<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1998
REGISTRATION NO. 333-48309
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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)
DELAWARE 6099 74-2806888
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification
Organization) Code Number)
----------------
HORVAT U. 14-24
1027 BUDAPEST
HUNGARY
011-361-224-1000
(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:
ARNOLD R. WESTERMAN, ESQ. JAMES M. BARTOS, ESQ.
ARENT FOX KINTNER PLOTKIN & KAHN, PLLC SHEARMAN & STERLING
1050 CONNECTICUT AVENUE, N.W. 199 BISHOPSGATE
WASHINGTON, D.C. 20036 LONDON EC2M 3TY ENGLAND
----------------
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 PRELIMINARY PROSPECTUS DATED MAY 6, 1998
PROSPECTUS
DM 182,485,000 GROSS PROCEEDS
[LOGO OF EURONET APPEARS HERE]
EURONET SERVICES INC.
. % SENIOR DISCOUNT NOTES DUE 2006
-----------
The % Senior Discount Notes due 2006 (the "Notes") are being offered (the
"Offering") hereby by Euronet Services Inc. (the "Issuer"). The Notes will be
issued to generate gross proceeds to the Issuer of approximately DM 182,485,000
and will be issued at a price of DM per DM1,000 principal amount at
maturity, representing a yield to maturity of % (computed on a semiannual
bond equivalent basis) calculated from , 1998.
The Notes will bear cash interest at a rate of % per annum. CASH INTEREST
ON THE NOTES WILL NOT ACCRUE PRIOR TO , 2002. Commencing , 2002, cash
interest will be payable on the Notes semiannually on and of each year.
The Notes will mature on , 2006.
The Notes will be redeemable, at the option of the Issuer, in whole or in
part, at any time after , 2002 at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of the
redemption. In addition, at any time or from time to time prior to , 2001,
the Issuer may redeem up to 33 1/3% of the aggregate principal amount at
maturity of the originally issued Notes at a redemption price of % of the
Accreted Value thereof with the net proceeds of one or more Equity Offerings
(each as defined herein); provided that, immediately after giving effect to
such redemption, at least 66 2/3% of the aggregate principal amount at maturity
of the originally issued Notes remains outstanding. Upon the occurrence of a
Change of Control (as defined herein), each holder of Notes may require the
Issuer to purchase all or a portion of such holder's Notes at a purchase price
in cash in an amount equal to 101% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date of purchase.
The Notes will be senior unsecured obligations of the Issuer and will rank
pari passu in right of payment with all other existing and future senior
unsecured obligations of the Issuer and senior in right of payment to all
future obligations of the Issuer expressly subordinated in right of payment to
the Notes. As of March 31, 1998, after giving pro forma effect to the Offering
and the application of the net proceeds therefrom, the Issuer would have had
approximately $103.3 million of indebtedness of which approximately $3.3
million would have been secured indebtedness. In addition, the Issuer is a
holding company and, accordingly, the Notes will be effectively subordinated to
all existing and future liabilities of the Issuer's subsidiaries. As of
March 31, 1998, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Issuer's subsidiaries would have
had aggregate liabilities of approximately $8.6 million.
The Notes sold outside the United States will be represented by a single,
permanent global Note in bearer form, deposited with Deutsche Borse Clearing
AG, Frankfurt am Main ("DBC"), which will represent the Notes held by
accountholders in DBC, including such Notes held through the operator of
Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("Cedel"), each
of which has an account with DBC. All Notes sold to U.S. investors (and others
requesting registered Notes), will be represented by one or more global
registered Notes deposited with a custodian for, and registered in the name of,
the Depositary Trust Company ("DTC") or its nominee. See "Description of the
Notes--Description of Book Entry System; Payment Transfers; Delivery and Form."
Application has been made to list the Notes on the Luxembourg Stock Exchange.
The Issuer's Common Stock trades on the Nasdaq National Market under the symbol
"EEFT", and as of May 1, 1998 the Issuer had an equity market capitalization of
approximately $102 million.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
NOTES.
-----------
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.
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES AT PRICE TO UNDERWRITING PROCEEDS TO
MATURITY PUBLIC (1) DISCOUNT (2) ISSUER (1)(3)
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<S> <C> <C> <C> <C>
Per Note....................... % % % %
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Total.......................... DM DM DM DM
</TABLE>
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(1) Plus accrued original issue discount, if any, on the Notes from , 1998.
(2) The Issuer has agreed to indemnify the Underwriters (as defined herein)
against certain liabilities, including liabilities under the Securities
Act. See "Underwriting".
(3) Before deducting expenses payable by the Issuer estimated at approximately
$ . The Underwriters have agreed to reimburse the Company for a portion
of the expenses incurred in connection with the Offering. See
"Underwriting."
-----------
The Notes are being offered by the Underwriters, subject to prior sale, when,
as and if issued to and accepted by the Underwriters, and subject to approval
of certain legal matters by counsel for the Underwriters, and certain other
conditions. The Underwriters reserve the right to withdraw, cancel of modify
such offer and to reject offers in whole or in part. It is expected that
delivery of the Notes offered hereby will be made in New York on or about ,
1998.
-----------
MERRILL LYNCH CAPITAL MARKETS BANK LIMITED MERRILL LYNCH & CO.
FRANKFURT/MAIN BRANCH
-----------
The date of this Prospectus is , 1998.
<PAGE>
INSIDE COVER PAGE
Logos of certain of the major credit cards capable of accessing Euronet ATMs.
Euronet Logo
Pictures of ATM machines on location
<PAGE>
FOLD OUT TO COVER PAGE
Map of Europe showing by country the number of ATMs in operation in Hungary,
Poland, Germany, Croatia and the Czech Republic and the date of opening of
offices in Romania and France.
<PAGE>
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 Notes,
reference is hereby made to the Registration Statement.
The Company is subject to the reporting requirements of the U.S. Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. The
Registration Statement, including the exhibits 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.
The Company accepts responsibility for the information contained in this
Prospectus. To the best knowledge of the Company, the information contained in
this Prospectus is accurate and complete in all material respects and does not
omit to state any facts necessary in order to make the statements made therein
not misleading in any material respect.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE NOTES MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
NOTES, INCLUDING PURCHASES OF SHARES OF NOTES TO STABILIZE THEIR MARKET PRICE,
PURCHASES OF NOTES TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute forward-looking
statements within the meaning of section 27A of the Securities Act and section
21E of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts included in
this Prospectus, including, without limitation, statements regarding (i) the
use of proceeds of the Offering, (ii) the Company's business plans and
financing plans and requirements, (iii) trends affecting the Company's
business financial condition or results of operations, (iv) the impact and
extent of competition, (v) expansion of the Company's ATM network and
expansion of the Company's operations, (vi) the adequacy of capital to meet
the Company's capital requirements and expansion plans, (vii) the assumptions
underlying the Company's business plans, (viii) business strategy, (ix)
government regulatory actions, (x) technological advances and (xi) projected
costs and revenues, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
be correct. Forward-looking statements are typically identified by the words
believe, expect, anticipate, intend, estimate and similar expressions.
Prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties
and that actual results may differ materially from those in the forward-
looking statements as a result of various factors. The information contained
in this Prospectus, including, without limitation, the information under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business" identifies important factors that could
cause such differences, and any such forward-looking statements are expressly
qualified in their entirety by such factors.
1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. References in this Prospectus to the
"Issuer" are to Euronet Services Inc. Unless the context otherwise requires,
references in this Prospectus to the "Company" or "Euronet" are to the Issuer
and its consolidated subsidiaries. Data regarding ATM density per million of
population, card issuance as a percentage of population and off-site ATM
locations as a percentage of total ATM locations included in this Prospectus
have been derived from reports issued by Retail Banking Research, Ltd., the
European Monetary Institute, and the Bank for International Settlements.
THE COMPANY
OVERVIEW
The Company 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 and is one of the largest of such providers in
Europe. The Company was established in 1994 and commenced operations in June
1995. Since it commenced operations, the Company has undertaken a rollout of
its ATM network with 53, 166 and 693 ATMs in operation at December 31, 1995,
1996 and 1997, respectively. As of March 31, 1998 the Company operated a
network of 798 state of the art ATMs in Europe, with 359 located in Hungary,
332 in Poland, 64 in Germany, 35 in Croatia and 8 in the Czech Republic. In
addition, in December 1997, the Company established offices in France and
Romania. Subject to full evaluation of market opportunities, the Company
expects to install approximately 800 additional ATMs during 1998 and pursue the
possible acquisition of ATM network assets in Europe, the U.S. and other
markets. Through agreements and relationships established with local banks,
international debt and credit card issuers and associations of such card
issuers such as American Express, Diners Club International, VISA, Mastercard
and EUROPAY (together "International Card Organizations"), the Company's ATMs
are able to process ATM transactions for holders of credit and debit cards
issued by or bearing the logos of such banks and International Card
Organizations. In addition, through its sponsorship arrangements with banks
which issue VISA and EUROPAY cards, the Company is able to accept cards with
the PLUS and Cirrus logos. The Company receives a fee from the relevant card
issuing bank or International Card Organization for any ATM transactions
processed on the Company's ATMs. The Company also offers out-sourced ATM
management services to local banks that own proprietary ATM networks for which
the Company receives a fixed monthly fee and/or a per transaction fee. The
Company's Common Stock is traded on the NASDAQ National Market under the symbol
"EEFT" and based on its share price as of the close of May 1, 1998, the
Company's equity market capitalization was approximately $102 million.
As of December 31, 1997, Euronet's ATM machines accepted approximately 99% of
the domestic credit and debit cards issued in Hungary and 63% of the domestic
credit and debit cards issued in Poland. The Company is able to accept
substantially all of the domestic credit and debit cards issued in Germany due
to its connection, through a sponsorship agreement with the German bank,
Service Bank GmbH, to a central transaction authorization switch in Germany. In
Croatia, the Company currently accepts 11% of the issued credit and debit
cards, and it expects to be able to accept 29% by the end of May 1998 through
an agreement signed with Atlas American Express. The Company is at the early
stages of establishing its network in the Czech Republic where it currently
operates eight ATMs which are currently able to accept VISA cards, representing
30% of the credit and debit cards issued in the Czech Republic.
The Company believes that one of the most important factors in determining
the success of an ATM network is the location of the ATMs. The Company's
strategy is to establish sites for its ATMs that provide high visibility and
cardholder utilization. As part of this strategy, the Company identifies major
pedestrian traffic locations where people need quick and convenient access to
cash. Key target locations for Euronet's ATMs include (i) major shopping malls,
(ii) busy intersections, (iii) local smaller shopping areas offering grocery
stores, supermarkets and services where people routinely shop, (iv) mass
transportation hubs such as city bus and subway stops, rail and bus stations,
airports and gas stations, and (v) tourist and entertainment centers such as
historical sections of cities, cinemas, and recreational facilities.
2
<PAGE>
Recognizing that convenience and reliability are principal factors in
attracting and retaining ATM customers, the Company has invested in the
establishment of advanced ATM machines and monitoring systems, as well as
redundancies to protect against network interruption. Approximately 87% of the
Company's machines are available to customers 24 hours per day (with the
majority of the balance of the machines being limited by retail hours of
operation in the particular location.) The performance and cash positions of
the Company's ATMs are monitored centrally, with local operations and
maintenance contractors dispatched to fill and service the machines. The
Company's machines in all markets, except Germany, are linked by satellite or
land based telecommunications lines to the Company's central processing center
in Budapest (the "Processing Center"). In order to obtain transaction
authorization, the Processing Center interfaces with either the bank or
International Card Organization that issued the card ("Card Issuer").
The Company believes that the level of services it provides and the location
of its ATMs make it an attractive service provider to banks and International
Card Organizations. By connecting to the Company's network, local banks can
offer their customers the convenience of cash withdrawal and balance inquiry
services in numerous off-site locations without incurring additional branch
operating costs. Alternatively, banks can outsource the management of their
proprietary ATM networks to the Company, thereby reducing their operating costs
and improving the allocation of their own resources. In addition, the Company
believes that the services it provides permit it to capitalize on the increase
in bank account usage and credit and debit card issuance in Central Europe, as
demand for banking services continues to grow in the region.
THE ATM MARKET OPPORTUNITY IN EUROPE
The Company believes there are a number of trends occurring in its existing
and planned markets which offer significant opportunities for its business.
There can be no assurances, however, that the Company will be able to
capitalize on such perceived opportunities.
Substantial and Growing Central European Economies. Hungary, Poland, the
Czech Republic, and Croatia are among the fastest growing economies in Europe
and represent a consumer market of approximately 64.0 million people in the
aggregate. The long term sovereign credit ratings of these countries by Moody's
Investor Service, Inc. and Standard & Poor's Corporation are currently
(Baa3)/(BBB-), (Baa3)/(BBB-), (Baa1)/(BBB-), and (Baa3)/(BBB-), respectively.
Hungary, Poland, the Czech Republic, and Croatia have recently experienced
significant growth in their economies, with 1997 real gross domestic product
growth estimates for each of these countries of 3.0%, 5.5%, 4.7%, and 7.0%,
respectively. In recent years, each of these countries has encouraged foreign
private investment. In 1995, direct foreign investment, was $4.4 billion for
Hungary, $1.1 billion for Poland, $2.7 billion for the Czech Republic, and $81
million for Croatia while for 1996, direct foreign investment in these
countries was $2 billion, $2.7 billion, $1.3 billion, and $349 million,
respectively. In addition to a steady inflow of foreign investment, Hungary,
Poland and the Czech Republic have reduced inflation from 28.3% and 26.8%, and
9.1% respectively, in 1995 to an estimated 18.0%, 15.9% and 8.5% respectively,
in 1997. Croatia has maintained inflation in the single digits, increasing only
slightly from 2.0% in 1995 to an estimated 4.0% for 1997.
Development of Central European Banking Infrastructure. Historically, the
banking industry in Central Europe generally has been characterized by low
levels of customer service, limited operating hours, and long waiting time to
complete simple transactions. With the fall of communism, the banking sector in
most Central European countries has undergone a significant transformation due
to the initiation of privatization programs and the adoption of free market
principles. These changes have allowed banks the opportunity to expand the
range of services and products offered. In addition, many Central European
countries have allowed foreign banks to enter local markets, bringing
additional technological know-how, products, expertise and capital. As foreign
banks have been permitted to establish banks or invest in local banks in the
region, the retail banking industry in many countries in Central Europe has
become more competitive. Many banks have begun to implement strategies for
3
<PAGE>
serving and attracting a larger portion of the retail market in this
competitive environment. The Company believes that banks view electronic
banking and the issuance of debit and credit cards as methods for increasing
customer service and enhancing customer loyalty.
Low ATM Density and Card Issuance in Central Europe; Significant Growth
Potential. The Company believes that two principal drivers of an ATM business
in a developing economy are ATM density per million people and card issuance as
a percentage of the population. The Company estimates that as of January 1997
there were 94 ATMs per million of population in Hungary, 17 ATMs per million of
population in Poland, 112 ATMs per million of population in the Czech Republic
and 15 ATMs per million of population in Croatia. These figures compare with
478 ATMs per million of population in Austria, 376 ATMs per million of
population in the United Kingdom, 419 ATMs per million of population in France,
459 ATMs per million of population in Germany, and 524 ATMs per million of
population in the United States as of January 1997. Based on information
compiled by the Company, as of January 1, 1998, the number of cards issued as a
percentage of population was 20% in Hungary, 5% in Poland, 14% in the Czech
Republic, and 16% in Croatia as compared with 110% in Austria, 151% in the
United Kingdom, 90% in France, 98% in Germany and 246% in the United States at
January 1, 1997. The Company believes the lower ATM density and card issuance
in these Central European countries provides potential for growth.
Development of Electronic Banking. The economies of most emerging markets,
including those of Poland, Hungary, and the Czech Republic, have historically
been cash based because efficient electronic funds transfer, ATM, and check
cashing and clearing facilities had not been developed. Most employees in these
countries have typically been paid in cash and until recently, most purchases
were made, and bills were paid, in cash. While electronic banking, including
electronic transfers, ATM and point of sale services have recently been
introduced into the region, they are still in the early stages of development.
The Company believes this represents a substantial opportunity. In 1993,
Hungary passed legislation to increase the use of electronic means of payment,
by requiring that civil servants receive their salary via direct deposit to
bank accounts. This legislation has been implemented by a government decree
under which all civil servants must receive their pay electronically by January
1, 1999. As a result, many people who ordinarily would not have a bank account
have been or will be forced to open accounts to access their salary. The
Company expects that a trend toward direct deposit of payroll in Central Europe
will continue. Direct deposit combined with the accelerating development of the
retail electronic banking industry and general economic growth in Central
Europe is expected to lead to increased bank account usage, credit and debit
card issuance, and demand for ATM services.
Additional Opportunities In Western European Markets. The developed markets
of Western Europe are characterized by high levels of card issuance and a large
number of ATMs. However, the Company believes that there are significant
opportunities in Western Europe for the Company's services including (i)
installing ATM's in high traffic, non-bank locations, (ii) providing ATM
outsourcing and management services to banks with proprietary networks and
(iii) offering innovative solutions for year 2000 compliance. The majority of
ATM's in Western Europe are installed in bank branches. In France there are
24,500 ATM's, but only 7% of them are in non-bank locations. By comparison,
approximately 27% of the ATM's in the United States and 17% in the United
Kingdom are in non-bank locations. The Company also believes that banks in
Western Europe will increasingly seek to outsource their proprietary ATM
networks to focus on their core businesses and reduce operating expenses.
