<PAGE> 1
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-18121
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------------------
AMENDMENT NO. 1 to
FORM S-1
Registration Statement Under
The Securities Act of 1933
------------------------------------
EURONET SERVICES INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6099 74-2806888
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
ZSIGMOND TER 10
H-1023 Budapest
Hungary
011-361-335-1224
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM
1633 Broadway
New York, New York 10019
(212) 664-7666
(Name, address and telephone number of agent for service)
------------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES M. BARTOS, ESQ. CARTER STRONG, ESQ.
Shearman & Sterling Arent Fox Kintner Plotkin & Kahn
199 Bishopsgate 1050 Connecticut Avenue, N.W.
London EC2M 3TY England Washington, D.C. 20036
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
------------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, par value $0.02 per share........ 6,095,000 $14 $85,330,000 $25,857.58
</TABLE>
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(1) Includes an additional 795,000 shares of Common Stock which the Underwriters
(as defined in the Prospectus included herein) have the option to purchase
pursuant to a 30-day over-allotment option. The amount of shares of Common
Stock registered also includes any shares initially offered or sold outside
the United States that are thereafter sold or resold in the United States.
Offers and sales of shares outside the United States are being made pursuant
to Regulation S and are not covered by this Registration Statement.
(2) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for purposes of computing the amount of the registration
fee.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED , 1997
LOGO
5,300,000 SHARES
COMMON STOCK
------------------------
Of the shares (the "Shares") of Common Stock (the "Common Stock") being
offered in the Offering, 3,038,650 shares are being offered by Euronet Services
Inc. ("Euronet" or the "Company") and 2,261,350 Shares are being offered by
certain shareholders of the Company (the "Selling Shareholders"). See "Principal
and Selling Shareholders". The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Shareholders. A portion of the Shares
offered hereby are being offered outside the United States.
Prior to the Offering, there has been no public market for the Shares. It
is currently expected that the initial public offering price per share in the
Offering will be between $12 and $14. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH THE OFFERING.
------------------------
Application has been made to have the Common Stock listed on the Nasdaq National
Market under the symbol "EEFT".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE SELLING
OFFERING PRICE DISCOUNT(1) THE COMPANY(2) SHAREHOLDERS(2)
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<S> <C> <C> <C> <C>
Per share...................... $ $ $ $
Total(3)....................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters (as defined in "Underwriting") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(2) Before deducting estimated expenses of $ , of which $ and
$ are payable by the Company and the Selling Shareholders,
respectively, in connection with the Offering. See "Underwriting".
(3) The Company has granted to the Underwriters an option exercisable for 30
days from the date of this Prospectus to purchase, or procure purchasers
for, up to an additional 795,000 Shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If such option is exercised in full, the
total initial public offering price, underwriting discount and proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting".
------------------------
The Shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the Shares offered hereby will be made at the offices of ING Baring (U.S.)
Securities, Inc., on or about , 1997.
------------------------
ING BARINGS
------------------------
The date of this Prospectus is , 1997
<PAGE> 3
No action has been or will be taken in any jurisdiction by the Company, the
Selling Shareholders or by any Underwriter that would permit a public offering
of the Shares or possession or distribution of a prospectus in any jurisdiction
where action for that purpose is required other than in the United States.
Persons into whose possession this Prospectus comes are advised by the Company,
the Selling Shareholders and the Underwriters to inform themselves about, and to
observe any restrictions as to, the offering of the Shares and the distribution
of this Prospectus.
Offers and sales of shares of Common Stock outside the United States are
being made pursuant to Regulation S and such shares are not being registered
under the U.S. Securities Act of 1933, as amended (the "Securities Act") for the
purpose of sales outside the United States. A registration statement under the
Securities Act is in effect for offers and sales in the United States of shares
of Common Stock that were initially offered or sold outside the United States.
------------------------
The Euronet logo is a trademark of the Company. Except as otherwise
specified, all information in this Prospectus assumes that the Underwriter's
over-allotment option is not exercised.
------------------------
Unless the context otherwise indicates, references herein to Euronet or the
Company include Euronet Services Inc. and its subsidiaries and their respective
predecessor companies. References to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") a
registration statement (herein, together with all amendments, exhibits and
schedules thereto, referred to as the "Registration Statement") under the
Securities Act, with respect to the securities offered hereby. This Prospectus,
which is part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Shares, reference is
hereby made to the Registration Statement.
As a result of the Offering, the Company will become subject to the
reporting requirements of the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, including the
exhibits and schedules thereto, and reports and other information filed by the
Company with the Commission can be inspected without charge and copied, upon
payment of prescribed rates, at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and the Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material and any part thereof will also be available by mail from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates, and via the Commission's address on the World Wide
Web at http://www.sec.gov.
------------------------
IN CONNECTION WITH THE OFFERING, ING BARING (U.S.) SECURITIES INC. AND ITS
AFFILIATES, ON BEHALF OF THE UNDERWRITERS, MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements appearing elsewhere in
this Prospectus. Except as otherwise indicated herein, all information in this
Prospectus has been adjusted to give effect to the reorganization of the
Company, which is subject to and effective upon the execution of the
underwriting agreement to be executed in connection with the Offering, pursuant
to which (i) 10,296,076 shares of Common Stock will be issued to the
shareholders of Euronet Holding N.V. in exchange for all of the Common Shares of
Euronet Holding N.V., (ii) options to acquire 3,113,355 shares of Common Stock
will be granted to the holders of options to acquire 3,113,355 Common Shares of
Euronet Holding N.V. in exchange for all of such options and (iii) awards with
respect to 800,520 shares of Common Stock will be issued to the holders of
awards with respect to 800,520 preferred shares of Euronet Holding N.V. in
exchange for all such awards (the "Reorganization"). Euronet Holding N.V. will
be dissolved following the Reorganization. See "Certain Transactions."
THE COMPANY
Euronet operates the only independent, non-bank owned automatic teller
machine ("ATM") network in Central Europe, as a service provider to banks and
other financial institutions. The Company was established in 1994, commenced
operations in June 1995 and as of December 31, 1996 operated a network of 166
state-of-the-art ATMs, 131 of which are located in Hungary and 35 of which are
located in Poland. Through agreements and relationships with local banks and
international card issuers and ATM networks such as American Express, VISA,
Plus, Mastercard, Europay and Cirrus (together "International Card
Organizations") Euronet's ATMs are able to process ATM transactions for holders
of credit and debit cards issued by or bearing the logo of such banks and
International Card Organizations. The Company receives a fee from the card
issuing banks or International Card Organizations for all ATM transactions
processed on its ATMs. The Company also offers outsourced ATM management
services to local banks that own proprietary ATM networks for which the Company
also receives fees on a per transaction basis as well as a monthly basis.
The Company believes that the services it provides permit it to capitalize
on the trends developing in the Central European banking market and other
banking markets. Bank account usage and credit and debit card issuance are
increasing in Central Europe as the demand for banking services continues to
grow in the region. Connecting to the Company's ATM network enables banks to
offer their customers the convenience of cash withdrawal and balance inquiry
services in numerous off-site locations without incurring additional branch
operational costs such as personnel costs. In addition, the Company believes
that the services it offers are attractive to domestic banks in the increasingly
competitive banking market in Central Europe because such banks can generally
connect to Euronet's network with less labor and expense than building their own
networks. In addition, banks can outsource the management of their proprietary
ATM networks to the Company. These services allow banks to provide ATM access to
their customers, expanding the range of banking services they offer. "Western"
banks entering the Central European market are already accustomed to the concept
of shared ATM networks and have begun to connect to Euronet's ATM network.
As of December 31, 1996, Euronet's ATMs accepted approximately 99% of the
credit and debit cards issued in Hungary and approximately 25% of the credit and
debit cards issued in Poland. In addition, all major international credit and
debit cards, including those bearing the VISA, Plus, Europay, Mastercard and
Cirrus logos and American Express cards, may be used at Euronet's ATMs located
in Hungary and all VISA, Plus and American Express cards may be used at
Euronet's ATMs located in Poland. The Company has entered into an agreement to
accept all credit and debit cards bearing the Europay, Mastercard and Cirrus
logos at its ATMs in Poland expected to be implemented in the first half of
1997.
The Company's strategy, for the short term, is to become the leading
low-cost ATM service provider in Central Europe meeting western standards of
reliability and customer service and, for the medium term, to become a leading
provider of a broader range of electronic fund transfer services in the region.
The key elements of Euronet's strategy are to expand its ATM network in Hungary,
Poland, Germany and other markets; continue to form strategic relationships with
banks and International Card Organizations; expand the range of services
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<PAGE> 5
offered beyond the basic cash withdrawal function, such as point of sale
authorization and bill paying; and expand ATM network management services.
There can be no assurance that the Company will be able to implement its
strategy successfully. The Company's ability to implement its strategy and
achieve its goals will depend on various factors including the increased demand
for ATM services and increased issuance of credit and debit cards in the
Company's current target markets, the ability to locate appropriate sites and
obtain necessary approvals for the installation of ATMs, the ability to install
and operate ATMs in an efficient and timely manner, the expansion of the
Company's business into new countries as currently planned, entering into
additional Acceptance Agreements with banks, the ability to obtain sufficient
numbers of ATMs on a timely basis and the availability of financing for such
expansion and competition from other ATM networks.
The Company's principal executive offices are located at Zsigmond ter 10,
H-1023 Budapest, Hungary, and its telephone number at such address is
011-361-335-1224.
THE OFFERING
TOTAL SHARES OFFERED IN THE
OFFERING(1).............. 5,300,000 Shares
SHARES TO BE OFFERED BY THE
COMPANY.................. 3,038,650 Shares
SHARES TO BE OFFERED BY THE
SELLING SHAREHOLDERS..... 2,261,350 Shares
SHARES TO BE OUTSTANDING
AFTER THE OFFERING(1)(2)... 14,440,068 Shares
OVER-ALLOTMENT OPTION...... In connection with the Offering, the Company will
grant to the Underwriters an option exercisable for
30 days from the date of this Prospectus to
purchase up to 795,000 additional Shares, solely to
cover over-allotments, if any, at the initial
public offering price. See "Underwriting."
USE OF PROCEEDS............ Assuming an offering price of $13 per Share (the
midpoint of the range on the cover page of this
Prospectus) and no exercise of the over-allotment
option granted to the Underwriters, the net
proceeds to the Company and the Selling
Shareholders from the Offering, after deducting
underwriting discounts and commissions and
estimated offering expenses, are estimated to be
approximately $36 million and $28 million,
respectively. The Company will not receive any of
the proceeds from the sale of the Shares by the
Selling Shareholders. Approximately $30 million to
$33 million of the proceeds to the Company will be
used to implement the Company's strategy of
expanding its independent ATM network in Hungary,
Poland, Germany and other markets. The remainder of
the net proceeds to be received by the Company
(approximately $3 million to $7 million) will be
used for general corporate purposes, including
possible acquisitions and joint ventures consistent
with its strategic goals. See "Use of Proceeds."
DIVIDENDS.................. The Company currently intends to retain all future
earnings, if any, to fund the development and
growth of its business. Consequently, the Company
does not anticipate paying dividends on the Shares
in the foreseeable future. See "Dividend Policy."
PROPOSED LISTING........... Application has been made to have the Shares listed
on the Nasdaq National Market under the symbol
"EEFT."
- ---------------
(1) Does not include up to 795,000 shares of Common Stock that may be offered
pursuant to the exercise by the Underwriters of the over-allotment option
granted by the Company to the Underwriters. See "Underwriting."
(2) Does not include 2,808,533 shares of Common Stock reserved for issuance
under the Company's stock option plans.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below with respect to the
Company's statement of operations data for the period from June 22, 1994
(inception) to December 31, 1994 and the years ended December 31, 1995 and 1996
and with respect to the balance sheet data as of December 31, 1994, 1995 and
1996 have been derived from, and are qualified by reference to, the audited
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Prospectus (the "Consolidated Financial Statements"), prepared
in accordance with U.S. GAAP, which have been audited by KPMG Polska Sp. z o.o.,
independent public accountants. The Company believes that the period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 22,
1994
YEAR ENDED DECEMBER (INCEPTION)
31, TO
---------------------- DECEMBER 31,
1996 1995 1994
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(IN THOUSANDS EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 1,261 $ 62 $ --
Loss before income taxes.............................. (4,164) (2,089) (228)
Net loss.............................................. (3,841) (1,941) (228)
Pro forma net loss per share.......................... (0.28)
Pro forma number of shares outstanding(1)............. 13,823,775
</TABLE>
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(1) See Note 2(k) to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus for an explanation of the pro forma number of
shares outstanding used in determining pro forma net loss per share.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1996 1995 1994
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(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,541 $ 411 $2,036
Working capital........................................... 670 526 2,071
Total assets.............................................. 12,124 4,519 2,527
Capital lease obligations, less current portion........... 3,834 1,119 --
Total shareholders' equity................................ 4,699 2,097 2,422
</TABLE>
5
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RISK FACTORS
The Shares involve a high degree of risk. Accordingly, prospective
purchasers of shares of Common Stock should consider carefully all of the
information set forth in this Prospectus and, in particular, the risks described
below, prior to making any investment decision.
LIMITED OPERATING HISTORY; HISTORY OF AND ANTICIPATED FUTURE OPERATING LOSSES
AND NEGATIVE CASH FLOW
The Company has had a limited operating history. For the period from June
22, 1994 (inception) to December 31, 1994 and the years ended December 31, 1995
and 1996, the Company had net losses of approximately $228,000, $1.9 million and
$3.8 million, respectively, resulting in an aggregate net loss of $6.0 million
as of December 31, 1996. The Company expects to continue to generate losses from
operating activities while it concentrates on the development and expansion of
its ATM network business. As a result of the Company's strategy of continuing
expansion and increasing its market share, the Company's net losses are expected
to increase over the near term. There can be no assurance that the Company will
achieve or sustain profitability or generate significant revenues in the future
or have sufficient resources at any time to pay cash dividends on the Shares.
See "Consolidated Financial Statements" including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SIGNIFICANT CAPITAL REQUIREMENTS
The development and expansion of the Company's ATM network and its ATM
management services operations in Hungary, Poland, Germany and other markets,
and the resulting operating losses will require substantial additional cash from
outside sources. The Company anticipates that its substantial cash requirements
will continue into the foreseeable future. Based on the Company's plans with
respect to the installation of ATMs and the provision of ATM management services
in Hungary, Poland, Germany and other markets in the near to medium term, and
the Company's requirements with respect to related infrastructure and
operational costs, management believes the net proceeds from the Offering and
funds expected to be available through financing arrangements will provide
sufficient funds necessary for the Company to expand its business as currently
planned. There can be no assurance, however, that additional financing will not
be required or will be available to the Company or, if available, that it can be
obtained on terms acceptable to the Company. Failure to obtain such financing
could result in the delay or abandonment of some or all of the Company's
acquisition, development and expansion plans and expenditures, which could have
a material adverse effect on its business prospects and the value of the Shares
and limit the Company's ability to pay cash dividends on the Shares. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS RELATED TO RAPID EXPANSION OF BUSINESS
The continued rapid expansion and development of the Company's business
will depend on various factors including the increasing demand for ATM services
in the Company's current target markets, the ability to locate appropriate sites
and obtain necessary approvals for the installation of ATMs, the ability to
install ATMs in an efficient and timely manner, the expansion of the Company's
business into new countries as currently planned, entering into additional card
acceptance agreements with banks, the ability to obtain sufficient numbers of
ATMs on a timely basis and the availability of financing for such expansion. In
addition, such expansion may involve acquisitions which, if made, could divert
the resources and management time of the Company and require integration with
the Company's existing networks and services. The Company's ability to manage
effectively its rapid expansion will require it to continue to implement and
improve its operating, financial and accounting systems and to expand, train and
manage its employee base. The inability to manage effectively its planned
expansion could have a material adverse effect on the Company's business,
growth, financial condition and results of operations. See "Business --
Strategy."
DEPENDENCE ON RELATIONSHIPS WITH BANKS AND INTERNATIONAL CARD ORGANIZATIONS
The Company's future growth depends on its ability to sign card acceptance
agreements with banks and International Card Organizations which allow the
Company's ATMs to accept credit and debit cards issued by
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such banks and International Card Organizations as well as the renewal of such
card acceptance agreements, which generally provide for a two to five year term.
The Company's card acceptance agreements with banks generally include renewal
clauses, but provide that either party may elect not to renew an agreement upon
completion of its term. Banks may elect not to renew contracts for reasons
unrelated to the Company and its performance. There can be no assurance that the
Company will be able to continue to sign or maintain such agreements on terms
and conditions acceptable to the Company or that International Card
Organizations will continue to permit Euronet's ATMs to accept their credit and
debit cards. The inability to continue to sign or maintain such agreements or to
continue to accept the credit and debit cards of local banks and International
Card Organizations at its ATMs in the future could have a material adverse
effect on the Company's business, growth, financial condition and results of
operations. See "Business -- Agreements with Card Issuers and International Card
Organizations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the services of certain of its executive
officers for the management of the Company and the implementation of its
strategy. Euronet's strategy and its implementation depend in large part on the
founders of the Company, in particular Michael Brown and Daniel Henry, and their
continued involvement in the Company in the future. The success of the Company
also depends in part upon its ability to hire and retain highly skilled and
qualified operating, marketing, financial and technical personnel. The
competition for qualified personnel in Central Europe is intense and,
accordingly, there can be no assurance that the Company will be able to continue
to hire or retain the required personnel. Although the Company's officers and
certain of its key personnel have entered into service or employment agreements
containing non-competition, non-disclosure and non-solicitation covenants and
providing for the granting of incentive stock options with long-term vesting
requirements, these contracts do not guarantee that these individuals will
continue their employment with the Company. The loss of certain key personnel
could have a material adverse effect on the Company's business, growth,
financial condition and results of operations. See "Management."
DEPENDENCE ON ATM TRANSACTION FEES
Transaction fees from banks and International Card Organizations for
transactions processed on the Company's ATMs have historically accounted for
substantially all of the Company's revenues. The Company expects that revenues
from ATM transaction fees will continue to account for a substantial majority of
its revenues for the foreseeable future. Consequently, the Company's future
operating results are almost entirely dependent on the increased issuance of
credit and debit cards, increased market acceptance of Euronet's services in its
target markets, the maintenance of the level of transaction fees received by the
Company, installation by the Company of larger numbers of ATMs and continued
usage of the Company's ATMs by credit and debit cardholders. A decline in usage
of Euronet's ATMs by ATM cardholders or in the levels of fees received by
Euronet in connection with such usage would have a material adverse impact on
the Company's business, growth financial condition and results of operations.
LEGAL CONSTRAINTS ON CONDUCTING BUSINESS IN GERMANY; DEPENDENCE ON FINANCIAL
INSTITUTIONS
Under German law, ATMs in Germany may be operated only by licensed
financial institutions. The Company, therefore, will not operate its own ATM
network in Germany and will act, under its contract with Service Bank GmbH
("Service Bank"), only as a subcontractor providing certain ATM-related services
to Service Bank. As a result, the Company's activities in the German market
currently are entirely dependent upon the continuance of the agreement with
Service Bank, or the ability to enter into a similar agreement with another bank
in the event of a termination of such contract. The inability to maintain such
agreement or to enter into a similar agreement with another bank upon a
termination of the agreement with Service Bank could have a material adverse
effect on the Company's operations in Germany.
COMPETITION
Principal competitors of the Company include ATM networks owned by banks
and regional networks consisting of consortiums of local banks. Competitive
factors in the Company's business include network
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<PAGE> 9
availability and response time, price, ATM location and access to other
networks. There can be no assurance that the Company will be able to compete
successfully in the future or that competition will not have a material adverse
effect on the Company's business, growth, financial condition and results of
operations. In addition, there can be no assurance that Euronet's competitors
will not introduce or expand alternate methods of electronic funds transfer in
the future which could lead to a decline in the usage of Euronet's ATMs. See
"Business -- Competition."
HOLDING COMPANY STRUCTURE RISKS
The Company conducts all of its operations through its subsidiaries.
Accordingly, the primary internal source of the Company's cash is dividends and
other distributions from its subsidiaries. Each of these subsidiaries was formed
under the laws of, and has its operations in, a country other than the United
States. In addition, each of the Company's operating subsidiaries receives its
revenues in the local currency of the jurisdiction in which it is situated. As a
consequence, the Company's ability to obtain dividends or other distributions is
subject to, among other things, restrictions on dividends under applicable local
laws and foreign currency exchange regulations of the jurisdictions in which its
subsidiaries operate. See "-- Inflation; Exchange Rate and Currency Risk." The
subsidiaries' ability to make distributions to the Company are also subject to
their having sufficient funds from their operations legally available for the
payment thereof which are not needed to fund their operations, obligations or
other business plans and, in some cases, obtaining the approval of the other
partners, stockholders or creditors of these entities. The laws under which the
Company's operating subsidiaries are organized provide generally that dividends
may be declared by the shareholders out of yearly profits subject to the
maintenance of registered capital and required reserves and after the recovery
of accumulated losses. If the Company's subsidiaries are unable to make
distributions to the Company, the Company's growth may be inhibited after the
proceeds of the Offering are exhausted unless the Company is able to obtain
additional debt or equity financing. See "-- Political, Economic and Legal
Risks." The Company may not be able to obtain debt financing if its subsidiaries
cannot make distributions to service the debt financing or obtain upstream
guarantees from its subsidiaries with respect to such debt financing. Because
the Company is the sole shareholder of each of its subsidiaries, the Company's
claims as such will generally rank junior to all other creditors of and
claimants against its subsidiaries. In the event of a subsidiary's liquidation,
there may not be assets sufficient for the Company to recoup its investment
therein.
POLITICAL, ECONOMIC AND LEGAL RISKS
The Company's principal operating subsidiaries currently operate in Hungary
and Poland. These and other countries in Central Europe have undergone
significant political and economic change in recent years. Political, economic,
social and other developments in such countries may in the future have a
material adverse effect on the Company's business. In particular, changes in
laws or regulations (or in the interpretation of existing laws or regulations),
whether caused by change in the government of such countries or otherwise, could
materially adversely affect the Company's business, growth, financial condition
and results of operations. Currently there are no limitations on the
repatriation of profits from Poland or Hungary, but there can be no assurance
that foreign exchange control restrictions, taxes or limitations will not be
imposed or increased in the future with regard to repatriation of earnings and
investments from Poland and Hungary. If such exchange control restrictions,
taxes or limitations are imposed, the ability of the Company to receive
dividends or other payments from its subsidiaries could be reduced, which may
have a material adverse effect on the Company. See "Business -- Government
Regulation."
Annual inflation and interest rates in Hungary, Poland and other countries
in Central Europe have been much higher than those in Western Europe. Exchange
rate policies have not always allowed for the free conversion of currencies at
the market rate. Fluctuations of inflation, interest and exchange rates could
have an adverse effect on the Company's business and the market value of the
Shares.
Corporate, contract, property, insolvency, competition, securities and
other laws and regulations in Hungary, Poland and other countries in Central
Europe have been, and continue to be, substantially revised during their
transition to market economies. Therefore, the interpretation and procedural
safeguards of the new legal and regulatory systems are in the process of being
developed and defined and existing laws and regulations may be
8
<PAGE> 10
applied inconsistently. Also, in some circumstances, it may not be possible to
obtain the legal remedies provided for under those laws and regulations in a
reasonably timely manner, if at all. In addition, transmittal of data by
electronic means and telecommunications is subject to specific regulation in
most Central European countries. Although such regulations have not had a
material impact on the Company's business to date, there can be no assurance
that any changes in such regulation, including taxation or limitations on
transfers of data across national borders, would not have a material adverse
effect on the Company's business, growth, financial condition and results of
operations.
Poland and Hungary generally are considered by international investors to
be emerging markets. There can be no assurance that political, economic, social
and other developments in other emerging markets will not have an adverse effect
on the market value and liquidity of the Shares.
INFLATION; EXCHANGE RATE AND CURRENCY RISK
Although the transaction fees charged by the Company are denominated in
U.S. dollars or inflation adjusted, the Company generally receives payment in
local currency, primarily Hungarian forints and Polish zlotys. Since the fall of
Communist rule, both Hungary and Poland have experienced high levels of
inflation and significant fluctuation in the exchange rate for their currencies.
The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 600% in 1990 to approximately 22% in 1995. In
addition, the exchange rate for the zloty has stabilized and the rate of
devaluation of the zloty has decreased since 1991. However, in Hungary in recent
years, the forint has continued to depreciate, principally by way of
devaluation, against the major currencies of the OECD and has limited
convertibility to other currencies. Significant amounts of the Company's
expenditures, including for the acquisition of ATMs and executive salaries are
made in U.S. dollars or are denominated in U.S. dollars. The Company attempts to
match any assets denominated in currencies other than U.S. dollars with
liabilities denominated in the same currencies. Nonetheless inflation and
currency exchange fluctuations have had, and may continue to have, an effect on
the financial condition and results of operations of the Company.
CONCENTRATION OF OWNERSHIP
After completion of the Offering, directors, officers and certain
significant shareholders of the Company will own beneficially in the aggregate
approximately 63% of the outstanding Shares. Such concentration of ownership may
have the effect of delaying or preventing transactions involving an actual or
potential change in control of the Company, including transactions in which
holders of Shares might receive a premium for their Shares over prevailing
market prices. See "Principal and Selling Shareholders" and "Description of
Capital Stock."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") and By-Laws (the "By-Laws") and of Delaware law
could discourage potential acquisition proposals and could delay or impede a
change in control of the Company. These provisions, among other things: (i)
classify the Company's Board of Directors into three classes serving staggered
three-year terms; (ii) permit the Board of Directors, without further
stockholder approval, to issue preferred stock; and (iii) prohibit the Company
from engaging in a business combination (as such term is defined in the Delaware
law) with interested shareholders, except under certain circumstances. Such
provisions could diminish the opportunities for a stockholder to participate in
tender offers, including tender offers at a price above the then current market
value of the Common Stock. The issuance of preferred stock could also adversely
affect the voting power of the holders of Common Stock. The Company has no
present plans to issue any preferred stock. See "Description of Capital Stock --
Certain Provisions of the Company's Certificate of Incorporation and By-Laws"
and "-- Preferred Stock."
DILUTION TO PROSPECTIVE INVESTORS
Investors subscribing for Shares in the Offering will incur immediate and
substantial dilution in net tangible book value per Share of $9.88 (assuming no
exercise of the over-allotment option and an initial public offering
9
<PAGE> 11
price equal to $13 per Share (the midpoint of the range specified on the cover
page of this Prospectus)). See "Dilution."
ABSENCE OF PRIOR PUBLIC TRADING MARKET FOR THE SHARES
Prior to the Offering, there has been no public trading market for the
Shares. Application has been made to list the Shares on the Nasdaq National
Market in the United States. There can be no assurance that the market price of
the Shares will not decline below the initial public offering price, which was
determined by negotiation among the Company and representatives of the
Underwriters. See "Underwriting" for a description of the factors considered in
determining the initial public offering price of the Shares. The trading price
of the Shares may be subject to wide fluctuations in response to many factors,
including actual or anticipated period-to-period fluctuations in the Company's
operating results, changes in currency exchange rates and other external
factors, including general economic conditions in Poland, Hungary and the
Company's other markets or other events or factors. In addition, the
international stock markets have from time to time experienced extreme price and
volume fluctuations which have particularly affected the market prices for early
high-growth phase companies such as the Company. These broad market fluctuations
may adversely affect the market prices of the Shares.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of Shares following the Offering, or the
perception that such sales could occur, could adversely affect the market price
of the Shares. The Company and its directors, officers and certain other
shareholders have agreed not to offer for sale, sell or otherwise dispose of (or
enter into any transaction which is designed to, or could be expected to, result
in the disposition by any person of), directly or indirectly, any Shares, with
certain limited exceptions, for a period of 180 days after the date of this
Prospectus without the prior written consent of ING Barings on behalf of the
Underwriters. Presently, 10,296,076 Shares, and 9,140,068 Shares after giving
effect to the Offering (assuming the Underwriters' over-allotment option is not
exercised), held by the Company's existing shareholders are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Of such
Shares, after giving effect to the Offering (assuming the Underwriters'
over-allotment option is not exercised), 434,217 Shares will be eligible for
resale under Rule 144 immediately following the expiration of the 180-day
lock-up period described above, 7,297,927 Shares, 466,669 Shares, 710,507 and
664,965 Shares will not be eligible for resale under Rule 144 until March 27,
1998, October 14, 1998, February [7,] 1999 and March [6,] 1999, respectively.
Such Shares may be resold only in compliance with the registration requirements
of the Securities Act or pursuant to an exemption therefrom. In addition,
Michael Brown and the other existing shareholders of the Company were granted
rights entitling them, under specified circumstances, to cause the Company to
register for sale all or part of their shares of Common Stock and to include
such shares in any registered public offerings of shares of Common Stock by the
Company. See "Description of Share Capital -- Registration Rights", "Shares
Eligible for Future Sale" and "Underwriting." In addition, of the 2,808,533
options to purchase Shares outstanding, 1,969,116 are currently exercisable. Any
Shares issued on the exercise of these options would be available for sale
subject to Rule 701 or another exemption from the registration requirements of
the Securities Act (including Regulation S under the Securities Act) following
the expiration of the 180-day lock-up period described above. Furthermore, the
Company intends to register under the Securities Act, as soon as practicable
following the Offering, approximately 3,045,133 shares of Common Stock reserved
for issuance to its employees and directors under its employee benefits plans.
See "Management."
10
<PAGE> 12
USE OF PROCEEDS
Assuming an offering price of $13 per Share (the midpoint of the range on
the cover page of this Prospectus) and no exercise of the over-allotment option
granted to the Underwriters, the net proceeds to the Company from the sale of
the Shares being offered by the Company hereby, after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $36 million. The Company will not receive any proceeds from the
sale of the Shares by the Selling Shareholders.
The Company intends to use approximately $30 million to $33 million of the
proceeds to cover expenditures relating to the expansion and operation of its
ATM network and the provision of ATM management services in Hungary and Poland,
as well as in Germany and other markets. The primary costs incurred to build and
operate the Company's ATM network include installation of ATMs, customs, duties,
lease payments of ATMs, computer and network equipment, telecommunications,
salaries, ATM maintenance and service fees, insurance, and other related items.
Approximately $3 million to $7 million of the proceeds will be reserved for
general corporate purposes, including possible acquisition and joint venture
opportunities consistent with the Company's strategy of expanding its ATM
network and other businesses. Management will have complete discretion with
respect to the application of net proceeds reserved for general corporate
purposes. The Company regularly explores acquisition and joint venture
opportunities, although it currently has no agreements or understandings to
enter into any such transactions. Pending utilization of the net proceeds from
the Offering, the Company intends to invest such proceeds in short-term
investment grade interest-bearing securities.
11
<PAGE> 13
DILUTION
The Company's consolidated net tangible book value as of December 31, 1996
was $4.7 million. "Consolidated net tangible book value" is the consolidated
book value of tangible assets less total liabilities. Investors subscribing for
Shares in the Offering will incur immediate and substantial dilution in net
tangible book value per Share of $9.88 (assuming an initial public offering
price of $13 per Share, the midpoint of the range specified on the cover page of
this Prospectus).
The following table illustrates the effect of the Offering on consolidated
net tangible book value:
<TABLE>
<CAPTION>
PER SHARE
-----------------
<S> <C> <C>
Initial public offering price............................................. $13.00
Consolidated net tangible book value before the Offering(1)............. $ 0.80
Increase in consolidated net tangible book value attributable to new
investors............................................................ $ 2.32
Consolidated net tangible book value after the Offering(2)................ $ 3.12
------
Dilution to new investors purchasing Shares(3)............................ $ 9.88
======
</TABLE>
- ---------------
(1) Consolidated net tangible book value before the Offering per Share is
determined by dividing the Company's consolidated net tangible book value at
December 31, 1996, as adjusted to reflect the proceeds of $3.0 million from
the issuance of preferred stock of Euronet Holding N.V. to General Electric
Capital Corporation in February 1997 and the receipt of $500,000
subscription receivable, by the number of Shares then outstanding (i.e.
historical 9,585,569 shares plus 710,507 shares issued to General Electric
Capital Corporation). See "Certain Transactions -- Financings -- General
Electric Capital Investment."
(2) The total number of outstanding shares for the purposes of calculating
consolidated net tangible book value after the Offering is 14,440,068.
(3) Dilution, for this purpose, represents the difference between the initial
public offering price per Share in the Offering and the consolidated net
tangible book value per Share at December 31, 1996 after giving effect to
the Offering.
The following table sets forth on a pro forma basis as of December 31, 1996
the number of Shares issued by the Company, the total cash consideration paid to
the Company, and the average price per Share paid by existing shareholders and
by new investors purchasing the Shares offered by the Company hereby at an
assumed initial public offering price of $13 per Share, the midpoint of the
range specified on the cover page of this Prospectus:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)(2)............. 11,401,418 79.0% 14,737,627 27.2% $ 1.29
New investors(1)........................ 3,038,650 21.0% 39,502,450 72.8% $ 13.00
--------- ------- ---------- -------
Total(2).............................. 14,440,068 100.0% 54,240,077 100.00%
========= ====== ========== =======
</TABLE>
- ---------------
(1) Sales by Selling Shareholders of 2,261,350 Shares will reduce the number of
Shares held by existing shareholders to 9,140,068 or 63%, and will increase
the number of Shares held by new investors to 5,300,000 or 37%, of the total
number of Shares outstanding after the Offering. See "Principal and Selling
Shareholders." Includes 304,822 Shares to be issued upon the exercise of
options in connection with the Offering and 800,520 Shares to be awarded in
connection with the Offering. See "Management -- Stock Option Plans" and
"Certain Transactions."
(2) Excludes 2,808,533 Shares reserved for issuance upon the exercise of options
to be outstanding upon completion of the Offering (of which options
1,969,116 will then be exercisable) at a weighted average exercise price of
$1.79 per Share. See "Management -- Stock Option Plans."
DIVIDEND POLICY
The Company currently intends to retain all future earnings to fund the
development and growth of its business. Consequently, the Company does not
anticipate paying dividends on the Shares in the foreseeable future. See
"Description of Capital Stock -- Common Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
12
<PAGE> 14
CAPITALIZATION
The table below sets forth the cash and cash equivalents, short-term debt
(including the current portion of long-term debt) and the capitalization of the
Company on a consolidated basis at December 31, 1996 (i) on a historical basis
for the Company's predecessor Euronet Holding N.V., (ii) as adjusted to reflect
the proceeds from the issuance of preferred stock of Euronet Holding N.V. to
General Electric Capital Corporation in February 1997, and the completion of the
Offering (assuming no exercise of the over-allotment option granted to the
Underwriters and an offering price of $13 per share (the midpoint of the range
on the cover page of this Prospectus)) and the receipt of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Description of Capital Stock."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------
HISTORICAL AS ADJUSTED(6)
---------- --------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 2,541 $ 42,435
Short-term borrowings (including current portion of long-term
debt)(1)......................................................... 1,093 637
======= ==========
Capital lease obligations, excluding current portion(2)............ 3,834 3,834
Other long-term liabilities........................................ 103 103
---------- ----------
Total long-term liabilities...................................... 3,937 3,937
Shareholders' equity
Common stock(3),
$0.02 par value; 30,000,000 shares authorized; 9,585,569
shares issued and outstanding (historical); 14,440,068 shares
issued and outstanding (as adjusted)......................... 191 289
Additional paid in capital....................................... 7,494 43,976
Subscription receivable.......................................... (500) --
Accumulated losses(4)............................................ (3,270) --
Restricted reserve(5)............................................ 784 784
---------- ----------
Total shareholders' equity......................................... 4,699 45,049
======= ==========
Total capitalization............................................... 8,636 48,986
======= ==========
</TABLE>
- ---------------
(1) See Notes 7, 8 and 13 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
(2) See Note 8 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
(3) At December 31, 1996, the historical capital stock of Euronet Holding N.V.
consisted of Common Shares, $0.02 par value; 2,100,000 shares authorized;
499,100 shares issued and outstanding; Series A Convertible Preferred
Shares, $0.02 par value; 7,700,000 shares authorized; 4,419,800 shares
issued and outstanding; and Series B Convertible Preferred Shares, $0.02 par
value; 7,700,000 shares authorized; 4,666,669 shares issued and outstanding.
(4) Accumulated losses of Euronet Holding N.V. have been reclassified as
additional paid in capital in connection with the Reorganization.
(5) See Note 4 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
(6) The As Adjusted column reflects: (i) receipt of the proceeds from the sale
of shares to General Electric Capital Corporation ($3,000,000), (ii) receipt
of subscription receivable ($500,000), (iii) receipt of estimated net
proceeds from the Offering ($36,272,000), (iv) receipt of proceeds from the
exercise of awards and options on the date of the Offering ($578,000) and
(v) repayment of certain short term borrowings ($456,000).
