liability in connection with the proceedings in the Federal Court.
The amount of the payment is confidential.
APRA undertakes not to institute further proceedings against OzEmail or any
other ISP which joins the settlement agreement. The settlement agreement
applies until 30 June 1999 or until new Commonwealth copyright legislation is
proclaimed.