Finally, there are a substantial number of ATM's throughout Western Europe
which are not year 2000 compliant or which will require upgrades to comply with
new technological requirements (for example, chip card readiness or new
encryption technology). The Company believes it can offer banks convenient
turn-key year 2000 compliance and chip card solutions, including purchasing an
existing ATM network and performing all the necessary upgrades.
THE ATM MARKET OPPORTUNITY IN THE UNITED STATES
The ATM market in the U.S. is a competitive but fragmented market, with many
different types of entities owning and operating ATMs. These include banks,
small and large independent networks of ATMs and various retail outlets
including shopping malls and food stores. The Company believes that selected
opportunities exist
4
<PAGE>
in the U.S. market to acquire existing regional networks and combine, develop
and integrate such networks to improve profitability through economies of scale
and more efficient operating methods. In addition, because it is the most
developed ATM market in the world, the U.S. market has experienced a
development of ATMs beyond the processing of simple cash transactions.
Innovative services offered by U.S. machines include projection of video
advertising during transaction processing, sale of travel and theatre tickets
and sale of phone cards. By purchasing and operating advanced machines in the
U.S. consumer market, the Company believes it can apply such operational
expertise in other markets in which the company conducts its business. See
"Business--The Euronet Network."
The Company is in preliminary discussions regarding the possible acquisition
of a network of ATMs principally located in the Eastern United States from
Maine to Florida. The acquisition, if made, also would include various ATM
network operating agreements, ATM installation agreements covering
approximately 1,700 sites, approximately 700 ATMs on location and approximately
300 ATMs available for installation (the "ATM Assets"). The ATMs on location
are located principally in retail and grocery stores, including a national
chain. A new entity (the "Purchasing Entity") would be formed to acquire the
ATM Assets and to operate them. Discussions regarding the acquisition of the
assets and the formation of the Purchasing Entity are in preliminary stages and
no assurance can be given that agreements will be successfully concluded. See
"Business--The Euronet Network."
COMPANY STRENGTHS
The Company believes it has a number of key strengths which position it to
capitalize on the market opportunities it has identified:
Early Entrant in Central Europe; Established Market Position. The Company
believes it has an advantage as one of the early entrants to the ATM markets of
Central Europe. Euronet has been able to obtain ATM locations which are
typically characterized as high traffic non-bank locations with 24-hour
accessibility. The Company has been able to obtain long-term exclusive leases
and agreements for many ATM sites, at low cost. Examples of the Company's
highly visible locations include McDonald's, gas stations such as ARAL, OMV,
British Petroleum, and Shell, food stores such as Tesco, Julius Meinl,
Tengelmann, Kaiser's, Magnet/Grosso and Plus, Makro Cash & Carry, Ikea, Metro,
and the Marriott Hotel in Warsaw. In some cases, the Company has an option to
install ATMs at all the sites owned by certain retail chains. The Company
believes the quality of its ATM sites, and the long-term nature of its leases
will allow the Company to maintain its competitive position and to attract and
retain customers. In addition, as the only independent ATM operator in Central
Europe, the Company has established a significant number of agreements with
local and international banks and International Card Organizations ("Card
Issuers") which enable it to attract a wider base of customers to its network
than proprietary bank-owned networks whose card acceptance policies may be
limited. Furthermore, the Company believes the number of its ATM sites,
particularly in Hungary and Poland, make it an attractive partner for Card
Issuers wishing to extend their reach.
Geographic Diversity of Operations. The Company currently conducts its ATM
network business in Hungary, Poland, Germany, Croatia, and the Czech Republic.
The Company believes that the expansion of its operations in its existing and
future markets will provide it with some protection against potential
disruptions in any one country's economy. In addition, the breadth of the
Company's country coverage allows it to direct the rollout of its network
towards the most lucrative market opportunities as they arise. For example,
should banks in one of the Company's countries of operation significantly
increase or decrease card issuance levels in a given year, the Company can
redirect its network rollout to factor in such developments without any
material disruption in its overall rollout plan. As the Company continues to
expand into its existing markets and new markets, such as France, the Company's
revenue base is expected to diversify and become less reliant on any one
country's economy. Euronet believes its geographic expansion will enable it to
benefit from the stability of the developed Western markets where the
cardholder base is large and transaction volumes are high while also allowing
the Company to benefit from the substantial opportunity of the emerging
markets.
5
<PAGE>
Extensive Range of Card Issuer Contracts. Euronet is the only non-bank owned
ATM network in Central Europe, which enables it to concentrate on processing
transactions for all Card Issuers whether they are individual banks,
consortiums of banks or International Card Organizations. As a result, the
Company is not dependent upon any one card source. As of March 31, 1998, the
Company had a total of 23 card acceptance agreements ("Acceptance Agreements")
with banks or International Card Organizations in four countries and it is
continuing to obtain contacts with local banks and International Card
Organizations in existing markets as well as new markets. The Company's
Acceptance Agreements generally provide that all credit and debit cards issued
by the banks may be used at all ATM machines operated by Euronet. 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 Poland. The Company is also able to
accept all credit and debit cards bearing the VISA and Plus logos at its ATMs
in the Czech Republic. Euronet has also entered into agreements with Diners
Club International and American Express. The agreement with Diners Club
International provides for the acceptance of all credit and debit cards issued
by Diners Club at all of Euronet's ATMs in Hungary, Poland and Croatia. This
agreement is a "regional" agreement which is intended to be extended to all of
the Central European countries. In addition, the Company has signed agreements
with American Express or its local franchise to accept cards in these
countries. The Company expects to begin accepting American Express cards in
Croatia under this agreement at the end of May. This will enable the Company to
accept approximately 29% of the cards issued in Croatia. 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.
Critical Mass; Largest Non-Bank Purchaser of ATMs in Central Europe. With
over 798 ATMs in operation and a monthly average of approximately 50 new ATMs
purchased or leased for the six months ended March 31, 1998, Euronet believes
it is the largest purchaser of ATMs in Central Europe and one of the largest
purchasers of new ATMs in Europe. As such, Euronet has negotiating leverage
with ATM manufacturers and believes that it receives favorable prices as
compared to lower volume purchasers. The Company has long term contracts with
certain ATM manufacturers to purchase ATMs at contractually defined prices
which include quantity discounts. These contracts, however, do not commit the
Company to purchase a defined number of ATMs. In addition, the Company has
leverage, as compared to smaller ATM networks, in negotiating favorable pricing
for ATM-related software, cash delivery services and ATM maintenance services.
As the Company continues to expand into other countries, it expects to enter
into multi-country agreements with telecommunication providers to reduce
monthly charges. The Company expects that as it expands its network its ability
to reduce costs will further enhance its competitive position.
Lower Cost Alternative to Banks. By acquiring ATMs, computer equipment,
maintenance, telecommunication and other services, less expensively, and by
running a focused operation, the Company believes that it can offer banks a low
cost alternative to building or operating their own ATM networks. The Company
can offer banks a connection to the Euronet ATM network, the management of an
existing proprietary network of ATMs or the development of a new ATM network.
The Company's ATM management services include 24-hour monitoring from Euronet's
Processing Center of ATM operational status, coordinating the cash delivery,
the monitoring and management of cash levels in the ATM, and automatic dispatch
for necessary service calls.
State of the Art Integrated On-Line ATM Network; Capable of Providing
Additional Services. The Company has purchased advanced hardware and software
providing state-of-the-art features and reliability through sophisticated
diagnostics and self-testing routines. The ATMs utilized by the Company can
perform basic functions, such as dispensing cash and retrieving account
information, as well as providing other services such as advertising through
the use of color monitor graphics, messages on receipts, and coupon dispensing.
In addition, the Company's ATMs are modular and upgradable so that they can be
adapted to provide additional services in response to changing technology and
consumer demand, including new products such as reloadable chip cards.
6
<PAGE>
STRATEGY
The Company's objective, for the near term, is to maintain and enhance its
position as a leading ATM service provider in Central and Western Europe by
meeting international standards of reliability and customer service and
evaluate other strategic markets where it can capitalize on its competitive
strengths. Key elements of Euronet's business strategy are to: (i) expand its
ATM base in existing and new European markets, (ii) leverage its critical mass
and achieve further economies of scale, (iii) continue to form strategic
relationships with banks and International Card Organizations, (iv) assist
banks in issuing cards, (v) capitalize on additional revenue opportunities by
providing value-added services with its ATMs, and (vi) pursue additional
geographic and other market opportunities, including strategic acquisitions.
There can be no assurance that the Company's strategy will be successful.
RISK FACTORS
The principal risks associated with the Company's business and the Offering
which should be considered in making an investment decision are the following
(all of which are described in full in the section of this Prospectus entitled
"Risk Factors"): (i) substantial indebtedness of the Company after the
Offering; (ii) the limited operating history and historical and expected future
operating losses and negative cash flow of the Company; (iii) the fact that the
Company is a holding company and therefore is reliant on subsidiaries for
distributions of dividends or interest to repay the Notes; (iv) the fact that
indebtedness under the Notes will be subordinated to certain debt of the
Company incurred before or after the issuance of the Notes; (v) the Company's
need for significant additional capital to conduct and expand its business;
(vi) risks related to the rapid expansion of the business of the Company;
(vii) the dependence of the Company on relationships with banks and
international card organizations; (viii) the dependence of the Company on key
personnel, (ix) the dependence of the Company on receipt of transaction fees,
which in turn depend upon issuance of debit and credit cards by banks in the
Company's markets (x) legal constraints in Germany, France and other potential
markets, which make the Company dependent upon relationships with financial
institutions in these markets; (xi) competition from other networks of ATMs,
including, without limitation, networks owned by banks; (xii) political,
economic and legal risks associated with the developing markets in which the
Company conducts its business; (xiii) inflation, exchange rate and currency
risks and risks associated with the substitution of the Euro for national
currencies in Europe; (xiv) risks associated with the fact that the Company's
systems and operations are computer-based and both the Company and its bank
customers will be required to ensure that their systems are year 2000
compliant; (xv) absence of a prior market for the Notes; (xvi) certain risks
arising from the fact the Notes are issued at a substantial discount from their
principal amount at maturity; and (xvii) the fact that the certificate of
incorporation of the Company include certain anti-takeover provisions. See
"Risk Factors."
In early 1998, the Company's Acceptance Agreement with Orszagos es Takarek
Penztar Bank ("OTP") in Hungary, which accounted for approximately 51% of the
Company's 1997 revenues (26% for the three months ended March 31, 1998), was
terminated effective as of July, 1998. The Company believes that the effect of
this termination will be mitigated because the Company will still be able to
accept transactions on substantially all of OTP's bank cards through the
Company's VISA and EUROPAY gateways, subject to completion of a new EUROPAY
sponsorship agreement with another Hungarian bank client. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General Overview" and Business Agreements with Card Issuers and International
Card Organizations."
7
<PAGE>
CORPORATE STRUCTURE
The corporate structure of the Company and its operating subsidiaries is
set forth in the chart below. This chart gives effect to an internal
reorganization of the Company which Management expects to conduct during
1998. Pursuant to this reorganization, Euronet Holding N.V., a Netherlands
Antilles company, will be reorganized under the laws of the Netherlands and
the Issuer will transfer all the shares of capital stock of its existing
subsidiaries, other than its Hungarian and Polish subsidiaries, to Euronet
Holding N.V.
As of the date of this Prospectus, the Issuer owns directly all of the
capital stock of its existing subsidiaries, other than the capital stock of
its Hungarian and Polish subsidiaries, which is owned directly by Euronet
Holding N.V.
[FLOW CHART APPEARS HERE]
----------------
The Company's principal executive offices are located at 14-24 Horvat u.,
1027 Budapest, Hungary and its telephone number at this address is 011-36 1-
224-1000.
8
<PAGE>
THE OFFERING
THE OFFERING
Notes Offered......... DM principal amount at maturity of % Senior
Discount Notes due 2006.
Maturity Date......... , 2006.
Issue Price........... DM per DM1,000 principal amount at maturity of Notes.
Yield and Interest.... % per annum (computed on a semiannual bond equivalent
basis) calculated from , 1998. Cash interest on
the Notes will not accrue prior to , 2002.
Commencing , 2002, cash interest will be payable
on the Notes semiannually on and of each year.
Repayment of Certain
Money to the
Company............... The Trustee and the paying agents shall pay to the
Company any money held by them for the payment of
principal, premium, if any, or interest that remains
unclaimed for two years. After payment to the Company,
holders of Notes entitled to such money must look to
the Company for payment as general creditors unless an
applicable law designates another person.
Original Issue
Discount.............. Each Note is being offered with original issue discount
("OID") for U.S. federal income tax purposes. Thus,
although cash interest is not expected to accrue on the
Notes prior to , 2002 and there are not expected to
be any periodic payments of interest on the Notes prior
to , 2002, original issue discount (i.e., the
difference between the stated redemption price at
maturity and the issue price of such Notes) will start
to accrue from the issue date of such Notes up to
2002 and will be includible daily as original issue
discount income in a U.S. holder's gross income for
U.S. federal income tax purposes. Because the Company
has the right to defer payment of interest until ,
2002, a U.S. holder of Notes may be required to
recognize such OID income substantially in advance of
receipt of the cash payments to which the income is
attributable. See "Income Tax Consideration--Certain
United States Federal Income Tax Consideration--
Original Issue Discount."
Optional Redemption... Except as set forth below, the Notes will not be
redeemable at the Company's option prior to ,
2002. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in
part at anytime on or after , 2002, at the
redemption prices set forth herein. In addition, at any
time prior to , 2001, the Company may redeem up to
33 1/3% of the aggregate principal amount at maturity
of the originally issued Notes at a redemption price of
% of the Accreted Value thereof with the net proceeds
of one or more Equity Offerings; provided that,
immediately after giving effect to such redemption, at
least 66 2/3% of the aggregate principal amount at
maturity of the originally issued Notes remains
outstanding. See "Description of the Notes--Redemption"
and "--Certain Definitions."
9
<PAGE>
Change of Control..... Upon the occurrence of a Change of Control, each holder
of Notes may require the Company to purchase all or a
portion of such holder's Notes at a purchase price in
cash in an amount equal to 101% of the Accreted Value
thereof, together with accrued and unpaid interest, if
any, to the date of purchase. There can be no assurance
that the Company will have sufficient funds to complete
any such purchase. See "Description of the Notes--
Certain Covenants--Purchase of Notes upon a Change of
Control". For the definition of the term "Change of
Control" under the Notes, see "Description of the
Notes--Certain Definitions".
Ranking............... The Notes will be senior unsecured obligations of the
Company and will rank pari passu in right of payment
with all other existing and future senior unsecured
obligations of the Company and senior in right of
payment to all future obligations of the Company
expressly subordinated in right of payment to the
Notes. As of March 31, 1998, after giving pro forma
effect to the Offering and the application of the net
proceeds therefrom, the Company would have had
approximately $103.3 million of indebtedness of which
$3.3 million would have been secured indebtedness. In
addition, the Company is a holding company and,
accordingly, the Notes will be effectively subordinated
to all existing and future liabilities of the Company's
subsidiaries. As of March 31, 1998, after giving pro
forma effect to the Offering and the application of the
net proceeds therefrom, the Company's subsidiaries
would have had aggregate liabilities of approximately
$8.6 million. See "Risk Factors--Substantial
Indebtedness; Liquidity", "--Holding Company Structure;
Reliance on Subsidiaries for Distributions to Repay
Notes" and "Description of the Notes--Ranking".
Certain Covenants..... The indenture pursuant to which the Notes will be
issued (the "Indenture") will contain certain covenants
that will restrict, among other things, the ability of
the Company and its restricted subsidiaries to (i)
incur certain indebtedness, (ii) pay dividends and make
certain other restricted payments, (iii) create liens,
(iv) permit other restrictions on dividend and other
payments by restricted subsidiaries of the Company, (v)
issue and sell capital stock of restricted
subsidiaries, (vi) guarantee certain indebtedness,
(vii) sell assets, (viii) enter into transactions with
affiliates, (ix) merge, consolidate or transfer
substantially all of the assets of the Company, (x)
enter into sale and leaseback transactions and (xi)
make investments in unrestricted subsidiaries. The
covenants require the Company to make an offer to
purchase specified amounts of Notes in the event of
certain asset sales. There can be no assurance that the
Company will have sufficient funds to complete any
purchase of Notes upon a sale of assets of the Company.
See "Description of the Notes--Certain Covenants".
Form of Notes......... Notes sold outside of the United States will be
represented by the global bearer Note (the "Global
Bearer Note") deposited with DBC. Beneficial interests
in the Global Bearer Note will be represented through
accounts of financial institutions acting on behalf of
beneficial owners as direct and indirect participants
in DBC, including Euroclear and Cedel, each of which
has an account with DBC. All Notes sold to U.S.
investors (and others requesting registered Notes),
will be represented by global registered notes
10
<PAGE>
("Global Registered Notes") deposited with a custodian
for, and registered in the name of, DTC or its nominee.