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's statement of operations data for the period from June 22, 1994
(inception) to December 31, 1994 and for the years ended December 31, 1995 and
1996 and with respect to the balance sheet data as of December 31, 1994, 1995
and 1996 have been derived from, and are qualified by reference to, the audited
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus, prepared in accordance with U.S. GAAP, which have
been audited by KPMG Polska Sp. z o.o., independent public accountants. The
Company believes that the period-to-period comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication of
future performance. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 22, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, TO
----------------------- DECEMBER 31,
1996 1995 1994
--------- ------- -------------
(IN THOUSANDS EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transaction fees...................................... $ 1,198 $ 62 $ --
Other................................................. 63 -- --
--------- ------- -----
Total revenues..................................... 1,261 62 --
Operating expenses:
ATM operating costs................................... 1,176 510 --
Professional fees..................................... 1,125 394 64
Salaries.............................................. 989 452 49
Foreign exchange loss................................. 383 158 2
Other................................................. 1,599 656 125
--------- ------- -----
Total operating expenses........................... 5,272 2,170 240
Operating loss.......................................... (4,011) (2,108) (240)
Other income/expense:
Interest income....................................... 225 126 12
Interest expense...................................... (378) (107) --
--------- ------- -----
Loss before income taxes................................ (4,164) (2,089) (228)
Deferred tax benefit(1)................................. 323 148 --
--------- ------- -----
Net loss................................................ (3,841) (1,941) (228)
Pro forma loss per share................................ (0.28)
Pro forma number of shares outstanding(2)............... 13,823,775
</TABLE>
- ---------------
(1) See Note 9 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
(2) See Note 2(k) to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus for an explanation of the pro forma number of
shares outstanding used in determining pro forma net loss per share.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 2,541 $ 411 $2,036
Working capital.................................................. 670 526 2,071
Total assets..................................................... 12,124 4,519 2,527
Capital lease obligations, less current portion.................. 3,834 1,119 --
Total shareholders' equity....................................... 4,699 2,097 2,422
</TABLE>
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
OVERVIEW
The Company was formed and established its first office in Budapest,
Hungary in June 1994. In May 1995, the Company opened its second office, in
Warsaw, Poland. To date, Euronet has devoted substantially all of its resources
to establishing its ATM network in Hungary and Poland through the acquisition
and installation of ATMs and computers and software for its transaction
processing center pursuant to capital leases and through the marketing of its
services to local banks as well as International Card Organizations. Euronet
installed its first ATM in Hungary in June 1995, and at the end of 1995, the
Company had 53 ATMs installed. An additional 113 ATMs were installed during 1996
in Hungary and Poland and as of December 31, 1996, the Company's ATM network
consisted of 166 ATMs. With the expansion of operations, the Company has
increased the number of its employees in Hungary from nine as of December 31,
1994 to 27 as of December 31, 1995 and 36 as of December 31, 1996. In Poland,
the Company increased the number of its employees from four as of December 31,
1995 to 21 as of December 31, 1996. The Company's expansion of its network
infrastructure and administrative and marketing capabilities has resulted in
increased expenditures. Further planned expansion will continue to result in
substantial increases in general operating expenses as well as expenses related
to the acquisition and installation of ATMs.
The Company has derived substantially all of its revenues from ATM
transaction fees since inception. Euronet receives a fee from the card issuing
banks or International Card Organizations for ATM transactions processed on its
ATMs. As the Company continues to focus on expanding its network and installing
additional ATMs, the Company expects that transaction fees will continue to
account for a substantial majority of its revenues for the foreseeable future.
The Company recently began to sell advertising on its network by putting
clients' advertisements on its ATMs. Although revenues from advertising have
been insignificant to date, Euronet believes that advertising revenues will
increase as it expands its network and continues to market this service. The
Company also intends to begin generating revenues in May 1997 from ATM network
management services that it offers to banks that own proprietary ATM networks.
It is expected that revenues per transaction generated by the Company's ATM
management services contracts generally will be lower than those generated by
Acceptance Agreements. Due to lower costs resulting from not having to bear the
expense of purchasing, installing and depreciating ATMs, the Company believes
that it nonetheless should obtain margins on providing such services similar to
those obtained in operating its own ATM network where the Company bears the
costs associated with acquiring and installing the ATMs. See "Business -- Other
Services."
The Company was in the development stage until June 1995 when it began
operations. The Company did not have significant operations or revenues during
this period. In addition, the period from June 22, 1994 (inception) to December
31, 1994 does not represent a full year of operations. As a result, a comparison
of the Company's results of operations between such years is not necessarily
meaningful.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 AND
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE PERIOD FROM JUNE 22, 1994
(INCEPTION) TO DECEMBER 31, 1994
Revenues. Total revenues increased to $1,261,000 for the year ended
December 31, 1996 from $62,000 for the year ended December 31, 1995. The Company
generated no revenues during the period from June 22, 1994 (inception) through
December 31, 1994. The increase in revenues in 1996 was due primarily to the
significant increase in transaction fees resulting from the increase in
transaction volume attributable to additional network connections to credit and
debit card issuers and an increase in the number of ATMs operated by the Company
during the year ended December 31, 1996. The Company had no ATMs installed until
June 1995 and it had 53 ATMs and 166 ATMs installed at the end of 1995 and 1996,
respectively. Transaction fee revenue represented approximately 95% of total
revenues for the year ended December 31, 1996 and increased to $1,198,000 from
15
<PAGE> 17
$62,000 for the same period in 1995. Revenues in the year ended December 31,
1995 consisted entirely of transaction fees.
Transaction fees charged by the Company vary for the three types of
transactions that can currently be processed on the Company's ATMs: cash
withdrawals, balance inquiries and transactions not completed because
authorization is not given by the relevant Card Issuer. Approximately 92% of
transaction fees in 1996 were attributable to cash withdrawals, and 8% were
attributable to balance inquiries and transactions not completed because
authorization is not given by the relevant Card Issuer. Transaction fees for
cash withdrawals are generally in excess of $1.00 per transaction while
transaction fees for the other two types of transactions are generally
substantially less.
Other revenues of $63,000 for 1996 consisted primarily of advertising
revenue.
Operating expenses. Total expenses increased by $3,102,000 to $5,272,000
for the year ended December 31, 1996 from $2,170,000 for the year ended December
31, 1995. This increase was due primarily to costs associated with the
installation of significant numbers of ATMs during the period and expansion of
the Company's operations during the period.
Total expenses increased by $1,930,000 to $2,170,000 for the year ended
December 31, 1995 from $240,000 for the period from June 22, 1994 (inception)
through December 31, 1994. This increase was due primarily to costs associated
with the significant expansion of the Company's operations during the period,
including the installation of additional ATMs.
ATM operating costs, which consist primarily of ATM site rentals,
depreciation of ATMs and costs associated with installing and maintaining ATMs
and providing telecommunications and cash delivery services to ATMs increased
$666,000 to $1,176,000 for the year ended December 31, 1996 from $510,000 for
the year ended December 31, 1995. The percentage of ATM operating costs to total
expenses for the year ended December 31, 1996 decreased to 22% as compared to
24% for the same period in 1995. The increase in ATM operating costs was
primarily attributable to costs associated with operating the increased number
of ATMs in the network during the period. The number of ATMs installed increased
from 53 to 166 from December 31, 1995 to December 31, 1996.
ATM operating costs were $510,000 for the year ended December 31, 1995 and
none for the period from June 22, 1994 (inception) through December 31, 1994.
The increase in ATM operating costs was primarily attributable to the
installation of 53 ATMs during 1995. The Company had no ATMs installed during
1994.
Professional fees increased $731,000 to $1,125,000 for the year ended
December 31, 1996 from $394,000 for the year ended December 31, 1995. This
increase was due primarily to legal fees incurred during the year ended December
31, 1996 attributable to the investment by new investors in the Company, the
interim reorganization of the Company into a Netherlands Antilles Company and
the expansion of the Company's operations into Poland. In connection with the
Offering, the Company will be reorganized as a Delaware corporation.
Professional fees for the year ended December 31, 1995 increased to
$394,000 from $64,000 for the period from June 22, 1994 (inception) through
December 31, 1994. The increase in 1995 was due primarily to legal fees
attributable to the execution of an agreement with the Company's investors
providing for additional investments by investors in the Company, the
acquisition of SatComNet Kft., a shell entity with minimal operations, and
additional card acceptance agreements.
Salaries increased $537,000 to $989,000 in the year ended December 31, 1996
from $452,000 in the year ended December 31, 1995. The increase reflected the
increase in the number of employees in the Company, especially in Poland where
the number of employees increased from four to 21 from December 31, 1995 to
December 31, 1996. In Hungary, the Company increased the number of employees to
36 at December 31, 1996 compared to 27 employees at December 31, 1995.
Salaries increased to $452,000 in the year ended December 31, 1995 from
$49,000 in the period from June 22, 1994 (inception) through December 31, 1994.
The increase reflected the significant increase in the number of employees in
the Company during 1995.
16
<PAGE> 18
The Company had foreign exchange losses of $383,000, $158,000, and $2,000
during the years ended December 31, 1996 and 1995, and for the period from June
22, 1994 (inception) through December 31, 1994, respectively. Exchange gains and
losses resulting from remeasurement of assets and liabilities are reported in
determining net loss. See Note 2(c) of the Consolidated Financial Statements. A
substantial portion of assets and liabilities of the Company are denominated in
U.S. dollars, including, for instance, fixed assets, shareholders' equity and
capital lease obligations. Additionally, it is the Company's policy to attempt
to match local currency receivables and payables. Hence, the amount of unmatched
assets and liabilities giving rise to foreign exchange gains and losses is
relatively limited, consisting mostly of cash and cash equivalents.
Other operating expenses, which includes general and administrative
expenses other than salaries, such as office rent, utilities, consulting fees,
travel expenses and lease restructuring costs, increased $943,000 to $1,599,000
in the year ended December 31, 1996 from $656,000 for the same period in 1995.
This increase was due primarily to the growth of operations in both Hungary and
Poland.
Other operating expenses increased to $656,000 in the year ended December
31, 1995 from $84,000 for the period from June 22, 1994 (inception) through
December 31, 1994. This increase was due primarily to expansion of the Company's
operations during 1995.
Other operating expenses for the years ended December 31, 1996 and 1995
include $207,000 and $76,000, respectively, of expenses which the Company has
recorded as charges for penalties relating to the late payments of customs
duties and Hungarian value added taxes in connection with the restructuring of
its ATM leases in Hungary. Prior to this restructuring, such leases were
structured as operating leases for Hungarian accounting purposes (although
treated as capital leases for U.S. GAAP purposes), and its ATMs have therefore
been imported under a temporary import scheme. The ATMs are subject to a
"re-export" requirement and this has the effect of postponing payment of customs
duties. The Company has decided to restructure such lease arrangements as
capital leases for Hungarian accounting purposes, and the Company recorded the
related penalties as other expenses. Customs duties have been capitalized as
part of the cost of the ATMs under capital lease and depreciated over the useful
lives of the ATMs.
Other income/expense. Interest income increased $99,000 to $225,000 for
the year ended December 31, 1996 from $126,000 for the year ended December 31,
1995. The increase was due to larger amounts held in interest bearing accounts
during the year ended December 31, 1996, including restricted cash held as
security for certain of the Company's vendors, banks supplying cash to Euronet's
ATMs and certain other parties. See "-- Liquidity and Capital Resources".
Interest income for the year ended December 31, 1995 increased $114,000 to
$126,000 from $12,000 for the period from June 22, 1994 (inception) through
December 31, 1994. This increase reflected larger amounts held in interest
bearing accounts during the period.
Interest expense relating principally to capital leases of ATMs and
Euronet's computer systems increased $271,000 to $378,000 in the year ended
December 31, 1996 from $107,000 in the year ended December 31, 1995. This
increase was due primarily to the increase of capital lease obligations
outstanding during the period. Interest expense increased to $107,000 in the
year ended December 31, 1995 from none in the period from June 22, 1994
(inception) through December 31, 1994. This increase was due primarily to the
installation of the Company's first ATMs during 1995 and the associated capital
lease interest costs.
Net loss. The Company's net loss increased $1,900,000 to $3,841,000 during
the year ended December 31, 1996 from $1,941,000 for the year ended December 31,
1995 as a result of the factors discussed.
The Company's net loss increased to $1,941,000 during the year ended
December 31, 1995 from $228,000 for the period from June 22, 1994 (inception)
through December 31, 1994 as a result of the factors discussed.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has sustained negative cash flows from
operations and has financed its operations and capital expenditures primarily
through private placements of equity securities and through equipment lease
financing. The net proceeds of such transactions, together with revenues from
operations and interest income have been used to fund aggregate net losses of
approximately $6,000,000 and investments in property, plant and equipment. The
Company had cash and cash equivalents of $2,541,000 and working capital of
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$670,000 at December 31, 1996. The Company also had $818,000 of restricted cash
held as security with respect to cash provided by banks participating in
Euronet's ATM network, to cover guarantees to a customer, as deposits with
customs officials and as deposits relating to ATM equipment leases.
The Company leases the majority of its ATMs under three principal capital
lease arrangements that expire between 1999 and 2001. The leases bear interest
between 11% and 15%. As of December 31, 1996 the Company owed $4.5 million under
such capital lease arrangements. The amount owed by the Company under such lease
agreements is expected to increase significantly as the Company continues to
lease increased numbers of ATMs in pursuit of its business strategy.
The Company expects that its capital requirements will increase in the
future as it pursues its strategy of expanding its network and increasing the
number of ATMs installed. The Company anticipates that its capital expenditures
for the 12 months ending December 31, 1997 will total approximately $9 million,
primarily in connection with the acquisition of ATMs pursuant to capital leases,
including initial down payments and scheduled capital lease payments, and
related installation costs. Aggregate capital expenditures for 1997 and 1998 for
such purposes are expected to reach approximately $30 million which assumes the
installation of approximately 1,700 additional ATMs over the next two years in
accordance with the Company's current strategy. See "Business -- Strategy".
These requirements contemplate both planned expansion in Hungary and Poland and
expected expansion in Germany and certain other Central European markets.
Acquisitions of related businesses in Central Europe and other markets in
furtherance of the Company's strategy would require additional capital
expenditures.
The Company anticipates that the estimated net proceeds of the Offering and
the interest earned thereon, together with its existing capital resources and
anticipated cash flow from planned operations, will be adequate to satisfy its
capital requirements, capital lease payment obligations and other requirements,
including possible acquisitions, until the Company begins to generate sufficient
cash flows to fund its operations. There can be no assurance, however, that the
Company will achieve or sustain profitability or generate significant revenues
in the future. It is possible that the Company may seek additional equity or
debt financing in the future.
INFLATION
Since the fall of Communist rule, both Hungary and Poland have experienced
high levels of inflation and significant fluctuation in the exchange rate for
their currencies. In particular, the Hungarian forint has continued to
depreciate, principally by way of devaluation, against the major currencies of
the OECD in recent years and has limited ability to convert to other currencies.
Although revenues generally are received by the Company in local currency,
primarily Hungarian forints and Polish zlotys, the Company's Acceptance
Agreements and agreements relating to the provision of ATM management services
generally provide for fees denominated in U.S. dollars or that are inflation
adjusted. A significant portion of the Company's expenditures, including costs
associated with the acquisition of ATMs and executive salaries, are made in or
are denominated in U.S. dollars. A substantial portion of the assets and
liabilities of the Company are also denominated in U.S. dollars, including fixed
assets, shareholders' equity and capital lease obligations. The Company attempts
to match local currency receivables and payables. Hence, the amount of unmatched
assets and liabilities giving rise to foreign exchange gains and losses is
relatively limited, consisting mostly of cash and cash equivalents. Due to the
factors mentioned above, the Company does not believe that inflation will have a
significant effect on results of operations or financial condition.
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BUSINESS
OVERVIEW
Euronet operates the only independent, non-bank owned automatic teller
machine ("ATM") network in Central Europe, as a service provider to banks and
other financial institutions. The Company was established in 1994, commenced
operations in June 1995 and as of December 31, 1996 operated a network of 166
state of the art ATMs, 131 of which are located in Hungary and 35 of which are
located in Poland. Through agreements and relationships with local banks and
international card issuers and ATM networks such as American Express, VISA,
Plus, Mastercard, Europay and Cirrus (together "International Card
Organizations") Euronet's ATMs are able to process ATM transactions for holders
of credit and debit cards issued by or bearing the logo of such banks and
International Card Organizations. The Company receives a fee from the card
issuing banks or International Card Organizations for all ATM transactions
processed on its ATMs. The Company also offers outsourced ATM management
services to local banks that own proprietary ATM networks for which the Company
also receives fees on a per transaction basis as well as on a monthly basis.
The Company believes that the services it provides permit it to capitalize
on the trends developing in the Central European banking market and other
banking markets. Bank account usage and credit and debit card issuance are
increasing in Central Europe as the demand for banking services continues to
grow in the region. Connecting to the Company's ATM network enables banks to
offer their customers the convenience of cash withdrawal and balance inquiry
services in numerous off-site locations without incurring additional branch
operational costs. In addition, the Company believes that the services it offers
are attractive to domestic banks in the increasingly competitive banking market
in Central Europe because such banks can generally connect to Euronet's network
with less labor and expense than building their own networks. In addition, banks
can outsource the management of their proprietary ATM networks to the Company.
These services allow banks to provide ATM access to their customers, expanding
the range of banking services they offer. "Western" banks entering the Central
European market are already accustomed to the concept of shared ATM networks and
have also begun to connect to Euronet's ATM network.
As of December 31, 1996, Euronet's ATM machines accepted approximately 99%
of the credit and debit cards issued in Hungary and 25% of the credit and debit
cards issued in Poland. In addition, all major international credit and debit
cards, including those bearing the VISA, Plus, Europay, Mastercard and Cirrus
logos and American Express cards, may be used at Euronet's ATMs located in
Hungary and all VISA, Plus and American Express cards may be used at Euronet's
ATMs located in Poland. The Company has entered into an agreement to accept all
credit and debit cards bearing the Europay, Mastercard and Cirrus logos at its
ATMs in Poland expected to be implemented in the first half of 1997.
HISTORY
The predecessor of Euronet was founded in 1994 by Michael Brown and Daniel
Henry in Budapest. Mr. Brown previously founded Innovative Software and,
subsequent to its merger with Informix Software Inc. ("Informix"), served as
President of Informix. Mr. Brown currently serves as President and Chief
Executive Officer of the Company. In February 1995, the Company became the first
independent ATM network in Europe to be approved by VISA International to
process ATM transactions for VISA/Plus credit and debit cards. In May 1995, the
Company established its second office, in Warsaw. In November 1996 the Company
established operations in Germany. To date the Company has invested
approximately $7.8 million in operational and capital expenditures to establish
its independent ATM network. Euronet's first ATM was installed in Hungary in
June 1995 and as at December 31, 1996 its ATM network consisted of 166 ATMs. The
Company currently employs 58 employees in Hungary, Poland and Germany. Euronet's
revenues have grown from none for the period from June 22, 1994 (inception) to
December 31, 1994 to $62,000 in 1995 and $1,261,000 in 1996.
In March 1996, the predecessor of the Company was reorganized as a holding
company, Euronet Holding N.V., in the Netherlands Antilles. Euronet Services
Inc. was incorporated in Delaware in December 1996 and, conditional upon the
execution of the underwriting agreement to be executed in connection with the
Offering, (i) 10,296,076 shares of its Common Stock will be issued to the
shareholders of Euronet Holding N.V. in exchange for all of the Common Shares of
Euronet Holding N.V., (ii) options to acquire
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3,113,355 shares of its Common Stock will be granted to the holders of options
to acquire 3,113,355 Common Shares of Euronet Holding N.V. in exchange for all
of such options and (iii) awards with respect to 800,520 shares of its Common
Stock will be issued to the holders of awards with respect to 800,520 preferred
shares of Euronet Holding N.V. in exchange for all such awards. Euronet Holding
N.V. will be dissolved following the Reorganization.
STRATEGY
The Company's strategy, for the short term, is to become the leading
low-cost ATM service provider in Central Europe meeting western standards of
reliability and customer service and, for the medium term, to become a leading
provider of a broader range of electronic fund transfer services in the region.
The key elements of Euronet's strategy are as follows:
Expanding its ATM Network in Hungary, Poland and other Central European
Markets. Euronet plans to increase substantially the number of ATMs it operates
and services in Hungary, Poland and other countries in Central Europe, including
Germany, over the next five years. Toward this goal, Euronet currently has
agreements with IBM World Trade Corporation ("IBM") (the supplier of Diebold
ATMs in Europe) and NCR Corporation ("NCR") under which IBM and NCR will provide
up to 800 ATMs for installation by Euronet in the region over the next two
years. In addition, the Company has entered into agreements providing for 50
additional sites for Euronet ATMs in Poland and Hungary and the Company has
identified or is currently in negotiations for approximately 100 new ATM sites
in Poland, 65 new ATM sites in Hungary and 60 new ATM sites in Germany.
The Company's current goal is to have in operation, or to provide ATM
network management services with respect to, between 2,500 to 3,000 ATMs in
Central Europe and other markets by the end of the year 2000. Thereafter, the
Company currently intends to continue to increase the number of ATMs in its
network and to increase the number of ATMs with respect to which it provides ATM
network management services for the foreseeable future. There can be no
assurance that the Company will be able to achieve these goals.
Forming Strategic Relationships with Banks and International Card
Organizations. It is the Company's goal to be able to accept all credit and
debit cards issued in its markets at its ATMs. The Company has entered into
agreements with most of the banks in Hungary that issue credit and debit cards
and Euronet's ATMs are able to accept approximately 99% of all credit and debit
cards issued by Hungarian banks. The Company is attempting to follow this
pattern in Poland. Since the establishment of operations in Poland in May 1995,
Euronet has entered into card acceptance agreements with Wielkopolski Bank
Kredytowy S.A., Bank Depozytowo-Kredytowy w Lublinie S.A., Bank Wspoffipracy
Regionalnej S.A. Krakow and Bank Polska Kasa Opieki S.A. which, upon full
implementation of such agreements, will allow the Company's ATMs to accept
approximately 50% of all credit and debit cards issued by Polish banks,
including all domestically issued VISA, Mastercard and Europay cards. The
Company is actively pursuing contracts to accept credit and debit cards from all
other major banks in Poland, and will do the same in each market it decides to
enter.
The Company's ATMs are able to accept American Express cards and all credit
and debit cards bearing the VISA/Plus logos in Hungary and Poland and all credit
and debit cards bearing the Europay/Mastercard/Cirrus logos in Hungary. The
Company expects that its ATMs in Poland will be able to accept credit and debit
cards bearing the Europay/Mastercard/Cirrus logos during the first half of 1997.
The Company believes that, in addition to providing transaction revenues,
acceptance by such large international ATM card issuers and ATM transaction
authorization centers gives the Company credibility with local banks as it
enters new markets. Therefore, the Company will continue to pursue relationships
with such entities in each market it enters.
Expanding the Range of Services Offered. The Company plans to take
advantage of the various distribution possibilities of ATMs and credit and debit
cards beyond basic cash withdrawal and balance inquiry functions by providing
innovative services through ATMs and other methods of electronic funds transfer
as new technology develops and the demand for such services grows in its
markets. The Company is in the unique position of having connections to the
transaction authorization centers of banks that have issued over 90% of credit
and debt cards in Hungary. In the future, these connections could allow the
Company to act as a central "switch" or connection whereby point of sale
authorization can be given for purchases made with credit and debit cards at
retail
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locations. As the Company develops its business in Poland and connects more
Polish banks to its network, this capability may also develop in Poland.
Euronet also plans to introduce payment processing capabilities on its ATMs
which will allow ATM card holders to pay bills at ATMs. The Company is currently
working to develop an ATM bill paying system that will be made available to
utilities and other service providers for bills that have traditionally required
payment in person at a post office or other central location. Depending on
demand, the Company may also introduce other ATM services currently available in
other markets, including the ability to check stock or mutual fund account
balances and purchase items such as stamps, theatre tickets and travellers
checks at its ATM machines.
The Company's ATMs are modular and upgradeable so they can be adapted for
use with new technologies including computer chip "smart cards" and "electronic
purses". Such devices are electronic debit cards that can be used to withdraw
cash from ATMs and can be "charged up" with electronic funds at an ATM through a
connection with the cardholder's bank via Euronet's network and used to purchase
goods from retail locations.
In addition, the Company plans to continue to sell advertising on its ATMs
allowing clients to put advertisements on the ATM's videoscreens, on receipts
issued by the ATMs and on coupons dispensed with cash from the ATMs.
Expanding ATM Network Management Services. The Company also offers
full-service ATM network management services to banks that own proprietary ATM
networks. Because of the economies of scale involved, the Company can purchase
ATMs, computer equipment, maintenance, telecommunications services, and can
contract with third parties for cash delivery services, less expensively than
most banks in Central Europe. By acquiring these services and this equipment
less expensively, and by running a focused operation, the Company can provide
out-sourced ATM services in most cases less expensively than banks can perform
the same functions internally. In December 1996, the Company signed an agreement
with Budapest Bank to manage its network of over 120 ATMs in Hungary. The
Company has entered into an agreement with GE Capital Corporation under which
the Company will be a preferred provider of ATM network management services to
certain banks controlled by GE Capital Corporation located in a defined
territory. See "-- ATM Network Management Services" and "Certain Transactions --
Financings -- GE Capital Investment."
There can be no assurance that the Company will be able to implement its
strategy successfully. The Company's ability to implement its strategy and
achieve its goals will depend on various factors including increased demand for
ATM services and increased issuance of credit and debit cards in the Company's
current target markets, the ability to locate appropriate sites and obtain
necessary approvals for the installation of ATMs, the ability to install and
operate ATMs in an efficient and timely manner, the expansion of the Company's
business into new countries as currently planned, entering into additional
Acceptance Agreements with banks, the ability to obtain sufficient numbers of
ATMs on a timely basis and the availability of financing for such expansion and
competition from other ATM networks.
THE CENTRAL EUROPEAN FINANCIAL SERVICES MARKET
The economies of the Central European countries, including Hungary and
Poland, are essentially cash based because efficient electronic funds transfer,
ATM services and check cashing and clearing facilities have not yet developed.
Most employees in these countries have historically been paid in cash and most
purchases and bills have been paid for in cash. As a result, bank account usage
has been relatively low in Central Europe compared to Western Europe and the
United States, and the banking industry in Central Europe is less developed than
in Western Europe and the United States. The Central European banking industry
has generally been characterized by low levels of customer service, limited
opening hours and long waits to complete simple transactions. Electronic
banking, including electronic funds transfer, ATM and point of sale services
have recently been introduced in the region, but are still in the early stages
of development.
In recent years bank account usage in Central Europe has grown
substantially as a result of several factors. Legislation recently passed in
Hungary requires that all civil servants receive their salary via direct deposit
to bank accounts or in cash by mail in order to reduce administrative costs
associated with a cash-based payroll system. Many private companies in Hungary
and Poland have also begun issuing their payroll by direct deposit to
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bank accounts. As a result, many people who ordinarily would not have bank
accounts have been forced to open accounts to access their salary. Given the
nature of the banking system in these countries, ATMs are the most convenient
method for such employees to access their salary. The Company expects that
continued utilization of the bank transfer method of administering payroll will
lead to increased bank account usage and increased demand for ATM services in
Central Europe.
In addition, the retail banking industry in Central Europe has become
increasingly competitive in recent years partly because foreign banks have been
permitted to establish branches or invest in local banks in the region. Many
banks in Central Europe have begun to implement strategies for serving and
attracting a larger portion of the retail market in this competitive
environment. Electronic banking is one of the obvious extensions of customer
service options available to increase customer service and enhance customer
loyalty. The Company believes that as banks in Central Europe increase customer
and electronic banking services, bank account usage and credit and debit card
issuance and usage will increase.
In Hungary, the Company estimates that as of December 31, 1996
approximately 22% of the population had bank accounts, which represents an
increase from an estimated 8% of the population at the same time in 1995. The
first ATM card was issued in Hungary in 1989 and as of December 31, 1996, the
Company estimates that there were approximately 1.3 million debit and credit
cards issued in Hungary, which reflects an increase of more than 50% over the
estimated number of credit and debit cards issued as of the same time in 1995.
The Company believes that there were approximately 1,100 ATM machines installed
in Hungary as of December 31, 1996, 130 of which were owned by the Company. The
Company estimates that, based on industry sources, the average number of ATM
transactions per machine on a nationwide basis per month in Hungary in 1996 was
approximately 1,200.
The Polish banking industry is in the very beginning stages of advanced
retail customer service, credit and debit card issuance and electronic banking
services. According to industry sources, it is estimated that approximately 15%
of the population have bank accounts. The Company believes that the market for
retail banking services in Poland is developing rapidly. The Company estimates
that there are currently more than 800,000 international and domestic credit and
debit cards and approximately 450 ATMs in Poland compared to less than 200,000
total credit and debit cards issued and less than 250 ATMs operating one year
ago.
An important factor affecting the increase in bank account usage and credit
and debit card issuance in Central Europe is the growth in the issuance of VISA
and Europay credit and debit cards tied to local bank accounts. The banks in
Hungary and Poland originally issued VISA and Europay cards only to their best
customers at relatively unfavorable terms which often included a high deposit of
hard currency earning little or no interest, high percentage charges per
transaction and high annual fees. Competitive pressure has led to more favorable
terms and the issuance of VISA, Europay and proprietary cards to maintain and
attract customers. As of December 1996, there were approximately 125,000 VISA
cards issued in Poland, compared with less than 10,000 VISA cards in 1992. As of
March 31, 1996, there were approximately 110,000 VISA cards issued in Hungary,
representing an increase of 40% from 80,000 VISA cards as from December 31,
1995. The first Europay card was issued in Poland in 1995 and as of December
1996, there were approximately 200,000 Europay cards issued in Poland. As of
March 31, 1996, there was approximately 336,000 Europay cards issued in Hungary
which represents an increase of 12% from 300,000 Europay cards as of December
31, 1995.
The German ATM market, the Company's next target market for the provision
of ATM management services, is more developed than the Company's other markets.
As of December 31, 1996 the Company estimates that, based on industry sources,
there were approximately 40,000 ATMs and 70 million credit and debit cards
issued in Germany. The Company believes, however, that the ATM market in the
former East Germany is less developed and Euronet intends to focus its ATM
strategy in Germany on this region. Under German law, ATMs are subject to
essentially the same licensing requirements as bank branches and may only be
operated by licensed financial institutions. The Company intends to be a service
provider to banks and it does not anticipate that it will be subject to German
financial institution licensing requirements. As a result of an agreement
between certain card issuing banks in Germany, all ATMs in Germany can accept
virtually all credit and debit cards issued by German financial institutions. As
a result of an agreement to provide ATM management services to Service Bank in
Germany, all of Service Bank's ATMs managed by Euronet in Germany under the
agreement will be able to
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accept virtually all credit and debit cards issued by German financial
institutions. See "-- ATM Network Management Services".
The ATM market is still in its early stages of development in Central
Europe. Based on examples of growth of ATM markets in other countries, the
Company believes that the Central European market should continue to develop
rapidly. For example, Portugal, which is one of the most recently developed ATM
markets in Europe, has seen substantial growth in its ATM market since ATMs and
credit and debit cards were first introduced in 1985. By 1996 there were
approximately 5 million credit and debit cards issued in Portugal which has a
population of approximately 10 million people. In addition, the number of ATMs
in use in Portugal has grown to over 3,000 at the end of 1995. These ATMs
processed approximately 200 million ATM transactions in 1995.
THE EURONET NETWORK
GENERAL
The Company currently operates ATMs in Hungary and Poland and plans to
extend its network and its ATM management services operations to Germany, the
Czech Republic and other countries in Central Europe. Euronet's ATM network
offers banks an opportunity to provide state-of-the-art electronic financial
services and access to an ATM network to their customers at a considerably lower
cost than installing proprietary ATMs. Connecting to Euronet's ATM network also
augments the number of ATMs available to customers of banks that already
maintain their own ATM networks. The technology utilized to build Euronet's ATM
network is designed to be readily accessible and easy to use.
As of December 31, 1996 the Company had 131 ATMs installed in Hungary,
primarily in the country's six largest cities. Euronet has entered into
agreements ("Acceptance Agreements") with most major banks in Hungary that issue
ATM cards allowing all credit and debit cards issued by such banks to be
accepted at Euronet's ATMs. In addition, the Company has entered into agreements
with American Express and sponsor banks that are members of VISA International
and Europay/Mastercard/Cirrus allowing cards issued by American Express and
those cards bearing the VISA/Plus/Europay/Mastercard/Cirrus logos to be used at
Euronet's ATMs in Hungary. As a result of these agreements, Euronet's ATMs in
Hungary accept approximately 99% of the domestic debit and credit cards issued
in Hungary and all major international credit and debit cards.
As of December 31, 1996 Euronet had 35 ATMs installed in Poland. Euronet
has executed Acceptance Agreements with several Polish banks. The Company has
also entered into agreements with American Express and sponsor banks affiliated
with VISA International and Europay allowing all cards issued by American
Express and all credit and debit cards bearing the
VISA/Plus/Europay/Mastercard/Cirrus logos to be used at Euronet's ATMs in
Poland. As a result of these agreements the Company's ATMs in Poland are
currently able to accept 25% of credit and debit cards issued by Polish banks
and it is anticipated that the Company's ATMs in Poland will be able to accept
50% of such credit and debit cards during the first half of 1997. The Company
intends to pursue a strategy similar to that employed in Hungary in order to
reach agreements allowing all credit and debit cards issued in Poland to be used
at Euronet's ATMs.
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In a typical ATM transaction processed by the Company, a debit or credit
cardholder inserts a credit or debit card into an ATM to withdraw funds or
obtain a balance inquiry. The transaction is routed from the ATM to Euronet's
central authorization and processing center (the "Processing Center"). The
Company's Processing Center computers then identify the card issuing banks or
International Card Organizations (the "Card Issuers") by the bank identification
number contained within the card's magnetic strip. The transaction is then
switched to the Card Issuer or its designated processor for authorization. Once
authorization is received, the authorization message is routed back to the ATM
and the transaction is completed.
LOGO
For banks that do not maintain on-line account balance information for
their cardholders, the Company stores such banks' cardholders' authorization
limits on its Processing Center computers and authorizes transactions on behalf
of such banks. The Company transmits records of all transactions processed in
this manner to such banks which then update their own cardholder account
records.
Authorization of ATM transactions processed on Euronet's ATMs is the
responsibility of the Card Issuer. Euronet is not liable for dispensing cash in
error if it receives a proper authorization message from a Card Issuer. Euronet
receives payment from the issuer of the credit or debit card used in a
transaction for processing the transaction, including for transactions that are
not completed because authorization is not given by the relevant Card Issuer.
The fees charged by Euronet to the Card Issuers are independent of any fees
charged by the Card Issuers to cardholders in connection with the ATM
transactions. The Company does not charge the cardholders a fee for using its
ATMs. In many cases the fee charged by a Card Issuer to a cardholder in
connection with a transaction processed at Euronet's ATMs is less than the fee
charged by Euronet to the Card Issuer.
The average number of transactions processed each month at Euronet's ATMs
in Hungary in the last three months of 1996 has increased approximately 25% per
month. In the last three months of 1996, Euronet's ATMs in Hungary averaged
1,699 transactions per ATM per month (1,209 of which were cash withdrawals).
ATM Location
The Company believes that one of the most important factors in determining
the success of an ATM network is the location of the ATMs. While most ATMs owned
by Central European banks are located on the premises of the banks or its
branches or on premises of large employers paying their employees by direct
deposit, all of Euronet's ATMs are located in non-bank sites. The Company's
strategy in pursuing sites for its ATMs is to concentrate on locations that will
provide high visibility and high cardholder utilization. As part of its
strategy, the Company identifies the major high pedestrian traffic regions and
locations where people need access to cash and find it convenient to stop for
cash. Key target locations for Euronet's ATMs include major shopping malls and
intersections; smaller shopping areas or intersections offering grocery stores
and supermarkets and services where people routinely shop; transportation hubs
such as city bus and tram/subway stops, rail and bus stations, airports, and gas
stations; and the tourist and entertainment centers such as historical sections
of cities, cinemas, and recreational facilities.
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Research conducted in the United States indicates that once a cardholder
establishes a habitual pattern of using a particular ATM, there must be
significant problems with a location, such as a machine frequently being out of
service, to change the pattern of usage of a cardholder. It is the Company's
goal to be the first and the fastest to secure key real estate locations and
become the habitual ATM location of card users in its markets.
In Hungary, the Company has obtained agreements to install ATMs at several
outlets of Julius Meinl, a large grocery chain in Hungary, several McDonald's
restaurants, several ARAL, OMV and Shell gas stations, Tesco supermarkets, Ikea
as well as other major retail sites in Budapest, Debrecen, Kaposvar, Gyor and
Szekesfehervar. In Poland, the Company has signed contracts to place ATMs in
many key locations including McDonald's restaurants, British Petroleum, Shell
and ARAL gas stations, the Warsaw Marriott Hotel, Office Depot, Makro Cash and
Carry and Ikea stores, Casinos Poland, and other hotel and retail outlets in the
Polish cities of Warsaw, Szczecin, Gdansk, Poznan, Lodz, Lublin, Krakow,
Katowice, Wroclaw and Czestochowa. It is the Company's strategy to expand its
relationships with such large multinational companies to obtain additional sites
for ATMs in other markets. Before expanding to Poland, Euronet had placed ATMs
at Shell, McDonald's and ARAL locations in Hungary. The Company recently
installed ATMs in the new 450,000 square foot Duna Plaza shopping mall in
Budapest and in the new 600,000 square foot Polus Centre shopping mall in
Budapest.
The Company's agreements for the location of ATMs generally provide for the
location of one or more ATMs inside or adjacent to the premises of the site
provider at minimal rental rates. In Hungary, the agreements generally provide
for an indefinite term. In Poland, the agreements generally provide for a three
to five year term and are renewable for additional three to five year terms. In
some cases, the site providers pay the Company a rental fee for the ATM in
recognition of the benefits that an ATM can bring to a retail outlet. The
Company's leases for ATM sites generally can only be terminated by a site
provider if the Company defaults on its obligations. To date, none of the
Company's leases have been terminated by site providers. The Company can
generally terminate its leases for ATM sites in Poland if transaction volumes at
a site are unacceptable to the Company and can generally terminate its leases
for ATM sites in Hungary for any reason.