Transfers of interests in the Global Registered Notes
will be limited to transfers of book-entry interests.
See "Description of the Notes--Book Entry; Delivery and
Form."
Use of Proceeds....... The net proceeds to the Company from the sale of the
Notes being offered by the Company hereby, after
deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be
approximately $96.7 million (based on a Dollar--
Deutsche Mark exchange rate of DM . = $1.00, the noon
buying rate in New York City for cable transfers in
Deutsche Marks as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying
Rate") on . , 1998):
The Company currently intends to use the net proceeds
from the Offering, together with the existing cash
reserves of approximately $33.5 million at March 31,
1998, as follows: (i) approximately $60 to $70 million
to expand its ATM network in its existing markets of
Hungary, Poland, Germany, the Czech Republic, Croatia,
and planned future markets such as France and Romania,
including the purchase and installation of an aggregate
of approximately 2,000 ATM machines in such markets
through the year ending December 31, 1999; (ii)
approximately $11.2 million to repay $14.4 million of
the Company's capitalized lease obligations at March
31, 1998 which have an effective interest rate of
approximately 13.5% per annum and (iii) the remainder
will be used for general corporate purposes, including
expansion into new markets, expanding the provision of
ATM management services, the pursuit of possible
strategic acquisition and joint venture opportunities
consistent with the Company's strategy of expanding its
ATM network, including a possible acquisition of
certain ATM assets in the United States described in
"Business--The Euronet Network--United States" and to
fund operating losses and working capital needs.
Governing Law......... The Indenture and the Notes will be governed by the
laws of the State of New York.
Listing............... Application has been made to list the Notes on the
Luxembourg Stock Exchange.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
With the exception of the summary consolidated financial data as of March 31,
1998 and for the three months ended March 31, 1997 and 1998, the summary
consolidated financial data set forth below have been derived from, and are
qualified by reference to, the audited consolidated financial statements of the
Company and the notes thereto, prepared in conformity with generally accepted
accounting principles as applied in the United States ("U.S. GAAP"), which have
been audited by KPMG Polska Sp. z o.o., independent public accountants. The
consolidated financial statements as of December 31, 1996 and 1997, and for
each of the years in the three-year period ended December 31, 1997 (the
"Consolidated Financial Statements"), and the independent auditors' report
thereon, are included elsewhere in this Prospectus. The summary consolidated
financial data as of March 31, 1998 and for the three months ended March 31,
1997 and 1998 have been derived from the unaudited interim financial statements
of the Company. In the opinion of the management of the Company, such unaudited
interim financial statements have been prepared on the same basis as the
audited financial statements and contain all adjustments necessary for a fair
presentation of the financial position of the Company as of such date and the
results of operations for such periods. Operating results for the three months
ended March 31, 1998 are not indicative of the results that may be expected for
the full year. 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 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------------- -------------------
1994 1995 1996 1997 1997 1998
-------------- ------- --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT SUMMARY NETWORK DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues
Transaction fees....... $ -- $ 62 $ 1,198 $ 4,627 $ 709 $ 1,876
Other.................. -- -- 63 663 86 125
----- ------- --------- --------- -------- ---------
Total revenues........ -- 62 1,261 5,290 795 2,001
Total operating
expenses............... 240 2,170 9,007 13,812 1,700 5,653
----- ------- --------- --------- -------- ---------
Operating loss.......... (240) (2,108) (7,746) (8,522) (905) (3,652)
Loss before income tax
benefit................ (228) (2,089) (7,899) (8,065) (941) (3,647)
Net loss................ $(228) $(1,941) $ (7,576)(/1/) $ (7,965) $ (815) $ (3,647)
OTHER FINANCIAL DATA:
Cash flows from
operating activities... (258) (2,461) (2,255) (6,340) (743) (4,176)
Cash flows from
investing activities... (356) (418) (1,252) (39,320) (7,115) 8,928
Cash flows from
financing activities... 2,650 1,254 5,637 50,635 51,097 (608)
Capital
expenditures(2)........ 356 394 1,061 7,612 368 1,254
EBITDA -- as
adjusted(3)............ $(240) $(1,975) $ (7,262) $ (6,761) $ (600) $ (2,714)
Ratio of earnings to
fixed charges(4)....... -- -- -- -- -- --
SUMMARY NETWORK DATA:
Number of operational
ATMs at end of period.. -- 53 166 693 227 798
ATM transactions during
the period............. -- 45,000 1,138,000 5,758,000 595,200 2,587,000
Average annual/quarterly
revenues
per ATM................ $ -- $ 1,170 $ 11,516 $ 12,317 $ 4,036 $ 2,650
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------- -----------
1994 1995 1996 1997 1998
------ ----- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA: (UNAUDITED)
Cash and cash equivalents............ $2,036 $ 411 $ 2,541 $ 7,516 $ 11,703
Investment securities................ -- -- 194 31,944 21,825
Working capital...................... 2,071 526 631 33,496 28,174
Total assets......................... 2,527 4,519 11,934 70,033 65,932
Obligations under capital leases,
excluding current installments...... -- 1,119 3,834 11,330 10,575
Total stockholders' equity........... 2,422 2,097 5,136 49,219 45,974
</TABLE>
(footnotes appear on following page)
12
<PAGE>
- - --------
(1) The year ended December 31, 1996, includes a one-time non-cash share
compensation expense of $4,172,000 relating to the grant of certain
employee and management options. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 9 to the Notes
to the Consolidated Financial Statements included elsewhere in this
Prospectus.
(2) Capital expenditures do not include $1,906,000, $4,189,000, $11,006,000,
$2,100,000 and $602,000 relating to ATMs acquired under capital lease
obligations during the years ended December 31, 1995, 1996, 1997, and the
three months ended March 31, 1997 and 1998, respectively.
(3) EBITDA consists of net loss before depreciation and amortization, interest
income, interest expense and income taxes. EBITDA is not a U.S. GAAP
measure and should not be considered as an indicator of the Company's
operating performance or as an alternative to U.S. GAAP measures of net
income (loss) or to cash flow from operations under U.S. GAAP as a measure
of liquidity. Management also believes that EBITDA is helpful to investors
as a measure of the Company's ability to service the debt. Management also
believes that EBITDA is helpful to investors, because EBITDA will be used
to determine compliance with certain covenants continued in the Indenture.
The terms excluded from EBITDA are significant components in understanding
and assessing the Company's financial performance.
(4) For all periods presented, the Company incurred net losses before taxes and
hence earnings to fixed charges indicate a less than one to one coverage.
For the period from June 22, 1994 (inception) to December 31, 1994, the
years ended December 31, 1995, 1996 and 1997, and the three months ended
March 31, 1997 and 1998, earnings were inadequate to cover fixed charges
with a coverage deficiency of $228,000, $2,089,000, $7,899,000, $8,065,000,
$941,000 and $3,647,000, respectively.
13
<PAGE>
RISK FACTORS
An investment in the Notes involves a high degree of risk. Accordingly,
prospective purchasers 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. This Prospectus contains certain forward-
looking statements within the meaning of the federal securities laws. Actual
results and the timing of certain events could differ materially from those
projected in the forward-looking statements due to a number of factors,
including those set forth below and elsewhere in this Prospectus. See
"Forward-Looking Statements."
SUBSTANTIAL INDEBTEDNESS; LIQUIDITY
The Company will have substantial indebtedness after the Offering. As of
March 31, 1998, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Company's total indebtedness
would be approximately $103.3 million, its stockholders' equity would be
approximately $46.0 million and the Company's total assets would be
approximately $154.8 million. The Indenture limits, but does not prohibit, the
Company and its subsidiaries from incurring additional indebtedness. See
"Description of Notes". The Company believes the net proceeds from the
Offering, together with its cash flows from operations and remaining proceeds
from the 1997 initial public offering (approximately $33.5 million at March
31, 1998), will be sufficient to fund the Company's operating losses, debt
service requirements and capital expenditures associated with its expansion
plan through the year 2000. However, there can be no assurance that the
Company will achieve or sustain profitability or generate sufficient revenues
in the future. If an opportunity to consummate a strategic acquisition arises
or if one or more new contracts is executed requiring more rapid installation
of ATM machines than anticipated or a significant increase in the number of
ATM machines in any market area, the Company may require additional financing
for such purpose and to fund its working capital needs. Such additional
financing may be in the form of additional indebtedness which would increase
the Company's overall leverage. See "--Significant Capital Requirements,"
"Selected Financial Data," "Management Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Notes."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including the following: (i) the Company may not be able
to generate sufficient cash flows to service the Notes and its other
outstanding indebtedness and to fund adequately its planned capital
expenditures and operations; (ii) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited or such financing
may be unavailable; (iii) a substantial portion of the Company's cash flows,
if any, must be dedicated to the payment of principal and interest on its
indebtedness and other obligations and will not be available for use in its
business; (iv) the Company's level of indebtedness could limit its flexibility
in planning for, or reacting to, changes in its business and markets; and (v)
the Company's high degree of indebtedness will make it more vulnerable to
changes in general economic conditions and a downturn in its business, thereby
making it more difficult for the Company to satisfy its obligations under the
Notes.
The Company must substantially increase its net cash flows in order to meet
its debt service obligations, including obligations under the Notes, and there
can be no assurance that the Company will be able to meet such obligations,
including its obligations under the Notes. If the Company is unable to
generate sufficient cash flows or otherwise obtain funds necessary to make
required payments or if it otherwise fails to comply with the various
covenants under its indebtedness, it would be in default under the terms
thereof, which would permit the holders of such indebtedness to accelerate the
maturity of such indebtedness and could cause defaults under other
indebtedness of the Company. Such defaults could result in a default on the
Notes and could delay or preclude payments of interest or principal thereon.
See "--Significant Capital Requirements."
LIMITED OPERATING HISTORY; HISTORICAL AND 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, the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1998, the Company had net
losses of approximately $228,000, $1.9 million, $7.6 million, $8 million and
$3.6 million, respectively, resulting in an aggregate net loss of
approximately $21.3 million as of March 31, 1998.
14
<PAGE>
(The 1996 net loss includes a one-time non-cash stock compensation expense of
approximately $4.2 million relating to the grant of certain employee and
management options.) The Company expects to continue to generate losses from
operating activities, negative EBITDA and negative cash flow while it
concentrates on the 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. There can be no assurance
that the Company's revenues will grow or be sustained in future periods or
that the Company will be able to achieve or sustain profitability or positive
cash flow from operations in any future period. If the Company cannot achieve
and sustain operating profitability or positive cash flow from operations, it
may not be able to meet its debt service or working capital requirements,
including its obligations with respect to the Notes. See "Consolidated
Financial Statements" including the Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DISTRIBUTIONS TO REPAY
NOTES
The Company conducts all of its operations through its subsidiaries. The
Company's ability to service its indebtedness, including payment of principal
and interest on the Notes, is entirely dependent upon the receipt of funds
from its subsidiaries by way of dividends, intercompany loans, interest and
other permitted payments from such operating subsidiaries, as well as various
other business considerations. 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 pay dividends, repay intercompany loans or
make other 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 creditors of
these entities. The laws under which the Company's operating subsidiaries are
organized provide generally that dividends may be declared 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 pay any such dividends, repay intercompany loans or make any
other such distributions to the Company, the Company's growth and its ability
to meet its obligations on the Notes may be inhibited.
Because the Company is a holding company that conducts its business through
its subsidiaries, claims of creditors of such subsidiaries may have priority
with respect to the assets of such subsidiaries over the claims of the Company
and the holders of the Company's indebtedness such as the Notes. Accordingly,
the Notes may effectively be subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, including trade payables. As of March 31, 1998, the Company's
subsidiaries had approximately $20 million of such liabilities including
approximately $15 million of indebtedness for money borrowed and capital lease
obligations. Any right of the Company to receive assets of any subsidiary upon
the liquidation or reorganization of such subsidiary (and the consequent
rights of the holders of the Notes to participate in those assets) will
effectively be subordinated to the claims of such subsidiary's creditors,
except to the extent that the Company is itself recognized as a creditor, in
which case the claims of the Company would still be subordinate to any
security in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. The Company has no significant
assets other than the stock of its subsidiaries.
PRIORITY OF SECURED DEBT
The indenture under which the Notes are to be issued permits, among other
things, the Company to incur up to $55.0 million of (or to the extent not
denominated in U.S. dollars, the U.S. dollar equivalent thereof) indebtedness
to finance the acquisition of ATM Network assets and for working capital for
its ATM Network business or the grant of security for such indebtedness. In
addition, the indenture permits, among other things, the Company to incur up
to an aggregate of $200.0 million (or to the extent not denominated
15
<PAGE>
in U.S. dollars, the U.S. dollar equivalent thereof) of other indebtedness.
Following the application of the proceeds of the Offering, the Company's long
term debt exclusive of the Notes will be approximately $3.3 million. Following
the application of the proceeds of the Offering, the Company expects to
continue to use lease-financing to acquire additional ATM machines. The
incurrence of indebtedness under such finance leases is not restricted by the
indenture. The Notes will be effectively subordinated to such indebtedness and
any other existing or future secured indebtedness of the Company. In the event
of a default on the Notes or bankruptcy, liquidation or reorganization of the
Company, the assets of the Company subject to such security interests would
have to be made available to satisfy obligations of the secured debt of the
Company before any payment could be made on the Notes. Accordingly, there may
only be a limited amount of assets available to satisfy any claims of holders
of the Notes upon an acceleration or maturity of the Notes.
SIGNIFICANT CAPITAL REQUIREMENTS
The development and expansion of the Company's ATM network and its ATM
management services operations in Hungary, Poland, Germany, the Czech
Republic, Croatia, France 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, the Czech Republic, Croatia, France 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 will provide sufficient funds necessary for the Company to
expand its business as currently planned through the year 2000. There can be
no assurance, however, that additional financing will not be required. The
Indenture limits, but does not prohibit the Company and its subsidiaries from
incurring additional indebtedness, including indebtedness to fund working
capital and operating losses and for the acquisition of assets related to its
business. See "Description of the Notes-Certain Covenants." There can be no
assurance that the Company will be able to raise additional required capital
on satisfactory terms or at all. If the Company is able to raise additional
funds through the incurrence of debt, and it does so, it would likely become
subject to additional restrictive financial covenants. 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. 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 demand for ATM services in the
Company's current target markets, the ability to locate appropriate ATM 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;
TERMINATION OF OTP CONTRACT
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 such banks and
International Card Organizations as well as retaining and renewing such card
acceptance agreements, which generally provide for a two to five year term.
The Company's card acceptance agreements
16
<PAGE>
with banks generally include termination and/or renewal clauses, which provide
that either party may elect to terminate or not renew an agreement upon
completion of its term. In some cases, banks may terminate their contracts
with the Company by giving notice prior to the expiration of their terms.
There can be no assurance that the Company will be able to continue to sign or
maintain the card acceptance 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."
In January 1998, OTP notified the Company that it was terminating its
contract with Euronet effective as of July 27, 1998. OTP advised the Company
that it terminated the contract since it desired to promote the use of its own
ATM network. OTP also indicated that the Company selected ATM sites which OTP
believed to be in competition with OTP ATM sites and that the Company failed
to provide OTP with certain transaction reports on a timely basis. It should
be noted that the reporting failure had been corrected more than two months
prior to OTP's notice of termination. As a result of this termination the
Company will not have a direct connection with OTP and will not be able to
accept OTP proprietary bank cards and OTP will no longer act as the Company's
EUROPAY sponsor in Hungary. The Company will still be able to accept all OTP
issued VISA cards through its VISA gateway. The Company is negotiating a new
EUROPAY sponsorship arrangement with a bank to replace OTP as its EUROPAY
sponsor, and subject to final execution and implementation of that agreement,
the Company will still be able to accept all OTP issued EUROPAY cards through
its EUROPAY gateway. VISA and EUROPAY cards represent over 95% of the cards
issued by OTP. The Company's contract with OTP represented approximately 51%
of its consolidated revenues for the year ended December 31, 1997 and
approximately 26% for the three months ended March 31, 1998. The financial
impact of the OTP contract termination is difficult to assess and there can be
no assurance that this termination will not have a material adverse affect on
the Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General Overview."
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. Michael Brown, who
is involved in strategy, planning and establishing operational procedures,
resides in Leawood, Kansas and travels to Europe on a regular basis. Daniel
Henry, who supervises the Company's day-to-day operations currently resides in
Budapest, Hungary. Although Mr. Henry may relocate to Kansas City next year,
he will continue to be involved in the Company's operations and in view of the
Company's present geographic expansion plans will likely be responsible for
overseeing the Company's expansion to the South American or Asian markets. The
Company will employ a new executive officer to supervise the Company's day-to-
day operations prior to Mr. Henry's relocation. This new executive would
reside in Central Europe. 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 and the other markets where the Company conducts
its business 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, most of 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 a
significant portion 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
17
<PAGE>
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 the Company's ATMs by ATM
cardholders or in the levels of fees received by the Company in connection
with such usage would have a material adverse impact on the Company's
business, growth financial condition and results of operations. Banks also
could elect to pass through to their customers all, or a large part of, the
fees charged by the Company for transactions on its ATMs. This would increase
the cost of using the Company's ATM machines to the bank's customers, which
may cause a decline in use of the Company's ATM machines and, thus, have an
adverse effect on revenues.