Agreements with Card Issuers and International Card Organizations
The Company's Acceptance Agreements with banks generally provide that all
credit and debit cards issued by the banks may be used at all ATM machines
operated by Euronet. The Acceptance Agreements also generally allow Euronet to
receive transaction authorization directly from the card issuing bank or
International Card Organization. Acceptance Agreements generally provide for a
term of three to five years and are generally automatically renewed unless
notice is given by either party prior to the termination date. The Company
generally is able to connect any bank to its network within 30 to 90 days of
signing an Acceptance Agreement.
In addition to the Acceptance Agreements with local banks, Euronet has
entered into Acceptance Agreements with American Express providing for the
acceptance of all credit and debit cards issued by American Express at all of
Euronet's ATMs in Hungary and Poland. Through agreements with local sponsor
banks in Hungary and Poland, Euronet is able to accept all credit and debit
cards bearing the VISA, Plus, Mastercard, Europay and Cirrus logos at its ATMs
in Hungary and all credit and debit cards bearing the VISA and Plus logos at its
ATMs in Poland. The Company has entered into an agreement with a sponsor bank in
Poland to accept all credit and debit cards bearing the Europay, Mastercard and
Cirrus logos at its ATMs in Poland. This agreement is expected to be fully
implemented during the first half of 1997. These arrangements permit Euronet's
ATMs to accept credit and debit cards issued by domestic and foreign financial
institutions bearing the relevant logos. Euronet has a gateway to the central
authorization centers for VISA/Plus and Mastercard/Europay/Cirrus through local
bank sponsors in Hungary and Poland and has direct access to American Express
authorization centers. Prior to being permitted to accept VISA/Plus,
Mastercard/Europay/Cirrus and American Express cards at its ATMs, the Company
was required to demonstrate that it met all standards set by International Card
Organizations to process transactions for such International Card Organizations.
Banks that execute Acceptance Agreements agree to participate in Euronet's
ATM cash supply system. According to this system the banks provide all of the
cash needed to operate the network. Each bank provides its pro rata share of
cash dispensed to cardholders from Euronet's ATMs each day based upon daily
transaction reports generated by Euronet. Cash provided by the banks is
deposited by a third party security company in
25
<PAGE> 27
Euronet's ATMs generally once or twice a week depending on need. Each banking
day, card issuing banks connected to the Euronet network provide cash to the
Company's cash supply company based upon the prior day's transaction reports.
The cash remains the property of the banks until it is dispensed to cardholders.
The Company maintains insurance with respect to the cash while it is held in its
ATMs.
The ATM transaction fees charged by Euronet under the Acceptance Agreements
vary depending on the type of transaction executed (cash withdrawals; balance
inquiries; and transactions not completed because authorization is not given by
the relevant Card Issuer) and the quantity of transactions attributable to a
particular Card Issuer. The transaction fee charged to Card Issuers for cash
withdrawals is in excess of $1.00 per transaction while transaction fees for the
other two types of transactions that can currently be processed on Euronet's
ATMs are generally substantially less. Under the terms of the Acceptance
Agreements, Euronet charges ATM transaction fees to the card issuing banks. Card
issuing banks generally agree not to charge their cardholders more for using
Euronet's ATMs than the banks' own ATMs and generally charge lower fees or no
fees at all for cardholders that use Euronet's ATMs. The Acceptance Agreements
generally provide for payment in local currency but transaction fees are
denominated in U.S. dollars or inflation adjusted. Transaction fees are billed
on terms no longer than one month. The Company's agreement with Service Bank in
Germany to manage and install ATMs for Service Bank provides for fees similar to
those paid with respect to Acceptance Agreements. The Company's agreements to
provide ATM management services, other than in Germany, will provide for monthly
management fees plus fees payable for each transaction.
The tables below indicate the banks that have Acceptance Agreements with
the Company.
BANKS IN HUNGARY
<TABLE>
<S> <C>
Orszagos Takarekpenztar es Kereskedelmi Bank Rt. Magyar Kulkereskedelmi Bank Rt. (MKB)
(OTP)
Budapest Fejlesztesi es Hitelbank Rt. (Budapest Bank) Mezobank Rt.
Citibank Budapest Rt. Postabank es Takarekpenztar Rt.
Creditanstalt Rt. Deutsche Bank Rt.
Inter-Europa Bank Rt.
</TABLE>
BANKS IN POLAND
<TABLE>
<S> <C>
Bank Depozytowo-Kredytowy w Lublinie S.A.
Wielkopolskie Bank Kreditowy S.A.
Bank Wspoffipracy Regionalnej S.A. Krakow
Bank Polska Kasa Opieki S.A.
</TABLE>
The banks in Hungary that have signed Acceptance Agreements have issued an
aggregate of approximately 800,000 credit and debit cards. The banks in Poland
that have signed Acceptance Agreements, have issued an aggregate of 124,000
credit and debit cards. Through the Company's arrangements with sponsor banks in
Hungary and Poland, Euronet's ATMs are able to accept all VISA/Plus and
Europay/Mastercard/Cirrus cards in Hungary and all VISA/Plus cards in Poland
regardless of whether the card issuing bank is connected to the Euronet network.
ATM Network Technology
The Company uses IBM/Diebold and NCR ATMs. The wide range of advanced
technology available from IBM/Diebold and NCR provides Euronet customers with
state-of-the-art-electronics features and reliability through sophisticated
diagnostics and self-testing routines. The different machine types can perform
basic functions, such as dispensing cash and displaying account information, as
well as provide revenue opportunities for advertising and selling products
through use of color monitor graphics, receipt message printing, and coupon
dispensing. The Company's ATMs are modular and upgradeable so that they can be
adapted to provide additional services in response to changing technology and
consumer demand. In many respects, Euronet's ATMs are more
26
<PAGE> 28
technologically advanced and more adaptable than many older ATMs in use in more
developed ATM markets. This allows the Company to modify its ATMs to provide new
services without replacing its existing network infrastructure.
Strong back office central processing support is a critical factor in the
successful operation of an ATM network. Each of Euronet's ATMs is connected to
Euronet's Processing Center through land-based and satellite telecommunications.
Because the Company strives to ensure western levels of reliability for its
network, it currently relies primarily on satellite telecommunications for ATM
connections to its Processing Center. As the reliability of land based
telecommunications improves, the Company may rely more heavily on them because
they are generally less expensive than satellite telecommunications. The
Processing Center, which is located in Euronet's Budapest office, is staffed 24
hours a day, seven days a week and consists of two IBM AS400 computers which run
the Arksys Gold Net ATM Software package. This software is a state-of-the-art
software package that conforms to all relevant industry standards and has been
installed in 64 countries worldwide. The Processing Center's computers operate
Euronet's ATMs and interface with the local bank and international transaction
authorization centers.
The Processing Center has full uninterruptable power supply systems with
battery and diesel power back-up to service the network in case of a power
failure. The Processing Center's data back-up systems would prevent the loss of
transaction records due to power failure. The Company's agreements with its
satellite providers provide for certain assurances with respect to the repair of
satellite malfunction to ensure continuous reliable communications for the
network. The satellite provider for the Processing Center guarantees
uninterrupted service for 99% of the time. By June 1997, the Company plans to
establish an off-site disaster recovery back up system in Budapest to provide
protection against both natural and man-made disasters. In 1996, Euronet's
network operated uninterrupted for 99% of the time excluding scheduled system
back-up and maintenance periods.
Euronet has entered into multi-country purchasing agreements with IBM and
NCR providing for the supply of up to 800 ATMs to Euronet over the next two
years. The Company generally finances the acquisition of ATM machines through
capital leases.
ATM NETWORK MANAGEMENT SERVICES
The Company recently began offering complete ATM network management
services to banks that own proprietary ATM networks. These services include: ATM
terminal driving, real-time transaction authorization, advanced monitoring,
network gateway access, network switching, 24 hour customer services,
maintenance services and settlement and reporting.
These services can be offered by Euronet to banks at a savings over
managing their own network due to the Company's economies of scale. Since the
Company has already contracted for many of these services and provides the
services as part of its own operation, this allows the potential for additional
revenue with lower incremental cost since Euronet has already invested in the
necessary infrastructure.
The ATM network management services provided by the Company include
management of an existing network of ATMs or development of new ATM networks.
This includes 24 hour monitoring of those ATMs from its Processing Center of
each individual ATM's status and cash condition, coordinating the cash delivery
and management of cash levels in the ATM and automatic dispatch for necessary
service calls. Euronet will also be able to provide these managed ATMs access to
those international cards and networks that are connected to the Euronet
network. In December 1996, the Company signed an agreement with Budapest Bank to
provide these ATM network management services to Budapest Bank's 120 machine ATM
network in Hungary. This contract is expected to be implemented by May of 1997.
Further, in January 1997, the Company executed an agreement with Service Bank in
Germany to provide installation and management services to expand Service Bank's
existing ATM network in Germany in non-bank branch locations.
In addition, the Company has entered into an agreement with GE Capital
Corporation under which the Company will be a preferred provider of ATM network
management services to certain banks controlled by
27
<PAGE> 29
GE Capital Corporation and located in Poland, Hungary, the Czech Republic,
Germany and Austria, for a period of at least five years.
OTHER SERVICES
Euronet is currently working toward offering on-line point of sale
authorization for purchases made at retail outlets with credit and debit cards.
Purchases made with cards issued by banks that have executed Acceptance
Agreements and cards connected to international ATM networks that are connected
to the Euronet ATM network would be able to be authorized through Euronet's
Processing Center, generating additional transaction fees.
Euronet also plans to introduce payment processing capabilities on its ATMs
which would allow ATM card holders to pay utility bills, check stock and mutual
fund account balances and purchase stamps, theatre tickets, travellers checks
and other items at its ATM machines. The Company is currently working to develop
an ATM bill paying system that would be made available to utilities and other
service providers for bills that have traditionally required payment in person
at a post office or other central locations. In addition, the Company's ATMs are
upgradeable so that they can be updated to be used with new technologies
including computer chip "smart cards" which are electronic debit cards which can
be used to withdraw cash from ATMs as well as being "charged up" with electronic
funds at an ATM through a connection with the cardholder's bank and used to
purchase goods from retail locations. There can be no assurance that new
services introduced by the Company will be accepted by consumers in its market.
In May 1996, the Company began to sell advertising on its network.
Advertising clients can put their advertisements on the video screens of
Euronet's ATMs, on the receipts issued by the ATMs and on coupons dispensed with
cash from the ATMs. Advertising revenues currently average approximately $200 to
$250 per month for each ATM carrying advertising.
COMPETITION
Competitive factors in the Company's business are network availability and
response time, price, ATM location and access to other networks. Principal
competitors of the Company include ATM networks owned by banks and regional
networks consisting of consortiums of banks.
EMPLOYEES
The Company's business is highly automated and it out-sources many of its
internal functions such as ATM maintenance and repair and security. As a result,
the Company's labor requirements are relatively low. As of December 31, 1996,
the Company and its subsidiaries had approximately 60 full-time employees, 37 of
which were located in its Budapest office, 21 in its Warsaw office and 1 in its
Frankfurt office. None of the Company's or its subsidiaries' employees are
currently represented by a union. The Company has never experienced any work
stoppages or strikes.
GOVERNMENT REGULATION
The Company has received interpretative letters from the Hungarian Bank
Supervisory Board and the Polish National Bank to the effect that the business
activities of the Company in those jurisdictions, as described in this
Prospectus, do not constitute "financial activities" subject to licensing. Any
expansion of the activity of the Company into areas which are qualified as
"financial activity" under local legislation may subject the Company to
licensing, and the Company may be required to comply with various conditions in
order to obtain such licenses. Moreover, the interpretations of bank regulatory
authorities as to the activity of the Company as currently conducted might
change in the future. The Company monitors its business for compliance with
applicable laws or regulations regarding financial activities.
Under German law ATMs are subject to essentially the same licensing
requirements as bank branches and may only be operated by licensed financial
institutions. The Company intends to be a service provider to banks and it does
not anticipate that it will be subject to German financial institution licensing
requirements. There can
28
<PAGE> 30
be no assurance that the Company will not become subject to additional
regulation in Germany or other countries in which it conducts its business.
PROPERTY
The Company's executive offices and Processing Center are located in
approximately 2,800 square feet of office space in Budapest. The Company also
maintains a 2,760 square foot office in Warsaw. All of the Company's facilities
are leased. The Company's office leases provide for initial terms of 24 to 60
months.
TRADEMARKS
The Company has filed applications for registration of certain of its
trademarks including the names "Euronet" and "Bankomat" and/or the blue diamond
logo in Hungary, Poland, the Czech Republic, Slovakia, Sweden, France and the
United Kingdom. Such applications have not yet been granted.
LITIGATION
The Company is not currently involved in any material legal proceedings
and, to the Company's knowledge, no litigation is currently threatened against
it.
29
<PAGE> 31
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The table sets forth certain information concerning the directors,
executive officers and other key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
DIRECTORS
Michael J. Brown(1).............. 40 Chairman, President and Chief Executive Officer
Daniel R. Henry.................. 31 Director, Chief Operating Officer
Thomas A. McDonnell(1)(2)........ 51 Director
Nicholas B. Callinan(1)(2)....... 50 Director
Steven J. Buckley(1)(2).......... 41 Director
Eriberto R. Scocimara............ 60 Director
Andrzej Olechowski............... 49 Director
EXECUTIVE OFFICERS
Dennis H. Depenbusch............. 33 Vice President -- Poland
Bruce S. Colwill................. 32 Chief Financial Officer and Chief Accounting Officer
Jeffrey B. Newman................ 42 Vice President and General Counsel
Johannes Seeger.................. 59 Vice President -- Germany
OTHER KEY EMPLOYEES
Istvan Alpek..................... 30 Operations Manager -- Hungary
Jan Kaczmarek.................... 48 Operations Manager -- Poland
Peter Nagy....................... 36 Business Development Manager -- Hungary
Krzysztof Kulig.................. 25 Business Development Manager -- Poland
Matthew Lanford.................. 30 Systems Manager -- Hungary
Joanna Zaczek.................... 43 Systems Manager -- Poland
Gabriella Temesi................. 27 Real Estate Manager -- Hungary
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Directors
MICHAEL J. BROWN is one of the founders of the Company and has served as
its Chief Executive Officer since 1994. In 1979 Mr. Brown founded Innovative
Software, a computer software company that was merged with Informix in 1988.
During this period, Innovative Software conducted three public offerings of its
shares. Mr. Brown served as President of Informix from 1988 to 1990. Annual
revenues of Informix had grown to $170 million by the time Mr. Brown left
Informix in 1990. In 1993 Mr. Brown was a founding investor of Visual Tools,
Inc., a company that writes and markets component software for the growing
Visual Basic and Visual C++ developer market. Visual Tools, Inc. was acquired by
Sybase Software in February 1996. Mr. Brown received a B.S. in Electrical
Engineering from the University of Missouri -- Columbia in 1979 and a M.S. in
Molecular and Cellular Biology at the University of Missouri -- Kansas City in
1996. Mr. Brown has been a Director of the Company since its incorporation in
December 1996 and he previously served on the boards of Euronet's predecessor
companies. His term as Director of the Company will expire in 2000. Mr. Brown is
married to the sister of Mr. Henry's wife.
DANIEL R. HENRY founded the Company with Michael Brown in 1994 and is
serving as Chief Operating Officer of the Company. Mr. Henry is based in
Budapest, Hungary where he operates and oversees the daily operations of the
Company's Hungary operations and the supervision of the Company's Poland
operations. Mr. Henry also is responsible for the expansion of the Company into
other countries and the development of new markets. Prior to joining the
Company, Mr. Henry was a commercial real estate broker for five years in the
Kansas City metropolitan area where he specialized in the development and
leasing of premiere office properties.
30
<PAGE> 32
Mr. Henry received a B.S. in Business Administration from the University of
Missouri -- Columbia in 1988. Mr. Henry has been a Director of the Company since
its incorporation in December 1996 and he previously served on the boards of
Euronet's predecessor companies. His term as Director of the Company will expire
in 1999. Mr. Henry is married to the sister of Mr. Brown's wife.
THOMAS A. MCDONNELL has been a Director of the Company since its
incorporation in December 1996 and he previously served on the boards of
Euronet's predecessor companies. From 1973 to September 1995 he served as
Treasurer of DST Systems, Inc. Since October 1984 he has served as Chief
Executive Officer and since January 1973 (except for a 30 month period from
October 1984 to April 1987) he has served as President of such company. From
February 1987 to October 1995 he served as Executive Vice President and from
1983 to November 1995 he served as a director of Kansas City Southern
Industries. From December 1989 to October 1995, he served as a director of The
Kansas City Southern Railway Company. From 1985 to November 1995, he also served
as a director of Janus Capital Corporation. From October 1994 to April 1995 he
served as President and from 1992 to September 1995 as director of Berger
Associates, Inc. From 1994 to January 1997, Mr. McDonnell was a director of
First of Michigan Capital Corporation. He is currently a director of Informix,
BHA Group, Inc., Nellcor-Puritan Bennett Corporation, DST Systems Inc., Cerner
Corporation, Computer Science Corporation and Janus Capital Corporation. Mr.
McDonnell has a B.S. in Accounting from Rockhurst College and an M.B.A. from the
Wharton School of Finance. Mr. McDonnell's term as Director of the Company will
expire in 2000.
NICHOLAS B. CALLINAN has been a Director of the Company since its
incorporation in December 1996 and he previously served on the board of Euronet
Holding N.V. Since 1983 he has served as Senior Vice President and Managing
Director for Central and Eastern Europe of Advent International Corporation, the
ultimate general partner of private equity funds which are a shareholder of the
Company. From 1983 to 1993, he was founder and Chief Executive Officer of
Western Pacific Management & Investment Company, which later became the Advent
Group of Companies. Mr. Callinan has a B.E. in Civil Engineering and an M.B.A.
from the University of Melbourne. Mr. Callinan's term as Director of the Company
will expire in 1998.
STEVEN J. BUCKLEY has been a Director of the Company since its
incorporation in December 1996 and he previously served on the boards of
Euronet's predecessor companies. In June 1990 he was a co-founder of Poland
Partners L.P., a venture capital fund for investment in Poland and since April
1994 he has been President and Chief Executive Officer of Poland Partners
Management Company, the advisor of such fund. From June 1990 to April 1994, he
was a founder and director of Company Assistance Ltd., a business advisory firm
in Poland. He has a B.A. in Political Science from Stanford University and an
M.B.A. from Harvard University. Mr. Buckley's term as Director of the Company
will expire in 1998.
ERIBERTO R. SCOCIMARA has been a Director of the Company since its
incorporation in December 1996 and he previously served on the boards of
Euronet's predecessor companies. Since April 1994 Mr. Scocimara has served as
President and Chief Executive Officer of the Hungarian-American Enterprise Fund,
a private company that is funded by the U.S. government and invests in Hungary
and is also a shareholder of the Company. Since 1990 he has been a partner of
The Contrarian Group, an investment and management company based in California.
Mr. Scocimara is currently a director of the Hungarian-American Enterprise Fund,
Carlisle Companies, Harrow Industries, Inc., Roper Industries, Quaker Fabrics
and several privately-owned companies. He has a Licence de Science Econonomique
from the University of St. Gallen, Switzerland, and an M.B.A. from Harvard
University. His term as a Director of the Company will expire in 1998.
ANDRZEJ OLECHOWSKI has served as a Director of the Company since its
incorporation in December 1996. He has held several senior positions with the
Polish government: from 1993 to 1995 he was Minister of Foreign Affairs and in
1992 he was Minister of Finance. From 1992 to 1993 and again in 1995 he served
as economic advisor to President Walesa. From 1991 to 1992 he was Secretary of
State in the Ministry of Foreign Economic Relations and from 1989 to 1991 was
Deputy Governor of the National Bank of Poland. At present Dr. Olechowski is
Chairman of Central Europe Trust, Poland, a consulting firm. Since 1994, he has
served as Chairman of the City Council in Wilanow, a district of Warsaw. His
memberships include a number of public policy initiatives: International
Advisory Boards of Creditanstalt, Banca Nazionale del Lavoro, International
Finance Corporation, Textron and boards of various charitable and educational
foundations. He received a Ph.D.
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<PAGE> 33
in Economics in 1979 from the Central School of Planning and Statistics in
Warsaw. His term as Director of the Company will expire in 1997.
Executive Officers
DENNIS H. DEPENBUSCH has been Vice President of the Company's Poland office
since its inception in May 1995. From 1992 to 1995, Mr. Depenbusch was Director
of Project Finance with RMC in Lawrence, Kansas, where he structured various
financing and acquisition strategies for housing projects. From 1990 to 1992,
Mr. Depenbusch was a Senior Financial Analyst and Market Research Analyst for
Payless ShoeSource. Mr. Depenbusch received a B.S. in Business Administration in
1985 and an M.B.A. in Finance in 1989 from the University of Kansas.
BRUCE S. COLWILL has been Chief Financial Officer and Chief Accounting
Officer of Euronet since May 1996. Mr. Colwill was employed as Assistant
Controller and Financial Controller for PepsiCo Trading Sp. z o.o. in Warsaw,
Poland from 1994 to 1996. From 1989 to 1994, he was employed as a Manager and
Senior Accountant with KPMG in both Poland and Canada in the audit function. Mr.
Colwill obtained his Canadian Chartered Accountants Designation in 1992. He
received a B.B.A. in Accounting from Simon Fraser University in Canada in 1989.
JEFFREY B. NEWMAN joined the Company as Vice President and General Counsel
on January 31, 1997. Prior to this he practiced law in Paris with the law firm
of Salans Hertzfeld & Heilbronn and then with the Washington, D.C. based law
firm of Arent Fox Kintner Plotkin & Kahn, of which he was a partner since 1993.
He established the Budapest office of Arent Fox Kintner Plotkin & Kahn in 1991
and has resided in Budapest since that time. He is a member of the Virginia,
District of Colombia and Paris bars. He received a B.A. in Political Science and
French from Ohio University and law degrees from Ohio State University and the
University of Paris.
JOHANNES SEEGER joined Euronet in June 1996 as Vice President -- Germany.
Mr. Seeger has almost 20 years experience as a senior engineer and manager. From
1984 to 1991, he worked as senior manager of EFT, ATM and POS systems for GZS
GmbH and was responsible for employees, cash-management, security, service, and
technology. From 1991 to 1996, he worked with PostBank GmbH, a German company,
in the development of payment systems. Mr. Seeger graduated as a technical
engineer from the Cologne Technical Polytechnic.
Other Key Employees
ISTVAN ALPEK has been Operations Manager -- Hungary since December 1996 and
is responsible for the management of the daily operations of the ATM network in
Hungary. From August 1995 to December 1996, Mr. Alpek served as Finance Manager
- -- Hungary and he was responsible for the management of the financial and
administrative activity of the Company's Hungarian operations. From 1993 to
1995, he was Business Finance Manager at Digital Equipment Corporation Ltd. in
Budapest, where his responsibilities included management of budgeting, planning,
forecasting and reporting. From 1990 to 1993, Mr. Alpek was the Finance Manager
at Du Pont Co., Hungary. He graduated in 1989 from the College for Foreign Trade
of Budapest and is currently enrolled in the M.B.A. course at Pittsburgh
University.
JAN KACZMAREK became Operations Manager -- Poland in January 1997. Mr.
Kaczmarek is responsible for maintaining the daily operations of the network in
Poland. This includes liaising with security companies and banks in relation to
cash supply and ensuring high availability of the network. From 1994 to 1996,
Mr. Kaczmarek was information technology executive for PTK Centertel in Warsaw,
Poland, where he was responsible for all aspects of information technology and
computing. Prior to this Mr. Kaczmarek was employed by CSC Computer Sciences
Ltd. in Poland and Brussels where he was responsible for the provision of
administrative and billing services as well as the supply for Polish clients and
customer service information technology functions. Mr. Kaczmarek received an
M.A. in Systems Management from Lancaster University in 1972, a B.S. in Chemical
Engineering from the University of Surrey in 1971, and a diploma in
Organizational Development from IOD Leuven Belgium in 1993.
PETER NAGY was appointed Business Development Manager of the Company in
February 1995. Dr. Nagy is responsible for acquiring and negotiating contracts,
managing and servicing key accounts, and participates in
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<PAGE> 34
marketing and public relation issues. From 1988 to 1995, Dr. Nagy worked as a
consultant in Washington, D.C. on Hungarian-American business relations for the
Bridgevest, Inc. and Merit, Inc. international consulting firms. He earned a law
degree in 1986 from Janus Pannonius University of Pecs, Hungary and attended
undergraduate studies in Sales and Marketing at the University of New York.
KRZYSZTOF KULIG was appointed Business Development Manager for the
Company's Poland operations in September 1995. His primary responsibility is
marketing Euronet's services to the Polish banking community. This includes
acquiring and negotiating contracts, managing and servicing key accounts and
participating in marketing and public retail issues. From 1994 to 1995, Mr.
Kulig was Brand and Export Manager for Pollena-Ewa S.A. in Poland. Mr. Kulig has
an M.A. in International Trade and Finance from the University of Lodz, Poland
in 1995, and a Diploma in Economics from the University of Kent. Mr. Kulig is
currently enrolled in the M.B.A. program at the University of Calgary, Canada.
MATTHEW LANFORD was appointed Systems Manager for Euronet in August 1996.
He is responsible for systems design and development and ensuring that Euronet's
technology is up-to-date and capable of supporting the rapid expansion of the
Company. From 1989 to 1995, he worked as a programmer, project supervisor and
lead programmer/analyst for Arksys, Inc. the supplier of the ITM/400 software on
the AS/400 where he designed the network processing software currently being
used by the Company. From February 1995 to August 1996, he worked as lead
programmer/analyst for Associates Bancorp, Inc., a division of The Associates,
an international consumer/commercial finance organization. Mr. Lanford has a
B.S. in Computer Science from the University of Arkansas at Little Rock.
JOHANNA ZACZEK was appointed Systems Manager for the Company's Poland
operations in February 1996. Her primary task is managing the information
systems within the Polish office, maintaining the ATM network and creating and
maintaining technical connections to the Polish banks. From 1986 to 1996, Ms.
Zaczek worked at Zurich Re (UK) Ltd. where her most recent positions were
corporate analyst and information technology consultant. Ms. Zaczek holds a
Masters degree in Electronics from Warsaw Polytechnic University and a diploma
in Computer Science from the London Polytechnic.
GABRIELLA TEMESI joined Euronet in September 1994 and has been Real Estate
Manager for the Company's Hungary operations since 1995. She is responsible for
securing ATM locations, site contract negotiations and acquiring site
permissions for installation. From 1991 to 1992, she worked for Westbrook
Associates and from 1992 to 1994 for Healy & Baker International, where she was
responsible for various commercial real estate transactions such as acquiring
sites for retailers and offices. Ms. Temesi received her certification from the
Education Center for Foreign Trade and obtained a state brokerage and appraisal
license in 1993.
EXECUTIVE COMPENSATION
The following table shows, for the fiscal year ended December 31, 1996,
compensation awarded or paid by the Company to its Chief Executive Officer (the
only employee of the Company whose annual salary and bonus for the fiscal year
ended December 31, 1996 equaled or exceeded $100,000):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- ------------
($) OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- ------ ------- ----- ------------ ------------ ------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown................... 1996 100,000 0 0 1,149,890 0
Chairman, Chief Executive Officer
</TABLE>
33
<PAGE> 35
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning each grant of
options to purchase the Company's Shares made during the fiscal year ended
December 31, 1996 to its Chief Executive Officer:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS EXERCISE FOR
UNDERLYING GRANTED TO PRICE PER OPTION TERM(3)
OPTIONS GRANTED EMPLOYEES IN SHARE EXPIRATION -------------------
NAME (#)(1)(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------- --------------- ------------ --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown......... 1,149,890 50.5 2.14 Oct. 14, 2006 1,549,622 3,927,048
</TABLE>
- ---------------
(1) Such options were awarded in accordance with the provisions of a
shareholder's agreement dated February 15, 1996, as amended October 14, 1996
(see "-- Stock Option Plans"). These options are subject to the provisions
of the Euronet Long-Term Incentive Stock Option Plan adopted by the Company
on August 13, 1996. Mr. Brown's options will fully vest and become
exercisable upon the occurrence of the Offering.
(2) Each share in Euronet Holding N.V. will be exchanged for one share of Common
Stock in the Company pursuant to the terms of the Exchange Agreement, dated
December 17, 1996, among Euronet Services Inc., Euronet Holding N.V. and all
of the shareholders and optionholders of Euronet Holding N.V.
(3) Potential realizable value is based on the assumption that the shares
appreciate at the annual rates shown (compounded annually) from the date of
grant until the expiration of the option term. Those numbers are calculated
based upon the requirements promulgated by the Commission and do not reflect
any estimate by the Company of future Share price increases.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the stock
options held as of December 31, 1996 by the Chief Executive Officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON AT DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown............ 0 0 0 1,149,890 0 12,487,805
</TABLE>
- ---------------
(1) Based upon the initial public offering price of $13 per Share minus the
applicable exercise price.
COMPENSATION OF DIRECTORS
The Company does not currently pay fees to its directors for attendance at
meetings. Following completion of the Offering, the Company intends to pay each
outside director a fee consistent with that paid by similar companies for
attendance at meetings, together with reimbursement of out-of-pocket expenses
incurred in connection with the directors' attendance at such meetings. No
additional compensation will be paid for committee meetings held on the same day
as a Board of Directors' meeting. Officers of the Company who are also directors
will receive no additional compensation for serving as directors.
EMPLOYMENT AGREEMENTS
Mr. Brown serves as the Chief Executive Officer, President and Chairman of
the Board of the Company pursuant to an employment agreement dated December 17,
1996. Under the terms of his agreement, Mr. Brown is entitled to an annual
salary of $100,000, subject to annual review and adjustments by the Board of
Directors, and is reimbursed for all reasonable and proper business expenses
incurred by him in the performance of his duties under the agreement. The terms
of the agreement also provide that Mr. Brown will be entitled to fringe benefits
and perquisites comparable to those provided to any or all of the Company's
senior officers. The term of the agreement expires in December 1999. The term of
the agreement, however, will be automatically extended on the
34
<PAGE> 36
same terms and conditions for successive periods of one year each unless
declined by either party for any reason. In the event that Mr. Brown's
employment with the Company is terminated by the Company for Cause (as defined
in the agreement), or if Mr. Brown voluntarily terminates employment with the
Company, he will be entitled to receive all compensation, benefits and
reimbursable expenses accrued as of the date of such termination. In the event
that Mr. Brown's employment with the Company is terminated by reason of death or
Disability (as defined in the agreement), he (or his designated beneficiary)
will be paid his annual salary at the rate then in effect for an additional
one-year period. The agreement also contains certain non-competition,
non-solicitation and non-disclosure covenants.
The Company has also entered into employment agreements with Mr. Henry, Mr.
Depenbusch and Mr. Colwill which expire in December 1999. Certain other key
employees also have employment agreements.
STOCK OPTION PLANS
Milestone Options. In accordance with the Shareholders' Agreement, dated
February 15, 1996, as amended October 14, 1996 (the "Shareholders' Agreement"),
the Company has reserved a total of 2,050,405 shares of Common Stock for
issuance pursuant to Milestone Options granted under the Shareholders' Agreement
to Mr. Brown and Mr. Henry, as well as certain other key employees of the
Company. The Milestone Options are subject to the provisions of the Euronet
Long-Term Incentive Stock Option Plan. See "-- The Long-Term Incentive Plan."
The Milestone Options granted to Mr. Brown, Mr. Henry and Mr. Depenbusch have an
exercise price equal to $2.14 per share and vest and become exercisable upon the
earlier of October 14, 2006, or the date on which any one or more of the three
performance goals described in the Shareholders' Agreement is attained.
One-third of the Milestone Options vest upon the occurrence of each milestone.
Upon the effectiveness of the Offering, Milestone Options granted to Mr. Brown,
Mr. Henry and Mr. Depenbusch will fully vest and become exercisable. Milestone
Options allocated at Mr. Brown's discretion to other management and key
employees also have an exercise price of $2.14 per share, but are conditioned
upon the completion of an initial public offering of the Company's Common Stock
on or before June 30, 1997, and will vest in three equal installments of 33% of
the grant beginning on the date of the Closing of the Offering, with the second
and third portions vesting on the first and second anniversaries of the
Offering, respectively. In the event that an initial public offering of the
Company's common stock does not occur on or before June 30, 1997, the Milestone
Options allocated to management and key employees (other than Mr. Brown, Mr.
Henry and Mr. Depenbusch) will expire and again be available for reallocation at
Mr. Brown's discretion. See "Certain Transactions."
The Long-Term Incentive Plan. The Euronet Long-Term Incentive Stock Option
Plan (the "Plan") was adopted by the Company on August 13, 1996. Pursuant to the
provisions of the Plan, employees and consultants of the Company may be offered
the opportunity to acquire shares of Common Stock by the grant of non-qualified
stock options ("Options"). A total of 1,299,550 shares of Common Stock have been
reserved for Options under the Plan. Options to purchase shares of Common Stock
of the Company may be granted to eligible employees and consultants, as
determined by the Board of Directors, in amounts reflecting the employee's or
consultant's employment responsibilities and level of performance. The Options
vest in five equal annual installments of 20% of the grant, and have a term of
ten years. The exercise price per share of Common Stock purchased on exercise of
Options is the fair market value of the Common Stock at the date of grant. Once
vested, the Options may be exercised in whole or part. The Plan also
incorporates various prior grants of Milestone Options under Shareholders'
Agreement. In addition to Milestone Options, as of the date of this Prospectus,
non-qualified stock options have been granted to certain employees of the
Company, including Options to acquire 440,440 shares to Mr. Henry, Options to
acquire 287,000 shares to Mr. Depenbusch as well as Options to acquire 335,510
shares to other key employees.
Determination of Option Exercise Price. The Company has granted the
options described above at an exercise price based on the fair market value of
the underlying shares of Common Stock. Fair market value has been determined by
reference to the per share price at which the most recent sale of equity
securities was made by the Company to investors. With respect to the Milestone
Options, fair market value was determined to be $2.14 as of the time they were
granted on October 14, 1996 based on the per share price at which certain
shareholders of the Company concurrently committed to make the first $1 million
tranche of a total $3 million investment in the Company. See "Certain
Transactions -- Formation of Euronet Holding N.V."
35
<PAGE> 37
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Directors have established an Audit Committee of
independent Directors. The Audit Committee will make recommendations concerning
the engagement of independent accountants, review with the independent
accountants the plans and results of the audit engagement, approve professional
services provided by the independent accountants, review the independence of the
independent accountants, consider the range of the audit and non-audit fees and
review the adequacy of the Company's internal accounting controls. In addition,
the Audit Committee will be responsible for reviewing and overseeing
transactions between the Company and related parties or affiliated companies.
Thomas A. McDonnell, Steven J. Buckley and Nicholas B. Callinan are members of
the Audit Committee.
Compensation Committee. The Directors have established a Compensation
Committee with a majority of independent Directors, which will make
determinations with respect to salaries and bonuses payable to the Company's
Executive Officers and will administer the Company's Stock Option Plan. Michael
J. Brown, Thomas A. McDonnell, Steven J. Buckley and Nicholas B. Callinan will
be members of the Compensation Committee. Prior to the Offering the Company did
not have a Compensation Committee and compensation decisions were made by the
Board of Directors. Mr. Brown does not participate in decisions regarding his
own compensation.
COMPENSATION COMMITTEE INTERLOCKS
Mr. Brown, the Chairman, President and Chief Executive Officer of the
Company has made loans to the Company of which $262,000 was outstanding as of
December 31, 1996. See "Certain Transactions -- Financings -- Loans from Mr.
Michael J. Brown." There are no Compensation Committee interlocks.
36
<PAGE> 38
CERTAIN TRANSACTIONS
FINANCINGS
Between June 22, 1994 and the present, the Company and its existing
shareholders have engaged in several transactions to provide the Company
(including its predecessors and operating subsidiaries) with necessary
financing. These transactions are summarized below. For the convenience of the
reader all amounts of capital contributions made in Hungarian forints have been
translated into U.S. dollars at the official middle rate established by the
National Bank of Hungary on the date such capital contributions were made and
all amounts of capital contributions made in Polish zlotys have been translated
into U.S. dollars at the exchange rate quoted by the National Bank of Poland at
noon on the date such capital contributions were made.
Formation of the Company. Bank Access 24 Kft. ("Bank 24"), the predecessor
of the Hungarian operating subsidiary of the Company, was established on June
22, 1994 by Michael Brown and Daniel Henry, both of whom are Directors of the
Company. Mr. Brown received a 90% equity interest in Bank 24 in consideration
for a contribution of $9,000 and Mr. Henry received a 10% interest in
consideration of a contribution of $1,000.
Original Joint Venture Agreement. On July 19, 1994 a Joint Venture
Agreement (the "Original JVA") was entered into by Mr. Brown and DST Systems,
Inc., Euroventures (Hungary) B.V. ("Euroventures"), Mark Callegari, Larry Maddox
and Lawrence Schwartz. The Original JVA provided that the parties to the
Original JVA would contribute capital to Bank 24 in exchange for ownership
interests in Bank 24 in the following amounts:
<TABLE>
<CAPTION>
CAPITAL PERCENTAGE
SHAREHOLDER CONTRIBUTION OWNERSHIP
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Michael Brown........................................................ $ 990,000 42.74%(1)
DST Systems, Inc..................................................... $1,000,000 34.72%
Euroventures......................................................... $ 300,000 10.42%
Mark Callegari....................................................... $ 200,000 6.93%
Lawrence Schwartz.................................................... $ 50,000 1.74%
Larry Maddox......................................................... $ 100,000 3.74%
</TABLE>
- ---------------
(1) Includes his original $9,000 interest as well as the $1,000 interest
transferred by Mr. Henry and the founders interest described below.