LEGAL CONSTRAINTS ON CONDUCTING BUSINESS IN GERMANY AND FRANCE; DEPENDENCE ON
FINANCIAL INSTITUTIONS
Under German law, ATMs in Germany may be operated only by licensed financial
institutions. The Company, therefore, may not operate its own ATM network in
Germany and must act, under its contract with Service Bank GmbH ("Service
Bank"), 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.
The Company is considering expansion into France, whose laws relative to the
operation of ATMs are similar to those of Germany. Expansion into France would
require the Company to establish and thereafter maintain a relationship with
one or more French financial institutions. Although the Company has not yet
identified a French financial institution, it has retained a managing director
for France, and is exploring potential relationships with French financial
institutions and is searching for potential ATM locations. There can be no
assurance as to when or if the Company will be able to establish the necessary
relationship for the commencement of operations in France. See "Business--the
Euronet Network--Germany" and --"France" and "--Regulation."
COMPETITION
Principal competitors of the Company in markets outside the United States
include ATM networks owned by banks and regional networks consisting of
consortiums of local banks. In the U.S., principal competitors of the Company
would include individual banks operating proprietary ATM networks, shared bank
networks such as the Plus and Cirrus networks, independent, non-bank owned ATM
networks of varying sizes (ranging from a few ATMs to many thousands of ATMs)
and individual retail outlets operating ATMs. Large, well financed companies
may also establish ATM networks in competition with the Company in various
markets. Competitive factors in the Company's business include network
availability and response time, price to both the bank and to its customers,
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 their own
ATM networks in the future which could lead to a decline in the usage of
Euronet's ATMs. See "Business--Competition."
POLITICAL, ECONOMIC AND LEGAL RISKS
The Company's principal operating subsidiaries currently operate in Hungary,
Poland, the Czech Republic, Croatia and other countries in Central Europe.
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 Hungary, Poland, the Czech Republic,
Croatia and other countries in Central Europe, but there can be no assurance
that foreign exchange control restrictions,
18
<PAGE>
taxes or limitations will not be imposed or increased in the future with
regard to repatriation of earnings and investments from such countries. 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."
Prior to 1995 Croatia was involved in hostilities with Serbia and was also
involved in the hostilities in Bosnia-Herzegovina. The hostilities in Croatia
ended in a cease-fire in 1995 and the hostilities in Bosnia-Herzegovina ended
in the Dayton Accords in 1995. No assurance can be given that the cease fire
with Serbia will not be breached or that the peace process initiated by the
Dayton Accords will continue. Any breakdown in the peace process or any
failure of any of the relevant parties to abide by the cease-fire or the
provisions of the Dayton Accords or the relevant agreements could result in
the recommencement of hostilities in the region, which could have an adverse
effect on the Croatian economy or Euronet's operations in Croatia.
Annual inflation and interest rates in Hungary, Poland, the Czech Republic,
Croatia 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, the Czech Republic, Croatia and other
countries in Central Europe have been, and continue to be, substantially
revised during the completion of 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 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.
Hungary, Poland, the Czech Republic, Croatia and other countries in Central
Europe generally are considered by international investors to be emerging
markets. There can be no assurance that political, economic, social and other
developments in these emerging markets will not have an adverse effect on the
Company's operations and profitability and, therefore, on the Company's
ability to pay principal and interest on the Notes.
INFLATION, EXCHANGE RATE AND CURRENCY RISK
The Company operates primarily in Central Europe and Germany and, as a
result, its business is affected by fluctuations in foreign exchange rates of
the various countries in which it operates. With the exception of Germany
where transaction fees are Deutche Mark denominated, transaction fees charged
by the Company are primarily denominated in U.S. dollars or denominated in
local currency and inflation adjusted. A significant amount of the Company's
expenditures in Central Europe, including the acquisition of ATMs and
executive salaries, are made in U.S. dollars.
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 15%
in 1997. In addition, the exchange rate for the zloty has stabilized and the
rate of devaluation of the zloty has decreased significantly since 1991.
Similarly, in Hungary, 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. The inflation rate in Hungary was
approximately 18.0% in 1997.
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 will
continue to have, an effect on the financial condition and results of
operations of the Company. The Company anticipates that in the future a
substantial portion of its assets will be denominated in the foreign
currencies of
19
<PAGE>
each market. As exchange rates between these foreign currencies and the U.S.
dollar fluctuate, the translation effect of such fluctuations may have a
material adverse effect on the Company's results of operations or financial
condition as reported in U.S. dollars. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Foreign Exchange
Exposure" and "--Inflation and Functional Currencies."
In addition, fluctuations in the exchange rate between the Deutsche Mark and
the U.S. dollar will affect the U.S. dollar equivalent of both the Deutsche
Mark principal of and interest on the Notes. See "--Substitution Currency."
SUBSTITUTION OF CURRENCY
Stage III of the European Economic and Monetary Union ("Stage III") is
presently anticipated to commence on January 1, 1999 for those member states
of the European Union that satisfy the convergence criteria set forth in the
Treaty on European Union. Part of Stage III is the introduction of a single
currency (the "Euro") in substitution for the national currencies of such
member states. Although there can be no assurance that the Euro will be
adopted or, if adopted, on what time schedule, if Germany adopts the Euro, the
regulations of the European Commission relating to the Euro shall apply to the
Notes and the Indenture. In addition, it is anticipated that such member
states will adopt legislation providing specific rules for the introduction of
the Euro. The adoption of the Euro is not expected to alter the rights and
obligations of the Company or the holders of the Notes under the Notes and the
Indenture. See "Description of the Notes--Substitution of Currency".
YEAR 2000 COMPLIANCE
The Company has made an assessment of the impact of the advent of the year
2000 on its systems and operations. The Processing Center will require certain
upgrades which have been ordered and are scheduled for installation by the
fourth quarter of 1998. Most of the ATMs in the Euronet network are not year
2000 compliant, and hardware and software upgrades will be installed under
contracts with the Company's ATM maintenance vendors. According to the
Company's current estimates, the cost will be approximately $1,000 per ATM,
and the required installation will be finished by the end of 1998. The Company
estimates that approximately 560 of its ATMs will require upgrades for year
2000 compliance.
The Company is currently planning a survey of its bank customers concerning
the compliance of their back office card authorization systems with year 2000
requirements, and anticipates launching such survey in the third quarter of
1998. If the Company's bank customers do not bring their card authorization
systems into compliance with year 2000 requirements, the Company may be unable
to process transactions on cards issued by such banks and may lose revenues
from such transactions. This could have a material adverse effect on the
Company's revenues.
ABSENCE OF A PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public market for the Notes and
there can be no assurance that an active trading market will develop or be
sustained in the future. There may be significant volatility in the market
price of the Notes due to factors that may or may not relate to the Company's
performance. Application has been made to list the Notes on the Luxembourg
Stock Exchange, although the liquidity of the market, if any, achieved through
such listing may be limited. There can be no assurance that such application
to the Luxembourg Stock Exchange will be approved or that the Company will be
able to meet or continue to meet, the applicable listing requirements of the
Luxembourg Stock Exchange or any other recognized exchange. The Underwriter
has advised the Company that it currently intends to make a market in the
Notes but it is not obliged to do so and may discontinue market making
activities at any time. If a market for the Notes were to develop, the Notes
could trade at prices that may be lower than the initial offering price and
could be significantly affected by various factors including actual and
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 Hungary, Poland, Germany, the Czech Republic
and Croatia and the Company's other markets or other events or factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The liquidity of, and trading market for, the Notes may also be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the Company.
20
<PAGE>
ORIGINAL ISSUE DISCOUNT
The Notes will be issued at a substantial discount from their principal
amount at maturity. Consequently, United States holders of the Notes generally
will be required to include amounts in gross income for U.S. Federal income
tax purposes in advance of receipt of the cash payments to which the income is
attributable. If a bankruptcy case is commenced by or against the Company
under the United States Bankruptcy Code after the issuance of the Notes, the
claim of a holder of Notes may be limited to an amount equal to the sum of (i)
the initial public offering price for the Notes and (ii) that portion of the
original issue discount that is not deemed to constitute "unmatured interest"
for purposes of the United States Bankruptcy Code. Any original discount that
was not amortized as of the date of the commencement of any such bankruptcy
filing would constitute "unmatured interest."
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." Directors,
officers and certain significant shareholders of the Company, which are
associated with certain directors of the Company, own beneficially in the
aggregate approximately 64% of the outstanding shares of Common Stock in the
Company. Such concentration of ownership may have the effect of delaying or
preventing transactions involving an actual or potential change in control of
the Company. See "Principal Stockholders" and "Description of Capital Stock."
The Indenture pursuant to which the notes are issued contains a provision
which accelerates the maturity date of the Notes in the event of a change of
control. Such provision may also delay or impede a change of control. See
"Description of Notes".
CURRENCY FLUCTUATION
Each interest payment on the Notes and principal payments at maturity will
be paid by the Company to the Paying Agent in Deutschmarks. Residents of the
United States who have a beneficial interest in the DTC Global Note (a "DTC
Noteholder") will receive payment in U.S. Dollars unless such holder requests
payment in Deutschmarks. The request must be delivered to the Paying Agent at
least two business days prior to the Payment Date. The Paying Agent will
convert the Deutschmarks into U.S. Dollars at the then prevailing foreign
currency exchange rates and deduct the costs of such conversion from the
amounts otherwise payable to the DTC Noteholders. As a result, a DTC
Noteholder will have exposure to currency fluctuations particularly with
respect to the U.S. Dollar and such fluctuations, together with the costs of
converting Deutschmarks to U.S. Dollars, could significantly reduce the DTC
Noteholders' yield on the Notes. Non-U.S. residents are also subject to
currency fluctuations since they will receive payment in Deutschmarks and will
be responsible for converting the Deutschmarks into the foreign currency of
their choice. See "Description of the Notes--Form of Notes", "--Payment
Currency", "--Description of Book Entry System; Payment; Transfers" and "--
Payment".
CONCENTRATION OF VOTING CONTROL IN MANAGEMENT
The directors and officers of the Company, together with entities in which
they are associated, beneficially owned and controlled approximately 64% of
the Company's outstanding Common Stock at March 31, 1998. As a consequence,
the directors and officers have significant control over the Company's
direction and operation, including the ability to elect all of the directors
of the Company and to cast the majority of the votes with respect to virtually
all matters submitted to a vote of the Company's stockholders. Such
concentration of control may have the effect of delaying or preventing
transactions or potential change of control of the Company. See "Principal
Stockholders."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes being offered by
the Company hereby, after deducting the underwriting discount and estimated
offering expenses, are estimated to be approximately $96.7 million (based on a
Dollar--Deutsche Mark exchange rate of DM . = $1.00, the noon buying rate in
New York City for cable transfers in Deutsche Marks as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on
. , 1998):
The Company currently intends to use the net proceeds from the Offering,
together with the existing cash reserves of approximately $33.5 million at
March 31, 1998, as follows: (i) approximately $60 to $70 million to expand its
ATM network in its existing markets of Hungary, Poland, Germany, the Czech
Republic, Croatia, and planned future markets such as France and Romania,
including the purchase and installation of an aggregate of approximately 2,000
ATM machines in such markets through the year ending December 31, 1999; (ii)
approximately $11.2 million to repay $14.4 million of the Company's
capitalized lease obligations at March 31, 1998 which have an effective
interest rate of approximately 13.5% per annum and (iii) the remainder will be
used for general corporate purposes, including expansion into new markets,
expanding the provision of ATM management services, the pursuit of possible
strategic acquisition and joint venture opportunities consistent with the
Company's strategy of expanding its ATM network including a possible
acquisition of certain ATM assets in the United States described in
"Business--The Euronet Network--United States" and to fund operating losses
and working capital needs.
Pending utilization of the net proceeds from the Offering, the Company
intends to invest such proceeds primarily in short-term interest-bearing
securities issued by the U.S. Federal Government or agencies or
instrumentalities thereof.
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<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company on a
consolidated basis at March 31, 1998 and as adjusted to reflect the completion
of the Offering and the receipt and application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Description of the Notes." Except as
described in this Prospectus, there has been no material change in the
Company's capitalization since March 31, 1998.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................ $ 11,703 $ 96,907
======== ========
Investment securities(1)................................. $ 21,825 $ 21,825
======== ========
Current installments of obligations under capital
leases.................................................. $ 3,849 $ 607
======== ========
Long-term liabilities
Obligations under capital leases, excluding current
installments........................................ $ 10,575 $ 2,661
Notes offered hereby(2).............................. -- 100,000
-------- --------
Total long-term liabilities........................ 10,575 102,661
-------- --------
Stockholders' equity:
Common stock........................................... 304 304
Additional paid in capital............................. 63,385 63,385
Subscription receivable................................ (253) (253)
Treasury stock......................................... (4) (4)
Accumulated losses..................................... (18,617) (18,617)
Cumulative translation adjustment...................... 375 375
Restricted reserve..................................... 784 784
-------- --------
Total stockholders' equity......................... 45,974 45,974
-------- --------
Total capitalization............................... $ 56,549 $148,635
======== ========
</TABLE>
- - --------
(1) At March 31, 1998, investment securities consisted of $8,077,000 of U.S.
government securities and $13,748,000 of other securities.
(2) The principal amount of Notes has been translated into U.S. dollars at the
Noon Buying Rate on March 31, 1998 of DM1.8285 = $1.00, Interest on the
Notes accrues with the result that the principal amount of the Notes
increases over time. The Company will be obligated to pay an aggregate
amount of DM182,485,000 on the maturity of the Notes assuming no Notes are
called for redemption prior to maturity and interest is paid on the Notes
commencing on the fourth year following issuance. See "Description of the
Notes".
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
With the exception of the summary consolidated financial data as of March
31, 1998 and for the three months ended March 31, 1997 and 1998, the summary
consolidated financial data set forth below have been derived from, and are
qualified by reference to, the audited consolidated financial statements of
the Company and the notes thereto, prepared in conformity with generally
accepted accounting principles as applied in the United States ("U.S. GAAP"),
which have been audited by KPMG Polska Sp. z o.o., independent public
accountants. The consolidated financial statements as of December 31, 1996 and
1997, and for each of the years in the three-year period ended December 31,
1997 (the "Consolidated Financial Statements"), and the independent auditors'
report thereon, are included elsewhere in this Prospectus. The summary
consolidated financial data as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 have been derived from the unaudited interim
financial statements of the Company. In the opinion of the management of the
Company, such unaudited interim financial statements have been prepared on the
same basis as the audited financial statements and contain all adjustments
necessary for a fair presentation of the financial position of the Company as
of such date and the results of operations for such periods. Operating results
for the three months ended March 31, 1998 are not indicative of the results
that may be expected for the full year. 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 THREE MONTHS
JUNE 22, 1994 ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- ---------------
1994 1995 1996 1997 1997 1998
-------------- ------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: (UNAUDITED)
Revenues:
Transaction fees......................... $ -- $ 62 $ 1,198 $ 4,627 $ 709 $ 1,876
Other.................................... -- -- 63 663 86 125
----- ------- ------- ------- ------ -------
Total revenues......................... -- 62 1,261 5,290 795 2,001
Operating expenses:
ATM operating costs...................... -- 510 1,176 5,172 688 2,472
Professional fees........................ 64 394 1,125 1,166 104 348
Salaries................................. 49 452 989 3,796 580 1,717
Communication............................ 12 20 263 818 53 132
Rent and utilities....................... 8 112 290 783 84 280
Travel and related costs................. 20 71 254 701 78 352
Fees and charges......................... -- 112 427 458 75 116
Share compensation expense............... -- -- 4,172(1) 108 19 27
Foreign exchange loss/(gain)............. 2 158 79 (8) (169) (174)
Other.................................... 85 341 232 818 188 383
----- ------- ------- ------- ------ -------
Total operating expenses............... 240 2,170 9,007 13,812 1,700 5,653
----- ------- ------- ------- ------ -------
Operating loss......................... (240) (2,108) (7,746) (8,522) (905) (3,652)
Other income/expenses:
Interest income........................ 12 126 225 1,609 75 461
Interest expense....................... -- (107) (378) (1,152) (111) (456)
----- ------- ------- ------- ------ -------
Loss before income tax benefit............. (228) (2,089) (7,899) (8,065) (941) (3,647)
Income tax benefit(2)...................... -- 148 323 100 126 --
----- ------- ------- ------- ------ -------
Net loss................................... $(228) $(1,941) $(7,576) $(7,965) $ (815) $(3,647)
===== ======= ======= ======= ====== =======
Pro forma loss per share--basic and
diluted(3)................................ $(0.56) $(0.24)
======= =======
</TABLE>
(footnotes appear on following page)
24
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 22, 1994 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------------- ------------------------
1994 1995 1996 1997 1997 1998
-------------- ------- --------- --------- -------- --------------
(IN THOUSANDS, EXCEPT SUMMARY NETWORK DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flows from
operating activities... $(258) $(2,461) $ (2,255) $ (6,430) $ (743) $ (4,176)
Cash flows from
investing activities... (356) (418) (1,252) (39,320) (7,115) 8,928
Cash flows from
financing activities... 2,650 1,254 5,637 50,635 51,097 (608)
Capital
expenditures(4)........ 356 394 1,061 7,612 368 1,254
EBITDA -- as
adjusted(5)............ $(240) $(1,975) $ (7,262) $ (6,761) $ (600) $ (2,714)
Ratio of earnings to
fixed charges(6)....... -- -- -- -- -- --
SUMMARY NETWORK DATA:
Number of operational
ATMs at end of period.. -- 53 166 693 227 798
ATM transactions during
the period ............ -- 45,000 1,138,000 5,758,000 595,200 2,587,000
Average annual/quarterly
revenues
per ATM ............... $ -- $ 1,170 $ 11,516 $ 12,317 $ 4,036 $ 2,650
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------- ---------------
1994 1995 1996 1997 1998
------ ------ ------- ------- ---------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $2,036 $ 411 $ 2,541 $ 7,516 $11,703
Investment securities... -- -- 194 31,944 21,825
Working capital......... 2,071 526 631 33,496 28,174
Total assets............ 2,527 4,519 11,934 70,033 65,932
Obligations under
capital leases, less
current installments... -- 1,119 3,834 11,330 10,575
Total stockholders'
equity................. 2,422 2,097 5,136 49,219 45,974
</TABLE>
- - --------
(1) The year ended December 31, 1996 includes a one-time non-cash compensation
expense of $4,172,000 relating to the grant of certain employee and
management options. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 9 to the Notes to the
Consolidated Financial Statements included elsewhere in this Prospectus.
(2) See Note 8 to the Notes to the Consolidated Financial Statements included
elsewhere in this Prospectus.
(3) See Note 2(k) to the Notes to the Consolidated Financial Statements
included elsewhere in this Prospectus for an explanation of the weighted
average number of shares outstanding used in determining pro forma loss
per share for the year ended December 31, 1997.
(4) Capital expenditures do not include $1,906,000, $4,189,000, $11,006,000,
$2,200,000 and $602,000 relating to ATMs acquired under capital lease
obligations during the years ended December 31, 1995, 1996 and 1997, and
the three months ended March 31, 1997 and 1998, respectively.
(5) EBITDA consists of net loss before depreciation and amortization, interest
income, interest expense and income taxes. EBITDA is not a U.S. GAAP
measure and should not be considered as an indicator of the Company's
operating performance or as an alternative to U.S. GAAP measures of net
income (loss) or to cash flow from operations under U.S. GAAP as a measure
of liquidity. Management believes the presentation of EBITDA is helpful to
investors as a measure of the Company's ability to service the debt.
Management also believes that EBITDA is helpful to investors, because
EBITDA will be used to determine compliance with certain covenants
contained in the Indenture. The items excluded from EBITDA are significant
components in understanding and assessing the Company's financial
performance.
(6) For all periods presented, the Company incurred net losses before taxes
and hence earnings to fixed charges indicate a less than one to one
coverage. For the period from June 22, 1994 (inception) to December 31,
1994, the years ended December 31, 1995, 1996 and 1997, and three months
ended March 31, 1997 and 1998, earnings were inadequate to cover fixed
charges with a coverage deficiency of $228,000, $2,089,000, $7,899,000,
$8,065,000, $941,000 and $3,647,000, respectively.
25
<PAGE>
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). During 1997 the Company also opened offices in Berlin
(Germany), Zagreb (Croatia), Prague (the Czech Republic), Paris (France) and
Bucharest (Romania). To date, Euronet has devoted substantially all of its
resources to establishing its ATM network through the acquisition and
installation of ATMs and computers and software for its transaction processing
center 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. During
1997, the Company installed 527 ATMs, consisting of 469 in Hungary and Poland
and 58 in Germany and Croatia. During the first three months of 1998, a
further 105 ATMs were added to the network consisting of 56 in Hungary and
Poland and 41 in Germany and Croatia. In addition, 8 ATMs were installed in
the Czech Republic. As of March 31, 1998 the Company had 194 employees
consisting of 87 people in Hungary, 73 in Poland, 11 in Croatia, 10 in
Germany, 7 in the Czech Republic, 4 in Romania and 2 in France. In 1997, 99%
of the Company's revenues were generated in Hungary and Poland. For the three
months ended March 31, 1998, 92% of the Company's revenue was generated in
Hungary and Poland, and 8% in Germany and Croatia. 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 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. The Company 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's existing contracts with banks and
International Card Organizations provide for reduced transaction fees with
increases in transaction volume. As the Company's transaction levels continue
to increase, the average fee it receives per transaction will decrease.
However, the Company expects that because the decrease in transaction fees is
tied to an increase in transactional volume, the overall revenues of the
Company should increase despite the fee discounts. However, the Company
expects that transaction levels may, however, be negatively impacted if all or
a large part of the transaction fees are passed on to cardholders by client
banks.
The transaction volumes processed on an ATM in any given market are affected
by a number of factors, including location of the ATM and the amount of time
the ATM has been installed at the location. The Company's experience has been
that the number of transactions on a newly installed ATM is initially very low
and takes approximately three to six months after installation to achieve
average transaction volumes for that market. Accordingly, the average number
of transactions, and thus revenues, per ATM are expected to increase as the
percentage of ATMs operating in the Company's network for over six months
increases.
The Company recently began to sell advertising on its network by putting
clients' advertisements on its ATMs and on transaction receipts. In addition,
the Company also began to generate revenues during 1997 from ATM network
management services that it offers to banks that own proprietary ATM networks.
Although the revenues generated to date have been small, the Company believes
that revenues from these services will increase in the future.
The Company has had substantial increases in the level of operations,
including ATMs operated and total personnel in 1995, 1996, 1997 and the first
three months of 1998. In addition, the Company was in the development stage
until June 1995 when it began operations in Hungary. As a result, a comparison
of the Company's results of operations between such periods is not necessarily
meaningful.
The Company's expenses consist of ATM operating expenses and other operating
expenses. ATM operating expenses are generally variable in nature and consist
primarily of ATM site rentals, depreciation of ATMs, ATM installation costs,
maintenance, telecommunications, insurance, and cash delivery and security
services to ATMs.
26
<PAGE>
ATM operating expenses will necessarily increase as the Company's network
expands. Other operating expenses consist of items such as salaries,
professional fees, communication and travel related expenditures. While these
expenditures are anticipated to increase with the Company's expansion into new
markets and the introduction of new products, other operating expenses are
expected to decrease as a percentage of total revenues.
In January 1998 OTP notified the Company that it was terminating its
contract with the Company effective as of July 27, 1998. OTP advised the
Company that it terminated the contract since it desired to promote the use of
its own ATM network. OTP also indicated that the Company selected ATM sites
which OTP believed to be in competition with OTP ATM sites and that the
Company failed to provide OTP with certain transaction reports on a timely
basis. It should be noted that the reporting failure had been corrected more
than two months prior to OTP's notice of termination. As a result of this
termination, the Company will not have a direct connection with OTP and will
not be able to accept OTP proprietary bank cards and OTP will no longer act as
the Company's EUROPAY sponsor in Hungary. The Company will still be able to
accept all OTP issued VISA cards through its VISA gateway. The Company is
negotiating a new EUROPAY sponsorship arrangement with a bank to replace OTP
as its EUROPAY sponsor, and subject to final execution and implementation of
that agreement, the Company will still be able to accept all OTP issued
EUROPAY cards through its EUROPAY gateway. For the year ended December 31,
1997, the Company's contract with OTP represented approximately 51% of its
consolidated revenues and approximately 26% for the three months ended March
31, 1998. The financial impact of the OTP contract termination is difficult to
assess. The Company believes that such impact may be mitigated in part because
(i) the Company believes that VISA and EUROPAY cards represent over 95% of the
cards issued by OTP and (ii) the Company receives a higher fee for
transactions processed through its VISA and EUROPAY gateway(s) than for OTP
proprietary bank cards. However, the Company believes that some of OTP's
cardholders may be dissuaded from patronizing Euronet's ATMs due to the higher
fees passed through to customers for transactions processed through the VISA
and EUROPAY connection.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
TO THE THREE MONTHS ENDED MARCH 31, 1997
Revenues. Total revenues increased to $2,001,000 for the three months ended
March 31, 1998 from $795,000 for the three months ended March 31, 1997. The
increase 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 first quarter of 1998. The
Company had 798 ATMs in operation as of March 31, 1998 compared with 227 ATMs
as of March 31, 1997. Transaction fee revenue represented approximately 94% of
total revenues for the three months ended March 31, 1998, and 89% for the
three months ended March 31, 1997.
Transaction fees charged by the Company vary for the three types of
transactions that are currently 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 95% of
transaction fees for the three months ended March 31, 1998 compared to 78% for
the three months ended March 31, 1997, were attributable to cash withdrawals.
The remaining transactions were attributable to balance inquiries and
transactions not completed because authorization is not given by the relevant
Card Issuer. Transaction fees for cash withdrawals vary from market to market
but generally range from $0.60 to $1.75 per transaction while transaction fees
for the other two types of transactions are generally substantially less.
Other revenues, which consisted primarily of advertising revenues, were
$125,000 for the three months ended March 31, 1998 compared to $86,000 for the
three months ended March 31, 1997. Other revenue consisted primarily of
advertising revenue. The increase results from the increase in the number of
ATMs operated by the Company.
Operating expenses. Total operating expenses for the three months ended
March 31, 1998 were $5,653,000 compared to $1,700,000 for the three months
ended March 31, 1997. This increase was due primarily to costs associated with
the expansion of the Company's operations and an increase in the number of
ATMs installed.
ATM operating costs, which consist primarily of ATM site rentals,
depreciation of ATMs and costs associated with maintaining and providing
telecommunications and cash delivery services to ATMs increased to $2,472,000
for the three months ended March 31, 1998 from $688,000 for the three months
ended March 31, 1997 as a result of the increase in the number of ATMs
installed.
27
<PAGE>
Professional fees for the three months ended March 31, 1998 were $348,000
compared to $104,000 for the three months ended March 31, 1997. The fees,
primarily legal, increased due to expansion into new markets.
Salaries increased to $1,717,000 for the three months ended March 31, 1998
from $580,000 for the three months ended March 31, 1997 as a result of the
increase in the number of employees from 81 as of March 31, 1997 to 194 as of
March 31, 1998.
Communication, Rent and Utilities, and Travel related costs were $764,000
for the three months ended March 31, 1998 compared to $215,000 for the three
months ended March 31, 1997. The increase relates to the expansion of the
Company's operations, as previously discussed.
For the three months ended March 31, 1998 the Company had a foreign exchange
gain of $174,000 compared with $169,000 for the three months ended March 31,
1997. Exchange gains and losses that result from remeasurement of assets and
liabilities are recorded in determining net loss. A substantial portion of the
assets and liabilities of the Company are denominated in U.S. dollars,
including, for instance, fixed assets, stockholders' 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. The Company has
invested in German mark denominated government securities as a hedge against
certain German mark denominated lease obligations. From January 1, 1998 the
functional currency in Poland is the Polish zloty replacing the US dollar.
Other operating expenses, which include marketing, depreciation of non-ATM
related assets, and insurance, were $383,000 for the three months ended March
31, 1998 compared to $188,000 for the three months ended March 31, 1997. This
increase is in line with the expansion of the Company's operations into new
and existing markets.
Other income/expense. Interest income was $461,000 for the three months
ended March 31, 1998 compared to $75,000 for the three months ended March 31,
1997. The increase in 1998 was the result of the investments made by the
Company in U.S. State and Municipal obligations, corporate debentures, U.S.
Federal Agency and foreign government obligations using the proceeds from the
1997 equity offering. The amount held under such investments at March 31, 1998
was $21,825,000 compared to $6,944,000 at March 31, 1997.
Interest expense relating principally to capital leases of ATMs and
Euronet's computer systems was $456,000 for the three months ended March 31,
1998 compared to $111,000 for the three months ended March 31, 1997. This
increase was due primarily to the increase of capital lease obligations
outstanding.
Net loss. The Company's net loss was $3,647,000 for the three months ended
March 31, 1998 compared to $815,000 for the three months ended March 31, 1997.
This increase was as a result of the factors discussed above.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995,
1996 AND 1997
Revenues. Total revenues increased to $5,290,000 for the year ended December
31, 1997 from $1,261,000 for the year ended December 31, 1996 and $62,000 for
the year ended December 31, 1995. The increase in revenues both in 1997 and
1996 were 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 these periods. The Company had
53 ATMs, 166 ATMs and 693 ATMs installed at the end of 1995, 1996, and 1997,
respectively. Transaction fee revenue represented approximately 87% of total
revenues for the year ended December 31, 1997 and 95% of total revenues for
the year ended December 31, 1996. 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 are currently 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 98% of
transaction fees in 1997, as compared to 92% in 1996, were attributable to
cash withdrawals. The remaining transactions were attributable to balance
inquiries and transactions not completed because authorization is not given by
the relevant Card Issuer. Transaction fees for cash withdrawals vary from
market to market but generally range from $0.60 to $1.75 per transaction while
transaction fees for the other two types of transactions are generally
substantially less.
28
<PAGE>
Other revenues of $663,000 and $63,000 for the years ended December 31, 1997
and 1996 consisted primarily of advertising revenue. The increase during 1997
results from the increase in the number of ATMs operated by the Company. There
were no other revenues in 1995.
Operating expenses. Total expenses increased to $13,812,000 for the year
ended December 31, 1997 from $9,007,000 for the year ended December 31, 1996
and from $2,170,000 for the year ended December 31, 1995. This increase in
both years were due primarily to costs associated with the installation of
significant numbers of ATMs during the periods and expansion of the Company's
operations during the periods. In addition a share compensation expense of
$4,172,000 relating to the grant of certain employee and management options
was charged to operating expenses in 1996.
ATM operating costs, which consist primarily of ATM site rentals,
depreciation of ATMs and costs associated with maintaining, providing
telecommunications and cash delivery services to ATMs increased to $5,172,000
for the year ended December 31, 1997 from $1,176,000 for the year ended
December 31, 1996 and from $510,000 for the year ended December 31, 1995. The
percentage of ATM operating costs to total operating expenses for the year
ended December 31, 1997 increased to 37% as compared to 13% for the year ended
December 31, 1996 (adjusting for the effect of the one-time non-cash share
compensation expense of $4,172,000 with respect to the grant of certain
employee and management options, the percentage would have been 24%), and 24%
for the year ended December 31, 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 periods. The number of ATMs installed
increased from 53 to 166 from December 31, 1995 to December 31, 1996, and from
166 to 693 from December 31, 1996 to December 31, 1997.
Professional fees increased to $1,166,000 for the year ended December 31,
1997 from $1,125,000 for the year ended December 31, 1996 and from $394,000
for the year ended December 31, 1995. The fees in 1997, primarily legal,
related to its expansion to new markets. The level of fees in 1996 was due
primarily to legal fees 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.
Salaries increased to $3,796,000 for the year ended December 31, 1997 from
$989,000 for the year ended December 31, 1996 and from $452,000 for the year
ended December 31, 1995. The increase from 1995 to 1996 reflected the increase
in employees from 31 to 57 and the increase from 1996 to 1997 reflected the
increase in the number of employees from 57 to 178, as discussed above.
Communication, Rent and Utilities, and Travel related costs increased to
$818,000, $783,000, and $701,000 respectively for the year ended December 31,
1997 from $263,000, $290,000, and $254,000 for the year ended December 31,
1996, and $20,000, $112,000, and $71,000 for the year ended December 31, 1995.
The increases in all cases relate to the expansion of the Company's operations
in both years, as previously discussed.
Fees and charges increased to $458,000 for the year ended December 31, 1997
from $427,000 and $112,000 for the years ended December 31, 1996 and 1995,
respectively. These costs include $207,000 and $76,000, respectively, of
expenses which the Company has recorded 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 any such 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 arrangement. 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 charges 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.
Share compensation of $4,172,000, with respect to the grant of certain
employee and management options, was recorded in 1996. The non-cash charge,
calculated in accordance with Accounting Principles Board Opinion No. 25,
represents the difference between the estimated fair market value of the
Shares underlying such options at the date of option grant and the exercise
price. Estimated fair market value at the grant dates in the last quarter of
1996 was assumed to be the cash price for the sale of Shares in the next
succeeding third party purchase of Shares, which accrued in February 1997.
With respect to these options, an additional $343,000, is being
29
<PAGE>
amortized over the remaining vesting period of such options. Of this amount,
$108,000 has been expensed during the year ended December 31, 1997. See Note 9
to the Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
The Company had a net foreign exchange gain of $8,000 for the year ended
December 31, 1997, and net foreign exchange losses of $79,000, and $158,000,
during the years ended December 31, 1996 and 1995, respectively. Exchange
gains and losses that result from remeasurement of assets and liabilities are
recorded in determining net loss. See Note 2(c) to the Company's Consolidated
Financial Statements included elsewhere in this Prospectus. A substantial
portion of the assets and liabilities of the Company are denominated in U.S.
dollars, including, for instance, fixed assets, stockholders' 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.
The Company has invested in German mark denominated government securities as a
hedge against certain German mark denominated lease obligations.