Pursuant to the Original JVA, Mr. Henry transferred his 10% interest in
Bank 24 to Mr. Brown for a purchase price equal to $1,000. At the time of the
Original JVA Mr. Brown was granted an additional 8% equity interest in Bank 24
free of charge.
37
<PAGE> 39
Capital Increase and Amendment of Original JVA. On February 20, 1995, the
Original JVA was amended by an Amended and Restated Joint Venture Agreement (the
"Amended JVA") under which a new shareholder, the Hungarian-American Enterprise
Fund ("HAEF"), and Euroventures agreed to purchase from a third party 100% of
the equity interests in SatComNet Kft., which is now a subsidiary of the Company
("SatComNet"). HAEF acquired an 89% interest in SatComNet for a purchase price
of $439,000 and Euroventures purchased an 11% interest in SatComNet for $52,000.
Under the Amended JVA, HAEF also agreed to contribute $611,000 to Bank 24,
Euroventures agreed to contribute $148,000 and a new shareholder, Hi-Care Trade
and Development Company ("Hi-Care") agreed to contribute $197,000. The
shareholders of SatComNet and Bank 24 exchanged their interests held in such
companies to create identical ownership of the two companies, as follows:
<TABLE>
<CAPTION>
PERCENTAGE
SHAREHOLDER OWNERSHIP
- -------------------------------------------------------------------------------- ----------
<S> <C>
Michael Brown................................................................... 30.29%
DST Systems, Inc................................................................ 22.49%
HAEF............................................................................ 23.61%
Euroventures.................................................................... 11.24%
Hi-Care......................................................................... 4.50%
Mark Callegari.................................................................. 4.50%
Larry Maddox.................................................................... 2.25%
Lawrence Schwartz............................................................... 1.12%
----------
TOTAL........................................................................... 100%
========
</TABLE>
Bank 24 was then transformed into an "Rt.", a different form of Hungarian
corporate entity.
Under the Amended JVA, Mr. Henry was granted an option to purchase up to 6%
of the shares of each of Bank 24 and SatComNet for a total purchase price of
$246,000.
Hi-Care entered into a lease with Bank 24 effective as of September 10,
1994 for the Company's current offices in Budapest. The entire amount
contributed to the capital of Bank 24 by Hi-Care under the Amended JVA was
immediately paid out to Hi-Care as a payment under such lease.
Loans from Mr. Michael J. Brown. Mr. Brown established the Company's
Polish operating subsidiary, Bankomat 24 Sp. z o.o. ("Bankomat"), on August 8,
1995. Upon its formation, Mr. Brown contributed $2,000 to Bankomat and was the
sole interest holder of Bankomat. A capital increase in the amount of $61,000
was made on December 7, 1995. On August 31, 1995, Mr. Brown agreed to make
revolving loans in the amount $125,000 to Bankomat at a rate of interest of 10%
per year. The amount of such loans was increased to $195,000 as of May 21, 1996.
As of December 31, 1996 $262,000 was outstanding under such loans and other
loans made by Mr. Brown to the Company consisting of $67,000 in loans at an
interest rate of 10% relating to the establishment of Bankomat. A portion of the
proceeds of the Offering will be used to repay these loans in full.
Formation of Euronet Holding N.V. On February 15, 1996 the shareholders in
Bank 24 and SatComNet and Hi-Care (the "Original Investors") terminated the
Amended JVA and entered into the Shareholders' Agreement reorganizing the
ownership of Bank 24, SatComNet and Bankomat. Under the Shareholders' Agreement,
the Original Investors contributed all of their shares and interests in Bank 24,
SatComNet and Bankomat to Euronet Holding N.V., which was established on March
27, 1996 as a holding company. In addition, four new shareholders made cash
contributions to the capital of Euronet Holding N.V in exchange for preferred
stock of Euronet Holding N.V., as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
PREFERRED STOCK
CONTRIBUTION OF EURONET
NEW SHAREHOLDERS COMMITMENT HOLDING N.V.
- ------------------------------------------------------------------ ------------ ---------------
<S> <C> <C>
Advent Private Equity Fund CELP................................... $ 1,250,000 875,000
Hungarian Private Equity Fund..................................... $ 500,000 350,000
Poland Investment Fund............................................ $ 1,250,000 875,000
Poland Partners L.P............................................... $ 3,000,000 2,100,000
</TABLE>
38
<PAGE> 40
Concurrently with these transactions, Euroventures purchased the shares and
interests of Hi-Care in Bank 24 and SatComNet.
The Shareholders' Agreement provided that the Original Investors and
management of Euronet Holding N.V. would be granted certain awards of preferred
shares, and in the case of Mr. Brown, Common Shares, of Euronet Holding N.V. in
consideration of the payment of the par value ($0.02) of such shares if certain
goals ("Milestones") were attained by the Company (the "Milestone Awards").
Specifically, the following Original Investors were to receive the following
amounts of preferred shares or Common Shares of Euronet Holding N.V.:
<TABLE>
<CAPTION>
NUMBER OF SHARES
ORIGINAL INVESTOR OR MANAGEMENT MEMBER TO BE AWARDED
------------------------------------------------------------------------ ----------------
<S> <C>
Michael Brown........................................................... up to 1,117,620
DST Systems, Inc. ...................................................... up to 258,300
HAEF.................................................................... up to 271,110
Euroventures............................................................ up to 180,810
Mark Callegari.......................................................... up to 51,597
Larry Maddox............................................................ up to 25,802
Lawrence Schwartz....................................................... up to 12,901
Daniel Henry............................................................ up to 593,670
</TABLE>
Pursuant to the Shareholders' Agreement Euronet Holding N.V. was entitled
to call a "standby round" of investment from DST Systems, Inc., Poland Partners
L.P., Hungarian Private Equity Fund and the Advent Private Equity Fund CELP of
up to $3,000,000 in the aggregate from such shareholders at a per share price of
$2.14 for one tranche and $10.00 per share for a second tranche subject to
certain conditions. The first tranche of this standby round was called on
November 26, 1996 and 466,669 Series B convertible preferred shares of Euronet
Holding N.V. were issued in exchange for $1 million. The Company's right to call
the remainder of the standby round commitment will terminate on the termination
of the Shareholders' Agreement which will occur on the execution of the
underwriting agreement to be executed in connection with this Offering
In addition, the Shareholders' Agreement provided that Mr. Brown would be
reimbursed by the shareholders for up to $100,000 for expenses incurred from
December 1994 to May 1995, and by the Company for expenses incurred from June 1,
1995 to March 27, 1996 relating to the establishment of Bankomat. On October 11,
1996, Euronet Holding N.V. adopted a revision to its Articles of Association
effecting a ten for one stock split.
On October 14, 1996, the Shareholders' Agreement was amended (the "First
Amendment") and the Milestone Award arrangements were modified to provide for
two different types of grants:
(i) Milestone Awards of preferred shares of Euronet Holding N.V. in
exchange for payment of par value ($0.02), to all Original Investors
except Mr. Brown,
(ii) Options to purchase Common Shares and preferred stock of Euronet
Holding N.V. to Mr. Brown, and options to purchase preferred shares of
Euronet Holding N.V. to Mr. Henry, Mr. Depenbusch and certain other
employees of the group at a purchase price of $2.14 per share
("Milestone Options"). The number of shares of Euronet Holding N.V.
subject to these option arrangements was increased as compared with the
amounts that were to be awarded under the Shareholders Agreement to take
into account the fact that consideration was now to be paid for such
shares. The following numbers of Milestone Options were granted to
directors and officers of the Company: Michael Brown (1,149,890 of
Common Shares and preferred stock of Euronet Holding N.V.); Daniel Henry
(599,340 preferred shares of Euronet Holding N.V.); and Dennis
Depenbusch (226,450 preferred shares of Euronet Holding N.V.).
All Milestone Awards of Common Shares of Euronet Holding N.V. will be made
effective as of the closing of the Offering and all Milestone Options will
become vested upon the closing of the Offering, with the exception of 49,819
Options to certain key employees which will vest equally over two years
following the Offering. See "Management -- Stock Option Plans."
39
<PAGE> 41
The Reorganization. In December 1996, the Company, shareholders and
optionholders of Euronet Holding N.V. entered into an Exchange Agreement
pursuant to which (i) 10,296,076 shares of Common Stock will be issued to the
shareholders of Euronet Holding N.V. in exchange for all of the Common Shares of
Euronet Holding N.V., (ii) options to acquire 3,113,355 shares of Common Stock
will be granted to the holders of options to acquire 3,113,355 Common Shares of
Euronet Holding N.V. in exchange for all of such options and (iii) awards with
respect to 800,520 shares of Common Stock will be issued to the holders of
awards with respect to 800,520 preferred shares of Euronet Holding N.V. in
exchange for all such awards. Such exchange is subject to and will be effective
upon the execution of the underwriting agreement to be executed in connection
with the Offering. Euronet Holding N.V. will be dissolved following the
Reorganization. In connection with the Reorganization, the Shareholders'
Agreement will be terminated.
GE Capital Investment. On January 31, 1997, the Company signed a
subscription agreement (the "Subscription Agreement") with General Electric
Capital Corporation ("GE Capital") pursuant to which GE Capital agreed to
subscribe for preferred stock of Euronet Holding N.V. for an aggregate purchase
price of $3 million which will entitle GE Capital to receive 710,507 shares of
Common Stock of the Company in connection with the Reorganization, resulting in
a per Share purchase price of $4.22. Under a "claw back" option, the Company has
the right to repurchase up to 292,607 of such shares for nominal consideration
in the event of a public or private offering of the Company's Common Stock where
the Company is attributed a valuation that is higher than that used for purposes
of the Subscription Agreement, including the offering made hereby. The
Subscription Agreement also includes certain reciprocal rights of the parties to
act as preferred providers of services to each other in Poland, Hungary, the
Czech Republic, Germany and Austria. In particular, the Company will be a
preferred provider of outsourced ATM services to certain banks controlled by GE
Capital. The sale of shares pursuant to the Subscription Agreement is expected
to close on February 7, 1997.
ATM PURCHASE OPTION
On March 10, 1995 Bank 24 entered into a Master Rental Agreement with HFT
Corporation ("HFT") pursuant to which HFT agreed to lease ATM machines to Bank
24 pursuant to operating leases which are treated, for U.S. GAAP purposes only,
as capital leases. On the same date, HFT granted an option to purchase the ATM
machines which were the subject of this Master Rental Agreement to Windham
Technologies, a company controlled by Michael Brown and Mark Callegari. On March
25, 1995, Windham Technologies executed a unilateral undertaking (the
"Undertaking") to sell such machines to Bank 24 for a purchase price which was
equal to the price paid by Windham, plus incidental expenses. All ATMs operated
by the Company are subject to this arrangement. As indicated in "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Company intends to restructure these arrangements as capital leases under
Hungarian law and has recorded an accrual in this respect.
WINDHAM TECHNOLOGIES INC.
Windham Technologies Inc. ("Windham") holds the option to purchase certain
ATMs at the end of the lease term. Windham is jointly owned by two shareholders
of Euronet Holding N.V. Windham has signed an undertaking to contribute these
assets to Euronet N.V. at the end of the lease at a bargain purchase price of $1
plus incidental expenses.
In addition, payments of $425,000, $320,000 and $66,000 have been made for
the years ended December 31, 1996 and 1995 and for the period from June 22, 1994
(inception) through December 31, 1994, respectively, to Windham. These payments
cover the services and related expenses of consultants seconded by Windham to
Euronet N.V. These services include AS400 computer expertise, bank marketing and
management support.
40
<PAGE> 42
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Shares as of February 15, 1997, and after
giving effect to the Offering by (i) each shareholder known by the Company to
own beneficially more than 5% of the Shares, (ii) all Directors and Executive
Officers of the Company as a group and (iii) each Selling Shareholder.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY SHARES TO BE BENEFICIALLY
OWNED PRIOR TO SOLD IN THE OWNED AFTER
THE OFFERING OFFERING THE OFFERING(1)
------------------ ------------ ------------------
NUMBER OF NUMBER OF NUMBER OF
SHAREHOLDERS SHARES(2) % SHARES(1) SHARES(2) %
- ------------------------------------------- --------- ------ ------------ --------- ------
<S> <C> <C> <C> <C> <C>
Michael J. Brown(3)........................ 3,562,370 31.24% 354,515 3,132,277 21.69%
Daniel R. Henry(4)......................... 775,600 6.80% 103,985 671,615 4.65%
Dennis Depenbusch(5)....................... 283,850 2.49% 51,345 232,505 1.61%
Peter Nagy(6).............................. 21,980 * -- 21,980 *
Nicholas B. Callinan(7).................... 7,648 * 1,750 5,898 *
DST Systems, Inc........................... 1,414,077 12.40% -- 1,649,357 11.42%
Euroventures............................... 935,410 8.20% 233,852 512,908 3.55%
Mark R. Callegari.......................... 267,260 2.34% 66,800 153,404 1.06%
Larry Maddox............................... 133,630 1.17% 33,400 76,702 *
Lawrence Schwartz.......................... 66,710 * 16,700 38,277 *
HAEF....................................... 1,403,010 12.31% 350,753 798,702 5.53%
Poland Partners L.P........................ 2,294,446 20.12% 525,000 1,769,446 12.25%
Advent Partners L.P........................ 38,241 * 8,750 29,491 *
Advent Private Equity Fund -- CELP......... 917,777 8.05% 210,000 707,777 4.90%
Poland Investment Fund L.P................. 956,018 8.39% 218,750 737,268 5.11%
Hungarian Private Equity Fund.............. 382,410 3.35% 87,500 294,910 2.04%
General Electric Capital Corporation....... 710,507 6.23% -- 710,507 4.92%
All Directors and Executive Officers as a
group (4 persons)........................ 4,629,468 40.60% 511,595 4,042,295 27.99%
</TABLE>
- ---------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding Shares.
(1) Assumes no exercise of the Underwriters' over-allotment option. Also
reflects transfers of existing shares of Common Stock among certain
shareholders at the time of the Offering.
(2) Based on 11,401,418 Shares outstanding prior to the Offering and 14,440,068
Shares outstanding after the Offering. Calculations of percentage of
beneficial ownership assume the exercise by only the respective named
stockholder of all options for the purchase of Shares held by such
stockholder which are exercisable within 60 days of January 1, 1997
(3) Includes an aggregate of 1,985,270 shares of Common Stock issuable pursuant
to options (including Milestone Options) exercisable within 60 days of
January 1, 1997. Shares beneficially owned by Mr. Brown prior to Offering
include 835,380 Shares that Mr. Brown has the right to acquire from existing
shareholders of the Company pursuant to an option agreement. Shares
beneficially owned by Mr. Brown after the Offering include 759,802 Shares
acquired by Mr. Brown pursuant to such option agreement.
(4) Includes an aggregate of 775,600 shares of Common Stock issuable pursuant to
options (including Milestone Options) exercisable within 60 days of January
1, 1997.
(5) Includes an aggregate of 283,850 shares of Common Stock issuable pursuant to
options (including Milestone Options) exercisable within 60 days of January
1, 1997.
(6) Includes an aggregate of 21,980 shares of Common Stock issuable pursuant to
options exercisable within 60 days of January 1, 1997.
(7) Mr. Callinan's shares are held indirectly through his interest in Advent
Partners L.P.
41
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 30 million shares
of Common Stock, par value $0.02 per share and 10 million shares of Preferred
Stock, par value $0.02 per share. The following summary description of the
capital stock of the Company does not purport to be complete and is subject to
the detailed provisions of, and qualified in its entirety by reference to, the
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part, and
to the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL").
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to the
rights of any holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in the distribution of all assets remaining
after payment of liabilities, subject to the rights of any holders of Preferred
Stock. The holders of Common Stock have no preemptive rights to subscribe for
additional shares of the Company and no right to convert their Common Stock into
any other securities. In addition, there are no redemption or sinking fund
provisions applicable to the Common Stock. All the outstanding shares of Common
Stock are, and the Common Stock offered hereby will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to issue any or all shares of authorized Preferred Stock as a
class without series or in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and
could have the effect of delaying, deferring or impeding a change in control of
the Company. As of the date of this Prospectus, the Company has not authorized
the issuance of any Preferred Stock and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Certificate of Incorporation and By-Laws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or make more difficult a takeover attempt that a stockholder might
consider in its best interest. See "Risk Factors -- Anti-takeover Provisions."
Set forth below is a description of certain provisions of the Company's
Certificate of Incorporation and By-Laws.
The Certificate of Incorporation provides that the Board of Directors of
the Company be divided into three classes of directors serving staggered
three-year terms. The classes of directors will be as nearly equal in number as
possible. Accordingly, approximately one-third of the company's Board of
Directors will be elected each year. See "Management -- Directors, Executive
Officers and Other Key Employees." The Certificate of Incorporation provides
that the number of directors will be determined by the Board of Directors.
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of laws, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases pursuant to Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of these provisions is to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for breach
of fiduciary duty as a director (including
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<PAGE> 44
breaches resulting from grossly negligent behavior), except in the situations
described above. These provisions will not limit the liability of directors
under federal securities laws.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined as a person who,
together with any affiliates or associates of such person, beneficially owns,
directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value in excess of 10% of the consolidated assets
of the corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder becomes an interested stockholder, unless (i)
the business combination is approved by the corporation's board of directors
prior to the date the interested stockholder becomes an interested stockholder,
(ii) the interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it becomes an
interested stockholder or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
REGISTRATION RIGHTS
Pursuant to an agreement (the "Registration Rights Agreement") dated March
13, 1996, among Euronet Holding N.V. (the predecessor to the Company) and the
following shareholders: Advent Private Equity Fund CELP, Poland Investment Fund,
the Hungarian Private Equity Fund L.P., Poland Partners L.P., Michael J. Brown,
Larry Maddox, Mark Callegari, Lawrence Schwartz, DST Systems, Inc., Euroventures
and HAEF (each a "Holder" and collectively the "Holders"), the Holders and all
other shareholders were granted certain rights with respect to the registration
of their shares of Common Stock under the Securities Act.
Under the terms of such agreement, which apply by succession to the
Company, Holders of no less than 12% of the shares of Common Stock of the
Company can demand that the Company effect up to four registrations of the
Common Stock under the Securities Act with respect to all or any portion of
their shares provided that each demand relates to a registration of at least $4
million worth of Common Stock. The Company can delay such a demand for a period
not in excess of 120 days, and not more than once in any 12 month period, if at
the time of such demand the Company is in the process of preparing a
registration statement for a public offering (other than a registration
statement solely to implement an employee benefit plan or a transaction to which
Rule 145 of the Securities Act is applicable) which is filed and becomes
effective within 90 days after such demand.
In addition, if the Company at any time initiates a registration under the
Securities Act (other than a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 of the Securities Act
is applicable), all shareholders are entitled to notice of such registrations
and to include their shares of Common Stock in such registration subject to
certain limitations.
After the Company has qualified for use of Form S-3, all shareholders will
have the right to request an unlimited number of registrations on Form S-3 (but
the Holders as a group may not make more than two such requests in any given 12
month period and not more than four in the aggregate), provided that the
aggregate offering price of such shareholder's shares of Common Stock exceeds
$500,000 and the Company has initiated a proposed registration. The Company can
delay such a request for a period not in excess of 120 days if at the time of
such request the Company is in the process of preparing a registration statement
for a public offering (other than a registration statement solely to implement
an employee benefit plan or a transaction to which Rule 145 of the Securities
Act is applicable) which is filed and becomes effective within 90 days after
such request.
In all cases the registration rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shareholders shares to be included in such registration. The Company
is required to bear the expenses of all such registrations, except for
underwriters' fees, discounts and
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<PAGE> 45
commissions. Registration rights are assignable to any assignee of at least 50%
of shares conveyed who agrees to be bound by the terms and conditions of the
Registration Rights Agreement within ten days of such assignment.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is State Street Bank.
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<PAGE> 46
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF SHARES
The following general discussion is a summary of certain United States
federal income and estate tax considerations applicable to the ownership and
disposition of Shares by "Non-U.S. Holders." In general, a "Non-U.S. Holder" is
a beneficial owner of Shares other than: (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in the United
States or under the laws of the United States or of any state or (iii) an estate
or trust, the income of which is includable in gross income for United States
income tax purposes regardless of its source. The term "Non-U.S. Holder" does
not include certain individuals who formerly were either citizens or long-term
lawful permanent residents of the United States within the ten-year period
immediately preceding the date of this Prospectus and whose loss of United
States citizenship or lawful permanent residency status had as one of its
principal purposes the avoidance of United States taxes.
This discussion is based on current law, which is subject to change and is
for general information purposes only. This discussion does not address aspects
of United States federal taxation other than income and estate taxation and it
is not intended to be a complete description of all United States federal income
and estate tax considerations attendant to the ownership and disposition of
Shares. Furthermore, this summary does not consider any specific facts or
circumstances that may apply to a particular Non-U.S. Holder and it does not
take into account United States state and local or non-U.S. tax consequences.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES.
DIVIDENDS
The Company does not anticipate paying cash dividends on the Shares in the
foreseeable future. Although the Company may in the future consider paying cash
dividends on the Shares, the Board of Directors of the Company has made no
decision with respect to the payment of any such dividends, including the timing
and amount of any such dividend. See "Dividend Policy." Distributions to a
Non-U.S. Holder in respect of Shares will be treated as a dividend for United
States federal income tax purposes to the extent of the Company's current or
accumulated earnings and profits, as determined under United States federal
income tax principles. Such distributions ordinarily will be subject to
withholding of United States federal income tax at a 30% rate, unless such rate
is reduced by an applicable income tax treaty. Dividends that are effectively
connected with such Non-U.S. Holders conduct of a trade or business in the
United States or, if a tax treaty applies, attributable to a permanent
establishment in the United States generally will be subject to United States
federal income tax at regular rates on a net income basis (and, in the case of a
Non-U.S. Holder that is a corporation, under certain circumstances may be
subject to an additional "branch profits tax" at a 30% rate, or such lower rate
as may be applicable under an income tax treaty), but generally will not be
subject to withholding tax if the Non-U.S. Holder files certain forms with the
payor.
Distributions by the Company which are not dividends out of earning and
profits as determined for United States federal income tax purposes should not
be subject to United States withholding tax. Such distributions will be treated
first as a tax-free return of capital to the Non-U.S. Holder, reducing the tax
basis of the Non-U.S. Holder's Shares by the amount of such distribution (but
not below zero) with distributions in excess of the Non-U.S. Holder's tax basis
taxable (to the same extent described below) as a sale or exchange of Shares.
Under United States Treasury regulations currently in effect, if it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and profits, the entire
amount of the distribution will be subject to withholding at the rate applicable
to dividends. However, under United States Treasury regulations proposed to be
effective with respect to payments made after December 31, 1997, the payor would
have the option of subjecting to withholding tax only the portion of the
distribution that would be a dividend based on a reasonable estimate of expected
earnings and profits of the Company for the year of the distribution. If the
Company were to subject the full amount of any distribution to United States
federal withholding tax and it was subsequently determined that such
distribution, in fact, was in excess of current and accumulated earnings and
profits, the Non-U.S. Holder would be entitled to seek a refund of such amounts
by filing an appropriate claim for refund with the IRS.
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<PAGE> 47
For purposes of determining whether United States federal tax should be
withheld at the 30% rate or at a lower rate as prescribed by an applicable tax
treaty, the Company ordinarily will presume that dividends paid to an address in
a foreign country are paid to a resident of such country absent knowledge that
such presumption is not warranted. However, under United States Treasury
regulations proposed in 1996 that would apply to payments made after December
31, 1997, a Non-U.S. Holder of Shares would be required to file certain
information with the payor of the dividends to obtain a reduced withholding rate
on dividends under an income tax treaty.
SALE OR OTHER DISPOSITION OF SHARES
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain recognized upon the sale or other disposition of Shares
unless: (i) the gain is effectively connected with a trade or business carried
on by the Non-U.S. Holder within the United States or, alternatively, if certain
tax treaties apply, attributable to a permanent establishment in the United
States maintained by the Non-U.S. Holder (and in either such case, the branch
profits tax also may apply if the Non-U.S. Holder is a corporation), (ii) in the
case of a Non-U.S. Holder who is a nonresident alien individual and who holds
Shares as a capital asset, such individual is present in the United States for
183 days or more in the taxable year of disposition and certain other conditions
are met, (iii) the Non-U.S. Holder is subject to United States federal tax
pursuant to rules applicable to certain United States expatriates or (iv) the
Company is or has been a United States real property holding corporation for
United States federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time within the shorter of the
five-year period preceding such disposition or such Non-U.S. Holder's holding
period for such Shares. Holder that did not directly or indirectly own more than
5% of the Shares during the shorter of the periods described above generally
would not be subject to United States federal income tax so long as the Shares
were "regularly traded" on an established securities market.
ESTATE TAX
In general, the estate of an individual who is not a citizen or resident of
the United States (as defined for United States estate tax purposes) will be
subject to liability for United States federal estate tax if the fair market
value of the property included in such estate for United States federal estate
tax purposes exceeds the statutory threshold amount. For these purposes, Shares
owned or treated as owned by such an individual at the time of death will be
included in such individual's taxable estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
Payments of dividends and proceeds from the sale or disposition of Shares
may be subject to information reporting to the IRS and to a 31% United States
federal backup withholding tax. Information reporting and backup withholding
generally will not apply, however, to a Non-U.S. Holder who furnishes a correct
taxpayer identification number and makes any other required certification, or
who is otherwise exempt from backup withholding. In addition to any required
information reporting, the Company will be required to report annually to the
IRS and to each Non-U.S. Holder the amount of dividends paid to, and the amount
of tax withheld with respect to, each Non-U.S. Holder. These reporting
requirements apply even if the United States federal withholding tax was reduced
or eliminated by an applicable tax treaty. This information also may be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides in accordance with the provisions of an applicable income tax treaty.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
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<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, assuming an offering price of $13 per
Share (the midpoint of the range on the cover page of this Prospectus)
14,440,068 Shares will be in issue (assuming no exercise of the Underwriters'
over-allotment option). The Shares offered hereby will be freely tradeable
(other than by an "affiliate" of the Company as defined under the Securities
Act) in the public market without restriction under the Securities Act. The
remaining 9,140,068 outstanding Shares were issued by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
Of such Shares, after giving effect to the Offering (assuming the Underwriters'
over-allotment option is not exercised), 434,217 Shares will be eligible for
resale under Rule 144 immediately following the expiration of the 180-day
lock-up period described under "Underwriting", 7,297,927 Shares, 466,669 Shares,
710,507 and 664,965 Shares will not be eligible for resale under Rule 144 until
March 27, 1998, October 14, 1998, February [7,] 1999 and March [6,] 1999,
respectively. Such Shares may be resold only in compliance with the registration
requirements of the Securities Act or pursuant to an exemption therefrom. In
addition, Michael Brown and the other existing shareholders of the Company were
granted rights entitling them, under specified circumstances, to cause the
Company to register for sale all or part of their shares of Common Stock and to
include such shares in any registered public offerings of shares of Common Stock
by the Company. See "Description of Capital Stock -- Registration Rights" and
"Underwriting". In addition, of the 2,808,533 options to purchase Shares
outstanding, 1,969,116 are currently exercisable. Any Shares issued on the
exercise of these options would be available for sale subject to Rule 701 or
another exemption from the registration requirements of the Securities Act
(including Regulation S under the Securities Act) following the expiration of
the 180-day lock-up period described above. Furthermore, the Company intends to
register under the Securities Act, as soon as practicable following the
Offering, approximately 3,045,133 Shares reserved for issuance to its employees
and directors under its employee benefits plans. See "Management."
In general, under Rule 144 as currently in effect, if a minimum of two
years has elapsed since the later of the date of acquisition of the securities
from the issuer or from an affiliate of the issuer, a person (or persons whose
Shares are aggregated), including persons who may be deemed "affiliates" of the
Company, as that term is defined in the Securities Act ("Affiliates"), would be
entitled to sell within any three-month period a number of Shares that does not
exceed the greater of (i) 1% of the then outstanding Shares (137,296 Shares
immediately after consummation of the Offering, or 145,246 Shares if the
over-allotment option is exercised in full) and (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission (the "Commission").
Sales under Rule 144 are also subject to certain provisions as to the manner of
sale, notice requirements and the availability of current public information
about the Company. In addition, under Rule 144(k), if a period of at least three
years has elapsed since the later of (i) the date restricted securities were
acquired from the Company and (ii) the date they were acquired from an Affiliate
of the Company, a shareholder who is not an Affiliate of the Company at the time
of sale and has not been an Affiliate for at least three months prior to the
sale would be entitled to sell Shares in the public market immediately without
compliance with the foregoing requirements under Rule 144. Rule 144 does not
require the same person to have held the securities for the applicable periods.
The Company and its Directors, Officers and certain other shareholders have
agreed not to offer for sale, sell or otherwise dispose of (or enter into any
transaction which is designed to, or could be expected to, result in the
disposition by any person of), directly or indirectly, any Shares, with certain
limited exceptions, for a period of 180 days after the date of this Prospectus
without the prior written consent of ING Barings on behalf of the Underwriters.
Prior to the Offering, there has been no market for the Shares and no
prediction can be made as to the effect, if any, that sales of the Shares or the
availability of such Shares for sale will have on the market price prevailing
from time to time. Sales of the Shares in the public market or the perception
that such sales may occur may have an adverse impact on such market prices.
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<PAGE> 49
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and the Underwriters named
below (the "Underwriters") the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom ING Barings is acting as
representative (the "Representative"), has severally agreed to purchase from the
Company, the number of Shares (collectively, the "Shares") set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- -------------------------------------------------------------------------------- ----------
<S> <C>
ING Barings.....................................................................
----------
Total......................................................................
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Shares if any such Shares are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated. The Company has been advised by the
Representative that the several Underwriters propose initially to offer the
Shares to the public at the public offering price set forth on the cover page
hereof, and to certain dealers at such price less a concession not in excess of
$ per Share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per Share to other dealers. After the
initial public offering, the public offering price and such concessions may be
changed.
A portion of the shares of Common Stock offered hereby are being offered
outside the United States. Offers and sales of shares of Common Stock outside
the United States are being made pursuant to Regulation S and such shares are
not being registered under the Securities Act for the purpose of sales outside
the United States. A registration statement under the Securities Act is in
effect for offers and sales in the United States of shares of Common Stock that
were initially offered or sold outside the United States. All sales of Shares on
behalf of ING Barings in the United States will be conducted by its affiliate
ING Baring (U.S.), Inc.
The Company has granted to the Underwriters an option to purchase
collectively up to 795,000 additional Shares exercisable for 30 days after the
date hereof, solely to cover over-allotments, if any, at the public offering
price set forth on the cover page of this prospectus less the underwriting
commissions. To the extent that the Underwriters exercise such option, each such
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such Shares that the number of Shares set
forth next to such Underwriter's name in the preceding table in the Prospectus
relating to the Offering bears to the total number of all such Shares to be
purchased and offered by the Underwriters.
Prior to the Offering, there has been no established market in the United
States or elsewhere for the Shares. The public offering price will be determined
by the Company in consultation with the Underwriters. It is expected that the
price determination will take several factors into account, including an
assessment of the Company's results of operations, the future prospects of the
Company and the prevailing market and economic conditions at the time of the
Offering.
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<PAGE> 50
Subject to certain exceptions, the Company and shareholders of the Company
holding in the aggregate 8,159,206 Shares and holders of options to purchase
2,041,830 Shares have agreed that they will not directly or indirectly offer or
sell any Shares (or securities convertible into any Shares), other than in the
Offering, for a period of 180 days after the commencement of the Offering
without the prior written consent of the Representative.
Application has been made to have the Common Stock approved for listing on
the Nasdaq National Market under the symbol "EEFT".
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act.
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<PAGE> 51
VALIDITY OF SECURITIES
The validity of the Shares offered hereby will be passed upon for the
Company by Arent Fox Kintner Plotkin & Kahn and for the Underwriters by Shearman
& Sterling.
EXPERTS
The Consolidated Financial Statements of the Company for the period from
June 22, 1994 (inception) to December 31, 1994, the years ended December 31,
1995 and 1996 and as of December 31, 1994, 1995 and 1996, included in this
Prospectus have been audited by KPMG Polska Sp. z o.o., independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
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<PAGE> 52
ANNEX A
COUNTRY INFORMATION: HUNGARY AND POLAND
The economic political and statistical information provided in this section
is based on secondary sources available to the Company. The information included
in this section does not purport to cover all aspects of the issues and matters
discussed herein and should not be construed as doing so.
THE REPUBLIC OF HUNGARY
The following economic and exchange control information regarding the
Republic of Hungary has been extracted from official publications of the
National Bank of Hungary (the "NBH"), the Hungarian Ministry of Industry and the
Hungarian Central Statistical Office.
GENERAL
The Republic of Hungary, which lies in Central Europe, covers an area of
approximately 93,000 square kilometers. The population of Hungary, as estimated
by the Hungarian Central Statistical Office, was 10.2 million as of January 1,
1996, compared with 10.7 million in 1980. Approximately 62% of the total
population lives in urban areas, and approximately 2.0 million people live in
the capital, Budapest, which is Hungary's political, administrative, cultural
and commercial center.
In April 1996, Hungary joined the OECD. It has been an associate member of
the European Union since December 1991. It is a member, together with Poland,
the Czech Republic and Slovakia, of the Central European Free Trade Association.
GOVERNMENT
During the late 1980s, the political system in Hungary underwent dramatic
changes. In 1989 non-communist political parties were established and initial
steps were taken toward the first free elections in the country since 1947. On
October 23, 1989, the country's name was changed from "The Hungarian People's
Republic" to the "Republic of Hungary" and the constitution was substantially
amended. Under its new constitution, Hungary instituted a multiparty democratic
government. In March and April 1990, the 386 members of Hungary's unicameral
parliament were elected by popular vote for a term of four years. In 1994 the
Hungarian Socialist Party joined with the Free Democrats to defeat the
centre-right coalition government that had initiated reforms in 1989 and to form
a coalition government with a 72% majority in parliament. Gyula Horn was elected
Prime Minister. The next scheduled general election is in 1998. Parliament is
the supreme legislative body of the Hungarian government (the "Government"). The
President of Hungary, the Prime Minister, the members of the Constitutional
Court, the president and vice-presidents of the State Audit Office, the
president of the Supreme Court and the Attorney General are elected by a vote of
Parliament.
ECONOMY
Since 1989, steps have been taken to accelerate the development of a market
economy in Hungary. However, Hungary was not able to insulate itself from the
downturn in economic activity that affected all of Central and Eastern Europe
after the dissolution of the Council for Mutual Economic Assistance ("COMECON"),
an economic and trade organization sponsored by the former Soviet Union that
included many formerly communist countries. GDP declined between 1990 and 1993.
The fall in GDP during this period was mainly attributable to structural reform,
the collapse in trade with the former COMECON countries and their lack of
convertible currencies to pay for Hungarian exports, the embargo on trade with
Yugoslavia and Bosnia and the recession in Eastern Europe. In 1994, however, GDP
increased by 2.9%.
In 1995, key economic indicators reflected mixed economic performance. The
central budget deficit (excluding social security funds) stood at Hungarian
forints ("HUF") 160.6 billion for 1995 and the current account deficit for 1995
was $2.48 billion. The rate of inflation (as measured by increases in consumer
prices)
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<PAGE> 53
increased to 28.2% in 1995 although unemployment fell during that period.
Exports in 1995 were valued at HUF 1,622.0 billion. The trade deficit in 1995
was HUF 314.4 (US$ 2.56) billion and GDP increased by 1.5%.
On March 12, 1995, the Hungarian government announced important economic
and monetary policy reforms. These measures were intended to reduce government
expenditures, narrow the foreign trade deficit, stabilize inflation, lower the
rate of domestic consumption, stimulate domestic savings and promote corporate
business activity.
The measures included a 9% devaluation of the forint and the introduction
of a "crawling peg" devaluation scheme, leading to an aggregate devaluation of
approximately 29% in 1995. A temporary 8% supplementary duty was imposed on
imports, excluding primary energy imports, investment goods and components for
export products. The mandatory conversion of export revenues of businesses into
forints was abolished. The measures also included reductions in certain social
welfare benefits and salary ceilings in public sector jobs.
The transition to a market-oriented economy in Hungary has had a
significant impact on prices, wages and employment. By the end of 1990, the
prices of over 90% of goods and services were free from regulation. Prices rose
rapidly during late 1990 and early 1991 and consumer prices increased by 35% in
1991. The rate of inflation began to moderate during the latter half of 1991 and
continued to subside in 1992 with the increase in consumer prices averaging 23%
for the year. The rate of inflation, as measured by increases in consumer
prices, remained fairly constant in 1993 at 22.5% and then declined to 18.8% in
1994. During 1995, the annual rate of inflation increased with consumer prices
increasing by 28.2%. In 1995, price increases included a 50% rise in energy
prices and a 31.1% rise in food prices.
From 1990 to 1993, nominal wages increased, although at a slower rate than
the increase in consumer prices over the same period. As a result, real wages in
each year declined. In 1994, however, the increase in nominal wages exceeded the
increase in consumer prices, causing real wages to grow. The monthly average
nominal wage (before taxes) in Hungary in 1995 was HUF 38,900, 16.9% higher than
in 1994.
The unemployment rate in Hungary at December 31, 1992, was 13.2% with over
663,000 registered as unemployed. The number of registered unemployed at
December 31, 1993 was 632,000, which represented an unemployment rate of 12.6%.
Since 1993, unemployment has continued to decline. At December 31, 1994 the
number of registered unemployed was 520,000, which represented an unemployment
rate of 10.9%. At the end of 1995, the number of registered unemployed was
496,000 which represented an unemployment rate of 10.4%.