Other operating expenses, which include marketing, depreciation of non-ATM
related assets, and insurance, increased to $818,000 for the year ended
December 31, 1997 from $232,000 for the year ended December 31, 1996 and
$341,000 for the year ended December 31, 1995. These increases were in line
with the expansion of the Company's operations during such periods. The
increase of $586,000 in 1997 over 1996 results primarily from the expansion
into new and existing markets.
Other income/expense. Interest income increased to $1,609,000 for the year
ended December 31, 1997 from $225,000 for the year ended December 31, 1996 and
$126,000 for the year ended December 31, 1995. The increase in 1997 was the
result of the investments made by the Company in U.S. State and Municipal
obligations, Corporate debentures, U.S. Federal Agency and foreign government
obligations using the proceeds from the 1997 equity offering. The amount held
under such investments at December 31, 1997 was $31,944,000 compared to
$194,000 at December 31, 1996. During 1996 the increase was due to larger
amounts held in interest bearing accounts, 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 expense relating principally to capital leases of ATMs and
Euronet's computer systems increased to $1,152,000 during the year ended
December 31, 1997 from $378,000 during the year ended December 31, 1996 and
$107,000 during the year ended December 31, 1995. This increase was due
primarily to the increase of capital lease obligations outstanding during the
periods.
Net loss. The Company's net loss increased to $7,965,000 during the year
ended December 31, 1997 from $7,576,000 during the year ended December 31,
1996 and $1,941,000 during the year ended December 31, 1995 as a result of the
factors discussed above.
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 the proceeds from the 1997 equity offering, through equipment lease
financing and through private placements of equity securities. The net
proceeds of such transactions, together with revenues from operations and
interest income have been used to fund aggregate net losses of approximately
$21,357,000 and investments in property, plant and equipment. The Company had
cash and cash equivalents of $11,703,000 and working capital of $28,174,000 at
March 31, 1998. At March 31, 1998, the Company had $1,168,000 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 and as deposits with
customs officials. The Company expects to continue to generate losses from
operating activities, and negative cash flow while it concentrates on the
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. There can be no assurance that the Company's
revenues will grow or be sustained in future periods or that the Company will
be able to achieve or sustain profitability or positive cash flow from
operations in any future period. If the Company cannot achieve and sustain
operating profitability or positive cash flow from operations, it may not be
able to
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meet its debt service or working capital requirements including its obligation
with respect to the Notes. See "Risk Factors--Limited Operating History;
Historical and Future Operating Losses and Negative Cash Flow."
The Company leases the majority of its ATMs under capital lease arrangements
that expire between 1999 and 2002. The leases bear interest between 11% and
15%. As of March 31, 1998 the Company owed $14,424,000 under such capital
lease arrangements. The Company anticipates using approximately $10,000,000 to
$12,000,000 of the proceeds from the Offering to repay a significant portion
of the amounts outstanding under such lease arrangements.
At March 31, 1998, the Company had contractual capital commitments of
approximately $4 million. The Company expects that its capital requirements
will increase in the future as it pursues its strategy of expanding its
network and increase the number of installed ATMs. The Company anticipates
that its capital expenditures for the 12 months ending December 31, 1998 will
total approximately $30 million, primarily in connection with the acquisition
of ATMs, scheduled capital lease payments on existing lease obligations, and
related installation costs. Aggregate capital expenditures for 1998 and 1999
for such purposes are expected to reach approximately $60-70 million in its
existing markets which assumes the installation of approximately 2,000
additional ATMs over the next two years in accordance with the Company's
current strategy. These requirements contemplate both planned expansion in
Hungary, Poland, Germany, Croatia, the Czech Republic and certain other
European markets. Acquisitions of related businesses in Europe and other
markets in furtherance of the Company's strategy may require additional
capital expenditures.
The Company believes the net proceeds from the Offering, together with its
cash flows from operations and remaining proceeds from the 1997 equity
offering, will be sufficient to fund the company's operating losses, debt
service requirements and capital expenditures associated with its expansion
plans through the year 2000. 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.
The Company will have substantial indebtedness after the Offering. As of
March 31, 1998, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Company's total indebtedness
would be approximately $103.3 million, its stockholders' equity would be
approximately $46.0 million and the Company's total assets would be
approximately $154.8 million. The Indenture limits, but does not prohibit, the
Company and its subsidiaries from incurring additional indebtedness. If an
opportunity to consummate a strategic acquisition arises or if one or more new
contracts is executed requiring a more rapid installation of ATM machines or a
significant increase in the number of ATM machines in any market area, the
Company may require substantial additional financing for such purpose and to
fund its working capital needs. Such additional financing may be in the form
of additional indebtedness which would increase the Company's overall
leverage. See "Selected Financial Data."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including the following: (i) the Company may not be able
to generate sufficient cash flows to service the Notes and its other
outstanding indebtedness and to fund adequately its planned capital
expenditures and operations; (ii) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited or such financing
may be unavailable; (iii) a substantial portion of the Company's cash flow, if
any, must be dedicated to the payment of principal and interest on its
indebtedness and other obligations and will not be available for use in its
business; (iv) the Company's level of indebtedness could limit its flexibility
in planning for, or reacting to, changes in its business and markets; and (v)
the Company's high degree of indebtedness will make it more vulnerable to
changes in general economic conditions and a downturn in its business, thereby
making it more difficult for the Company to satisfy its obligations under the
Notes.
The Company must substantially increase its net cash flows in order to meet
its debt service obligations, including obligations under the Notes, and there
can be no assurance that the Company will be able to meet such obligations,
including its obligations under the Notes. If the Company is unable to
generate sufficient cash flows or otherwise obtain funds necessary to make
required payments or if it otherwise fails to comply with the various
covenants under its indebtedness, it would be in default under the terms
thereof, which would permit the holders of such indebtedness to accelerate the
maturity of such indebtedness and could cause defaults under other
indebtedness of the Company. Such defaults could result in a default on the
Notes and could delay or preclude payments of interest or principal thereon.
See "--Significant Capital Requirements".
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BALANCE SHEET ITEMS
Cash and cash equivalents. Cash and cash equivalents has increased to
$11,703,000 at March 31, 1998 from $7,516,000 at December 31, 1997 due to the
receipt of proceeds from the maturity of investment securities during the
period.
The increase of cash and cash equivalents to $7,516,000 at December 31, 1997
from $2,541,000 at December 31, 1996 is due also to receipt of proceeds from
the maturity of investment securities during the period and to the expansion
of operations in the countries where the Company operated in 1996 and the new
countries in which the Company has commenced operations in 1997.
Cash and cash equivalents increased from $411,000 at December 31, 1995 to
$2,541,000 at December 31, 1996 due primarily to the subscription for shares
by certain shareholders on March 27, 1996.
Restricted Cash. Restricted cash increased to $1,168,000 at March 31, 1998
from $847,000 at December 31, 1997 due to expansion of the Company's
operations and consequently an increased requirement for cash in the ATMs.
Restricted cash increased from $152,000 at December 31, 1996 to $847,000 at
December 31, 1997 due to the expansion of operations in the countries where
the Company operated, and was also attributable to a lease deposit.
Restricted cash decreased from $180,000 at December 31, 1995 to $152,000 at
December 31, 1996, and investment securities increased from none at December
31, 1995 to $194,000 at December 31, 1996.
Investment Securities. Investment securities decreased to $21,825,000 at
March 31, 1998 from $31,944,000 at December 31, 1997 as the proceeds from
maturity of securities were being used to fund operations of the Company.
The increase in the investment securities from $194,000 at December 31, 1996
to $31,944,000 at December 31, 1997 was due to the investment of proceeds from
the 1997 equity offering not currently used in funding the Company's
operations.
Property, plant and equipment. Total property, plant and equipment increased
from $26,439,000 at December 31, 1997 to $28,524,000 at March 31, 1998. This
increase is due primarily to the installation of 123 ATMs during the first
quarter of 1998 and expenditure on computer and software, and office equipment
and vehicles for the new operations.
Total property, plant and equipment increased from $7,906,000 at December
31, 1996 to $26,439,000 at December 31, 1997. This increase is due primarily
to the installation of 527 ATMs during 1997. The increase in total property,
plant and equipment from $2,656,000 at December 31, 1995 to $7,906,000 at
December 31, 1996 is due primarily to the installation of 113 ATMs in 1996.
Deposits for ATM leases. Deposits for ATM leases increased from $2,542,000
at December 31, 1997 to $2,549,000 at March 31, 1998. The marginal increase is
due to the low numbers of new leases entered into during the first three
months of 1998.
Deposits for ATM leases increased from $666,000 at December 31, 1996 to
$2,542,000 at December 31, 1997 as a result of the Company's expansion. Lease
deposits at December 31, 1995 were $772,000.
Obligations under capital leases. Obligations under capital leases slightly
decreased to $14,424,000 at March 31, 1998 from $14,470,000 at December 31,
1997 as a result of repayments exceeding new leases entered into during the
first three months of 1998.
In connection with the increase of property, plant and equipment,
obligations under capital leases increased from $384,000 at December 31, 1995
to $4,471,000 at December 31, 1996 to $14,470,000 at December 31, 1997. The
majority of the 482 ATMs installed in 1997 and the 166 ATMs installed in 1995
and 1996 were financed under capital leases.
Trade accounts payable. Trade accounts payable decreased from $4,420,000 at
December 31, 1997 to $4,149,000 at March 31, 1998. This decrease is due
primarily to the more timely settlement of payables in the first quarter.
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Trade accounts payable increased from $1,670,000 at December 31, 1996 to
$4,420,000 at December 31, 1997. These increases are due primarily to the
significant increase in operations in 1997, including approximately $2,000,000
related to ATM purchases in 1997. The increase of trade accounts payable from
$364,000 at December 31, 1995 to $1,670,000 at December 31, 1996 is also
attributable to a significant increase in operations in 1996. These increases
are consistent with the Company's projected growth in the earlier years of its
operations.
FOREIGN EXCHANGE EXPOSURE
In 1997, 99% of the Company's revenues were generated in Poland and Hungary.
For the three months ended March 31, 1998 the comparable figure was 92%, with
the remaining 8% being generated in Germany and Croatia. While in Hungary the
majority of revenues received are to be US dollar denominated, this is not the
case in Poland, where the majority of revenues are denominated in Polish
zloty. However the majority of these contracts are linked either to inflation
or the retail price index. While it remains the case that a significant
portion of the Company's expenditures are made in or are denominated in U.S.
dollars the Company is also striving to achieve more of its expenses in local
currencies to match its revenues.
The Company anticipates that in the future, a substantial portion of the
Company's assets, including fixed assets, will be denominated in the local
currencies of each market. As a result of continued European economic
convergence, including the increased influence of the Deutsche Mark, as
opposed to the U.S. dollar, on the Central European currencies, the Company
expects that the currencies of the markets where the proceeds from the
offering will be used will fluctuate less against the Deutsche Mark than
against the Dollar. Accordingly, the Company believes that the issuance of
Deutsche Mark denominated debt will provide, in the medium to long term, for a
closer matching of assets and liabilities than a dollar denominated issuance
would.
YEAR 2000 COMPLIANCE
The Company is currently planning a survey of its bank customers concerning
the compliance of their back office systems with year 2000 requirements, and
anticipates launching such survey in the third quarter of 1998. If the
Company's bank customers do not bring their card authorization systems into
compliance with year 2000 requirements, the Company may be unable to process
transactions on cards issued by such banks and may lose revenues from such
transactions. This could have a material adverse effect on the company's
revenues. Therefore, Euronet will monitor, and hopes to assist its bank
clients in, implementation of its customers year 2000 compliance programs, and
may, if required to accelerate the compliance programs of it bank, create
consulting capabilities in this respect.
INFLATION AND FUNCTIONAL CURRENCIES
In recent years, Hungary, Poland and the Czech Republic have experienced
high levels of inflation. Consequently, these countries' currencies have
continued to decline in value against the major currencies of the OECD over
this time period. However, due to the significant reduction in the inflation
rate of these countries in recent years, it is expected that none of these
countries will be considered to have a hyper-inflationary economy in 1998.
Therefore, since Poland will no longer be considered hyper-inflationary
beginning in 1998 and a significant portion of the Company's Polish
subsidiary's revenues and expenses are denominated in zloty, the functional
currency of the Company's Polish subsidiary will now be the zloty. The
functional currency of the Company's Hungarian subsidiary will continue to be
the U.S. dollar. It is expected that the functional currency of the Company's
Czech subsidiary will also be the U.S. dollar.
Germany and France have experienced relatively low and stable inflation
rates in recent years. Therefore, the local currencies in each of these
markets is the functional currency. Although Croatia, like Germany and France,
has maintained relatively stable inflation and exchange rates, the functional
currency of the Croatian company is the U.S. dollar due to the significant
level of U.S. dollar denominated revenues and expenses. 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. The
Company continually reviews inflation and the functional currency in each of
the countries that it operates in.
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The Company has made an assessment of the impact of the advent of the year
2000 on its systems and operations. The Processing Center will require certain
upgrades which have been ordered and are scheduled for installation by the
fourth quarter 1998. Most of the ATMs in the Euronet network are not year 2000
compliant, and hardware and software upgrades will be installed under contract
with Company's Euronet's ATM maintenance vendors. According to the Company's
current estimates, the cost will be approximately $1,000 per ATM, and the
required installation will be finished by the end of 1998. The Company
estimates that approximately 560 of its ATMs will require upgrades for year
2000 compliance.
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company, effective for the year ended December 31, 1997, has adopted the
following Statements of Financial Accounting Standards (SFAS): SFAS No. 128,
"Earnings per Share." Pursuant to the provisions of the statement, basic loss
per share has been computed by dividing net loss attributable to common
shareholders by the weighted average number of common shares outstanding
during the period. The effect of potential common shares (stock options
outstanding) is anti-dilutive. Accordingly, dilutive loss per share does not
assume the exercise of stock options outstanding.
SFAS No. 130, "Reporting Comprehensive Income." The Company has adopted this
statement for the three months ended March 31, 1998 by providing a statement
of operations and comprehensive loss.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The Company has one industry segment but operates in a number of
geographical segments. The Company has disclosed separately its two major
geographical segments in 1997, being Hungary and Poland as required by SFAS
No.131.
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BUSINESS
OVERVIEW
The Company 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 and
commenced operations in June 1995. Since it commenced operations, the Company
has undertaken a rollout of its ATM network with 53, 166 and 693 ATMs in
operation at December 31, 1995, 1996 and 1997, respectively. As of March 31,
1998 the Company operated a network of 798 state of the art ATMs, with 359
located in Hungary, 332 in Poland, 64 in Germany, 35 in Croatia and 8 in the
Czech Republic. Through agreements and relationships established with local
banks, international credit and debit card issuers and associations of card
issuers such as American Express, Diners Club International, VISA, Mastercard
and EUROPAY (together "International Card Organizations"), the Company's ATMs
are able to process ATM transactions for holders of credit and debit cards
issued by or bearing the logos of such banks and International Card
Organizations. In addition, through its sponsorship arrangements with banks
which issue VISA and EUROPAY cards, the Company is able to accept cards with
the PLUS and Cirrus logos. The Company receives a fee from the relevant card
issuing bank or International Card Organization for any ATM transactions
processed on the Company's ATMs. Subject to full evaluation of market
opportunities, the Company expects to install approximately 800 additional
ATMs during 1998. The Company also offers out-sourced ATM management services
to local banks that own proprietary ATM networks for which the Company
receives a fixed monthly fee and a per transaction fee. The Company's Common
Stock is traded on the NASDAQ National Market under the symbol "EEFT" and
based on its share price as of the close of May 1, 1998 the Company's equity
market capitalization was approximately $102 million.
As of December 31, 1997, Euronet's ATM machines accepted approximately 99%
of the domestic credit and debit cards issued in Hungary and 63% of the
domestic credit and debit cards issued in Poland. The Company is able to
accept substantially all of the domestic credit and debit cards issued in
Germany due to its connection, through a sponsorship agreement with the German
bank, Service Bank GmbH, to a central transaction authorization switch in
Germany. In Croatia, the Company currently accepts 11% of the issued credit
and debit cards, and it expects to be able to accept 29% by the end of May
1998 through an agreement signed with Atlas American Express. The Company is
at the early stages of establishing its network in the Czech Republic where it
currently operates eight ATMs which are currently able to accept VISA cards
representing 30% of the issued debit and credit cards issued in the Czech
Republic.
The Company believes that one of the most important factors in determining
the success of an ATM network is the location of the ATMs. The Company's
strategy is to establish sites for its ATMs that provide high visibility and
cardholder utilization. As part of this strategy, the Company identifies major
pedestrian traffic locations where people need quick and convenient access to
cash. Key target locations for Euronet's ATMs include (i) major shopping
malls, (ii) busy intersections, (iii) local smaller shopping areas offering
grocery stores, supermarkets and services where people routinely shop, (iv)
mass transportation hubs such as city bus and subway stops, rail and bus
stations, airports and gas stations, and (v) tourist and entertainment centers
such as historical sections of cities, cinemas, and recreational facilities.
Recognizing that convenience and reliability are principal factors in
attracting and retaining ATM customers, the Company has invested in the
establishment of advanced ATM machines and monitoring systems, as well as
redundancies to protect against network interruption. Approximately 87% of the
Company's machines are available to customers 24 hours per day (with the
majority of the balance of the machines being limited by retail hours of
operation in the particular location.) The performance and cash positions of
the Company's ATMs are monitored centrally, with local operations and
maintenance contractors dispatched to fill and service the machines. The
Company's machines in all markets, except Germany, are linked by satellite or
land based telecommunications lines to the Company's central processing center
in Budapest (the "Processing Center"). In order to obtain transaction
authorization, the Processing Center interfaces with either the bank or
International Card Organization that issued the card ("Card Issuer").
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The Company believes that the level of services it provides and the location
of its ATMs make it an attractive service provider to banks and International
Card Organizations. By connecting to the Company's network, local banks can
offer their customers the convenience of cash withdrawal and balance inquiry
services in numerous off-site locations without incurring additional branch
operating costs. Alternatively, banks can outsource the management of their
proprietary ATM networks to the Company, thereby reducing their operating
costs and improving the allocation of their own resources. In addition, the
Company believes that the services it provides permit it to capitalize on the
increase in bank account usage and credit and debit card issuance in Central
Europe as demand for banking services continue to grow in the region.
THE ATM MARKET OPPORTUNITY IN EUROPE
The Company believes there are a number of trends occurring in its existing
and planned markets which offer significant opportunities for its business:
Substantial and Growing Central European Economies. Hungary, Poland, the
Czech Republic, and Croatia are among the fastest growing economies in Europe
and represent a consumer market of approximately 64.0 million people in the
aggregate. The long term sovereign credit ratings of these countries by
Moody's Investor Service, Inc. and Standard & Poor's Corporation are currently
(Baa3)/(BBB-), (Baa3)/(BBB-), (Baa1)/(BBB-), and (Baa3)/(BBB-), respectively.
Hungary, Poland, the Czech Republic, and Croatia have recently experienced
significant growth in their economies, with 1997 real gross domestic product
growth estimates for each of these countries of 3.0%, 5.5%, 4.7%, and 7.0%,
respectively. In recent years, each of these countries has encouraged foreign
private investment. In 1995, direct foreign investment, was $4.4 billion for
Hungary, $1.1 billion for Poland, $2.7 billion for the Czech Republic, and $81
million for Croatia while for 1996, direct foreign investment in these
countries was $2 billion, $2.7 billion, $1.3 billion, and $349 million,
respectively. In addition to a steady inflow of foreign investment, Hungary,
Poland and the Czech Republic have reduced inflation from 28.3% and 26.8%, and
9.1% respectively, in 1995 to an estimated 18.0%, 15.9% and 8.5% respectively,
in 1997. Croatia has maintained inflation in the single digits, increasing
only slightly from 2.0% in 1995 to an estimated 4.0% for 1997.
Development of Central European Banking Infrastructure. Historically, the
banking industry in Central Europe generally has been characterized by low
levels of customer service, limited operating hours, and long waiting time to
complete simple transactions. With the fall of communism, the banking sector
in most Central European countries has undergone a significant transformation
due to the initiation of privitasation programs and the adoption of free
market principles. These changes have allowed banks the opportunity to expand
the range of services and products offered. In addition, many Central European
countries have allowed foreign banks to enter local markets, bringing
additional technological know-how, products, expertise and capital. As foreign
banks have been permitted to establish banks or invest in local banks in the
region, the retail banking industry in many countries in Central Europe has
become more competitive. Many banks have begun to implement strategies for
serving and attracting a larger portion of the retail market in this
competitive environment. The Company believes that banks view electronic
banking and the issuance of debit and credit cards as methods for increasing
customer service and enhancing customer loyalty.
Low ATM Density and Card Issuance in Central Europe; Significant Growth
Potential. The Company believes that two principal drivers of an ATM business
in a developing economy are ATM density per million people and card issuance
as a percentage of the population. The Company estimates that as of January
1997 there were 94 ATMs per million of population in Hungary, 17 ATMs per
million of population in Poland, 112 ATMs per million of population in the
Czech Republic and 15 ATMs per million of population in Croatia. These figures
compare with 478 ATMs per million of population in Austria, 376 ATMs per
million of population in the United Kingdom, 419 ATMs per million of
population in France, 459 ATMs per million of population in Germany, and 524
ATMs per million of population in the United States as of January 1997. Based
on information compiled by the Company, as of January 1, 1998, the number of
cards issued as a percentage of population is 20% in Hungary, 5% in Poland,
14% in the Czech Republic, and 16% in Croatia as compared with
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110% in Austria, 151% in the United Kingdom, 90% in France, 98% in Germany and
246% in the United States as of January 1, 1997. The Company believes the
lower ATM density and card issuance in these Central European countries
provide potential for significant growth.
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 and EUROPAY cards to
maintain and attract customers. The number of VISA cards in circulation in
Hungary has increased from approximately 190,000 in June, 1996 to 715,000 in
December 1997. In Poland there were approximately 150,000 VISA cards issued as
of December, 1996, compared to 317,000 as of December 31, 1997. This is
significant in the development of the Company's business because the Company
can accept all such cards issued in each market through a single "sponsorship"
arrangement with a VISA or EUROPAY bank in that market--the Company does not
need an agreement with each bank as in the case of proprietary cards issued by
banks. The Company believes that, over time, as the number of proprietary
cards in the overall card base shrinks due to issuance of cards bearing
international logos, the relative importance of the Company's direct
connections with banks should decrease and the importance of its sponsorship
arrangements should increase.
Development of Electronic Banking. The economies of most emerging markets,
including those of Poland, Hungary, and the Czech Republic, have historically
been cash based because efficient electronic funds transfer, ATM, and check
cashing and clearing facilities had not been developed. Most employees in
these countries have typically been paid in cash and until recently, most
purchases were made, and bills were paid, in cash. While electronic banking,
including electronic transfers, ATM and point of sale services have recently
been introduced into the region, they are still in the early stages of
development. The Company believes this represents a substantial opportunity.
Hungary has recently introduced legislation to increase the use of electronic
means of payment, by requiring that civil servants receive their salary via
direct deposit to bank accounts. As a result, many people who ordinarily would
not have a bank account have been or will be forced to open accounts to access
their salary. The Company expects that a trend toward direct deposit of
payroll in Central Europe will continue. Direct deposit combined with the
accelerating development of the retail electronic banking industry and general
economic growth in Central Europe is expected to lead to increased bank
account usage, credit and debit card issuance, and demand for ATM services.
Additional Opportunities In Western European Markets. The developed markets
of Western Europe are characterized by high levels of card issuance and a
large number of ATMs. However, the Company believes that there are significant
opportunities in Western Europe for the Company's services including (i)
installing ATM's in high traffic, non-bank locations, (ii) providing ATM
outsourcing and management services to banks with proprietary networks and
(iii) offering innovative solutions for year 2000 compliance. The majority of
ATM's in Western Europe are installed in bank branches. In France there are
24,500 ATM's, but only 7% of them are in non-bank locations. By comparison,
approximately 27% of the ATM's in the United States and 17% in the United
Kingdom are in non-bank locations. The Company also believes that banks in
Western Europe will increasingly seek to outsource their proprietary ATM
networks to focus on their core businesses and reduce operating expenses.
Finally, there are a substantial number of ATM's throughout Western Europe
which are not year 2000 compliant or which will require upgrades to comply
with new technological requirements (for example chip card readiness or new
encryption technology). The Company believes it can offer banks convenient
turn-key year 2000 compliance and chip card solutions, including purchasing an
existing ATM network and performing all the necessary upgrades.
THE ATM MARKET OPPORTUNITY IN THE UNITED STATES
The ATM market in the U.S. is a competitive but fragmented market, with many
different types of entities owning and operating ATMs. These include banks,
small and large independent networks of ATMs and various retail outlets
including shopping malls and food stores. The Company believes that selected
opportunities exist in the U.S. market to acquire small existing regional
networks and combine, develop and integrate networks to improve profitability
through economies of scale and more efficient operating methods. In addition,
because it is the most developed ATM market in the world, the U.S. market has
experienced a development of ATMs beyond
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the processing of simple cash transactions. Innovative services offered by
U.S. machines include projection of video advertising during transaction
processing, sale of tickets for theatre and other events and sale of phone
cards. By purchasing and operating advanced machines in the U.S. consumer
market, the Company believes it can apply such operational expertise in the
other markets in which the Company conducts its business. See""--The Euronet
Network.".
COMPANY STRENGTHS
The Company believes it has a number of key strengths which position it to
capitalize on the market opportunities it has identified:
Early Entrant in Central Europe; Established Market Position. The Company
believes it has an advantage as one of the early entrants to the ATM markets
of Central Europe. Euronet has been able to obtain ATM locations which are
typically characterized as high traffic non-bank locations with 24-hour
accessibility. The Company has been able to obtain long-term exclusive leases
and agreements for many ATM sites, at low cost. Examples of the Company's
highly visible locations include McDonald's, gas stations such as ARAL, OMV,
British Petroleum, and Shell, food stores such as Tesco, Julius Meinl,
Tengelmann, Kaiser's, Magnet/Grosso and Plus, Makro Cash & Carry, Ikea, Metro,
and the Marriott Hotel in Warsaw. In some cases, the Company has an option to
install ATMs at all the sites owned by certain retail chains. The Company
believes the quality of its ATM sites, and the long-term nature of its leases
allow the Company well to maintain its competitive position and to attract and
retain customers. In addition, as the only independent ATM operator in Central
Europe, the Company has established a significant number of agreements with
local and international banks and International Card Organizations ("Card
Issuers") which enable it to attract a wider base of customers to its network
than proprietary bank-owned networks whose card acceptance policies may be
limited. Furthermore, the Company believes the number of its ATM sites,
particularly in Hungary and Poland, make it an attractive partner for Card
Issuers wishing to extend their reach. See "Business--Acceptance and
Management's Agreements and--ATM Location".
Geographic Diversity of Operations. The Company currently conducts its ATM
network business in Hungary, Poland, Germany, Croatia, and the Czech Republic.
The Company believes that the expansion of its operations in its existing and
future markets will provide it with some protection against potential
disruptions in any one country's economy. In addition, the breadth of the
Company's country coverage allows it to direct the rollout of its network
towards the most lucrative market opportunities as they arise. For example,
should banks in one of the Company's countries of operation significantly
increase or decrease card issuance levels in a given year, the Company can
redirect its network rollout to factor in such developments without any
material disruption in its overall rollout plan. As the Company continues to
expand into its existing markets and new markets, such as France, the
Company's revenue base is expected to diversify and become less reliant on any
one country's economy. Euronet believes its geographic expansion will enable
it to benefit from the stability of the developed Western European markets
where the cardholder base is large and transaction volumes are high while also
allowing the Company to benefit from the substantial opportunity of the
emerging markets.
Extensive Range of Card Issuer Contracts. Euronet is the only non-bank owned
ATM network in Central Europe, which enables it to concentrate on processing
transactions for all Card Issuers whether they are individual banks,
consortiums of banks or International Card Organizations. As a result, the
Company is not dependent upon any one card source. As of March 31, 1998, the
Company had a total of 23 card acceptance agreements with banks and
International Card Organizations in five countries and it is continuing to
obtain contacts with local banks and International Card Organizations in
existing markets as well as new markets. The Company's Acceptance Agreements
generally provide that all credit and debit cards issued by the banks may be
used at all ATM machines operated by Euronet. 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 Poland. The Company is also able to accept all credit
and debit cards bearing the VISA and Plus logos at its ATMs in the Czech
Republic. Euronet has also entered into agreements with Diners Club
International and American Express. The agreement with Diners Club
International provides for the acceptance of all credit and debit cards issued
by Diners Club at all of Euronet's ATMs in Hungary,
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Poland and Croatia. This agreement is a "regional" agreement which is intended
to be extended to all of the Central European countries. In addition, the
Company has signed agreements with American Express or its local franchise to
accept cards in these countries. The Company expects to begin accepting
American Express cards in Croatia under this agreement at the end of May. This
will enable the Company to accept approximately 28% of the cards issued in
Croatia. 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.
Critical Mass; Largest Non-Bank Purchaser of ATMs in Central Europe. With
over 798 ATMs in operation and a monthly average of approximately 50 new ATMs
purchased or leased for the six months ended March 31, 1998, Euronet believes
it is the largest purchaser of ATMs in Central Europe and one of the largest
purchasers of new ATMs in Europe. As such, Euronet has negotiating leverage
with ATM manufacturers and believes that it receives favorable prices as
compared to lower volume purchasers. The Company has long term contracts with
certain ATM manufacturers to purchase ATMs at contractually defined prices
which include quantity discounts. These contracts, however, do not commit the
Company to purchase a defined number of ATMs. In addition, the Company has
leverage, as compared to smaller ATM networks, in negotiating favorable
pricing for ATM-related software, cash delivery services and ATM maintenance
services. As the Company continues to expand into other countries, it expects
to enter into multi-country agreements with telecommunication providers to
reduce monthly charges. The Company expects that as it expands its network,
its ability to reduce costs will make it more competitive.
Lower Cost Alternative to Banks. By acquiring ATMs, computer equipment,
maintenance, telecommunication and other services, less expensively, and by
running a focused operation, the Company believes that it can offer banks a
low cost alternative to building or operating their own ATM network. The
Company can offer banks a connection to the Euronet's ATM network, the
management of an existing proprietary network of ATMs or the development of a
new ATM network. The Company's ATM management services include 24-hour
monitoring from Euronet's Processing Center of ATM operational status,
coordinating the cash delivery, the monitoring and management of cash levels
in the ATM, and automatic dispatch for necessary service calls. See
"Agreements with Card Issuers and International Card Organizations--ATM
Management Services Agreements."
State of the Art Integrated On-Line ATM Network; Capable of Providing
Additional Services. The Company has purchased advanced hardware and software
providing state-of-the-art features and reliability through sophisticated
diagnostics and self-testing routines. The ATMs utilized by the Company can
perform basic functions, such as dispensing cash and retrieving account
information, as well as providing other services such as advertising through
the use of color monitor graphics, messages on receipts, and coupon
dispensing. In addition, the Company's ATMs are modular and upgradable so that
they can be adapted to provide additional services in response to changing
technology and consumer demand, including new products such as reloadable chip
cards. See "--ATM Network Technology--Satellite Communications."
STRATEGY
The Company's objective, for the near term, is to maintain and enhance its
position as a leading ATM service provider in Central and Western Europe by
meeting international standards of reliability and customer service. Key
elements of Euronet's business strategy are to:
Expand its ATM Base in Existing and New European Markets. The Company's
principal focus in the near term will be the continued expansion of its
installed base of ATMs in Europe. The Company's rollout plans are highly
dependent upon the level of new card issuance in its existing markets of
Hungary, Poland, the Czech Republic and Croatia as well as possible other
markets in the region. The Company believes it is important to balance the
number of ATMs in service with the number of cards expected to be in
circulation to ensure that there is enough consumer demand to support its
capital investments. The Company's rollout plans for any one market may vary
from time to time in response to fluctuations in card issuance levels.
Notwithstanding these fluctuations, the Company anticipates adding
approximately 3,600 new ATMs in existing and new European markets by December
31, 2000, the majority of which are expected to be in existing markets.
Factors affecting
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the Company's expansion into new Central European countries include the state
of the local economy, the stage of development of the retail banking market
and ability to conduct business in accordance with the Company's customary
standards and practices. Factors affecting further penetration of existing
markets in the region are principally related to new card issuance levels,
securing attractive retail sites and the number of strategic bank and card
agreements.
Leverage its Critical Mass to Achieve Further Economies of Scale. The
Company intends to seek ways to achieve further cost savings and economies of
scale. Specific areas of opportunity identified by the Company include (i) the
further centralization and automation of its ATM monitoring services, (ii) the
utilization of software to assist banks in better cash management, and (iii)
obtaining better terms with suppliers and contractors. With respect to ATM
monitoring efforts, the Company is in the process of implementing a new
monitoring software system which automatically generates commands to the
Company and its cash delivery and ATM maintenance contractors to remedy
operational problems. The Company has also purchased a software system which
is a highly accurate predictor of cash usage at individual ATMs. The Company
believes this system will enable it to reduce the amount of cash which must be
supplied to each ATM.
Continue to Form 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. Euronet plans to continue to
develop cooperative relationships with VISA, EUROPAY, American Express and
Diners Club International, as well as certain banks with global consumer
approaches to banking or the card markets, such as GE Capital and Citibank.
Further, the Company is in the process of expanding certain individual country
relationships into regional relationships and centralizing accounts management
functions for such relationships.
Assist Banks in Issuing Cards. The level of usage of the Company's ATM
network depends in large part upon the issuance by banks of credit and debit
cards. In order to promote the issuance by banks of such cards, and to
establish relationships with banks at an early stage in the development of
their card departments, the Company has developed the "Blue Diamond" service.
In connection with this service, Euronet acts as a consultant in the
installation of the hardware and software necessary to assist banks in issuing
credit and debit cards to their account holders. The Company hopes that this
low cost product will be attractive to banks which seek to establish programs
to issue a relatively small numbers of cards. Although this product itself is
not likely to generate significant revenues, the Company believes the impact
on transaction volumes and the collateral benefits of working within the card
departments of banks could be significant over the long term. See "--Other
Services."