EXCHANGE CONTROL
Legislation was enacted in late 1995 by the Hungarian parliament to further
liberalize foreign exchange for commercial transactions (Foreign Exchange Act,
Law XCV 1995). This came into effect on January 1, 1996 and meets the
requirements of both the International Monetary Fund (Section VIII) and the
Organization for Economic Cooperation and Development on convertibility of
current items.
Pursuant to the Foreign Exchange Act, the forint is freely convertible
except for capital movements and related transactions, which are controlled by
the Hungarian Government through the NBH.
Certain currency-related bank activities, other than those which involve
foreign trade transactions, require the permission of the NBH. These include,
without limitation:
- transfer of credit abroad;
- monetary exchange, whether into convertible currency or into HUF where
payment is by convertible currency, or any other possession of
convertible currency;
- purchase, gift or other contracts related to domestic properties between
Hungarian and foreign parties or by Hungarian parties for the benefit of
foreign parties; and
- the write-off of debt in convertible-currency.
However, an important area exempt by statute from the general requirement
of exchange control licensing is investment, including investment by an
investment company in shares in Hungary by foreign parties.
A-2
<PAGE> 54
Currently, companies not established in duty-free zones may only maintain
local currency books. However, a Hungarian company, which is either partly or
wholly foreign-owned, may keep the cash portion of the foreign partners' capital
contribution in a separate convertible-currency bank account. The
convertible-currency account may also be used pay expenses abroad.
Pursuant to this legislation, a Hungarian business may purchase convertible
foreign currency to effect payments in connection with its business activities.
Prior consent need not be obtained and there is no limit to the amount of
foreign currency which may be purchased or received by that business in
connection with those business activities. Any convertible foreign currency must
either be remitted to a beneficiary abroad or back to Hungary to be deposited in
a convertible foreign currency account with an authorized Hungarian financial
institution. This account may be used both for payments out in the relevant
foreign currency or for conversion into forints.
Since April 1995, Hungarian companies have been able to deposit income from
foreign trace contracts and foreign exchange loans in their hard currency
account and to make payments from these accounts (similarly in hard currency) in
respect of foreign trade contracts, interest or principal on foreign exchange
loans or, with permission from the NBH, for other purposes. Hungarian companies
may not conduct trade amongst themselves in a foreign currency. Money in a
convertible currency may be converted into forints or other convertible
currencies.
POLAND
GENERAL
Poland is the largest economy in Central Europe. The country has a
population of 38.5 million people. Poland occupies 313,000 square kilometers and
is strategically located just south of the Baltic Sea with Germany to the West,
the Czech and Slovak Republics to the South and Ukraine, Belarus, Russia and
Lithuania to the East. The country is divided into 99 counties and Warsaw, the
capital, is the country's commercial and political center.
In November 1996, Poland joined the OECD. It is an associate member of the
European Union and hopes to be a full member by the year 2000. It is a member,
together with Hungary, the Czech Republic and Slovakia, of the Central European
Free Trade Area.
GOVERNMENT
In 1952 Poland adopted a constitution that institutionalized a system of de
facto one-party rule by the Polish United Workers' Party (the "Polish Communist
Party"). Government policy during this period was guided by a program of
nationalization of industry, expropriation of large land holdings, central
planning of the economy and the suppression of political dissent. Frequent
political and economic crises occurred in the 1960s and 1970s.
Solidarity, the first independent trade union in the Soviet bloc, was
formed in 1980 and soon consolidated a growing popular discontent with the
communist government. In April 1989, the communist government and the democratic
opposition led by Solidarity agreed to a power-sharing arrangement and in June
1989 competitive elections to a bicameral Parliament were held. The overwhelming
victory of Solidarity candidates in these elections for available seats in the
Parliament signaled the end of the political monopoly of the Polish Communist
Party. In May 1990, local elections were held in which Solidarity achieved a
similar victory. In November 1990, Lech Walesa, who had played an historic role
in the information and leadership of Solidarity, was elected President. In the
first completely free parliamentary elections in 1991, 23 parties were elected
to parliament with the largest party not having more than 14% of the seats.
There were five governments between 1989 and 1993 and, following a change in the
electoral procedure prior to the second general election in 1993, the national
reform parties centered around the Union Democrats, a Solidarity-splinter group,
were defeated. The three governments since then, including the current one under
Prime Minister Cimoszewicz, have been based on the ex-communist Social Democrats
(SLD) and the Polish Peasant Party (PSL).
After Walesa's defeat in the presidential elections in November 1995,
Aleksander Kwasniewski from the SLD became the new President. The next
parliamentary election is scheduled to be held late in 1997.
A-3
<PAGE> 55
The present constitutional framework (the "Constitution") establishes
Poland as a democratic republic with a bicameral Parliament, a President as
head-of-state, a Council of Ministers and an independent judicial system. Under
the Constitution, a bicameral Parliament comprised of upper chamber (the
"Senate") and a lower chamber (the "Sejm") is elected by general election for a
four-year term. All legislation must be approved by the Sejm and the Senate and
signed by the President. Rejection of a bill by the Senate or by the President,
however, can be overruled by a two-thirds majority in the Sejm. The President
(with the approval of the Senate) or the Sejm may call a referendum on matters
of extreme importance to the country. Judicial authority is vested in the
Supreme Court, appellate, regional and lower courts. A separate Constitutional
Tribunal has jurisdiction over all matters relating to the interpretation of the
provisions of the Constitution.
Since 1992, a special commission of the Parliament has been empowered by
law to draft a new constitution. This commission is currently considering a
number of proposals that vary widely in their approach to the separation of
governmental powers and social and economic rights. No date has been set for
adoption of a new constitution.
ECONOMY
Since the fall of the Communist government in 1989, Poland has embarked on
a program of economic reform based on the transition to a market economy and
private ownership. Existing privileges and subsidies were taken away from state
owned enterprises, creating competitive opportunities for other economic
entities. The tax system was reformed to provide equal tax treatment of all
economic entities.
Poland's transition to an open market, with reduced subsidies, devaluation
of the Polish zloty ("PLN") to encourage exports and moderation of trade
barriers, initially resulted in very high rates of inflation, which have since
moderated somewhat. In a period of just over two years, the annual inflation
rate, which exceeded 300% in 1989 and approached 600% in 1990, was reduced to
approximately 70% in 1991, primarily through the introduction of a tight
monetary policy with the cooperation of the International Monetary Fund.
According to the Polish Central Office for Statistics, the rate of annual
inflation as at March 1996, was 20.4%. In addition, Poland continues to have
significant foreign debt. Efforts to curb inflation have had a recessionary
effect during the early 1990s, which was compounded by the introduction of a
large quantity of imported products with which domestic industry had difficulty
competing. However, GDP growth for 1994 was 5.2% and was 7% for 1995.
Unemployment stood at 14.3% in June 1996.
FOREIGN EXCHANGE
Poland was the first country in Central Europe to introduce the internal
convertibility of its currency. Under an amendment to the Foreign Exchange Law
introduced in December 1995, businesses are entitled to hold cash in both a PLN
account and a foreign currency in a Polish bank. Transactions with foreign
entities must be made in a foreign convertible currency. The average rate of
exchange is set by the National Bank of Poland ("NBP") on the basis of a basket
of hard currencies. Commercial banks set their own rates of exchange.
Residents of Poland are free to keep, buy and sell foreign currency. There
are many private exchange counters all over the country. The rate of exchange
offered by private exchange counters varies but remains close to the NBP rate.
Businesses are obliged to obtain a foreign exchange permit from the NBP in
order to open an account abroad unless amounts deposited in such accounts are to
be used for the payment of services rendered pursuant to contracts concluded
with foreign entities. Hard currency loans for the purchase of goods or services
abroad from foreign banks do not require foreign exchange permits from the NBP
any longer, unless the term of such loan is longer than one year or its
conditions are less favorable than those commonly applied in international
financial markets. Also, hard currency credits from the World Bank, the European
Bank for Reconstruction and Development, and the European Investment Bank
secured by Polish government guarantees and destined for financial or domestic
investments are permitted.
From February 1, 1996 companies with foreign participation are free to
contract hard currency loans from their shareholders. The above activities,
however, should be reported to the NBP.
A-4
<PAGE> 56
EURONET HOLDING N.V. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report........................................................... F-2
Consolidated Balance Sheets as of December 31, 1996, 1995 and 1994..................... F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995
and for the period from June 22, 1994 (inception) through December 31, 1994.......... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended December
31, 1996 and 1995 and for the period from June 22, 1994 (inception) through December
31, 1994............................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995
and for the period from June 22, 1994 (inception) through December 31, 1994.......... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
EURONET HOLDING N.V. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Euronet
Holding N.V. and Subsidiaries as of December 31, 1996, 1995 and 1994, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the years ended December 31, 1996 and 1995 and for the period
from June 22, 1994 (inception) through December 31, 1994. These consolidated
financial statements are the responsibility of Euronet Holding N.V.'s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Euronet
Holding N.V. and Subsidiaries at December 31, 1996, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1996 and 1995 and for the period from June 22, 1994 (inception) through
December 31, 1994 in conformity with generally accepted accounting principles in
the United States of America.
KPMG Polska Sp. z o.o.
Warsaw, Poland
February 3, 1997
F-2
<PAGE> 58
EURONET HOLDING N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 2,541 $ 411 $ 2,036
Restricted cash (note 5)....................................... 818 952 --
Trade accounts receivable, net of allowance for doubtful
accounts of $nil in 1996, 1995 and 1994..................... 172 33 --
Investment securities (market value of $164,900) (note 7)...... 194 -- --
Prepaid expenses and other current assets...................... 433 433 140
------- ------- -------
Total current assets...................................... 4,158 1,829 2,176
Property, plant, and equipment, at cost (note 6):
Equipment -- Automatic teller machines......................... 6,963 2,385 262
Office equipment............................................... 471 168 91
Computers...................................................... 266 -- --
Software....................................................... 396 103 3
------- ------- -------
8,096 2,656 356
Less accumulated depreciation and amortization................. (622) (138) (5)
------- ------- -------
Net property, plant, and equipment........................ 7,474 2,518 351
Loan receivable, excluding current portion (note 13)............. 21 24 --
Deferred income taxes (note 9)................................... 471 148 --
------- ------- -------
Total assets.............................................. $12,124 $ 4,519 $ 2,527
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable......................................... $ 2,297 $ 364 $ 76
Short term borrowings (note 7)................................. 194 -- --
Current installments of obligations under capital leases (note
8).......................................................... 637 264 --
Note payable -- shareholder (note 13).......................... 262 161 --
Accrued expenses............................................... 98 514 29
------- ------- -------
Total current liabilities................................. 3,488 1,303 105
Obligations under capital leases, excluding current installments
(note 8)....................................................... 3,834 1,119 --
Other long-term liabilities...................................... 103 -- --
------- ------- -------
Total liabilities......................................... 7,425 2,422 105
------- ------- -------
Shareholders' equity:
Series A convertible preferred shares, $0.02 par value.
Authorized 7,700,000 shares; issued and outstanding
4,419,800 shares (note 3)................................... 88 -- --
Series B convertible preferred shares, $0.02 par value.
Authorized 7,700,000 shares; issued and outstanding
4,666,669 shares (note 3)................................... 93 -- --
Common shares of Euronet Holding N.V., $0.02 par value.
Authorized 2,100,000 shares; issued and outstanding 499,100
shares (note 3)............................................. 10 -- --
Common shares of operating companies (note 3).................. -- 3,716 2,650
Additional paid in capital..................................... 7,494 550 --
Subscription receivable........................................ (500) -- --
Accumulated losses............................................. (3,270) (2,819) (457)
Restricted reserve (note 4).................................... 784 650 229
------- ------- -------
Total shareholders' equity................................ 4,699 2,097 2,422
------- ------- -------
Total liabilities and shareholders' equity................ $12,124 $ 4,519 $ 2,527
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
EURONET HOLDING N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 22,
1994
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Transaction fees..................................... $ 1,198 $ 62 $ --
Other................................................ 63 -- --
---------- ------ ------
Total revenues.................................. 1,261 62 --
Operating expenses:
ATM operating costs.................................. 1,176 510 --
Professional fees.................................... 1,125 394 64
Salaries............................................. 989 452 49
Foreign exchange loss................................ 383 158 2
Other................................................ 1,599 656 125
---------- ------ ------
Total operating expenses........................ 5,272 2,170 240
---------- ------ ------
Operating loss.................................. (4,011) (2,108) (240)
Other income/expense:
Interest income...................................... 225 126 12
Interest expense..................................... (378) (107) --
---------- ------ ------
(153) 19 12
---------- ------ ------
Loss before income taxes........................ (4,164) (2,089) (228)
Deferred tax benefit (note 9)........................ 323 148 --
---------- ------ ------
Net loss........................................ $ (3,841) $ (1,941) $ (228)
========== ====== ======
Pro-forma loss per share (note 2(k))................... $ (0.28)
==========
Pro-forma number of shares (note 2(k))................. 13,823,775
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
EURONET HOLDING N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED PREFERRED ADDITIONAL
COMMON SHARES SHARES PAID IN SUBSCRIPTION ACCUMULATED RESTRICTED
SHARES SERIES A SERIES B CAPITAL RECEIVABLE LOSSES RESERVE TOTAL
------ --------- --------- ---------- ------------ ----------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital
contributions....... 2,650 -- -- -- -- -- -- 2,650
Current period loss... -- -- -- -- -- (228) -- (228)
Transfer to restricted
reserve............. -- -- -- -- -- (229) 229 --
----- ----- ----- ----- ------ ----- ------ ------
Balance December 31,
1994................ 2,650 -- -- -- -- (457) 229 2,422
Capital
contributions....... 1,066 -- -- 550 -- -- -- 1,616
Current year loss..... -- -- -- -- -- (1,941) -- (1,941)
Transfer to restricted
reserve............. -- -- -- -- -- (421) 421 --
----- ----- ----- ----- ------ ----- ------ ------
Balance December 31,
1995................ 3,716 -- -- 550 -- (2,819) 650 2,097
Net loss up to March
27, 1996............ -- -- -- -- -- (657) -- (657)
Transfer to restricted
reserve............. -- -- -- -- -- (48) 48 --
Formation of holding
company............. (3,709) 63 -- 122 -- 3,524 -- --
Capital
contributions....... -- -- 67 6,933 (500) -- -- 6,500
Reimbursement of
capital (note 13)... -- -- -- (57) -- -- -- (57)
Changes in par value
of shares........... 3 25 26 (54) -- -- -- --
Net loss from March
28, 1996 through
December 31, 1996... -- -- -- -- -- (3,184) -- (3,184)
Transfer to restricted
reserve............. -- -- -- -- -- (86) 86 --
----- ----- ----- ----- ------ ----- ------ ------
Balance December 31,
1996................ 10 88 93 7,494 (500) (3,270) 784 4,699
===== ===== ===== ===== ====== ===== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
EURONET HOLDING N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 22, 1994
YEAR ENDED YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss........................................... $ (3,841) $ (1,941) $ (228)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation of property, plant and equipment.... 484 133 5
Deferred income taxes............................ (323) (148) --
Decrease/(increase) in restricted cash........... 134 (952) --
Increase in trade accounts receivable............ (139) (33) --
Increase in trade accounts payable............... 1,933 288 76
Increase in prepaid expenses and other current
assets........................................ -- (293) (140)
(Decrease)/increase in accrued expenses and other
long-term liabilities......................... (313) 485 29
------- ------- -------
Net cash used in operating activities....... (2,065) (2,461) (258)
Cash flows from investing activities:
Fixed asset purchases............................ (1,061) (394) (356)
Purchase of investment securities................ (194) -- --
Net decrease/(increase) in loan receivable....... 3 (24) --
------- ------- -------
Net cash used in investing activities....... (1,252) (418) (356)
Cash flows from financing activities:
Capital contributions............................ 6,500 1,616 2,650
Reimbursement of capital......................... (57) -- --
Repayment of obligations under capital leases.... (1,291) (523) --
Proceeds from bank borrowings.................... 194 -- --
Proceeds from loan from shareholder.............. 101 161 --
------- ------- -------
Net cash provided by financing activities... 5,447 1,254 2,650
------- ------- -------
Net increase/(decrease) in cash and cash
equivalents...................................... 2,130 (1,625) 2,036
Cash and cash equivalents at beginning of period... 411 2,036 --
======= ======= =======
Cash and cash equivalents at end of period......... $ 2,541 $ 411 $ 2,036
======= ======= =======
Supplemental disclosures of cash flow information:
Interest paid during year........................ $ 325 $ 107 $ --
======= ======= =======
</TABLE>
Supplemental schedule of noncash investing and financing activities (in
thousands):
Capital lease obligations of $4,379 and $1,906 during the years ended
December 31, 1996 and 1995, respectively, were incurred when Euronet Holding
N.V. entered into leases for new automatic teller machines.
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 62
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND FORMATION OF HOLDING COMPANY
Euronet Holding N.V. is a limited liability company registered in the
Netherlands Antilles on March 11, 1996. Euronet Holding N.V. and its
subsidiaries (Euronet N.V.) is an independent shared automatic teller machine
(ATM) network and service provider to banks and financial institutions. Euronet
N.V. had been in the development stage until June 1995 when it began operations.
Euronet N.V. serves a number of banks in Poland and Hungary by providing ATMs
that accept cards with international logos such as VISA, American Express and
Mastercard and proprietary bank cards issued by member banks. The subsidiaries
of Euronet Holding N.V. are: Euronet-Bank 24 Rt, (Bank 24), SatComNet Kft,
(SatComNet), both incorporated in Hungary and Bankomat 24/Euronet Sp. z o.o.
(Bankomat), incorporated in Poland.
Bank 24 was established on June 22, 1994 by Michael Brown (Chairman,
President and Chief Executive Officer of Euronet N.V.) and Daniel Henry with an
initial capital contribution of $10,000. Pursuant to a joint venture agreement
dated July 19, 1994, certain new shareholders and Michael Brown contributed
$2,640,000 in cash as additional capital to Bank 24 and Daniel Henry transferred
his interest to Michael Brown for a purchase price equal to his original
contribution. The additional capital raised by Bank 24 did not result in a new
controlling group, accordingly the accounting bases of the assets and
liabilities of Bank 24 remained unchanged. On February 20, 1995, the joint
venture agreement was amended under which a new investor and a shareholder of
Bank 24 acquired SatComNet for a purchase price of $491,000 in cash. SatComNet
was a shell entity with no substantive operations before such date. SatComNet is
engaged in telecommunication services by facilitating satellite link up to Bank
24. The acquisition was accounted for under the purchase method of accounting;
accordingly, the results of operations of SatComNet are included in the
consolidated statements of operations since the date of acquisition. The
purchase price approximated the fair value of the net assets acquired, which
mainly consisted of cash and equipment. Pursuant to the amended joint venture
agreement, the shareholders of SatComNet and a new shareholder agreed to
contribute $956,000 in cash as additional capital to Bank 24 and also agreed to
exchange their interest held in such companies in exchange for identical
ownership of Bank 24 and SatComNet. The capital raised by Bank 24 and the
exchange of shares did not result in a new controlling group; accordingly, the
accounting bases of the assets and liabilities of Bank 24 and SatComNet remained
unchanged. Michael Brown established Bankomat on August 8, 1995 with $2,000 in
capital. A further capital increase of $61,000 was made by Michael Brown on
December 7, 1995.
On February 15, 1996 the shareholders of Bank 24 and SatComNet terminated
their amended joint venture agreement and entered into a shareholders' agreement
reorganizing the ownership of Bank 24, SatComNet and Bankomat. Under the
shareholders' agreement, the investors contributed, on March 27, 1996, all of
their shares and interest in Bank 24, SatComNet and Bankomat in exchange for
499,100 common shares and 4,419,800 Series A convertible preferred shares of
Euronet N.V. The reorganization has been accounted for as a combination of
entities under common control at historical cost in a manner similar to pooling
of interest accounting. Under this method, Euronet N.V. recorded the assets and
liabilities received at their historical cost, common shares and Series A
convertible preferred shares were credited for the par value of the shares
issued, accumulated losses were eliminated and the resulting difference was
recorded as additional paid in capital. In addition, new shareholders
contributed $5,500,000 in cash and a subscription receivable of $500,000 to the
capital of Euronet N.V. in exchange for 4,200,000 Series B convertible preferred
shares.
Euronet Services Inc. was established as a Delaware corporation on December
13, 1996 which will succeed Euronet N.V. as the holding company. Euronet
Services Inc. was capitalized with $100 and has had no operations since
incorporation. It is intended that (i) the holders of all of the preferred
shares of Euronet N.V. will convert all of such preferred shares into common
shares of Euronet N.V., (ii) the par value of common shares will be increased
from $0.10 to $0.14 and (iii) Euronet N.V. will effect a seven-for-one stock
split of all outstanding common shares of Euronet N.V., reducing the par value
of common shares to $0.02.
F-7
<PAGE> 63
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Euronet Services Inc. and the shareholders and optionholders of Euronet
N.V. entered into an Exchange Agreement, pursuant to which (i) 10,296,076 shares
of common stock will be issued to the shareholders of Euronet N.V. in exchange
for all the common shares of Euronet N.V. (ii) options to acquire 3,113,355
shares of common stock will be granted to the holders of options to acquire
3,113,355 common shares of Euronet N.V. in exchange for all of such options and
(iii) awards with respect to 800,520 shares of common stock of Euronet Services
Inc. will be issued to the holders of awards with respect to 800,520 preferred
shares of Euronet N.V. in exchange for all such awards (the "Reorganization").
Euronet N.V. will be dissolved following the Reorganization. The Reorganization
is subject to and will be effective upon the execution of an underwriting
agreement in connection with an initial public offering of the common stock of
Euronet Services Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Basis of presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America.
The financial statements for 1994, 1995 and for the period from January 1,
1996 through March 27, 1996 have been presented as if the operating entities had
been combined from their respective dates of incorporation/acquisition.
Subsequent to March 27, 1996, the consolidated financial statements include the
accounts of Euronet N.V. and its subsidiaries.
All significant intercompany balances and transactions have been
eliminated.
(b) Transfer of non monetary assets
The transfer of the share holdings held by the shareholders in Bank 24,
SatComNet and Bankomat in exchange for shares in Euronet Holding N.V. have been
recorded at the underlying net equity of the operating entities which is the
historical cost. The transfer of assets by shareholders have been recorded at
the transferors' historical cost basis.
(c) Foreign currency translation
The functional currency of Euronet N.V. is the U.S. dollar, the currency of
the primary economic environments in which it operates. The determination of
Euronet N.V.'s functional currency has been made after the management's
evaluation of various business and economic factors affecting Euronet N.V.,
including the generation of cash flows and the sources of financing. The
subsidiaries of Euronet N.V. operate in countries with highly inflationary
economies. The accounting records of these subsidiaries are maintained in the
local currency and remeasured to U.S. dollars.
Historical exchange rates are used to remeasure nonmonetary items while
current exchange rates are used to remeasure monetary items. Exchange gains and
losses that arise from the remeasurement process are reported in determining net
loss.
(d) Property, plant and equipment
Property, plant, and equipment are stated at cost. Equipment under capital
leases are stated at the lesser of fair value of the leased equipment and the
present value of future minimum lease payments.
Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets. Equipment held under capital leases and leasehold
improvements are amortized straight line over their estimated useful lives.
F-8
<PAGE> 64
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation rates are as follows:
<TABLE>
<S> <C>
Automatic teller machines.................................. 7 years
Computers.................................................. 3 years
Software................................................... 3 years
Vehicles & Equipment....................................... 5 years
</TABLE>
(e) Impairment of long-lived assets
Euronet N.V. assesses the recoverability of long-lived assets (mainly
property, plant and equipment) by determining whether the carrying value of the
fixed assets can be recovered over the remaining lives through projected
undiscounted future operating cash flows. If an impairment in value is estimated
to have occurred, the assets carrying value is reduced to its estimated fair
value. The assessment of the recoverability of long-lived assets will be
impacted if estimated future operating cash flows are not achieved.
(f) Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the income in the period that includes the enactment date.
Valuation allowances for deferred tax assets have been established on the
basis of Euronet N.V.'s estimate of taxable income for future periods.
(g) Risks and uncertainties
Euronet N.V. operates in one business segment through operations in Hungary
and Poland. Euronet N.V., at this time, is dependent on a limited group of
customers and network services are limited to those areas where ATMs have been
installed.
Management of Euronet N.V. has made a number of estimates and assumptions
related to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) Revenue recognition
Euronet N.V. recognizes revenue at the point at which the service is
performed.
(i) Cash equivalents
For the purposes of the statement of cash flows, Euronet N.V. considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
(j) Investment securities
Investment securities at December 31, 1996 consist of Hungarian government
bonds which Euronet N.V. has classified as held-to-maturity (gross unrealised
losses are approximately $29,100). Held-to-maturity securities are those
securities in which Euronet N.V. has the ability and intent to hold the security
to maturity. The held-to-maturity investment securities are recorded at
amortized cost, adjusted for the amortization or accretion of
F-9
<PAGE> 65
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
premium and discounts. A decline in the market value of any held-to-maturity
security below cost that is deemed other than temporary results in a reduction
in the carrying amount to fair value. The impairment is charged to earnings and
a new cost basis for the security is established. Premium and discounts are
amortized or accreted over the life of term of the related held-to-maturity
security as an adjustment to yield using the effective interest method.
(k) Pro-forma loss per share
As the historical capital structure of Euronet N.V. is not indicative of
the continuing capital structure, the historical loss per share has been
replaced by a pro-forma loss per share computation. The pro-forma loss per share
has been calculated by dividing the net loss by the pro-forma number of shares
amounting to 13,823,775. The pro-forma number of shares reflects the sum of (1)
11,401,418 shares of common stock to be issued by the proposed new holding
company, Euronet Services Inc., including, 1,105,342 shares to be issued upon
the exercise of awards and options on the date of the initial public offering
and 710,507 issuable to General Electric Capital Corporation, (2) 1,519,002
shares issuable (using the treasury stock method) under Euronet N.V.'s milestone
stock option program, and (3) 903,355 shares issuable (using the treasury stock
method) under Euronet N.V.'s stock compensation plan.
(3) CAPITAL STOCK
Euronet N.V. registered a ten for one stock split on October 11, 1996. The
par value changed from $1.00 to $0.10 for all preferred and common stock
authorized and issued as a result of the stock split. Upon formation of Euronet
Services Inc., Euronet N.V.'s preferred and common stock authorized and issued
will reflect a further stock split of seven for one and the par value will
change from $0.10 to $0.02. All references in the financial statements to the
number of shares and per share amounts have been retroactively restated to
reflect the increased number of preferred and common shares outstanding.
On November 26, 1996, Euronet N.V. called on the first tranche of $1
million dollars of the standby commitment from certain existing investors
(Poland Partners LP, Advent Partners LP, Advent Private Equity Fund-CELP, Poland
Investment Fund LP, Hungarian Private Equity Fund and DST Systems Inc.). The
conversion terms of this tranche were that one share of series B convertible
preferred shares of Euronet N.V. was issued for each $2.14 of standby
contribution (466,669 series B convertible preferred shares were issued in
exchange for $1 million dollars). Refer to note 10(d).
On February 3, 1997, the Company signed a Subscription Agreement (the
"Subscription Agreement") with General Electric Capital Corporation ("GE
Capital") pursuant to which GE Capital agreed to subscribe for preferred stock
of Euronet N.V. for an aggregate purchase price of $3 million which will entitle
GE Capital to receive 710,507 shares of common stock of Euronet Services Inc. in
connection with the Reorganization, resulting in a per share purchase price of
$4.22. Under a "claw back" option, Euronet Services Inc. has the right to
repurchase up to 292,607 of such shares for nominal consideration in the event
of a public or private offering of Euronet Services Inc.'s common stock where
Euronet Services Inc. is attributed a valuation that is higher than that used
for purposes of the Subscription Agreement. The Subscription Agreement also
includes certain reciprocal rights of the parties to act as preferred providers
of services to each other. In particular, Euronet Services Inc. will be a
preferred provider of outsourced ATM services to certain banks affiliated with
GE Capital. The sale of shares pursuant to the Subscription Agreement is
expected to close on February 7, 1997.
In accordance with the Articles of Association of Euronet N.V., holders of
series B convertible preferred shares are entitled to priority earnings'
distribution, to the extent possible, as determined by a fixed formula. Profits
available for distribution after this deduction are then allocated to both
holders of series A and B convertible preferred shares, to the extent possible,
as determined by a fixed formula. Common share holders are entitled to a fixed
dividend of $0.11 per common shares, to the extent possible, after the second
priority earnings'
F-10
<PAGE> 66
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
distribution. The remaining profits available for distribution, to the extent
possible, shall be allocated to all shareholders on a pro rata basis.
In the event of liquidation of Euronet N.V., holders of series B
convertible preferred shares shall be entitled to receive, to the extent
possible, in priority to any distribution to the holders of series A and common
shares, a distribution determined in accordance with a fixed formula. From the
net assets that remain after this payment the holders of series A and B
convertible preferred shares shall be entitled to receive, to the extent
possible, in priority to any distribution to the holders of common shares, a
distribution determined in accordance with a fixed formula. The balance that
remains shall be distributed among the holders of common shares pro rata based
on their respective ownership of common shares.
Holders of convertible preferred shares may have their shares converted
into common shares at the rate of one to one. Holders of series B convertible
preferred shares may have their shares converted into series A convertible
preferred shares at the rate of one to one. Euronet N.V. has the option to
convert all preferred series A and B shares to common shares upon the
undertaking of an initial public offering.
Prior to Euronet N.V. being established on March 11, 1996, the common
shares of the entities forming part of the combination were Bank 24, SatComNet
and Bankomat. The share capital (and quota capital with respect to SatComNet) of
the combined entities is composed fully of common shares. Details of shares
authorized and issued are as follows:
<TABLE>
<CAPTION>
TOTAL
VALUE
QUOTA AUTHORIZED ISSUED --------------
CAPITAL SHARES SHARES
------- ---------- ------- (IN THOUSANDS)
<S> <C> <C> <C> <C>
Bank 24........................................... -- 330,000 330,000 $3,162
SatComNet......................................... 1 -- -- $ 491
Bankomat.......................................... -- 3,140 3,140 $ 63
</TABLE>
During 1995, Bank 24 changed its legal structure from a company limited by
quotas ("Kft") to a company limited by shares ("Rt").
(4) RESTRICTED RESERVE
The restricted reserve arises from the provisions of Hungarian accounting
law in relation to share capital contributed in foreign currency to Bank 24 and
SatComNet. Under these rules, a foreign currency capital contribution is
recorded in the local accounting records of the companies using the rate when
the capital was contributed. The foreign currency gain (or loss) which arises
upon usage of the foreign currency is booked directly to a separate non
distributable reserve.
For the purposes of these consolidated financial statements, the exchange
gains and losses booked to this reserve under Hungarian accounting law, together
with the gain on revaluing the remaining foreign currency received for capital
at each period end in accordance with generally accepted accounting principles,
have been included in the income statement for the year with an equivalent
transfer for the accumulated loss reserve to the restricted reserve.
(5) RESTRICTED CASH
Euronet N.V. has two types of restricted cash balances at December 31, 1996
and 1995.
Bankomat and Bank 24 have deposits as security with respect to cash
supplied by certain banks to the ATMs, equivalent to the amount of cash in
machines at the balance sheet dates. These deposits have been classified as
restricted cash.
F-11
<PAGE> 67
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bank 24 also has deposits with a commercial bank to cover guarantees,
deposits with customs officials to cover potential charges, and with their
leasing company as a minimum deposit related to the lease of ATMs (see note 8).
Following is a detail of restricted cash balances at each balance sheet
date:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Restricted cash for ATM deposits -- Poland.................................. $ 36 $ --
Restricted cash for ATM deposits -- Hungary................................. 116 180
Restricted cash for deposits -- Hungary..................................... 666 772
---- ----
Total restricted cash....................................................... $818 $952
==== ====
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
VEHICLES &
SOFTWARE ATMS COMPUTERS EQUIPMENT TOTAL
-------- ----- --------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cost:
Balance at June 22, 1994 (inception).......... -- -- -- -- --
Additions..................................... 3 262 -- 91 356
--- ----- --- --- -----
Balance at December 31, 1994.................. 3 262 -- 91 356
Additions..................................... 100 2,123 -- 77 2,300
--- ----- --- --- -----
Balance at December 31, 1995.................. 103 2,385 -- 168 2,656
Additions..................................... 293 4,578 266 310 5,447
Disposals..................................... -- -- -- (7) (7)
--- ----- --- --- -----
Balance at December 31, 1996.................. 396 6,963 266 471 8,096
====== ===== ======== ======== =====
Accumulated Depreciation:
Balance at June 22, 1994 (inception).......... -- -- -- -- --
Additions..................................... -- -- -- 5 5
--- ----- --- --- -----
Balance at December 31, 1994.................. -- -- -- 5 5
Additions..................................... 7 110 -- 16 133
--- ----- --- --- -----
Balance at December 31, 1995.................. 7 110 -- 21 138
Additions..................................... 28 334 41 81 484
--- ----- --- --- -----
Balance at December 31, 1996.................. 35 444 41 102 622
====== ===== ======== ======== =====
</TABLE>
(7) SHORT TERM BORROWINGS
Short term borrowings represents a Hungarian forint denominated loan of
$194,000 granted by a commercial bank in Hungary to permit such bank to supply
cash to the ATM network. This loan originated April 4, 1996 and is due on March
18, 1997 together with interest accrued at 29%.
Euronet N.V. has collateralized this loan by the pledge of investment
securities amounting to $194,000, bearing interest at 27% maturing on March 18,
1997.
F-12
<PAGE> 68
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LEASES
(a) Capital leases
Euronet N.V. leases the majority of its ATMs in Poland and Hungary under
capital lease agreements that expire between 1999 and 2001 and bear interest at
rates between 11% and 15%. Lease installments are paid on a monthly or
semi-annual basis.
In Poland, there are two principal agreements. The first includes a bargain
purchase option at the end of the lease term at a price equivalent to 0.1% of
the capital value of the leased assets. In addition, this agreement is subject
to a contingent rental of $0.80 per ATM transaction in excess of a minimum
number of transactions as stated in the lease agreement. The agreement limits
the total contingent rental such that the lessor does not receive a rate of
return in excess of a certain percentage as stipulated in the agreement. There
were no contingent rentals incurred for the year ended December 31, 1996.
Under the second agreement, the residual value of the lease is equivalent
to 12.5% (approximately $21,000) of the original capital value of the leased
asset. Euronet N.V. has an irrevocable right to renew the lease for an
indefinite period under the same payment terms as the initial agreement. In
addition to the related equipment, this lease is also collateralized by the
pledge of certain accounts receivable and a letter of credit from a commercial
bank.
A related entity, Windham Technologies Inc., has the option to purchase the
ATMs under capital lease in Hungary at the end of the lease term at a bargain
purchase price of $1 plus incidental expenses (refer to note 13).
Euronet N.V. also leases an IBM AS400 computer for use as its central
processing and authorization center for ATM transactions. This three year lease
with a term of July 1, 1996 through September 30, 1999 bears interest at a rate
of 15% and is payable in quarterly installments of $24,000.
The gross amount of the ATMs and IBM computer and related accumulated
amortization recorded under capital leases were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
ATMs..................................................................... $6,060 $1,906
IBM computer............................................................. 225 --
----- -----
6,285 1,906
Less accumulated amortization............................................ (410) (96)
----- -----
Net book value........................................................... $5,875 $1,810
===== =====
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
(b) Operating leases
Euronet N.V. also has noncancelable operating rental leases which expire
over the next 2 to 4 years. Rent expense under these leases amounted to
$270,000, $158,000 and $66,000, for the years ended December 31, 1996, 1995, and
for the period from June 22, 1994 (inception) through December 31, 1994,
respectively.
F-13
<PAGE> 69
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Future minimum lease payments
Future minimum lease payments under the capital leases and the
noncancelable operating leases (with initial or remaining lease terms in excess
of one year) as of December 31, 1996 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31,
1997................................................................ $ 1,212 $ 267
1998................................................................ 1,606 144
1999................................................................ 1,786 148
2000................................................................ 1,527 --
------ ------
Total minimum lease payments..................................... 6,131 $ 559
======
Less amounts representing interest.................................... (1,660)
------
Present value of net minimum capital lease payments................... 4,471
Less current installments of obligations under capital leases......... (637)
------
Long term capital lease obligations................................... $ 3,834
======
</TABLE>
(9) INCOME TAXES
The income tax benefit consisted of the following:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 22,
1994
YEAR ENDED YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense
Netherlands Antilles............................ -- -- --
Europe.......................................... -- -- --
----- ----- -----
Total current................................... -- -- --
Deferred tax expense
Netherlands Antilles............................ -- -- --
Europe.......................................... (323) (148) --
----- ----- -----
Total deferred.................................. (323) (148) --
===== ===== =====
</TABLE>
F-14
<PAGE> 70
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The sources of loss before income taxes are presented as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 22,
1994
YEAR ENDED YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Netherlands Antilles............................ 244 -- --
Europe.......................................... 3,920 2,089 228
----- ----- -----
Loss before income taxes........................ 4,164 2,089 228
===== ===== =====
</TABLE>
The difference between the actual income tax benefit and the tax benefit
computed by applying the statutory income tax rate (3% for Netherlands Antilles,
18% for Hungary and 38% for Poland) to losses before taxes is attributable to
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995 1994
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit at statutory rates.............................. 155 427 82
Non-deductible expenses............................................ (97) (153) (23)
Tax holiday........................................................ (4) (8) --
Foreign tax benefit................................................ 806 -- --
Valuation allowance................................................ (537) (118) (59)
----- ----- -----
Actual income tax benefit.......................................... 323 148 --
===== ===== =====
</TABLE>
The income tax benefit has been calculated on the basis of the taxable
losses of the combined entities for the period June 22, 1994 (inception) through
December 31, 1994, the year ended December 31, 1995 and the period January 1,
1996 through March 27, 1996. Upon formation of Euronet N.V. on March 27, 1996,
the income tax benefit was calculated solely on the basis of the taxable loss of
Euronet Holding N.V.
The tax effect of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995 1994
----- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax loss carryforwards............................................. 989 233 59
Leasing............................................................ 5 12 --
Leasehold improvements............................................. 48 21 --
Accrual............................................................ 84 -- --
----- ----- ----
Deferred tax asset................................................. 1,126 266 59
Valuation allowance................................................ (655) (118) (59)
----- ----- ----
Net deferred tax assets............................................ 471 148 --
===== ===== ====
</TABLE>
The valuation allowance relates to deferred tax assets established under
SFAS No. 109 for loss carryforwards at December 31, 1996 of $4,272,000. The tax
operating loss carryforwards will expire through 1999 for Bankomat and through
2001 for Bank 24, SatComNet and Euronet N.V. Based on
F-15
<PAGE> 71
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Euronet N.V.'s forecast of sufficient taxable income for future periods in which
the tax losses are expected to be absorbed, Euronet N.V. believes that it will
realize the benefit of the deferred tax assets, net of the existing valuation
allowance.
(10) SHARE PLANS AND CAPITAL COMMITMENTS
(a) Share Compensation Plan
Euronet N.V. has established a share compensation plan which provides
certain employees options to purchase shares of Euronet N.V.'s common stock. The
exercise price is established based on the estimated fair value of the shares at
grant date. Such value is determined by management taking into consideration
recent equity or convertible security transactions as well as changes in Euronet
N.V.'s business. The options vest over a period of five years from the date of
grant. Options are exercisable during the term of employment or consulting
arrangements with Euronet N.V. and its subsidiaries. Euronet N.V. has the right
to repurchase shares within 180 days from an employee who has exercised his
options but has ceased to be employed by Euronet N.V.
At December 31, 1996, Euronet N.V. has authorized options for the purchase
of 1,299,550 shares of common shares, of which 1,062,950 have been awarded to
employees at a weighted average exercise price of $1.13. Of that amount, options
for 262,360 shares have vested as of December 31, 1996. The option exercise
price varies between $0.71 and $2.14. The exercise price of the options is
established based on the estimated fair value of the shares at grant date. Such
value is determined by management taking into consideration recent equity or
convertible security transactions as well as changes in Euronet N.V.'s business.
No compensation has been recorded for such share options. The exercise price of
the employee share options has been modified to reflect the proposed capital
structure of the new holding company, Euronet Services Inc.
(b) Milestone Share Awards and Options
In accordance with the shareholders' agreement dated February 15, 1996 and
amended on October 14, 1996, Euronet N.V. has reserved 2,850,925 shares of
series A convertible preferred shares which shall be authorized but unissued for
the purpose of awarding preferred shares ("milestone awards") to certain
investors and options to acquire preferred shares ("milestone options") to the
founders, management and key employees. Euronet N.V. granted 800,520 milestone
awards at an exercise price of $0.02 per share and 2,050,405 milestone options
at an exercise price of $2.14 per share.
The milestone awards vest and become exercisable on the date on which any
one or more of the three performance goals described in the shareholders'
agreement attained. One third of the milestone options vest upon the occurrence
of each milestone. The milestone options vest and become exercisable upon the
earlier of October 14, 2006, or the date on which any one or more of the three
performance goals described in the shareholders' agreement is attained. One
third of the milestone options vest upon occurrence of each milestone. The
exercise price of the milestone options was established based on the estimated
fair value of the shares at grant date. Such value is determined by management
taking into consideration recent equity or convertible security transactions as
well as changes in Euronet N.V.'s business. No compensation has been recorded
for the milestone options. In the event of an initial public offering all
milestones awards and milestone options granted under the milestone arrangement
(with the exception of 49,819 options to certain key employees which will vest
equally over two years following the initial public offering) shall be
considered to have been met and all preferred shares shall become immediately
issuable to beneficiaries of milestone awards and options.
(c) Fair Value of Share Options
The per share weighted-average fair value of share options granted during
1996, 1995 and 1994 was $1.00, $0.69 and $0.36 on the date of grant using the
minimum value method with the following weighted-average assumptions: expected
dividend yield 0%, risk-free rate of interest of 7.17% and an expected
volatility of 0%.
F-16
<PAGE> 72
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Euronet N.V. applies APB Opinion No. 25 in accounting for its plan and,
accordingly, no compensation cost has been recognized for its share options in
the financial statements. Had Euronet N.V. determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, net
loss and net loss per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C> <C>
Net loss As reported....................................... 3,841 1,941 228
Pro forma......................................... 3,981 1,992 241
Loss per share As reported....................................... 0.28 -- --
Pro forma......................................... 0.29 -- --
</TABLE>
Pro forma net loss reflects only options granted in 1996, 1995 and 1994.
Therefore, the full impact of calculating compensation cost for share options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
five to ten years.
(d) Standby Commitment and Contribution
Certain investors (Poland Partners LP, Advent Partners LP, Advent Private
Equity Fund-CELP, Poland Investment Fund LP, Hungarian Private Equity Fund and
DST Systems Inc.) agreed to make an aggregate of three million dollars available
to Euronet N.V. in two tranches of one million ("tranche 1") and two million
dollars ("tranche 2"), respectively.
Euronet N.V. made a call on tranche 1 of the standby commitment on November
26, 1996 (see note 3). The terms of tranche 2 are that one share of series B
convertible preferred shares will be issued for each $10 of standby contribution
made. Upon the Reorganization, Euronet N.V. intends to cancel the option to call
the second tranche.
(11) BUSINESS SEGMENT INFORMATION
Euronet N.V. and its subsidiaries operate in one business segment, the
service of providing an independent shared ATM network to banks and financial
institutions that it serves.
Net revenue, operating assets and identifiable assets, as of and for the
periods ending December 31, 1996, 1995 and 1994, excluding intercompany amounts,
of Euronet N.V. and it subsidiaries according to their geographic location are:
<TABLE>
<CAPTION>
TOTAL REVENUES OPERATING LOSS IDENTIFIABLE ASSETS
-------------------------- -------------------------- --------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Europe.............. 1,261 62 -- (3,582) (2,108) (240) 9,942 4,519 2,527
Netherlands Antilles -- -- -- (429) -- -- 2,182 -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............... 1,261 62 -- (4,011) (2,108) (240) 12,124 4,519 2,527
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
Euronet N.V. is committed to purchase ATMs from certain suppliers for a
total minimum amount of $12,769,000 over an indefinite period of time.
F-17
<PAGE> 73
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) RELATED PARTIES
Hi-Care
Hi-Care, the lessor from whom Bank 24 rents its Budapest office, was an
investor in Euronet N.V. from March 24, 1995 through March 27, 1996. Hi-Care
invested $197,000 in Bank 24 until the formation of Euronet Holding N.V., at
which time its shares were purchased by a new investor. The total amount of rent
expense incurred by Bank 24 pursuant to its rental agreement with Hi-Care was
$102,000 and $80,000 for the years ended December 31, 1996 and 1995,
respectively.
Employee loan (LT Loans Receivable)
Euronet N.V. provided an interest bearing loan to an employee on June 9,
1995 with a maturity date of October 1, 1999. The outstanding balance at
December 31, 1996 and December 31, 1995 is $21,000 and $32,000, respectively.
The loan is repayable over 4 years in equal monthly instalments. The current
portion of the loan has been recorded in other current assets and the long term
portion is separately disclosed on the face of the balance sheet.
Michael Brown
Michael Brown, chairman of Euronet N.V., loaned Euronet N.V. a total of
$195,000 as at December 31, 1996 which was received during 1995 and 1996,
bearing interest at 10% annually. Interest accrued of $18,000 is included in
accrued expenses.
In addition, he paid $173,000 relating to start up and formation expenses
on behalf of Euronet N.V. in 1995. This has been recorded as a capital
contribution of $106,000 and the remaining balance of $67,000 as notes
payable-shareholder.
In accordance with the shareholders' agreement dated February 15, 1996,
Euronet N.V. reimbursed Michael Brown $57,000 related to the non-monetary
portion of the capital contribution made to establish Bankomat in 1995.
Windham Technologies Inc
Windham Technologies Inc. ("Windham") holds the option to purchase certain
ATMs at the end of the lease term. Windham is jointly owned by two shareholders
of Euronet Holding N.V. Windham has signed an undertaking to contribute these
assets to Euronet N.V. at the end of the lease at a bargain purchase price of $1
plus incidental expenses.
In addition, payments of $425,000, $320,000 and $66,000 have been made for
the years ended December 31, 1996 and 1995 and for the period from June 22, 1994
(inception) through December 31, 1994, respectively, to Windham. These payments
cover the services and related expenses of consultants seconded by Windham to
Euronet N.V. These services include AS400 computer expertise, bank marketing and
management support.
F-18
<PAGE> 74
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Euronet N.V. is subject to concentrations of business and credit risk
through trade receivables, cash and short-term investments. Euronet N.V.'s
customer base, even though limited, includes the most significant international
card organizations and certain banks in Hungary and Poland. Therefore, Euronet
N.V.'s operations are directly affected by the financial condition of those
entities. Cash and short-term investments are placed with high-credit quality
financial institutions or in short-term duration, high-quality debt securities.
Euronet N.V. does not require collateral or other security to support financial
instruments subject to credit risk. Management believes that the credit risk
associated with trade receivables, cash and short-term investments is minimal
due to the control procedures which monitor credit worthiness of customers and
financial institutions.
F-19
<PAGE> 75
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 11
Dilution............................... 12
Dividend Policy........................ 12
Capitalization......................... 13
Selected Consolidated Financial Data... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 15
Business............................... 19
Management............................. 30
Certain Transactions................... 37
Principal and Selling Shareholders..... 41
Description of Capital Stock........... 42
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Shares............................ 45
Shares Eligible For Future Sale........ 47
Underwriting........................... 48
Validity of Securities................. 50
Experts................................ 50
Annex A -- Country Information: Hungary
and Poland........................... A-1
Consolidated Financial Statements...... F-1
---------------------
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
5,300,000 SHARES
LOGO
COMMON STOCK
---------------------
---------------------
PROSPECTUS
, 1997
---------------------
---------------------
ING BARINGS
REPRESENTATIVE OF THE UNDERWRITERS
------------------------------------------------------
------------------------------------------------------
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Registrant's estimated expenses in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..................... $ 25,858
Nasdaq National Market quotation fee.................................... 30,750
National Association of Securities Dealers, Inc. filing fee............. 9,033
Reimbursement of Underwriters' Expenses................................. 1,000,000
Legal fees and expenses................................................. 100,000
Accounting fees and expenses............................................ *
Blue sky qualification fees and expenses................................ 15,000
Transfer agent fees and expenses........................................ 8,000
Miscellaneous........................................................... *
----------
Total.............................................................. $ *
==========
</TABLE>
- ---------------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Articles Eighth and Ninth of the Company's Certificate of Incorporation
provide as follows:
"EIGHTH: The Corporation shall indemnify each of the individuals who may be
indemnified to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as it may be amended
from time to time ("Section 145"), (i) in each and every situation
where the Corporation is obligated to make such indemnification
pursuant to Section 145, and (ii) in each and every situation where,
under Section 145, the Corporation is not obligated, but is permitted
or empowered, to make such indemnification. The Corporation shall
promptly make or cause to be made any determination which Section 145
requires.
NINTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. This provision shall not eliminate or
limit the liability of a director (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction
from which the director derived any improper personal benefit. If the
General Corporation Law of the State of Delaware is subsequently
amended to further eliminate or limit the liability of the director,
then a director of the Corporation, in addition to the circumstances
in which a director is not personally liable as set forth in the
preceding sentence, shall not be liable to the fullest extent
permitted by the amended General Corporation Law of the State of
Delaware."
Article VII of the Company's By-laws provides as follows:
"Section 1 INDEMNIFICATION AND EXCULPATION. Reference is hereby made to
Section 145 of the General Corporation Law of the State of
Delaware (or any successor provision thereto). The Corporation
shall indemnify each person who may be indemnified (the
"Indemnitees") pursuant to such section to the full extent
permitted thereby. In each and every situation where the
Corporation may do so under such section, the Corporation
hereby obligates itself to so indemnify the Indemnitees, and in
each case, if any, where the Corporation must make certain
investigations on a case-by-case basis prior to
indemnification, the Corporation hereby obligates itself to
pursue such investigation diligently, it being the specific
intention of these
II-1
<PAGE> 77
Bylaws to obligate the Corporation to indemnify each person
whom it may indemnify to the fullest extent permitted by law at
any time and from time to time. To the extent not prohibited by
Section 145 of the General Corporation Law of the State of
Delaware (or any other provision of the General Corporation Law
of the State of Delaware), the Indemnitees shall not be liable
to the Corporation except for their own individual willful
misconduct or actions taken in bad faith. Expenses incurred by
an officer or director in defending any action, suit or
proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding to the
fullest extent permitted by subsection (e) of Section 145."
Reference is also made to Section 5 of the Underwriting Agreement filed as
Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 17, 1996, the Company and the shareholders and optionholders of
Euronet Holding N.V. entered into an Exchange Agreement pursuant to which (i)
9,585,569 shares of Common Stock of the Company will be issued to the
Shareholders of Euronet Holding N.V. in exchange for all of Common Shares of
Euronet Holding N.V. (ii) options to acquire 3,113,355 shares of Common Stock
will be granted to the holders of options to acquire 3,113,355 Common Shares of
Euronet Holding N.V. in exchange for all of such options and (iii) awards with
respect to 800,520 shares of Common Stock will be issued to the holders of
awards with respect to 800,520 preferred shares of Euronet Holding N.V. in
exchange for all such awards. Euronet Holding N.V. will be dissolved following
the consummation of the Offering. Such exchange is subject to and will be
effective upon the execution of the underwriting agreement to be executed in
connection with the Offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
+3.1 Certificate of Incorporation.
+3.2 By-Laws of the Company.
4.1 Specimen of certificate for Shares, par value $0.02, of the Company.
5.1 Opinion of Arent Fox Kintner Plotkin & Kahn as to legality of the Shares.
+10.1 Amended Agreement for Solution Delivery dated April 17, 1996 between Bank
Access 24 Rt. and IBM World Trade Corporation.
+10.2 Frame Contract dated February 20, 1996 between Bankomat 24 Sp. z o.o. and
AT&T Global Information Solutions Polska, Sp. z o.o.
+10.3 Exchange Agreement dated as of December 17, 1996 among the Company and the
stockholders and optionholders of Euronet Holding N.V.
+10.4 The Euronet Long-Term Incentive Plan.
10.5 Employment Agreement of Mr. Brown.
10.6 Form of Employment Agreement for Executive Officers.
10.7 Subscription Agreement dated February 3, 1997 between Euronet Holding N.V.
and General Electric Capital Corporation.
+21.1 List of Subsidiaries of Registrant.
23.1 Consent of KPMG Polska Sp. z o.o.
23.2 Consent of Arent Fox Kintner Plotkin & Kahn (included in Exhibit 5.1).
+24.1 Power of Attorney (included in signatures).
</TABLE>
- ---------------
*To be filed by amendment.
+Previously filed.
II-2
<PAGE> 78
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14, Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment to the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) It will provide to the U.S. Underwriters at the closing specified
in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the U.S. Underwriters to permit
prompt delivery to each purchaser.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Budapest on the 4th day of February, 1997
EURONET SERVICES INC.
By: /s/ DANIEL R. HENRY
------------------------------
Daniel R. Henry
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 4, 1997 and such signatures may be in
counterparts:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------- ------------------------------------------
<C> <S>
* Chairman of the Board of Directors, Chief
- ------------------------------------------------- Executive Officer and President (principal
Michael J. Brown executive officer)
/s/ DANIEL R. HENRY Director and Chief Operating Officer
- -------------------------------------------------
Daniel R. Henry
* Director
- -------------------------------------------------
Steven J. Buckley
* Director
- -------------------------------------------------
Eriberto R. Scocimara
* Director
- -------------------------------------------------
Andrzej Olechowski
* Director
- -------------------------------------------------
Thomas A. McDonnell
* Director
- -------------------------------------------------
Nicholas B. Callinan
* Chief Financial Officer and Chief
- ------------------------------------------------- Accounting Officer (principal financial
Bruce Colwill officer and principal accounting officer)
*By: /s/ DANIEL R. HENRY
---------------------------------------------
Daniel R. Henry
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 80
(LOGO) Printed in London Y96306
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
-------------- ------------------------------------------------------------------- ----
<C> <C> <S> <C>
4.1 -- Specimen of certificate for Shares, par value $0.02, of the
Company............................................................
5.1 -- Opinion of Arent Fox Kintner Plotkin & Kahn as to legality of the
Shares.............................................................
10.5 -- Form of Employment Agreement for Mr. Brown.........................
10.6 -- Form of Employment Agreement for Executive Officers................
10.7 -- Subscription Agreement dated February 3, 1997 between Euronet
Holding N.V. and General Electric Capital Corporation..............
23.1 -- Consent of KPMG Polska Sp. z o.o. .................................
23.2 -- Consent of Arent Fox Kintner Plotkin & Kahn (included in Exhibit
5.1)...............................................................
</TABLE>
<PAGE> 1
Exhibit 4.1
Front of Certificate
[LOGO]
NUMBER SHARES
EURONET SERVICES INC.
AUTHORIZED TO ISSUE 40,000,000 SHARES STOCK PAR VALUE $01 EACH
30,000,000 SHARES COMMON STOCK - 10,000,000 SHARES PREFERRED STOCK
SPECIMEN
THIS CERTIFIES THAT ____________________________________________________ is the
registered holder of___________________________________________________ Shares
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ________ day of ____________________ A.D. 19_____
_______________________________ _______________________________
Secretary/Treasurer President
<PAGE> 2
Back of Certificate
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT-______Custodian______
(Cust) (Minor)
TEN ENT - as tenants by the under Uniform Gifts to Minors
entireties
Act__________________
JT TEN - as joint tenants with (State)
right of survivorship
and not as tenants in
common
Additional abbreviations may also be used though not in the
above list.
For value received, ________________ hereby sell, assign and transfer unto
PLACE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEES
_____________________________________
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _______________________________________________________________________
_______________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ___________________
______________________________
In presence of
______________________________
<PAGE> 1
EXHIBIT 5.1
February 3, 1997
Euronet Services Inc.
Zsigmond ter 10
H-1023 Budepest
Hungary
Gentlemen:
We have acted as counsel for Euronet Services Inc., a Delaware corporation
(the "Company"), in connection with the registration by the Company under the
Securities Act of 1933, as amended, of 6,095,000 shares of the Company's common
stock, par value $.01 per share (the "Shares").
On the basis of such investigation as we have deemed necessary, we are of
the opinion that the Shares, when issued and sold, as contemplated in
Registration Statement No. 333. 18,121 will be validly issued, fully paid and
nonaccessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-mentioned Registration Statement and to the reference to our firm under
the heading "Validity of Securities." In giving this consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
Arent Fox Kintner Plotkin & Kahn
By: /s/ Carter Strong
----------------------------
Carter Strong
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
December 17, 1996, by and between EURONET SERVICES INC., a Delaware corporation
("Employer"), and MICHAEL J. BROWN, a citizen of the United States of America
with a permanent address at 12617 Juniper Circle, Leawood, Kansas 66209, USA,
("Employee"). (Each of the above may be individually referred to herein as a
"Party" and collectively as the "Parties.")
RECITALS
A. Employer is a corporation organized and existing under the laws of the
Commonwealth of Delaware.
B. Employee is currently employed as Chairman of the Supervisory Board of
Euronet Holding N.V. (which was reorganized into the Employer) and as Chief
Executive Officer of subsidiaries of Euronet Holding N.V. pursuant to that
certain Services Agreement dated March 13, 1996, between Euronet Holding N.V.
and Employee, which shall be terminated upon the commencement of this Agreement
as set forth below; and
C. Employer believes that the services of Employee are of great value to
Employer and Employee is willing to be employed by Employer for the term and
upon terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the adequacy of which is hereby
acknowledged, Employer and Employee, each intending to be legally bound, agree
as follows:
1. TERM. The term of Employee's employment hereunder shall commence on
December 31, 1996 and shall continue until December 31, 1999, except as
otherwise provided in Section 7. If the term of Employee's employment
hereunder shall have continued until December 31, 1999, thereafter, such term
of Employee's employment hereunder shall be deemed to be renewed automatically,
on the same terms and conditions contained herein, for successive periods of
one year each, unless and until either Employer or Employee, at least 90 days
prior to the expiration of the original term or any such extended term, shall
given written notice to the other of his or its intention not to renew the term
of Employee's employment hereunder. All references herein to the "Term" refer
to the term of Employee's employment stipulated herein and extensions, if any,
thereof.
2. DUTIES.
(a) Offices. During the Term, Employee shall serve as Chief Executive
Officer, President and Chairman of the Board of Directors and Employee shall
perform such services as normally are associated with and incident to such
positions and such further services as from time to time may be required or as
may be assigned to Employee by the Employer's Board of Directors (the "Board").
Employer agrees that Employee will be assigned only duties of the type, nature
and dignity normally assigned to a Chief Executive Officer, President and Board
Chairman of a corporation of the size, stature and nature of Employer. During
the Term, Employee shall have, at a minimum, the same perquisites of office as
he had on the date hereof, and he shall report directly to the Board.
<PAGE> 2
(b) Full-Time Basis. During the Term, Employee shall devote, on a
full-time basis, his services, skills and abilities to his employment
hereunder, excepting periods of vacation or illness and excepting any pursuits
which do not materially interfere with his duties hereunder or present a
conflict of interest with the interests of Employer or of any subsidiary
thereof ("Subsidiary"). Employee may maintain his residence in Kansas, but
shall travel to and work in the offices of Employer and its Subsidiaries (the
"Group"), as often as he or the Board deems necessary to attend effectively to
the affairs of the Group. In addition to travel time, Employee shall make
himself available by phone and fax to attend to the affairs of the Group.
3. COMPENSATION.
(a) Salary. During the Term, as compensation for services rendered by
Employee hereunder, Employer shall pay to Employee a base salary at a rate not
less than $100,000.00 per annum, payable in monthly installments in accordance
with Employer's general practices ("Base Salary"). In January of every year
during the Term, Employee's compensation, including Base Salary, will be
subject to the Board's review and may be adjusted at the sole discretion of the
Board.
(b) Deductions and Withholding. Employee agrees that Employer may
withhold, from any and all payments required to be made to Employee hereunder,
all taxes or other amounts that Employer is required by law to withhold in
accordance with applicable laws or regulations from time to time in effect.
4. BENEFITS. During the Term, Employee shall be entitled to such
comparable fringe benefits and perquisites as may be provided to any or all of
Employer's senior officers pursuant to policies established from time to time
by the Board. These fringe benefits and perquisites shall include holidays and
reimbursement for premiums relating to health insurance for plans pre-approved
by Employer. Also, during the Term, Employee shall be entitled to twenty (20)
days paid leave per annum and to accrue unused leave from year to year.
5. EXPENSES AND OTHER PERQUISITES. Employer shall reimburse Employee for
all reasonable and proper business expenses incurred by him in the performance
of his duties hereunder during the Term, in accordance with Employer's
customary practices for senior officers, and provided such business expenses
are reasonably documented.
6. EXCLUSIVE SERVICES, CONFIDENTIAL INFORMATION, BUSINESS
OPPORTUNITIES AND NON-SOLICITATION.
(a) Exclusive Services. During the Term, Employee shall at all times
devote his full-time attention, energies, efforts and skills to the Group's
business and shall not, directly or indirectly, engage in any other business
activity, whether or not for profit, gain or other pecuniary advantages,
without the Board's written consent, provided that such prior consent shall not
be required with respect to: (i) business interests that neither compete with
Employer or any Subsidiaries nor interfere with Employee's duties and
obligations hereunder; and (ii) Employee's charitable, philanthropic or
professional association activities.
During the Term, Employee shall not, without the Board's prior written
consent, directly or indirectly, either as an officer, director, employee,
agent, advisor, consultant, principal, stockholder, partner, owner or in any
other capacity, on his own behalf or otherwise, in any way engage in,
represent, be connected with or have a financial interest in, any business
which is, or to his knowledge, is about to become, engaged in the business of
with which Employer or any Subsidiary is
2
<PAGE> 3
currently or has previously done business or any subsequent line of business
developed by Employer or any Subsidiary or any business planned to be
established by Employer during the Term. Notwithstanding the foregoing,
Employee shall be permitted to own passive investments in publicly held
companies provided that such investments do not exceed five percent (5%) of any
such company's outstanding equity.
(b) Confidential Information. During the Term and for the first 24
consecutive months after the expiration or earlier termination of the Term,
Employee shall not disclose or use, directly or indirectly, any Confidential
Information (as defined below). For the purposes of this Agreement,
"Confidential Information" shall mean all information disclosed to Employee, or
known by him as a consequence of or through his employment with Employer or any
Subsidiary (under this Agreement or prior to this Agreement) where such
information is not generally known in the trade or industry or was regarded or
treated as confidential by Employer or any Subsidiary, and where such
information refers or relates in any manner whatsoever to the business
activities, processes, services or products of Employer or its Subsidiaries.
Confidential Information shall include business and development plans (whether
contemplated, initiated or completed), information with respect to the
development of technical and management services, business contacts, methods of
operation, results of analysis, business forecasts, financial data, costs,
revenues, and similar information. Upon termination of Term, Employee shall
immediately return to Employer all property of Employer or any Subsidiary and
Confidential Information which is in tangible form, and all copies thereof.
(c) Business Opportunities and Conflicts of Interests. During the Term,
Employee shall promptly disclose to the Board each business opportunity of a
type which, based upon its prospects and relationship to the existing
businesses of the Group, the Group might reasonably consider pursuing. Upon
termination of the term, regardless of the circumstances thereof, Employer
shall have the exclusive right to participate in or undertake any such
opportunity on its own behalf without any involvement of Employee.
During the Term, Employee shall refrain from engaging in any activity,
practice or act which conflicts with, or has the potential to conflict with,
the interests of Employer or its Subsidiaries, and he shall avoid any acts or
omissions which are disloyal to, or competitive with Employer or its
Subsidiaries.
(d) Non-Solicitation of Executives. During the Term and for the first 24
consecutive months after expiration or termination of the Term, Employee shall
not, except in the course of his duties hereunder, directly or indirectly,
induce or attempt to induce or otherwise counsel, advise, ask or encourage any
person to leave the employ of Employer or any Subsidiary, or solicit or offer
employment to any person who was employed by Employer or any Subsidiary at any
time during the twelve-month period preceding the solicitation or offer.
(e) Covenant Not to Compete. If Employee voluntarily terminates the Term
or declines to renew the Term, or if Employer terminates the Term for Cause (as
defined below), Employee shall not, during the first 24 consecutive months
following such termination, engage in competition with the Group, or solicit,
from any person or entity who purchased any then existing product or service
from Employer or any Subsidiary during his employment hereunder, the purchase
of any then existing product or service in competition with then existing
products or services of Employer or any Subsidiary.
For purposes of this Agreement, Employee shall be deemed to engage in
competition with Employer if he shall directly or indirectly, either
individually or as a stockholder, director, officer, partner, consultant,
owner, employee, agent, or in any other capacity, consult with or
3
<PAGE> 4
otherwise assist any person or entity engaged in providing technical and
management services to any person or entity which Employer or any Subsidiary,
during the Term, has developed or is working to develop. Notwithstanding
anything herein to the contrary, if Employer is in material breach of this
Agreement, the provisions of this Section 6 shall not apply.
(f) Employee Acknowledgement. Employee hereby agrees and acknowledges
that the restrictions imposed upon him by the provisions of this Section 6 are
fair and reasonable considering the nature of Employer's business, and are
reasonably required for Employer's protection.
(g) Invalidity. If a court of competent jurisdiction or an arbitrator
shall declare any provision or restriction contained in this Section 6 as
unenforceable or void, the provisions of this Section 6 shall remain in full
force and effect to the extent not so declared to be unenforceable or void, and
the court may modify the invalid provision to make it enforceable to the
maximum extent permitted by law.
(h) Specific Performance. Employee agrees that if he breaches any of the
provisions of this Section 6, the remedies available at law to Employer would
be inadequate and in lieu thereof, or in addition thereto, Employer shall be
entitled to appropriate equitable remedies, including specific performance and
injunctive relief. Employee agrees not to enter into any agreement, either
written or oral, which may conflict with this Agreement, and Employee
authorizes Employer to make known the terms of Sections 6 and 7 hereof to any
person, including future employers of Employee.
7. TERMINATION.
(a) Termination for Cause. Employer may for Cause (as defined below)
terminate the Term at any time by written notice to Employee. For purposes of
this Agreement, the term "Cause" shall mean any one or more of the following:
(i) conduct by Employee which is materially illegal or fraudulent;
(ii) the breach or violation by Employee of the Agreement, provided that
Employee must first be given notice by the Board of the alleged breach of
violation and 30 days to cure said alleged breach or violation;
(iii) Employee's knowing and willful neglect of duties or negligence in
the performance of his duties which materially affects Employer's or any
Subsidiary's business, provided that Employee must first be given notice by the
Board of such alleged neglect or negligence and 30 days to cure said alleged
neglect or negligence; or
(iv) Employee's commission of any material act of misfeasance,
malfeasance, disloyalty, dishonesty or breach of trust against any part of the
Group
If a termination occurs pursuant to clause (i) or (iv) above, the date on which
the Term is terminated (the "Termination Date") shall be the date Employee
receives notice of termination and, if a termination occurs pursuant to clauses
(ii) or (iii) above, the Termination Date shall be the date on which the
specified cure period expires. In any event, as of the Termination Date (in
the absence of satisfying the alleged breach or violation within the applicable
cure period), Employee shall be relieved of all of his duties hereunder and
Employee shall not be entitled to the accrual or provision of any compensation
or benefit, after the Termination Date but Employee shall be entitled to the
provision of all compensation and other benefits that shall have accrued as of
the Termination Date,
4
<PAGE> 5
including Base Salary, paid leave benefits, and reimbursement of incurred
business expenses.
(b) Death or Disability. The Term shall be terminated immediately and
automatically upon Employee's death or "Disability." The term "Disability"
shall mean Employee's inability to perform all of the essential functions of
his position hereunder for a period of 26 consecutive weeks or for an aggregate
of 150 work days during any 12-month period by reason of illness, accident or
any other physical or mental incapacity, as may be permitted by applicable law.
Employee's capability to continue performance of Employee's duties hereunder
shall be determined by a panel composed of two independent medical doctors, one
appointed by the Board and one appointed by Employee or his designated
representative. If the panel is unable to reach a decision, the matter will be
referred to arbitration in accordance with Section 8. In the event of
Employee's death or Disability for any period of six consecutive months,
Employee (or his designated beneficiary) will be paid his Base Salary then in
effect for one full year following the date of death or the end of the
six-month period, as the case may be.
(c) By Employee. Employee may, in his sole discretion, without cause,
terminate the Term at any time upon 90 days' written notice to Employer. If
Employee exercises such termination right, Employer may, at its option, at any
time after receiving such notice from Employee, relieve him of his duties and
terminate the Term at any time prior to the expiration of said notice period.
If the Term is terminated by either of the Parties pursuant to this Section
7(c), Employee shall not be entitled to the accrual or provision of any
compensation or benefit, after the effective date of such termination, but
Employee shall be entitled to the provision of all compensation and other
benefits that shall have accrued through the effective date of such
termination, including Base Salary, paid leave benefits, and reimbursement of
incurred business expenses.
8. ARBITRATION. Whenever a dispute arises between the Parties concerning
this Agreement or any of the obligations hereunder, or Employee's employment
generally, Employer and Employee shall use their best efforts to resolve the
dispute by mutual agreement. If any dispute cannot be resolved by Employer and
Employee, it shall be submitted to arbitration to the exclusion of all other
avenues of relief and adjudicated pursuant to the American Arbitration
Association's Rules for Employment Dispute Resolution then in effect. The
decision of the arbitrator must be in writing and shall be final and binding on
the Parties, and judgement may be entered on the arbitrator's award in any
court having jurisdiction thereof. The expenses of the arbitration shall be
borne by the losing Party to the arbitration and the prevailing Party shall be
entitled to recover from the losing Party all of its or his own costs and
attorney's fees with respect to the arbitration. Nothing in this Section 8
shall be construed to derogate Employer's rights to seek legal and equitable
relief in a court of competent jurisdiction as contemplated by Section 6(h).
9. NON-WAIVER. It is understood and agreed that one Party's failure at
any time to require the performance by the other Party of any of the terms,
provisions, covenants or conditions hereof shall in no way affect the first
Party's right thereafter to enforce the same, nor shall the waiver by either
Party of the breach of any term, provision, covenant or condition hereof be
taken or held to be a waiver of any succeeding breach.
10. SEVERABILITY. If any provision of this Agreement conflicts with the
law under which this Agreement is to be construed, or if any such provision is
held invalid or unenforceable by a court of competent jurisdiction or any
arbitrator, such provision shall be deleted from this Agreement and the
Agreement shall be construed to give full effect to the remaining provisions
thereof.
11. SURVIVABILITY. Unless otherwise provided herein, upon termination or
expiration of the Term, the provisions of Sections 6(b), (d) and (e) above
shall nevertheless remain in full force and
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<PAGE> 6
effect.
12. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the Commonwealth of Delaware without regard
to the conflict of law provisions thereof.
13. CONSTRUCTION. The section headings and captions contained in this
Agreement are for convenience only and shall not be construed to define, limit
or affect the scope or meaning of the provisions hereof. All references herein
to Sections shall be deemed to refer to numbered sections of this Agreement.
14. ENTIRE AGREEMENT. This Agreement contains and represents the entire
agreement of Employer and Employee and supersedes all prior agreements,
representations or understandings, oral or written, express or implied with
respect to the subject matter hereof. This Agreement may not be modified or
amended in any way unless in a writing signed by each of Employer and Employee.
No representation, promise or inducement has been made by either Employer or
Employee that is not embodied in this Agreement, and neither Employer nor
Employee shall be bound by or liable for any alleged representation, promise or
inducement not specifically set forth herein.
15. ASSIGNABILITY. Neither this Agreement nor any rights or obligations
of Employer or Employee hereunder may be assigned by Employer or Employee
without the other Party's prior written consent. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of Employer and
Employee and their heirs, successors and assigns.
16. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed properly given if delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, or
sent by telegram, telex, telecopy or similar form of telecommunication, and
shall be deemed to have been given when received. Any such notice or
communication shall be addressed:
if to Employer, to Euronet Services Inc.
c/o Corporation Trust Center
1209 Orange Street
Wilmington, Delaware
USA
attention: Board of Directors
if to Employee, to Michael J. Brown
12617 Juniper Circle
Leawood, Kansas 66209
USA
tel/fax: 1-913-491-3514
or to such other address as Employer or Employee shall have furnished to the
other in writing.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement, to be
effective as of the day and year first above written.
6
<PAGE> 7
EURONET SERVICES INC.
a Delaware corporation
Date: December 17, 1996 _________________________
By:
Its:
Date: December 17, 1996 _________________________
Michael J. Brown
7
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
December ___, 1996, by and between EURONET SERVICES INC., a Delaware
corporation ("Employer"), and XXX , a citizen of the United States of America
with a permanent address at xxx , USA, ("Employee"). (Each of the above may be
individually referred to herein as a "Party" and collectively as the
"Parties.")
RECITALS
A. Employer is a corporation organized and existing under the laws of the
Commonwealth of Delaware.
B. Employee was employed as xxx of Euronet Holding N.V. (which has been
reorganized into the Employer) pursuant to that certain Foreign Service
Contract, dated xxx, 1996, between Euronet Holding N.V. and Employee, which
shall be terminated upon the commencement of this Agreement as set forth below;
and
C. Employer believes that the services of Employee are of great value to
Employer and Employee is willing to be employed by Employer for the term and
upon terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the adequacy of which is hereby
acknowledged, Employer and Employee, each intending to be legally bound, agree
as follows:
1. TERM. The term of Employee's employment hereunder shall commence on
December ___, 1996 and shall continue until December ___, 1999, except as
otherwise provided in Section 7. If the term of Employee's employment
hereunder shall have continued until December ___, 1999, thereafter, such term
of Employee's employment hereunder shall be deemed to be renewed automatically,
on the same terms and conditions contained herein, for successive periods of
one year each, unless and until either Employer or Employee, at least 90 days
prior to the expiration of the original term or any such extended term, shall
given written notice to the other of his or its intention not to renew the term
of Employee's employment hereunder. All references herein to the "Term" refer
to the term of Employee's employment stipulated herein and extensions, if any,
thereof.
2. DUTIES.
(a) Offices. During the Term, Employee shall serve as xxx and Employee
shall perform such services as normally are associated with and incident to
such positions and such further services as from time to time may be required
or as may be assigned to Employee by the Employer's Board of Directors (the
"Board"). Employer agrees that Employee will be assigned only duties of the
type, nature and dignity normally assigned to an executive officer of a
corporation of the size, stature and nature of Employer. During the Term,
Employee shall have, at a minimum, the same perquisites of office as he had on
the date hereof, and he shall report directly to the Board.
(b) Full-Time Basis. During the Term, Employee shall devote, on a
full-time
<PAGE> 2
basis, his services, skills and abilities to his employment hereunder,
excepting periods of vacation or illness and excepting any pursuits which do
not materially interfere with his duties hereunder or present a conflict of
interest with the interests of Employer or of any subsidiary thereof
("Subsidiary").
(c) Assignment. Initially, Employee will be assigned to work in
Employer's operations in xxx . It is agreed by the Parties that Employee may
be required during the Term to relocate to another country as required in the
best interest of Employer's business operations.
3. COMPENSATION.
(a) Salary. During the Term, as compensation for services rendered by
Employee hereunder, Employer shall pay to Employee a base salary at a rate not
less than $__________________.00 per annum, payable in monthly installments in
accordance with Employer's general practices ("Base Salary"). In January of
every year during the Term, Employee's compensation, including Base Salary,
will be subject to the Board's review and may be adjusted at the sole
discretion of the Board.
(b) Deductions and Withholding. Employee agrees that Employer may
withhold, from any and all payments required to be made to Employee hereunder,
all taxes or other amounts that Employer is required by law to withhold in
accordance with applicable laws or regulations from time to time in effect.
4. BENEFITS. During the Term, Employee shall be entitled to such
comparable fringe benefits and perquisites as may be provided to any or all of
Employer's senior officers pursuant to policies established from time to time
by the Board. These fringe benefits and perquisites shall include holidays and
reimbursement for premiums relating to health insurance for plans pre-approved
by Employer. Also, during the Term, Employee shall be entitled to
_____________ (___) days paid leave per annum and to accrue unused leave from
year to year.
5. EXPENSES AND OTHER PERQUISITES. Employer shall reimburse Employee for
all reasonable and proper business expenses incurred by him in the performance
of his duties hereunder during the Term, in accordance with Employer's
customary practices for senior officers, and provided such business expenses
are reasonably documented.
6. EXCLUSIVE SERVICES, CONFIDENTIAL INFORMATION, BUSINESS
OPPORTUNITIES AND NON-SOLICITATION.
(a) Exclusive Services. During the Term, Employee shall at all times
devote his full-time attention, energies, efforts and skills to the Group's
business and shall not, directly or indirectly, engage in any other business
activity, whether or not for profit, gain or other pecuniary advantages,
without the Board's written consent, provided that such prior consent shall not
be required with respect to: (i) business interests that neither compete with
Employer or any Subsidiaries nor interfere with Employee's duties and
obligations hereunder; and (ii) Employee's charitable, philanthropic or
professional association activities.
During the Term, Employee shall not, without the Board's prior written
consent, directly or indirectly, either as an officer, director, employee,
agent, advisor, consultant, principal, stockholder, partner, owner or in any
other capacity, on his own behalf or otherwise, in any way engage in,
represent, be connected with or have a financial interest in, any business
which is, or to his knowledge, is about to become, engaged in the business of
with which Employer or any Subsidiary is
2
<PAGE> 3
currently or has previously done business or any subsequent line of business
developed by Employer or any Subsidiary or any business planned to be
established by Employer during the Term. Notwithstanding the foregoing,
Employee shall be permitted to own passive investments in publicly held
companies provided that such investments do not exceed five percent (5%) of any
such company's outstanding equity.
(b) Confidential Information. During the Term and for the first 24
consecutive months after the expiration or earlier termination of the Term,
Employee shall not disclose or use, directly or indirectly, any Confidential
Information (as defined below). For the purposes of this Agreement,
"Confidential Information" shall mean all information disclosed to Employee, or
known by him as a consequence of or through his employment with Employer or any
Subsidiary (under this Agreement or prior to this Agreement) where such
information is not generally known in the trade or industry or was regarded or
treated as confidential by Employer or any Subsidiary, and where such
information refers or relates in any manner whatsoever to the business
activities, processes, services or products of Employer or its Subsidiaries.
Confidential Information shall include business and development plans (whether
contemplated, initiated or completed), information with respect to the
development of technical and management services, business contacts, methods of
operation, results of analysis, business forecasts, financial data, costs,
revenues, and similar information. Upon termination of Term, Employee shall
immediately return to Employer all property of Employer or any Subsidiary and
Confidential Information which is in tangible form, and all copies thereof.
(c) Business Opportunities and Conflicts of Interests. During the Term,
Employee shall promptly disclose to the Board each business opportunity of a
type which, based upon its prospects and relationship to the existing
businesses of the Group, the Group might reasonably consider pursuing. Upon
termination of the term, regardless of the circumstances thereof, Employer
shall have the exclusive right to participate in or undertake any such
opportunity on its own behalf without any involvement of Employee.
During the Term, Employee shall refrain from engaging in any activity,
practice or act which conflicts with, or has the potential to conflict with,
the interests of Employer or its Subsidiaries, and he shall avoid any acts or
omissions which are disloyal to, or competitive with Employer or its
Subsidiaries.
(d) Non-Solicitation of Executives. During the Term and for the first 24
consecutive months after expiration or termination of the Term, Employee shall
not, except in the course of his duties hereunder, directly or indirectly,
induce or attempt to induce or otherwise counsel, advise, ask or encourage any
person to leave the employ of Employer or any Subsidiary, or solicit or offer
employment to any person who was employed by Employer or any Subsidiary at any
time during the twelve-month period preceding the solicitation or offer.
(e) Covenant Not to Compete. If Employee voluntarily terminates the Term
or declines to renew the Term, or if Employer terminates the Term for Cause (as
defined below), Employee shall not, during the first 24 consecutive months
following such termination, engage in competition with the Group, or solicit,
from any person or entity who purchased any then existing product or service
from Employer or any Subsidiary during his employment hereunder, the purchase
of any then existing product or service in competition with then existing
products or services of Employer or any Subsidiary.
For purposes of this Agreement, Employee shall be deemed to engage in
competition with Employer if he shall directly or indirectly, either
individually or as a stockholder, director, officer, partner, consultant,
owner, employee, agent, or in any other capacity, consult with or
3
<PAGE> 4
otherwise assist any person or entity engaged in providing technical and
management services to any person or entity which Employer or any Subsidiary,
during the Term, has developed or is working to develop. Notwithstanding
anything herein to the contrary, if Employer is in material breach of this
Agreement, the provisions of this Section 6 shall not apply.
(f) Employee Acknowledgement. Employee hereby agrees and acknowledges
that the restrictions imposed upon him by the provisions of this Section 6 are
fair and reasonable considering the nature of Employer's business, and are
reasonably required for Employer's protection.
(g) Invalidity. If a court of competent jurisdiction or an arbitrator
shall declare any provision or restriction contained in this Section 6 as
unenforceable or void, the provisions of this Section 6 shall remain in full
force and effect to the extent not so declared to be unenforceable or void, and
the court may modify the invalid provision to make it enforceable to the
maximum extent permitted by law.
(h) Specific Performance. Employee agrees that if he breaches any of the
provisions of this Section 6, the remedies available at law to Employer would
be inadequate and in lieu thereof, or in addition thereto, Employer shall be
entitled to appropriate equitable remedies, including specific performance and
injunctive relief. Employee agrees not to enter into any agreement, either
written or oral, which may conflict with this Agreement, and Employee
authorizes Employer to make known the terms of Sections 6 and 7 hereof to any
person, including future employers of Employee.
7. TERMINATION.
(a) Termination for Cause. Employer may for Cause (as defined below)
terminate the Term at any time by written notice to Employee. For purposes of
this Agreement, the term "Cause" shall mean any one or more of the following:
(i) conduct by Employee which is materially illegal or fraudulent;
(ii) the breach or violation by Employee of the Agreement, provided that
Employee must first be given notice by the Board of the alleged breach of
violation and 30 days to cure said alleged breach or violation;
(iii) Employee's knowing and willful neglect of duties or negligence in
the performance of his duties which materially affects Employer's or any
Subsidiary's business, provided that Employee must first be given notice by the
Board of such alleged neglect or negligence and 30 days to cure said alleged
neglect or negligence; or
(iv) Employee's commission of any material act of misfeasance,
malfeasance, disloyalty, dishonesty or breach of trust against any part of the
Group
If a termination occurs pursuant to clause (i) or (iv) above, the date on which
the Term is terminated (the "Termination Date") shall be the date Employee
receives notice of termination and, if a termination occurs pursuant to clauses
(ii) or (iii) above, the Termination Date shall be the date on which the
specified cure period expires. In any event, as of the Termination Date (in
the absence of satisfying the alleged breach or violation within the applicable
cure period), Employee shall be relieved of all of his duties hereunder and
Employee shall not be entitled to the accrual or provision of any compensation
or benefit, after the Termination Date but Employee shall be entitled to the
provision of all compensation and other benefits that shall have accrued as of
the Termination Date,
4
<PAGE> 5
including Base Salary, paid leave benefits, and reimbursement of incurred
business expenses.
(b) Death or Disability. The Term shall be terminated immediately and
automatically upon Employee's death or "Disability." The term "Disability"
shall mean Employee's inability to perform all of the essential functions of
his position hereunder for a period of 26 consecutive weeks or for an aggregate
of 150 work days during any 12-month period by reason of illness, accident or
any other physical or mental incapacity, as may be permitted by applicable law.
Employee's capability to continue performance of Employee's duties hereunder
shall be determined by a panel composed of two independent medical doctors, one
appointed by the Board and one appointed by Employee or his designated
representative. If the panel is unable to reach a decision, the matter will be
referred to arbitration in accordance with Section 8. In the event of
Employee's death or Disability for any period of six consecutive months,
Employee (or his designated beneficiary) will be paid his Base Salary then in
effect for one full year following the date of death or the end of the
six-month period, as the case may be.
(c) By Employee. Employee may, in his sole discretion, without cause,
terminate the Term at any time upon 90 days' written notice to Employer. If
Employee exercises such termination right, Employer may, at its option, at any
time after receiving such notice from Employee, relieve him of his duties and
terminate the Term at any time prior to the expiration of said notice period.
If the Term is terminated by either of the Parties pursuant to this Section
7(c), Employee shall not be entitled to the accrual or provision of any
compensation or benefit, after the effective date of such termination, but
Employee shall be entitled to the provision of all compensation and other
benefits that shall have accrued through the effective date of such
termination, including Base Salary, paid leave benefits, and reimbursement of
incurred business expenses.
8. ARBITRATION. Whenever a dispute arises between the Parties concerning
this Agreement or any of the obligations hereunder, or Employee's employment
generally, Employer and Employee shall use their best efforts to resolve the
dispute by mutual agreement. If any dispute cannot be resolved by Employer and
Employee, it shall be submitted to arbitration to the exclusion of all other
avenues of relief and adjudicated pursuant to the American Arbitration
Association's Rules for Employment Dispute Resolution then in effect. The
decision of the arbitrator must be in writing and shall be final and binding on
the Parties, and judgement may be entered on the arbitrator's award in any
court having jurisdiction thereof. The expenses of the arbitration shall be
borne by the losing Party to the arbitration and the prevailing Party shall be
entitled to recover from the losing Party all of its or his own costs and
attorney's fees with respect to the arbitration. Nothing in this Section 8
shall be construed to derogate Employer's rights to seek legal and equitable
relief in a court of competent jurisdiction as contemplated by Section 6(h).
9. NON-WAIVER. It is understood and agreed that one Party's failure at
any time to require the performance by the other Party of any of the terms,
provisions, covenants or conditions hereof shall in no way affect the first
Party's right thereafter to enforce the same, nor shall the waiver by either
Party of the breach of any term, provision, covenant or condition hereof be
taken or held to be a waiver of any succeeding breach.
10. SEVERABILITY. If any provision of this Agreement conflicts with the
law under which this Agreement is to be construed, or if any such provision is
held invalid or unenforceable by a court of competent jurisdiction or any
arbitrator, such provision shall be deleted from this Agreement and the
Agreement shall be construed to give full effect to the remaining provisions
thereof.
11. SURVIVABILITY. Unless otherwise provided herein, upon termination or
expiration of the Term, the provisions of Sections 6(b), (d) and (e) above
shall nevertheless remain in full force and
5
<PAGE> 6
effect.
12. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the Commonwealth of Delaware without regard
to the conflict of law provisions thereof.
13. CONSTRUCTION. The section headings and captions contained in this
Agreement are for convenience only and shall not be construed to define, limit
or affect the scope or meaning of the provisions hereof. All references herein
to Sections shall be deemed to refer to numbered sections of this Agreement.
14. ENTIRE AGREEMENT. This Agreement contains and represents the entire
agreement of Employer and Employee and supersedes all prior agreements,
representations or understandings, oral or written, express or implied with
respect to the subject matter hereof. This Agreement may not be modified or
amended in any way unless in a writing signed by each of Employer and Employee.
No representation, promise or inducement has been made by either Employer or
Employee that is not embodied in this Agreement, and neither Employer nor
Employee shall be bound by or liable for any alleged representation, promise or
inducement not specifically set forth herein.
15. ASSIGNABILITY. Neither this Agreement nor any rights or obligations
of Employer or Employee hereunder may be assigned by Employer or Employee
without the other Party's prior written consent. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of Employer and
Employee and their heirs, successors and assigns.
16. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed properly given if delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, or
sent by telegram, telex, telecopy or similar form of telecommunication, and
shall be deemed to have been given when received. Any such notice or
communication shall be addressed:
if to Employer, to Euronet Services Inc.
c/o Corporation Trust Center
1209 Orange Street
Wilmington, Delaware
USA
attention: Board of Directors
if to Employee, to xxx
xxx
xxx
USA
tel/fax:
or to such other address as Employer or Employee shall have furnished to the
other in writing.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement, to be
effective as of the day and year first above written.
6
<PAGE> 7
EURONET SERVICES INC.
a Delaware corporation
Date: December ___, 1996 _________________________
By:
Its:
Date: December ___, 1996 _________________________
xxx
7
<PAGE> 1
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") is made this 3rd day of
February, 1997, by and among Euronet Holding N.V., a limited liability company
organized under the laws of the Netherlands Antilles with its registered
offices at Pietermaai 15, Curacao, Netherlands Antilles (the "Company) and
General Electric Capital Corporation, a corporation organized under the laws of
the State of New York with its principal offices at 260 Long Ridge Road,
Stamford, Connecticut 06927 ("GE Capital").
The Company and GE Capital are sometimes collectively referred to herein
as the "Parties," and individually as a "Party".
RECITALS
A. The Company owns and operates independent automatic teller machine
("ATM") networks in Central Europe as a service provider to banks and other
financial institutions. The Company also provides other services to banks,
financial institutions and businesses relating to ATM operation and electronic
financial transactions, including acting as an outsource provider of services
in site selection for, and installation, and operation of, ATM networks already
established by banks and financial institutions.
B. The Parties intend to establish and develop a mutually beneficial
business relationship in which they shall provide each other services in their
respective spheres of activity and shall jointly pursue, on a cooperative
basis, new areas of business. This cooperative relationship is intended to
extend to Poland, Hungary, the Czech Republic, Germany and Austria (the
"European Territory").
C. In the pursuit of such relationship, GE Capital wishes to subscribe for
and purchase shares in the Company and the Company has been authorized to sell
and issue to GE Capital shares of Series B Preferred Stock in the Company under
the terms and conditions set forth in this Agreement.
D. In conjunction with the sale and purchase by GE Capital of stock in the
Company, GE Capital and the Company have agreed to grant each other certain
preferential rights to provide services to each other as more specifically
described in Section 2.
<PAGE> 2
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants herein contained, the Parties agree as follows:
1. Sale of the Sale Shares
1.1 Authorization of the Sale Shares. Subject to the terms and conditions
hereof, the Company has authorized the issuance to GE Capital at the Closing
(as hereafter defined) of 101,501 shares of Series B Preferred Stock (the "Sale
Shares") of the Company.
1.2 Purchase Price; Agreement to Sell and Purchase the Sale Shares. The
price for the Sale Shares shall be Three Million US Dollars (US$ 3,000,000)
(the "Purchase Price"), payable at the time of the Closing. In consideration
of the payment of the Purchase Price, at the Closing, the Company shall deliver
to GE Capital the Sale Shares.
1.3 Repurchase Option. The Company shall have an option (the "Company
Call Option") to repurchase up to 41,801 of the Sale Shares from GE Capital at
a purchase price of US$ 0.10 per share (the "Company Option Price") under the
conditions set forth in this Section 1.3. The Company Call Option shall be
exercisable in the event one or more financing transactions occur in which the
Company sells for an aggregate price of at least US$ 3 million any of its stock
of any series in a private or public offering at an average per share price
which reflects a valuation of the Company exceeding US$ 60 million (a
"Qualifying Offering") on or before January 24, 1999 (the "Expiration Date").
The Company may exercise the Company Call Option only once, and shall exercise
it with respect to the number of shares (the "Company Option Shares")
determined by application of the formula set forth below (the "Company Option
Formula"). The Company Option Formula is intended to result in recognition, in
the final price paid by GE Capital for all of the Sale Shares, of 50% of the
increased valuation of the Company reflected in a Qualifying Offering, with the
per share price to GE Capital being limited, under all circumstances to US$ 50
per share.
The number of Company Option Shares in the event a Qualifying Offering is made
shall be derived by calculating the following factors and using the following
abbreviations:
<TABLE>
<S> <C>
NMC = New Market Capitalization of the Company at the time a Qualifying
Offering occurs, which shall be equal to the number of shares
outstanding on a fully diluted basis immediately prior to the
closing of such offering multiplied by (i) the per share price at
which the Qualifying Offering occurs, if such offering is a private
placement, or (ii) the average daily closing price of the shares of
the Company on all exchanges on which such shares are traded during
the 90 days following the offering, if the offering is a public
offering.
MCD = Market Capitalization Differential, which is the incremental amount
of the New Market Capitalization recognized for purposes of the
Company Option Formula. The MCD shall be the lesser of (i) US$40
million (which is the maximum MCD which will be recognized) or (ii)
the NMC less 50% of the excess of the NMC over US$60 million.
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
GEMC = GE Market Capitalization, which is the limit on the total valuation
of the Company which GE Capital is willing to recognize for
purposes of the Company Option Formula. The GEMC is equal to the
sum of US$60 million and the MCD.
GEIA = GE Investment Amount, which is a factor intended to attribute
credit to GE Capital for a 15% return on its capital investment in
the Company between the time of the Closing (subject to a ninety
(90) day moratorium after the Closing) and the closing under the
Company Call Option (the "Company Option Closing"). During the
period commencing on the Closing and ending ninety (90) days after
the closing, the GEIA shall be equal to US$3 million. After such
ninety (90) day period, the GEIA shall be US$3 million plus an
interest factor calculated at a rate of 15% per annum on a pro rata
basis per day elapsed, and compounded annually.
GEFSA = GE Final Share Amount, which is the total number of Sale Shares
which GE Capital should hold in the Company after the Company
Option Closing. GE Capital will be assumed to hold all of the Sale
Shares delivered at Closing at the time the Company Option Formula
is applied. GEFSA shall be equal to the total number of shares of
the Company outstanding on a fully diluted basis prior to the
closing of a Qualifying Offering, less the Company Option Shares,
multiplied by the ratio between the GEIA and the GEMC. For the
purposes of this document, "fully diluted" shall be defined as all
issued shares plus awarded stock options, warrants or other
securities convertible into or exchangeable for shares.
</TABLE>
The number of Company Option Shares shall be equal to the difference between
the GEFSA and the number of Sale Shares transferred to GE Capital at the
Closing.
The Company Call Option shall be exercisable by written notice by the Company
to GE Capital (the "Company Exercise Notice") within one hundred twenty (120)
days following the consummation of a Qualifying Offering. The Company Option
Closing shall take place within ten (10) days of the date on which the Company
Exercise Notice is given. At the Option Closing, the Company shall pay the
Company Option Price to GE Capital and GE Capital shall execute any and all
documentation required to transfer the Company Option Shares to the Company.
1.4 Dilutive Offering. GE Capital shall have an option (the "GE Call
Option") to subscribe for additional shares of Series B Preferred Stock from
the Company at a purchase price of US$ 0.10 per share (the "GE Option Price")
under the conditions set forth in this Section 1.4. The GE Call Option shall
be exercisable in the event one or more financing transactions occur in which
the Company sells for an aggregate price of at least US$ 3 million any of its
stock of any series in a private or public offering at an average per share
price which reflects a valuation of the Company of less than US$ 60 million (a
"Dilutive Offering") on or before January 24, 1999 (the "Expiration Date").
GE Capital may exercise the GE Call Option only once, and shall exercise it
with respect to the number of shares (the "GE Option Shares") determined by
application of the formula set forth below (the "GE Option Formula").
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The number of GE Option Shares in the event a Dilutive Offering is made shall
be derived by calculating the following factors and using the following
abbreviations:
<TABLE>
<S> <C>
NMC = New Market Capitalization of the Company at the time a Dilutive
Offering occurs, which shall be equal to the number of shares
outstanding on a fully diluted basis immediately prior to the
closing of such offering multiplied by (i) the per share price at
which the Dilutive Offering occurs, if such offering is a private
placement, or (ii) the average daily closing price of the shares
of the of the Company on all exchanges on which such shares are
traded during the 90 days following the offering, if the offering
is a public offering.
MCD = Market Capitalization Differential, which is the incremental
amount of the New Market Capitalization recognized for purposes of
the GE Option Formula. The MCD shall be the lesser of (i) US$30
million (which is the maximum MCD which will be recognized) or
(ii) the amount by which the NMC is less than US$60 million.
COMC = Company Market Capitalization, which is the minimum total
valuation of the Company which the Company is willing to recognize
for purposes of the Company Formula. The COMC is equal to the
difference between US$60 million and the MCD, provided that it
shall at no time be less than US$30 million.
GEIA = GE Investment Amount, which is a factor intended to attribute
credit to GE Capital for a 25% return on its capital investment in
the Company between the time of the Closing (subject to a one
hundred and twenty (120) day moratorium after the Closing) and the
closing under the Option (the "Option Closing"). During the
period commencing on the Closing and ending one hundred and twenty
(120) days after the closing, the GEIA shall be equal to US$3
million. After such one hundred and twenty (120) day period, the
GEIA shall be US$3 million plus an interest factor calculated at a
rate of 25% per annum on a pro rata basis per day elapsed, and
compounded annually.
GEFSA = GE Final Share Amount, which is the total number of Sale Shares
which GE Capital should hold in the Company after the Company
Option Closing. GE Capital will be assumed to hold all of the
Sale Shares delivered at Closing at the time the Option Formula is
applied. The GEFSA shall be equal to the total number of shares
of the Company outstanding on a fully diluted basis prior to the
closing of a Dilutive Offering plus the GE Option Shares,
multiplied by the ratio between the GEIA and the COMC. For the
purposes of this document, "fully diluted" shall be defined as all
issued shares plus awarded stock options, warrants or other
securities convertible into or exchangeable for shares.
</TABLE>
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The number of GE Option Shares shall be equal to the difference between the
GEFSA and the number of Sale Shares transferred to GE Capital at the Closing.
The GE Call Option shall be exercisable by written notice by GE Capital to
Company (the "GE Exercise Notice") within one hundred twenty (120) days
following the consummation of a Qualifying Offering. The GE Option Closing
shall take place within ten (10) days of the date on which the GE Exercise
Notice is given. At the Option Closing, GE Capital shall pay the Option Price
to the Company the Company shall issue the GE Option Shares to GE Capital.
1.5 Closing; Transfer of the Sale Shares. Subject to fulfillment of the
condition precedent described in the next sentence, the closing of the purchase
and sale of the Sale Shares (the "Closing") shall occur on or before February
5, 1997 or at such later date as the Parties shall mutually agree. The
obligations of the Company and GE Capital to close hereunder shall be
conditional upon the execution of the Joinders (as hereafter defined) by all
parties to the Shareholders' Agreement and the Registration Rights Agreement,
(also as hereafter defined) and a Joinder to Exchange Agreement referred to in
Section 3.3 below. At the Closing, (i) GE Capital shall pay the Purchase Price
by wire transfer of immediately available funds to an account of the Company
identified for such purpose, (ii) the Company shall, upon receipt of such
funds, transfer the Sale Shares to GE Capital, (iii) local counsel for the
Company shall deliver opinions to the effect that, subject to customary
qualifications, the statements set forth in Section 4.2, 4.3, 4.5 and (to the
best of such counsel's knowledge) 4.6 are true and correct, and (iv) all
Parties shall execute and deliver any other certificates, documents or
agreements which are required by the terms hereof to be delivered at Closing.
The Company shall deliver to GE Capital a ledger entry reflecting the issuance
of the Sale Shares as soon as practicable after the Closing.
1.6 Adjustments for Splits and Recapitalizations. In the event of any
change in the outstanding shares of stock of the Company by reason of any stock
dividend or split, recapitalization, combination or exchange of shares or other
similar changes in the stock of the Company, then appropriate adjustments shall
be made in the number of shares of stock subject to the options provided in
Sections 1.3 and 1.4.
2. Preferential Business Relationships.
2.1 GE Capital as Preferred Provider of Financing Services.
(i) The Company shall arrange for the acceptance of credit, debit cards,
and other payment cards issued by General Electric Company and any of its
subsidiaries or any of their respective clients in POS Terminals and ATMs
controlled or operated by the Company, to the extent so requested by General
Electric Company or any of its subsidiaries, pursuant to agreements containing
customary terms and conditions and negotiated in good faith. Both parties
agree that the Company will not be compelled to make system/network changes as
a result of this provision which will have substantial negative economic impact
on the company. In furtherance thereof, the Company shall ensure that all such
POS Terminals and ATMs are technologically compatible with credit, debit and
payment cards issued by General Electric Company or any of its subsidiaries or
any of their respective clients. For the purposes of the Agreement references
to "POS Terminals" and "ATMs", being point of sale terminals and automatic
teller machines shall be deemed to refer to all comparable machines that exist
today, as well as any comparable machines that may be developed thereafter
which will have greater functionality, wider applications and greater benefits
for both operators and end users.
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(ii) The Company, including all of its affiliates, shall use GE Capital as
its preferred provider of financing for acquisitions of POS Terminals and ATMs
in the European Territory as provided in this Section 2.1. In the event that
the Company seeks at any time during the Cooperation Term (as hereafter
defined) to obtain financing for the acquisition of new POS Terminals and ATMs
in any country within the European Territory, it shall notify GE Capital in
writing of the amount and time frames of the financing (the "Financing
Requirements") and shall permit GE Capital to submit an offer to provide such
financing to the Company (the "GE Capital Offer"). The Company shall provide
GE Capital with any commercial information relating to the financing required
by the Company reasonably requested for the purpose of formulating the GE
Capital Offer. The Company shall accept the GE Capital Offer unless (i) GE
Capital fails to provide its offer within thirty (30) days after the date of
receipt of the Financing Requirements and any information it reasonably
requested to formulate the GE Capital Offer or (ii) the Company obtains in
writing an alternative provider of financing on terms that the Company, after
consultation with GE Capital, considers to be significantly more favorable to
it than those of the GE Capital Offer. Before accepting a competing offer, the
Company shall, to the extent legally possible, fully disclose the competing
offer to GE Capital and permit GE Capital thirty (30) days to amend the GE
Capital Offer to substantially match such competing terms, in which case the
Company shall accept the revised GE Capital Offer. It is understood that,
notwithstanding the terms of this Section 2.1, the Company may continue to
draw-down under financing arrangements which are in place as of the time of
this Agreement, provided that GE Capital has rejected the right as preferred
provider of financing services to provide such financing on terms which are at
least as favorable to the Company, taking into consideration any early
termination payments the Company is required to make to the current providers.
For the purposes of this agreement, "financing" and "financing services" shall
mean financing arrangements to facilitate the expansion of the Company's
independently owned and managed network of POS Terminals and ATMs including,
without limitation, POS Terminals and ATMs rented to the Company on an
operating lease basis. "Financing" and "financing services" shall not include
financing arrangements with respect to any ATM or POS networks owned by the
Company's customers and for which the Company provides outsourced services (the
"Company's Customers"). The Company shall determine, on a case by case basis,
whether an opportunity exists for GE Capital to provide financing to any of the
Company's Customers and, if it determines that such opportunity exists in a
given case, it shall introduce GE Capital to such Company Customer.
2.2 GE Spacenet as Preferred provider of Data Communications Services. The
Company, including all of its affiliates, shall give GE Spacenet the right of
first refusal to determine the appropriate data communications solutions for
the Company in the European Territory, while taking into consideration cost,
technology, scalability, quality and overall commercial suitability. The
Company shall use GE Spacenet or its designated in-country service provider (so
long as such in-country service provider meets GE Spacenet's own European
Territory service standards) as its preferred provider of data communications
services, including, but not limited to, VSAT telecommunications services in
the European Territory (collectively referred to herein as the "Data
Communications Services") as provided in the Section 2.2. In the event that
the Company seeks at any time during the Cooperation Term (as hereafter
defined) to obtain Data Communication Services in any country within the
European Territory, it shall notify GE Spacenet in writing of the number of
sites, installation dates, applications, traffic, availability requirement,
site locations, protocols, maintenance coverage, and
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term of the Data Communications Services required (collectively, the "Data
Communications Requirements"). The Company shall then permit GE Spacenet to
determine the appropriate data communication solution and submit an offer to
provide such Data Communications Services to the Company (the "GE Spacenet
Offer"). The Company shall provide GE Spacenet with any additional commercial
information relating to the Data Communication Services required by the Company
reasonably requested for the purpose of formulating the GE Spacenet Offer. The
Company shall accept the GE Spacenet Offer unless (i) GE Spacenet fails to
provide its offer within thirty (30) days after the date GE Spacenet receives
the Data Communications Requirements and any additional information it
reasonably requested to formulate the GE Spacenet Offer, or (ii) the Company
obtains in writing an alternative offer satisfying the same Data Communications
Requirements from a provider of substantially the same services on terms that
the Company, after consultation with GE Spacenet, reasonably considers to be
significantly more favorable to it than those of the GE Spacenet Offer. Before
accepting a competing offer, the Company shall, to the extent legally possible,
fully disclose the competing offer to GE Spacenet and permit GE Spacenet thirty
(30) days to amend the GE Spacenet Offer to substantially match such competing
terms, in which case the Company shall accept the revised GE Spacenet Offer.
With respect to other Data Communications Service agreements to which the
Company is bound and which are in place as of the time of this Agreement, GE
Spacenet shall have the right to take over providing some or all of such
services as long as it provides substantially the same service for
substantially the same price, taking into consideration any early termination
and any other payments the Company is required to make to the current providers
and any adverse legal or business consequences for the Company. The Company
shall determine, on a case by case basis, whether an opportunity exists for GE
Spacenet to provide Data Communications Services to any of the Company's
Customers and, if it determines that such opportunity exists in a given case,
it shall introduce GE Spacenet to such Company Customer. GE Capital agrees to
the provisions of this section 2.2 on behalf of GE Spacenet. For purposes of
this agreement, GE Spacenet means the worldwide data communications provider of
GE Capital, which consists of the following subsidiaries of GE Capital: GE
Capital Spacenet Services, Inc., GE Capital Spacenet International Services,
Inc., GE Capital Spacenet Services-Europe, GmbH, GE Capital Spacenet
Services-Europe B.V., GE Capital Spacenet Services-Czech Republic, s.r.o., as
well as any new subsidiary of GE Capital the primary business operations of
which are providing data communications services in the European Territory.
2.3 The Company as Preferred Provider of POS Terminal and ATM Services.
The Company shall be preferred provider of POS Terminal and ATM services in the
European Territory (collectively, "POS Terminal and ATM Services", separately
referred to as "POS Terminal Services" and "ATM Services") to GE Spacenet and
to GCF (as hereafter defined) as provided in this Section 2.3. In the event
that GCF or GE Spacenet intends at any time during the Cooperation Term to
outsource POS Terminal or ATM installation or POS Terminal or ATM operation
services in the European Territory, GCF or GE Spacenet, as the case may be,
shall notify the Company in writing of the nature of such POS Terminal Services
and/or ATM Services and permit the Company to submit an offer to provide such
services (the "Service Offer") to GCF or GE Spacenet, as the case may be. GCF
or GE Spacenet, as applicable, shall accept the Service Offer unless (i) the
Company fails to provide a Service Offer to GCF or GE Spacenet, as the case may
be, within thirty (30) days after the date the Company is notified of the need
for POS Terminal Services or ATM Services or (ii) GCF or GE Spacenet, as the
case may be, finds an alternative provider of such services, after consultation
with the Company, on terms that it reasonably considers to be significantly
more favorable to it than those
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included in the Service Offer. Before accepting a competing offer, GE Capital
shall, to the extent legally possible, fully disclose the competing offer to
the Company and permit the Company thirty (30) days to amend the Company Offer
to substantially match such competing terms, in which case GE Capital shall
accept the revised Company Offer. GE Capital agrees to the provisions of this
Section 2.3 on behalf of GCF and GE Spacenet. For purposes of this Agreement,
"GCF" means the global consumer finance division of GE Capital, which consists
of the following subsidiaries of GE Capital: Mercurbank AG, Service Bank GmbH
& Co, KG, GE Capital Bank SA and Budapest Bank, as well as any new subsidiary
of GE Capital engaged primarily in the global consumer finance business, being
private label credit cards, bank cards, retail sales finance, personal loans,
credit insurance and personal savings products, in the Czech Republic.
2.4 Other Joint Venture Operations. The Parties contemplate the
establishment and development of other jointly owned business operations,
including an equipment leasing company, an ATM maintenance services company or
joint business arrangements and ventures to process electronic financial
transactions in various markets. The Parties shall engage in ongoing
discussions and exchange of relevant information and shall review ongoing
market opportunities with a goal of expanding such cooperative business
ventures including, without limitation, entering new geographical markets and
the development of asset management and equipment leasing businesses. GE
Capital shall also endeavor to expand this Agreement to include other companies
owned or controlled by GE Capital.
2.5 Cooperation Term. The provisions of Sections 2.1 through 2.4 shall be
effective from the date of this Agreement and shall continue until the later of
the fifth (5th) anniversary date of this Agreement or the complete divestiture
of any ownership interest in stock in the Company (or its successor) by GE
Capital (the "Cooperation Term").
2.6 Service Bank Agreement. GE Capital shall cause its subsidiary,
Service Bank to waive any right it may have under its Agreement dated January
10, 1997 with the Company, (the "Service Bank Agreement") to renegotiate price
terms under the Service Bank Agreement.
3. Related Agreements.
3.1 Shareholders' Agreement and Registration Rights Agreement. GE Capital
acknowledges that it is aware of a certain Shareholders' Agreement among the
Company and the shareholders of the Company, dated February 14, 1996, as
amended by the First Amendment to the Shareholders' Agreement, dated as of
October 14, 1996 (the "Shareholders' Agreement") and a Registration Rights
Agreement dated as of February 14, 1996 among the Company and its shareholders
(the "Registration Rights Agreement"). At the Closing, GE Capital and the
shareholders of the Company shall execute and deliver to the Company joinders
to the Shareholders Agreement and the Registration Rights Agreement in the form
of Exhibit 1 and Exhibit 2, respectively (the "Joinders").
3.2 Initial Public Offering. GE Capital acknowledges that the Company,
through a special purpose holding company, Euronet Services Inc., is
contemplating making an initial public offering (the "IPO") of shares on the
Nasdaq and filed a Form S-1 Registration Statement dated December 18, 1996 (the
"Registration Statement") with the US Securities and Exchange Commission
covering the stock to be sold in the IPO. GE Capital
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acknowledges that its stock is not and will not be covered by the Registration
Statement, and agrees that it will execute the corporate documentation
described in Exhibit 3 and a "lock-up letter" to the underwriters of the IPO
pursuant to which they undertake to be bound by restrictions to sell their
shares in Euronet Services Inc. for a period of at least six months following
the IPO. The Company shall be considered to have disclosed to GE Capital all
information included in the Registration Statement.
3.3 Exchange Agreement. GE Capital acknowledges that it is aware of a
certain Exchange Agreement dated as of December 17, 1996 among Euronet Services
Inc. and the shareholders and optionholders of the Company (the "Exchange
Agreement"). At the Closing, GE Capital shall execute a Joinder to Exchange
Agreement with the Company and with Euronet Services Inc. substantially in the
form of Exhibit 4 attached hereto by which GE Capital shall agree to exchange
its stock in the Company for stock in Euronet Services Inc. under the same
terms and conditions as agreed to by the Company's shareholders in the Exchange
Agreement. GE Capital agrees that, in order to effectuate the provisions of
the Exchange Agreement, it shall be required to confirm its election to convert
each of the Sale Shares into shares of Common Stock (as hereafter defined).
4. Representations and Warranties of the Company. The Company represents
and warrants to GE Capital as follows:
4.1 Subsidiaries. The Company owns 100% of the capital stock of the
following companies: (i) Euronet - Bank 24 Rt., a Hungarian company limited by
shares, (ii) SatComNet Kft., a Hungarian limited liability company, and (iii)
Bankomat 24 - Euronet Sp. z o.o., a Polish limited liability company. Euronet
Services Inc., a Delaware Company, owns 100% of the capital stock of Euronet
GmbH, a German limited liability company. The Company has established Euronet
Services Inc. as a holding company for the Euronet group. Euronet - Bank 24
Rt., Bankomat 24 - Euronet and Euronet GmbH shall sometimes be referred to
individually herein as a "Subsidiary" and collectively the "Subsidiaries". The
Subsidiaries and the Company shall sometimes collectively be referred to as the
"Euronet Group."
4.2 Organization; Good Standing; Qualification and Power. The Company,
each Subsidiary and Euronet Services Inc. (i) is a corporation, a limited
liability company or a company limited by shares, duly organized, validly
existing and in good standing under the laws of its state of formation, (ii)
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and to carry
out the transactions contemplated hereby, and (iii) is duly qualified as a
foreign corporation and in good standing to do business in all such other
jurisdictions, if any, in which the conduct of its business or its ownership,
leasing or operation of property requires such qualification, except for those
jurisdictions in which failure to so qualify would not have a material adverse
effect on the business or assets of the Euronet Group.
4.3 Capitalization. (i) The authorized capital stock of the Company
immediately upon consummation of the transactions contemplated hereby shall
consist of 300,000 shares of common stock of the Company, US$ 0.10 par value
("Common Stock"), and 2,200,000 shares of preferred stock of the Company, US$
0.10 par value ("Preferred Stock") of which:
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(a) 71,300 shares of Common Stock shall have been validly issued, fully
paid and non-assessable, with no personal liability attaching to the ownership
thereof, and
(b) 185,650 shares of Common Stock shall have been reserved for issuance
pursuant to options available for grant under the Company's employee stock
option plan, and
(c) 1,100,000 shares of Preferred Stock shall have been designated "series
A preferred stock", of which 631,400 shares shall have been issued, fully paid
and non-assessable, with no personal liability attaching to the ownership
thereof,
(d) 407,275 shares of Preferred Stock designated "series A preferred stock"
shall have been reserved for issuance pursuant to milestone awards and milestone
options provided under the Shareholders' Agreement, and
(e) 1,100,000 shares of Preferred Stock shall have been designated "series
B preferred stock", of which 768,168 shares shall have been issued, fully paid
and non-assessable, with no personal liability attaching to the ownership
thereof.
(ii) Except as described in the Shareholders' Agreement, the Registration
Statement or the Exchange Agreement, there is no existing option, warrant, call
right, commitment or other agreement of any character to which the Company is a
party requiring, and there are no securities or the Company outstanding which
upon conversion or exchange would require, the issuance, sale or transfer of
any additional shares of capital stock or other equity securities of the
Company or other securities convertible into, exchangeable for or evidencing
the right to subscribe for, be paid on account of or purchase shares of capital
stock or other equity securities of the Company.
(iii) The Sale Shares, when issued in accordance with this Agreement, will
be duly authorized, validly issued, fully paid, non-assessable and free of any
preemptive rights.
4.4 Equitable Ownership. Assuming that all outstanding shares of all
classes of Preferred Stock (including the Preferred Stock being purchased
pursuant hereto) were converted to Common Stock on the Closing Date, GE
Capital, on the Closing Date, would be the legal owner of approximately five
percent (5%) of all of the issued and outstanding Common Stock of the Company
as of such date.
4.5 Authorization. The Company has all requisite power, authority and
legal capacity to execute and deliver this Agreement, the Joinder to Exchange
Agreement, the Joinders and each other agreement, document, or instrument or
certificate contemplated by this Agreement or to be executed by the Company in
connection with the consummation of the transactions contemplated by this
Agreement (collectively, the "Transaction Documents"), and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement and each other Transaction
Document and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized, executed and delivered by the
Company and this Agreement and each other Transaction Document constitutes the
valid and binding obligation of the Company, enforceable
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in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or similar laws affecting creditor's rights generally.
The Company has delivered to GE Capital true, correct and complete copies of
the Articles of Incorporation of the Company.
4.6 Violations of Instruments. The execution, delivery and performance of
this Agreement and the other Transaction Documents by the Company and the
consummation of the transactions contemplated hereby and thereby will not:
(i) violate any provision of law or statute or any order of any court or
any order, rule or regulation of any other agency of government; or
(ii) conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute (with due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of, any lien, security interest,
charge or encumbrance upon any of the properties, assets or outstanding capital
stock of the Company or its Subsidiaries, under the Articles of Incorporation
of the Company including, without limitation, Article 6 thereof with respect to
preemption rights, or its Subsidiaries or under the Shareholders' Agreement, in
each case as amended and/or restated through the date hereof, or any note,
indenture, mortgage, lease, agreement or other instrument to which the Company
or any Subsidiary is a party or by which it or any of its properties or assets
are or may be bound or affected.
Each permit, authorization, consent or approval of or by, or any notification
of or filing with, any person (governmental or private) required for the valid
authorization, execution, delivery and performance by the Company of this
Agreement, or for the valid authorization, issuance, sale and delivery of the
Sale Shares has been obtained or made or will have been obtained or made as of
the date required.
The issuance of the Sale Shares to GE Capital by the Company is exempt from
registration under Section 5 of the Securities Act of 1933, as amended (the
"Securities Act").
4.7 Financial information. The Company has previously delivered to GE
Capital the consolidated balance sheets of the Company as of December 31, 1995
and September 30, 1996, and the related consolidated statements of operation,
shareholders' equity and cash flows for the year and nine months then ended (in
each case including the notes thereto) which, in the case of the year end
statements have been audited by KPMG Polska Sp. z o.o., the independent
certified public accountants of the Company (collectively, the "Financial
Statements"). The Financial Statements are in accordance with the books and
records of the Company and present fairly in all material respects the
consolidated financial position of the Company as of the respective dates
indicated and the results of operations, shareholders' equity and cash flows of
the Company for the period indicated, subject in the case of the interim
statements to normal year-end and audit adjustments. The Financial Statements
have been prepared in accordance with generally accepted accounting principles
consistently applied.
4.8 Material Contracts. Listed on Schedule 4.8 attached hereto, are all
material contracts to which the Company or any Subsidiary is a party (the
"Material Contracts"). All of the contracts listed in Schedule 4.8 are valid
and binding in all material respects in accordance with their terms and are in
full force and effect. No party to any of the contracts is in or is claimed to
be in default in any material
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respect under the terms of the Material Contracts. Consummation of the
transactions contemplated herein will not (i) result in the termination of any
of the Material Contracts under their express terms, or (ii) require the
consent of any party thereto.
4.9 Absence of Undisclosed Liabilities. Except as disclosed in the
Financial Statements or the Registration Statement as of December 31, 1996,
neither the Company nor any Subsidiary is subject to any material liability of
any nature (matured or unmatured, fixed or contingent) which was not provided
for or reflected therein.
4.10 Absence of Changes. Since December 31, 1996, there has not been:
(i) any material adverse change in the financial condition, results of
operations, assets, liabilities or business of the Company or any Subsidiary;
(ii) any material liability or obligation of any nature whatsoever
(contingent or otherwise) incurred by the Company or any Subsidiary, other than
current liabilities or obligations incurred in the ordinary course of business;
(iii) any asset or property of the Euronet Group made subject to a
material lien of any kind;
(iv) any waiver of any valuable right of the Company or any Subsidiary, or
the cancellation of any debt or claim held by any member of the Euronet Group;
(v) any payment of dividends on, or other distributions with respect to,
or any direct or indirect redemption or acquisition of, any shares of the
capital stock of the Company, or any agreement or commitment therefor;
(vi) any issuance of any stock, bonds or other securities of the Company
or options, warrants or rights or agreements or commitments to purchase or
issue such securities or grant such options, warrants or rights other than
pursuant to or in connection with the transactions contemplated by this
Agreement;
(vii) any mortgage, pledge, sale assignment or transfer of any tangible or
intangible assets of the Euronet Group, except in the ordinary course of
business,
(viii) any loan by any member of the Euronet Group to any officer,
director, employee or shareholder of the Euronet Group, or any agreement or
commitment therefor;
(ix) any damage, destruction or loss (whether or not covered by insurance)
which is or may materially adversely affect the assets, property or business of
the Euronet Group;
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(x) any extraordinary increase, direct or indirect, in the compensation
paid or payable to any officer, director, employee or agent of the Euronet
Group; or
(xi) any change in the accounting methods or practices followed by the
Euronet Group.
4.11 Tax Matters. All Netherlands Antilles and foreign tax returns and
tax reports required to be filed by the Company have been filed with the
appropriate governmental agencies in all jurisdictions in which such returns
and reports are required to be filed (except, with respect to tax returns and
tax reports which may have been required to be filed in respect of state or
local sales, lease, occupation, property and excise tax, where the failure to
do so would not have a material adverse effect on the Company's business) and
all of the foregoing are true, correct and complete. Except with respect to
taxes required to have been paid or accrued by the Company in respect of local
taxes where the failure to do so would not have an adverse effect on the
Company's business, and except as disclosed in the Registration Statement, all
income, profits, property, excise, payroll, withholding and other taxes
(including interest and penalties) required to have been paid or accrued by the
Company have been fully paid or are adequately provided or reserved for in the
Financial Statements, except for tax liabilities arising in the ordinary course
of business since December 31, 1996.
4.12 Intellectual Property.
(i) The Company or a Subsidiary owns, has the right to use or has filed
applications for the protection of, all Intellectual Property Rights (as
hereafter defined) necessary or required for the conduct of its business as
presently conducted.
(ii) Except for license fees payable for use of software created by
certain suppliers to the Company or a Subsidiary, no royalties, honorariums or
fees are payable by any member of the Euronet Group to other persons by reason
of the ownership or use of the Intellectual Property Rights.
(iii) There is no pending or, to the best knowledge of the Company,
threatened claim or litigation against the Company or a Subsidiary contesting
the validity or right to use of any of the foregoing, nor has the Company
received any notice that any of the Intellectual Property Rights or the
operation of the Euronet Group's business conflicts with the asserted rights of
others. As used herein, the term "Intellectual Property Rights" means all
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, copyrights, computer programs, inventions, know-how, licenses,
trade secrets, proprietary processes and formulae.
4.13 Litigation. There are no:
(i) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Company,
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threatened against or affecting the Euronet Group, whether at law or in equity,
or before or by any governmental department, agency or instrumentality, which
if adversely determined, would have a material adverse effect on the Euronet
Group's business; or
(ii) judgements, decrees, injunctions or orders of any court, governmental
department, agency, instrumentality or arbitrator against any member of the
Euronet Group which could have a material adverse effect on the business,
condition (financial or otherwise), or operations of the Euronet Group or which
could materially impair the Company's ability to perform its obligations
hereunder.
4.14 Compliance; Governmental Authorizations. The Company and each
Subsidiary has complied in all material respects with all local and foreign
laws, ordinances, regulations and orders applicable to its business. Each
member of the Euronet Group has all material licenses and permits necessary for
the conduct of its business, such licenses and permits are in full force and
effect, no material violations are occurring or have occurred in respect of any
thereof and no proceeding is pending or, to the best knowledge of the Company,
threatened to revoke or limit any thereof. None of the aforesaid licenses and
permits shall be affected in any material respect by this Agreement.
Neither the Company nor any Subsidiary, nor any officer, director, employee, or
representative of the Company or any Subsidiary, has made any payment of funds
in connection with the business of the Company or any Subsidiary prohibited by
law, and no funds have been set aside to be used in connection with the
business of the Company or its Subsidiaries for any payment prohibited by law.
The Company further represents and warrants that neither the Company nor any
Subsidiary, nor any of the officers, directors, employees or representatives
thereof shall pay, offer or promise to pay, or authorize the payment of,
directly or indirectly through any other person or firm anything of value (in
the form of compensation, gift, contribution or otherwise) to:
a. any person or firm employed by or acting for or on behalf of any
customer, whether private or governmental, for the purpose of inducing or
rewarding any favorable action by the customer in any commercial transaction or
in any governmental matter; or
b. any government official, political party or official of such party, or
any candidate for political office, for the purpose of inducing or rewarding
favorable action or the exercise of influence by such official, party or
candidate in any commercial transaction or in any governmental matter.
4.15 No Defaults. No member of the Euronet Group is in default, in any
material respect under its charter documents (Articles of Incorporation,
Articles of Association, etc.), as amended to the date hereof, or any material
agreement mortgage, lease, purchase order or other instrument to which such
company is a party or by which it or any of its property is bound or affected.
4.16 Title to Property. The members of the Euronet Group own outright all
the property and assets, real, personal or mixed, tangible or intangible,
reflected as assets in the Financial Statements or acquired by such members of
the Euronet Group since December 31, 1996 (other than assets disposed of in the
ordinary course of business since
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<PAGE> 15
December 31, 1996) subject to no mortgages, liens, security interests, pledges,
charges or other encumbrances of any kind, except as reflected in the Financial
Statements. The members of the Euronet Group own or has a valid leasehold
interest in, or valid license for, all assets necessary for the conduct of
their businesses as presently conducted or as proposed to be conducted.
4.17 Insurance. Listed on Schedule 4.17 attached hereto are all policies
of insurance maintained by the Company or any Subsidiary. Such policies are in
full force and effect and all premiums with respect to such policies are
currently paid. No member of the Euronet Group has ever been denied or had
revoked or rescinded any policy of insurance.
4.18 Disclosure. Neither this Agreement nor the Registration Statement
contains any untrue statement of a material fact nor omits to state a material
fact necessary in order to make the statements contained therein not misleading
with respect to the Euronet Group.
4.19 Brokers. Neither the Company nor any Subsidiary, nor any of the
officers, directors, employees or shareholders of the Company or any Subsidiary
has employed any broker or finder in connection with the transaction
contemplated by this Agreement.
4.20 Definition of Best Knowledge. As used herein, the term "to the best
knowledge" of the Company shall mean and include: (i) actual knowledge; and
(ii) knowledge from which a person of reasonable intelligence (including, in
the case of the Company, the officers and directors of the Company) would infer
that the fact in question exists, or would govern his conduct upon the
assumption that such fact exits. In connection therewith, the knowledge (both
actual and constructive) of any director or officer of the Company shall be
imputed to be knowledge of the Company.
4.21 Continuing Obligation to Provide Information. At the request of
GE Capital, the Company hereby agrees each year to provide GE Capital with any
information required by GE Capital to comply with section 1295 of the Internal
Revenue Code, including but not limited to:
(i) GE Capital's pro rata share of the ordinary earnings and net capital
gain for the taxable year of the Company, or sufficient information to enable
GE Capital to make such a calculation;
(ii) The amount of cash and fair market value of other property
distributed or deemed distributed to GE Capital by the Company;
(iii) A statement that the Company will permit GE Capital to inspect and
copy the Company's permanent books of account, records, and such other
documents that are necessary to establish the Company's ordinary earnings and
net capital gain are computed in accordance with U.S. income tax principles;
and
(iv) The first and last days of the taxable year of the Company to which
the information specified in (i) through (iii) above applies.
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<PAGE> 16
4.22 Tax Consequences of Exchange Agreement. The reorganisation effected
by the Exchange Agreement is a tax-free reorganization which complies with the
requirements of Section 351 of the Internal Revenue Code. The Company shall not
take any action which would result in disqualification from such tax free
treatment and will not amend the terms of the offering contemplated by the
Registration Statement on Form S-1 of Euronet Services Inc. ("Services") dated
December 18, 1996 (including with respect to the number of Shares to be sold by
the Company and the Selling Shareholders) if such amendment would cause such
reorganization to fail to comply with Section 351 of the Internal Revenue Code.
5. Representations and Warranties of GE Capital. GE Capital represents and
warrants to the Company as follows:
5.1 Authority. It has the power and legal capacity to execute, deliver
and perform this Agreement and the related agreements referenced herein, and
this Agreement constitutes the valid and binding agreement of GE Capital,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally.
5.2 Legal Proceedings. There are no suits, actions, claims, or
proceedings pending against it challenging the validity or propriety of the
transactions contemplated by this Agreement. It is not subject to any
judgement, other, decree, administrative ruling or other judicial or
administrative mandate specifically directed against such companies which would
interfere with the transactions contemplated by this Agreement.
5.3 Disclosure. No representation or warranty in this Agreement or any
other document required to be delivered or made by it to the Company hereunder
or in conjunction herewith contains any untrue statement of material fact or
omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading.
5.4 Securities Law Representations and Warranties.
(i) GE Capital is acquiring the Sale Shares for its own account, for
investment and not with a view to the distribution thereof within the meaning
of the Securities Act.
(ii) GE Capital understands that the Sale Shares have not been registered
under the Securities Act or under any state securities acts by reason of their
issuance by the Company in a transaction exempt from the registration
requirements of applicable state securities acts and the Securities Act
pursuant to Section 4(2) thereof; and that they must be held indefinitely
unless a subsequent disposition thereof is registered under such Securities Act
and any applicable state securities acts or is exempt from such registration.
(iii) GE Capital understands that the exemption from registration afforded
by Rule 144 (the provisions of which are known to GE Capital) issued under the
Securities Act depends on the satisfaction of various conditions and that, if
applicable, Rule 144 affords the basis for sales only in limited amounts and
under limited circumstances.
(iv) GE Capital represents, warrants and covenants to the Company that it
will not transfer the Sale Shares except in compliance with the Shareholders'
Agreement, the Company's Articles of Incorporation, and applicable securities
laws.
(v) GE Capital confirms that it (i) has read the Registration Statement
and is familiar with the business of the Company and the Euronet Group, (ii)
has had the opportunity to ask questions of the Company's officers and
directors and to acquire such information about the business and financial
condition of the Company as the GE Companies has
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<PAGE> 17
deemed necessary, and (iii) has had the opportunity to obtain such other
information as it has deemed necessary, and it has relied upon, among other
things, its independent investigation in making a decision to enter into this
Agreement.
(vi) GE Capital has made such independent investigation of the Company and
of the business and financial condition of the Company, as it, in the exercise
of the sound business judgement, considers to be appropriate under the
circumstances.
(vii) GE Capital understands and acknowledges that the Company has not
made and cannot make any representation or warranty as to the future operation
or financial condition of the Company and/or the Euronet Group; that any
estimates of future operating results or financial forecasts of any kind with
respect to the Company and/or the Euronet Group which may be contained in any
business plans or other document or information furnished to the GE Companies,
may be incorrect and may not be realized; that such estimates or forecasts are
based on assumptions which may or may not occur; and that no assurances can be
given that the actual results of operations or financial condition of the
Company and/or the Euronet Group will conform to such estimates or forecasts
and that therefore no reliance can be placed thereon.
(viii) GE Capital is an "accredited investor" as that term is defined in
Regulation D promulgated pursuant to the Securities Act.
6. Expenses. Each Party will be responsible for expenses incurred by it
in connection with the negotiation of this Agreement and consummation of the
transactions contemplated hereby. The Company agrees that it will pay, and
will save GE Capital harmless from, any and all liability with respect to any
stamp or similar taxes which may be determined to be payable in connection with
the execution and delivery of this Agreement or any modification, amendment or
alteration of the terms or provisions of this Agreement, and that it will
similarly pay and hold GE Capital harmless from all issue taxes, if any, in
respect of the issuance if the Sale Shares to GE Capital
7. Survival of Representations, Warranties and Agreements; Etc. All
representations and warranties made by the Parties in Section 4 and 5 hereunder
shall survive the Closing and all covenants and agreements made by the Company
hereunder shall survive in accordance with their terms (or, if not specified by
such term, indefinitely). All statements contained in any certificate or other
instrument delivered by the Company pursuant to this Agreement shall constitute
representations and warranties by the Company under this Agreement.
8. Indemnification. Each Party shall, with respect to the
representations, warranties and agreements made by such Party herein,
indemnify, defend and hold the other harmless against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including legal and accounting fees and expenses), arising from the untruth,
inaccuracy or breach of any such representation, warranties or agreements of
such Party.
9. Remedies. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by the Company, the
non-defaulting Party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law,
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including, but not limited to, an action for damages as a result of any such
breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement. Provided that the foregoing shall not
change the time period during which a claim for indemnification pursuant to
Sections 7 [or 8] hereof shall be made.
10. Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing, and shall be delivered to the Parties
at the addresses set forth below (or to such other addresses as a Party may
specify by due notice to the others). Notices or other communications shall be
deemed given only when actually received.
(a) If to the Company: Euronet Holding N.V.
c/o Euronet - Bank Access 24 Rt.
10 Zsigmond Ter
Budapest, Hungary
Tel: 36-1-269-7224
Fax: 36-1-269-7226
- with a copy to -
Michael J. Brown
12617 Juniper Circle
Leawood, Kansas 66209
Tel: 1-913-491-3514
Fax: 1-913-491-9662
(b) If to GE Capital: General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attn: _______________
Tel: _______________ Fax: _______________
11. Miscellaneous Provisions.
11.1 Entire Agreement; Amendments. This Agreement supersedes all prior
discussions and agreements among or between the Parties with respect to the
subject matter hereof, and this Agreement contains the sole and entire
agreement among the Parties with respect to the matters covered hereby. This
Agreement shall be amended and/or supplemented only in writing. This provision
may only be renounced in writing. The Parties hereby confirm that, with
respect to this Agreement, no additional oral agreements have been concluded.
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11.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
11.3 Severability. Each term, condition or provision of this Agreement
shall be viewed as separate and distinct, and in the event that any such term,
condition or provision shall be held by a court of competent jurisdiction to be
invalid, the remaining provisions shall continue in full force and effect.
11.4 Costs and Expenses. Each of the Parties shall pay its own fees and
expenses incidental to the negotiation, preparation and execution of this
Agreement, including, attorneys' fees, accountants' fees, and other advisors'
fees; except that the Company shall pay any sales or transfer taxes arising as
a result of the purchase and sale of the Sale Shares and the registration of
the same.
11.5 Titles and Subtitles; Incorporation by Reference. The titles of the
Sections and Subsections of this Agreement are for the convenience of reference
only and are not to be considered in construing this Agreement. All referenced
agreements, exhibits and schedules to this Agreement are incorporated, in their
entirety, by reference herein.
11.6 Successors and Assigns. The provisions herein shall inure to the
benefit of and be binding upon any successor, assign or administrator of the
Parties.
11.7 Assignment. The rights and obligations provided under the terms of
this Agreement, including the preferential rights provided for in Section 2,
shall not be assigned or transferred without the prior written approval of the
other Party. Notwithstanding the preceding sentence, (i) GE Capital grants its
consent to the transfer of all rights and obligations of the Company to Euronet
Services Inc., a Delaware corporation, in connection with the Offering and (ii)
GE Capital may, without the consent of the Company, assign their respective
rights and obligations under Article 2 of this Agreement to any Affiliate, such
assignment to remain effective only for so long as the assignee remains an
Affiliate. For purposes of this Agreement, the term "Affiliate" as applied to
GE Capital shall mean a company controlled by, controlling or under common
control with, GE Capital. In the event that the assignee should, at any time
following such assignment, cease to become an Affiliate, such assignment shall
be revoked and the assignor shall be deemed to have once again assumed any and
all obligations under this Agreement.
11.8 Governing Law; Prevailing Language. This Agreement shall be deemed
to be a contract made under, governed by and construed in accordance with the
substantive law of the state of New York. This Agreement, in its original
English language version, shall constitute the agreement that is binding on the
Parties notwithstanding the existence of any translations hereof into any other
language.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
EURONET HOLDING N.V.
__________________________
Michael J. Brown
GENERAL ELECTRIC CAPITAL
CORPORATION
__________________________
Name:
Title:
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<PAGE> 21
SCHEDULE 4.8
21
<PAGE> 22
SCHEDULE 4.17
22
<PAGE> 23
EXHIBIT 1
SECOND AMENDMENT AND JOINDER TO SHAREHOLDERS' AGREEMENT
This SECOND AMENDMENT AND JOINDER TO SHAREHOLDERS' AGREEMENT ("Amendment"
or "Second Amendment") is made as of January ___, 1997 by and among General
Electric Capital Corporation, a company with its principal offices at 260 Long
Ridge Road, Stamford, Connecticut, 06297 ("GE Capital"), and the persons or
entities included on the execution pages hereto, which constitute all parties
to a certain Shareholders' Agreement dated as of February 15, 1996, as amended
by a First Amendment to Shareholders' Agreement dated October 14, 1996 (the
"Shareholders' Agreement") relating to the formation of, and certain other
matters concerning, Euronet Holding N.V., a Netherlands Antilles company (the
"Company").
GE Capital and the signatories hereto are sometimes referred to
collectively as the "Shareholders" or the "Parties," or individually as a
"Shareholder" or a "Party."
RECITALS
A. The Company and GE Capital have entered into a Subscription Agreement,
dated as of January ___, 1997 (the "Subscription Agreement"), pursuant to which
the Company will sell, and GE Capital will purchase, Series B Preferred shares
of the Company.
B. The Subscription Agreement provides that GE Capital will execute this
Amendment as a condition to Closing (as defined in the Subscription Agreement).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Parties agree as follows:
1. Defined Terms. All capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to them in the Shareholders' Agreement.
2. Joinder by GE Capital. GE Capital is hereby added as a party to the
Shareholders' Agreement and agrees to be bound by its provisions, as applicable
to GE Capital as a Shareholder and a Series B Preferred Shareholder. GE
Capital shall be entitled to exercise any and all rights and protections
granted to Series B Preferred Shareholders by the Shareholders' Agreement,
including without limitation, those provided in Section 10 thereof. GE Capital
shall be treated for the purposes of Section 7 as a "New Investor."
3. Amendments to Section 8 of the Shareholders' Agreement. The Parties
have agreed that GE Capital shall be entitled to appoint an Observer to the
Board of the Company and that it
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may, at its option, require the appointment of a Board member. Consequently,
the following amendments are made to Sections 8.2 and 8.3 of the Shareholders'
Agreement:
3.1 Sections 8.2 and 8.3(a) are deleted and replaced by the following:
8.2 Number of Board Members. The Board shall be the principal body of the
Company and shall supervise the Management Board. The day-to-day operations
of the Company shall be managed by the Management Board, which shall be
comprised of two members. The members of the Management Board shall include
an individual designated by Brown, and ABN Amro Trust Company (Curacao) N.V.
(or another Netherlands Antilles trust company acceptable to the New
Investors and Brown); provided however, that all members of the Management
Board shall have equal power. All authority not specifically granted to the
Board and the Management Board shall reside with the general meeting of
Shareholders (the "General Meeting"), subject to Section 9.2 hereof, the
Articles of Incorporation and Netherlands Antilles law. The Board shall
consist of seven members, provided that the number of members may be
expanded to either nine or eleven members under the circumstances set forth
in this Section 8.2(a). If GE Capital elects to nominate a Board member as
provided in Section 8.3(a), then the Board nevertheless will continue to
have seven members if (i) any Shareholder entitled to appoint a Board member
voluntarily relinquishes its right to do so and causes the resignation of
its representative on the Board, or (ii) the Board decides by majority vote
to replace the member it has previously designated by the GE Capital
nominee. If neither of the events described in (i) or (ii) above occur,
then the Board shall be expanded to nine members, by the addition of the
member nominated by GE Capital and a member appointed by Mr. Brown, or at
his option, by the majority of the Board. The Board may be expanded to up to
eleven members by the nomination by Brown and DST, or the New Investors, of
two additional Board members as provided in this Section 8.2 and Section
8.3(a). Any expansion of the Board beyond eleven members shall require the
affirmative vote of a majority of the Board including one member nominated
by each of the New Investors and one member nominated by either of Brown or
DST. Prior to the occurrence of any of the events set forth in Schedule 15
(each a "Voting Flipover Event" and collectively the "Voting Flipover
Events") attached hereto and made a part hereof, and for so long as they are
Shareholders, each of Brown and DST shall be entitled to designate one
additional member of the Board. At any time after the Closing, and prior to
the occurrence of a Voting Flipover Event, Brown and DST may expand the
Board to nine or eleven members, as the case may be, by exercising their
right to nominate two additional members of the Board and the Shareholders
shall vote their Shares in favor of the appointment of such nominee. The
members of the Board shall be elected by simple majority vote of the General
Meeting. Members of the Board shall serve a one (1) year term or until
their successors are elected, and may be reelected. Members of the Board
shall be indemnified by the Company to the fullest extent permitted by
Netherlands Antilles law for liability arising from actions taken by them in
good faith and in the proper exercise of their functions.
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8.3 Election of Board Members.
(a) Rights of Nomination. For so long as they are Shareholders
(subject, in the case of the Fund Entities and Poland Partners, to the
provisions of Section 14.1), the Fund Entities (as a group), HAEF, Poland
Partners and GE Capital shall each be entitled to nominate one member of the
Board. Brown shall be entitled to nominate (i) two members of the Board for
so long as the Board consists of seven or nine members, or (ii) three
members if the Board is expanded to eleven members. DST shall be entitled
to nominate (i) one member of the Board for so long as the Board consists of
seven members (ii) two members if the Board is expanded to nine members or
(ii) three members if the Board is expanded to eleven members. At each
General Meeting at which the members of the Board are to be elected, the
Shareholders agree to vote their Shares so as to elect the members so
nominated. From and after the occurrence of any Voting Flipover Event, the
New Investors shall be entitled to propose the dismissal of the third Board
members nominated by Brown and DST and the Fund Entities and Poland Partners
shall each be entitled to nominate one replacement for the additional Board
members nominated by each of Brown and DST. The Shareholders agree to vote
their Shares so as to remove the members proposed to be dismissed and to
elect the new members nominated. As a result, from and after the occurrence
of any Voting Flipover Event, the Fund Entities shall each be entitled to
nominate two Board members and Poland Partners shall be entitled to nominate
two Board members. In the event any of Brown, the Fund Entities, DST, HAEF,
Poland Partners or GE Capital cease to be a Shareholder, such individual or
entity shall lose his/its right to nominate a Board member(s) and the Board
may, in its discretion, call a meeting of the Shareholders to remove and
replace the Board member(s) nominated by such Shareholder. Each Shareholder
entitled to nominate member(s) of the Board shall also be entitled to
propose the removal of the member(s) of the Board nominated by it and to
propose to fill any vacancy in such member's position, and the Shareholders
agree to vote for such removal or replacement designee.
3.2 In the second line of the first sentence of Section 8.3(b), the
following words are added between the words "Investors" and "shall": "... and,
for so long as it has not exercised its election to designate a Board member as
provided in Section 8.3(a), GE Capital..."
4. Exclusion from Sections 12 and 20(e). In recognition of the current
scope of activities of GE Capital and its affiliates, the provisions of Section
12 and 20(e) of the Shareholders' Agreement shall not apply to GE Capital.
However, GE Capital hereby agrees that, for the period commencing on the date
hereof and ending on the earlier of (A) the termination of the Shareholders'
Agreement or (B) five years from the date of the Subscription Agreement, it will
not acquire or establish any subsidiary the principal business operations of
which (i) are the operation of an independent, non-bank owned ATM network (as
such terms are defined in the Subscription Agreement) or the provision of
outsourced ATM services and (ii) are located in Poland, Hungary, the Czech
Republic, Germany or Austria.
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<PAGE> 26
5. Shareholders' Agreement in Full Force and Effect. Except as hereby
expressly amended, the Shareholders' Agreement is in all respects ratified and
confirmed and all the terms, provisions and conditions thereof shall be and
remain in full force and effect.
6. Waiver of Preemptive Rights. Each of the Shareholders other than GE
Capital hereby (i) waives its preemptive right, granted in Section 10 of the
Shareholders' Agreement and Article 6 of the Articles of Association of the
Company, to subscribe for the shares of the Company to be issued to GE Capital
under the Subscription Agreement (ii) and consents to the issuance of shares to
GE Capital in accordance with the terms of the Subscription Agreement.
7. Incorporation of General Provisions. Sections 21 and 22 of the
Shareholders' Agreement shall apply mutatis mutandis to this Amendment.
IN WITNESS WHEREOF, this Amendment has been duly executed by the Parties
or by their authorized representatives as of the date and year first above
written above.
GENERAL ELECTRIC CAPITAL EURONET HOLDING N.V.
CORPORATION
______________________________ ______________________________
Name: Michael J. Brown
Title:
ADVENT PRIVATE EQUITY FUND - ADVENT PARTNERS LIMITED PARTNERSHIP
CENTRAL EUROPE L.P.
______________________________ ______________________________
Janet L. Hennessy, Vice-President, Janet L. Hennessy, Vice-President,
Advent International Corp. for Advent International Corp. for
Advent Advent
Central Europe Management L.P. as Central Europe Management L.P. as
General Partner General Partner
HUNGARIAN PRIVATE EQUITY FUND L.P. POLAND PARTNERS, L.P.
______________________________ ______________________________
Janet L. Hennessy, Vice-President, Steven J. Buckley, President, C.E.O.,
Advent International Corp. for Poland Partners Management Co. for
Advent Poland Partners Management L.P as
Central Europe Management L.P. as General Partner
General Partner
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<PAGE> 27
THE POLAND INVESTMENT FUND L.P. THE HUNGARIAN-AMERICAN ENTERPRISE FUND
______________________________ ______________________________
Neil M. Milne, Director, Copernicus Eriberto R. Scocimara, President
Ventures Limited as General Partner
COPERNICUS MANAGEMENT INC. DST SYSTEMS, INC.
______________________________ _____________________________
Name: Thomas A. McDonnell,
Title: President and CEO
EUROVENTURES [HUNGARY] B.V.
______________________________ ______________________________
Andras Geszti, by proxy Larry Maddox
______________________________ ______________________________
Michael J. Brown Lawrence Schwartz
______________________________ ______________________________
Michael J. Brown, by proxy for Michael J. Brown, by proxy for
Stephanie C. Brown Gregory M. Brown
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<PAGE> 28
______________________________ ______________________________
Michael J. Brown, by proxy for Michael J. Brown, by proxy for Maria
Anthony J. Brown Danica Panaga
______________________________ ______________________________
Mark Callegari Mark Callegari, by proxy for
Courtney A. Callegari
EURONET - BANK 24 RT.
______________________________ ______________________________
Mark Callegari, by proxy for Name:
Matthew R. Callegari Title:
BANKOMAT 24/EURONET SP. Z O.O. SATCOMNET KFT.
______________________________ ______________________________
Name: Name:
Title: Title:
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EXHIBIT 2
JOINDER TO REGISTRATION RIGHTS AGREEMENT
This JOINDER TO REGISTRATION RIGHTS AGREEMENT ("Joinder") is made as of
January ___, 1997 by General Electric Capital Corporation, a company with its
principal offices at 260 Long Ridge Road, Stanford, Connecticut, 06297 ("GE
Capital"), and Euronet Holding N.V., a Netherlands Antilles company (the
"Company"), on behalf of the Company and the entities or individuals
(collectively, the "Holders") set forth in the signature pages attached to the
Registration Rights Agreement, dated as of March 13, 1996 (the" Registration
Rights Agreement").
RECITALS
0.1. The Company and GE Capital have entered into a Subscription
Agreement, dated as of January ___, 1997 (the "Subscription Agreement"),
pursuant to which the Company will sell, and GE Capital will purchase, Series B
Preferred shares of the Company.
0.2. The Subscription Agreement provides that GE Capital will execute this
Joinder as a condition to Closing (as defined in the Subscription Agreement).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
(a) Joinder by GE Capital. GE Capital is hereby added as a party to the
Registration Rights Agreement and agrees to be bound by the terms and
conditions of the Registration Rights Agreement as applicable to a Holder. GE
Capital shall be entitled to any and all rights of a Holder under the
Registration Rights Agreement.
(b) Registration Rights Agreement in Full Force and Effect. The
Registration Rights Agreement is in all respects ratified and confirmed and all
the terms, provisions and conditions thereof shall be and remain in full force
and effect.
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IN WITNESS WHEREOF, this Joinder has been duly executed by authorized
representatives of the parties hereto as of the date and year first above
written above.
GENERAL ELECTRIC CAPITAL EURONET HOLDING N.V.
CORPORATION
______________________________ ______________________________
Name: Michael J. Brown
Title:
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EXHIBIT 3
List of Corporate Documentation
Resolutions of the Supervisory Board and shareholders of Euronet Holding N.V.
and of the Board of Directors and shareholders of Euronet Services Inc.
adopting any actions reasonably necessary to implement the Offering in
accordance with the Registration Statement, including, but not limited to, the
following:
- - the election of each shareholder to convert Series B Preferred Stock to
Common Stock;
- - approval or ratification of the steps necessary to implement the Exchange
Agreement, including a waiver of preemptive rights with respect to the
shares transferred and filing of the Registration Statement with the SEC;
- - approval or ratification of the filing of the Registration Statement and
any amendments thereto deemed necessary or appropriate by the management
of the Company.
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EXHIBIT 4
JOINDER TO EXCHANGE AGREEMENT
This JOINDER TO EXCHANGE AGREEMENT ("Joinder") is made as of January ___,
1997 by General Electric Capital Corporation, a company with its principal
offices at 260 Long Ridge Road, Stanford, Connecticut, 06297 ("GE Capital"),
Euronet Services, Inc., a Delaware corporation with its principal place of
business at 12617 Juniper Circle, Leawood, Kansas, 66209, and Euronet Holding
N.V., a Netherlands Antilles company (the "Company"), on behalf of the Company
and the entities or individuals set forth in the signature pages attached to
the Exchange Agreement, dated as of December 17, 1996 (the "Exchange
Agreement").
RECITALS
0.1. The Company and GE Capital have entered into a Subscription
Agreement, dated as of January ___, 1997 (the "Subscription Agreement"),
pursuant to which the Company will sell, and GE Capital will purchase, Series B
Preferred shares of the Company.
0.2. The Subscription Agreement provides that GE Capital will execute this
Joinder as a condition to Closing (as defined in the Subscription Agreement).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
(a) Joinder by GE Capital. GE Capital is hereby added as a party to the
Exchange Agreement and agrees to be bound by the terms and conditions of the
Exchange Agreement as applicable to each of the Stockholders (as defined in the
Exchange Agreement). GE Capital shall be entitled to any and all rights of a
Stockholder under the Exchange Agreement.
(b) Exchange Agreement in Full Force and Effect. The Exchange Agreement
is in all respects ratified and confirmed and all the terms, provisions and
conditions thereof shall be and remain in full force and effect.
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IN WITNESS WHEREOF, this Joinder has been duly executed by authorized
representatives of the parties hereto as of the date and year first above
written above.
GENERAL ELECTRIC CAPITAL EURONET HOLDING N.V.
CORPORATION
______________________________ ______________________________
Name: Michael J. Brown
Title:
EURONET SERVICES, INC.
______________________________
Michael J. Brown
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EXHIBIT 23.1
The Board of Directors
Euronet Services Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Summary Consolidated Financial Data", "Selected
Consolidated Financial Statements" and "Experts" in the prospectus.
KPMG Polska Sp. z o.o.
Warsaw, Poland
February 4, 1997
3