Capitalize on Additional Revenue Opportunities. 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 value added services through ATMs as new technology develops and the
demand for such services grows in its markets. The Company currently sells
advertising on its ATM video screens, on receipts issued by the ATMs and on
coupons dispensed with cash from the ATMs. The Company is also 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, in the future the Company may also introduce other ATM
services currently available in other markets, including the ability to
"reload" chip cards, check stock or mutual fund account balances and purchase
items such as stamps and travelers checks at its ATM machines. The Company is
also evaluating the opportunity to offer point of sale authorization services
in the future. See "--Other Services."
Seek Additional Geographic and Other Market Opportunities. While the
Company's intention is to focus principally on expanding its ATM service
operations in Europe, it is exploring other geographic markets or strategic
business opportunities where it can make use of its operational expertise. The
Company plans to continue to seek additional ATM network management contracts
from which it can generate revenues and utilize its existing central
operations infrastructure with minimal capital investment. Other business and
network opportunities that the Company may evaluate include the expansion of
its operations through the acquisition of ATM networks from banks or other
businesses which support or complement its network. The Company believes that
many ATM networks could be run more efficiently and rendered more profitable
by the Company due to economies of scale or through the consolidation or
reorganization of the networks. Acquisitions of strategic businesses which
support the Company's activities (including software providers or other
transaction processors)
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could permit the Company to procure necessary services more inexpensively,
increase network traffic, or to expand more rapidly.
In terms of expansion outside of Europe, the Company plans to evaluate
certain developing markets where card issuance is high or expected to increase
rapidly, but where ATM infrastructure is not yet developed. The Company
expects that expansion in such new markets will generally be made in
cooperation with a local or international bank partner or Card Issuer in order
to enhance its ability to quickly establish a market presence. The Company
also plans to exploit opportunities it perceives for acquiring or developing
ATM networks in the United States. See "--The ATM Market Opportunity in the
United States" and "--The Euronet Network."
Other markets with potentially attractive ATM characteristics include, among
others, Argentina, China, Egypt, Estonia, Ireland, Lithuania, Russia and
Sweden. The Company is engaged in discussions with two U.S. persons regarding
the development of certain business opportunities in China. The Company
entered into a memorandum of understanding with such persons pursuant to which
the Company and such persons would form a subsidiary to own and operate an ATM
business in China if they are successful in obtaining a contract with one or
more Chinese banks. The Company would own more than an 80% interest in such
entity should it be formed.
In developing its network in other markets, the Company will seek to balance
the need to achieve the highest level of transactions per machine over its
network (which mitigates in favor of installation of machines in developed
markets with large card bases) with the objective of capitalizing on its
advantageous position in newer markets, where it believes that higher levels
of growth will result over the medium to long term due to increases in the
card base. The Company intends to slow down its installation of ATMs in
Hungary and Poland until transactions per ATM increase in those countries.
During the first half of 1998, the Company will focus its efforts on
developing its network in the Czech Republic, Germany, Croatia and France and,
if successful in the acquisition of ATM assets in the United States, in
developing such assets. Thereafter, the orientation of the Company will depend
upon its evaluation of performance in the various existing markets and
opportunities arising in new markets.
THE EURONET NETWORK
General. The Company currently operates ATMs in Hungary, Poland, the Czech
Republic and Croatia. It offers ATM management services in Germany. The
Company has offices in, and plans to extend its network and its ATM management
services operations to France and Romania and possibly the U.S. in the near
future. Over the medium to long term, the Company will also consider expansion
of its network into other emerging or developed markets (including outside of
Europe) in which the fundamental characteristics of the card and ATM markets
suggest that there may be strong demand for the Company's services.
In several European countries, including Germany and France, banks have
organized central switches through which transactions can be routed to the
appropriate bank for authorization. Once connected to such a switch through a
bank, an ATM is able to accept transactions made by the holders of
substantially all of the cards in those markets. The Company's approach to
these markets will be to enter into agreements with banks having access to
these switches as an operator of ATMs under sponsorship of the bank, as a pure
service provider (as the Company has done in Germany under its contract with
Service Bank GmbH ("Service Bank"). See "--Germany."
Hungary. As of March 31, 1998 the Company had 359 ATMs installed in Hungary
as part of its independent network, primarily in the country's six largest
cities. Euronet has entered into 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, Diners Club International 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, as of December 31, 1997, Euronet's
ATMs in Hungary accepted approximately 99% of the domestic debit and credit
cards issued in Hungary and all major international credit and debit cards.
In addition to operating its own network of ATMs, as of March 31, 1998,
Euronet was managing 45 non-bank branch ATMs under a management contract with
Budapest Bank. Under this contract, the Company connects ATMs which are owned
by Budapest Bank to its central processing center and routes transactions to
Budapest Bank's authorization center for approval. The Company also monitors
the operation of the ATMs, provides maintenance and, through its subcontracted
cash in transit company, delivers cash to the ATMs.
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Poland. As of March 31, 1998 Euronet had 332 ATMs installed in Poland.
Euronet had executed Acceptance Agreements with seven Polish banks. The
Company has also entered into agreements with American Express, Diners Club
International 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. In April 1998, the Company signed an acceptance agreement with
PolCard which was activated in May 1998. Under the agreement, approximately
400,000 additional cards issued in Poland will be accepted by the Company's
ATM network increasing the percentage of cards accepted by the Company in
Poland to approximately 80%. The Company intends to pursue a strategy similar
to that employed in Hungary in order to increase the percentage of the total
card base which can be used at Euronet's ATMs.
Germany. In Germany, ATMs are subject to essentially the same licensing
requirements as bank branches. The Company has signed a contract with Service
Bank under which it provides ATM services, including network development,
maintenance and monitoring services. Because the Company acts as a pure
service provider to Service Bank it is not subject to German financial
institution licensing requirements. However, Euronet could obtain certain
advantages by obtaining a limited financial activity license (including the
ability to increase the scope of the services it offers and develop its own
network of ATMs). The Company may apply for such a license in the future. The
Company first began rendering services to Service Bank as of May, 1997 and as
of March 31, 1998 the Company was servicing 64 ATMs. The Company intends to
increase the number of ATMs substantially during the remainder of 1998.
Although Euronet locates ATM sites under this contract for Service Bank, the
site agreements are entered into on behalf of Service Bank. To comply with
German regulations, the Company processes transactions in Germany through a
contractor, rather than through its Processing Center. The agreement with
Service Bank is terminable upon six months' notice at any time after December,
1999. 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. Therefore, all of Service Bank's ATMs
managed by Euronet in Germany under the agreement will be able to accept
virtually all credit and debit cards issued by German financial institutions.
Croatia. Euronet installed its first ATMs in November, 1997 and began
processing transactions on those ATMs on December 12, 1997. As of March 31,
1998, Euronet had 35 ATMs installed and operating in Croatia. Currently all of
the ATMs are in Zagreb and surrounding cities, but the Company has targeted
the coastal areas for development, where the tourist industry is strong. The
Company has signed agreements with Diners Club International and American
Express, which have collectively issued approximately 29% of the cards in the
Croatian market. The Company is in the process of establishing its direct
computer connection with American Express in Croatia.
Czech Republic. The Company began processing transactions in the Czech
Republic in February 1998. On February 25, 1998, the Company signed an
agreement with Bank Austria to become its VISA sponsor bank. As of March 31,
1998, the Company had installed 8 ATMs and is in the process of connecting
these ATMs to its central processing center. The Company has signed five real
estate agreements covering 38 locations, including one with Billa, the third
largest supermarket chain in the Czech Republic.
France. The Company established its office in France in December 1997 and is
performing the preliminary work necessary to begin providing services,
including commercial negotiations with banks and other card issuers, site
owners and subcontractors for cash delivery, ATM equipment supplies and
telecommunications.
Expansion into France would require the Company to establish and thereafter
maintain a relationship with one or more French financial institutions.
Although the Company has not yet identified a French financial institution, it
has retained a managing director for France, and is exploring potential
relationships with French financial institutions and searching for potential
ATM locations. There can be no assurance as to when or if the Company will be
able to establish the necessary relationship for the commencement of
operations in France.
Romania. The Company established its office in Romania in December 1997 and
is performing the preliminary work necessary to begin providing services,
including commercial negotiations with banks and other card issuers, site
owners and subcontractors for cash delivery, ATM equipment supplies and
telecommunications.
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The United States. The Company is in preliminary discussions regarding the
possible acquisition of a network of ATMs principally located in the Eastern
United States from Maine to Florida. The acquisition, if made, also would
include various ATM network operating agreements, ATM installation agreements
covering approximately 1,700 sites, approximately 700 ATMs on location and
approximately 300 ATMs available for installation (the "ATM Assets"). The ATMs
on location are located principally in retail and grocery stores, including a
national chain. A new entity (the "Purchasing Entity") would be formed to
acquire the ATM Assets and to operate them. The purchase price under
discussion for the ATM Assets would be approximately $19,000,000, of which
$2,500,000 would be payable in cash, $4,500,000 by the issuance of non-
interest bearing promissory notes payable over the next several years,
$2,000,000 by the issuance of a non-interest bearing contingent promissory
note based on performance and the Purchasing Entity's purchasing the ATM
Assets subject to approximately $10 million of secured debt. Based on
unaudited information provided to the Company, during the fiscal year ended
December 31, 1997, the seller had revenues of $4.6 million, costs and expenses
of $7.5 million and a net loss of $2.9 million from ATM operations.
The Company is also in preliminary discussions regarding the formation of
the Purchasing Entity which would purchase and own and operate the ATM Assets.
At present, it is proposed that the Company would have an approximate 66.5%
interest in such entity with the remaining equity interest being held by David
Bonsal, 6.5%, David Windhorst, 6.5% and Universal Money Centers, Inc. ("UMC"),
8.6%, a small company which owns and operates ATM machines in the United
States. Messrs. Bonsal and Windhorst, officers and directors of UMC, would be
responsible for administering and supervising the day-to-day activities of
such entity and UMC would be responsible for providing network switching and
processing services. The remaining 11.9% will be held by associates of Messrs.
Bonsal and Windhorst.
Discussions regarding the acquisition of the assets and the formation of the
purchasing entity are in preliminary stages and no assurance can be given that
agreements will be successfully concluded.
TYPICAL ATM TRANSACTION
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
Processing Center. The Company's Processing Center computers then identify the
Card Issuer by the bank identification number contained within the card's
magnetic strip. The transaction is then switched to the local issuing bank or
International Card Organization (or its designated processor) for
authorization. Once authorization is received, the authorization message is
routed back to the ATM and the transaction is completed. Transactions by
holders of cards bearing international logos are routed to central clearing
systems operated by the relevant International Card Organization.
For banks that do not maintain on-line account balance information for their
cardholders, the Company receives authorization limits from such banks on a
daily basis, 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 of a processing fee from the issuer of the credit or
debit card used in a transaction, even for certain 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 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.
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 European banks are located on the premises of the banks or their
branches or on premises of large employers paying their employees by direct
deposit,
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currently all but six of Euronet's ATMs are located in non-bank sites. The
Company's strategy in pursuing off branch 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 (i) major shopping malls, (ii) busy intersections, (iii) local smaller
shopping areas offering grocery stores, supermarkets and services where people
routinely shop, (iv) mass transportation hubs such as city bus and subway
stops, rail and bus stations, airports and gas stations, and (v) tourist and
entertainment centers such as historical sections of cities, cinemas, and
recreational facilities.
Research conducted in the United States indicates that once a cardholder
establishes a habitual pattern of using a particular ATM, the cardholder will
continue to use that ATM unless there are significant problems with a
location, such as a machine frequently being out of service. It is the
Company's goal to secure key real estate locations before its competitors can
do so, 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, 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 and
Texaco gas stations, the Warsaw Marriott Hotel, Makro Cash and Carry and other
retail outlets in Polish cities. In Germany, the Company is installing Service
Bank ATMs in Metro stores and Tengelmann group stores (which include
Tengelmann, Kaiser's, Magnet/Grosso and Plus food stores) in addition to
Edeka, Lidl & Schwarz, Allkauf, Kaufhalle, real, Dibag and the German
railways. It is part of the Company's strategy to expand its relationships
with large multinational companies which have multi-location businesses to
obtain ATM sites.
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 and are terminable on relatively short notice. The
Company is in the process, however, of renegotiating its agreements with major
site providers to include fixed terms of three to five years. In Poland, the
Czech Republic and Croatia, the agreements generally provide for a three to
seven year term and are renewable for additional three to five year terms. In
most cases, the Company pays rent for the sites, although such rent is
substantially lower than the average rental rate in Western European
countries. Generally, the Company's fixed term leases for ATM sites 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's leases in Poland generally include provisions permitting
termination by the Company if transaction volumes at a site are unacceptable
to the Company. The leases termination provisions in Hungary are somewhat
broader and the Company can generally terminate leases there for any reason.
To date, the Company has closed or relocated 25 sites.
AGREEMENTS WITH CARD ISSUERS AND INTERNATIONAL CARD ORGANIZATIONS
ACCEPTANCE AGREEMENTS
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 two to five years and are generally automatically renewed unless
notice is given by either party prior to the termination date. In some cases,
the agreements are terminable by either party upon six months' notice. The
Company generally is able to connect a bank to its network within 30 to 90
days of signing an Acceptance Agreement.
Banks that execute Acceptance Agreements agree to participate in Euronet's
ATM cash supply system. Under 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 the prior
day's transaction reports generated by Euronet. Cash provided by the banks is
deposited by a third party security company in Euronet's ATMs generally once
or twice a week depending on the volume of the transactions. 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.
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The Company may, if required to secure an Acceptance Agreement, loan funds
to a bank or other Card Issuer to permit that entity to meet its obligation to
supply cash. So far, two loans of this type have been approved: one to Atlas
American Express (a privately owned and capitalized franchisee of American
Express) and one to Diners Club Adriatic (a privately owned and capitalized
franchisee of Diner's Club) but have not yet been funded. To minimize any
financial risks related to these loans the Company intends to obtain
guarantees from the international organizations. The Company will have the
right to offset any amount in its ATM machines against any amounts it
advances. The Company plans to periodically examine the relationship in an
effort to minimize its repayment risk. When Euronet agrees to make such a
loan, it either charges interest or increases the fees payable under the
underlying Acceptance Agreement to include an interest factor.
The ATM transaction fees charged by Euronet under the Acceptance Agreements
vary depending on the type of transaction (which are currently 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, on average, is in excess of
$0.75 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. There has been considerable downward pressure on
transaction fees (in particular for cash withdrawals) as the volumes of
transactions has increased for the larger banks. As transaction levels
increase for the larger banks, and the overall number of cards circulating in
the markets increases, such larger banks are more likely to conclude that it
is economical to bear the infrastructure costs associated with creating their
own ATM networks. Thus, the Company has been compelled to grant volume
discounts to such banks. For these banks, the Company attempts to achieve a
tiered fee structure, with a reduction of the transaction fee being granted
only on higher transaction volumes. See "Management's Discussion and Analysis
of Financial Condition" and Results of Operations--Overview."
Under the terms of the Acceptance Agreements, Euronet charges ATM
transaction fees to the card issuing banks. The Company attempts to include a
provision in its Acceptance Agreements to the effect that card issuing banks
will not charge their cardholders more for using Euronet's ATMs than the
banks' own ATMs. However, it is not always successful in obtaining agreement
to this provision. More recently, some banks have increased the amount of fees
charged through to their customers. This damages the Company's competitive
position as compared with bank-owned ATM networks, on which the fee charged
through to the customer may be lower.
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 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, are expected to provide for monthly management fees plus fees payable
for each transaction. The transaction fees under these agreements are expected
to be generally lower than under the Acceptance Agreements. See "--ATM Network
Management Services."
ATM NETWORK MANAGEMENT SERVICES AGREEMENTS
During 1997, the Company began offering complete ATM network management
services to banks that own proprietary ATM networks. 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 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. These services also
include: real-time transaction authorization, advanced monitoring, network
gateway access, network switching, 24 hour customer services, maintenance
services and settlement and reporting. The Company already provides many of
these services to existing customers and has invested in the necessary
infrastructure. As a result, agreements for such ATM network management
services ("ATM Management Agreements") provide for additional revenue with
lower incremental cost. 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 February 1997, the Company entered into an agreement with GE Capital
Corporation under which the Company became a preferred provider of ATM network
management services to certain banks affiliated with GE Capital Corporation
and located in Poland, Hungary, Czech Republic, Germany and Austria, including
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Mercurbank AG in Austria, Service Bank in Germany, GE Capital Bank SA in
Poland and Budapest Bank in Hungary. In January 1997, prior to execution of
this agreement, the Company had 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. As of
March 31, 1998, the Company was maintaining 64 ATMs under this agreement. To
date, the Company has not signed any agreements with banks owned by GE Capital
other than Service Bank and Budapest Bank.
The Company has entered into two other ATM Management Agreements. In
December 1996, it signed an agreement with Budapest Bank to provide these ATM
network management services to Budapest Bank's 160 machine ATM network in
Hungary. Currently, the Company has taken over management of 45 Budapest Bank
ATMs. Take over of the remainder has been delayed pending resolution of
certain software interface problems which have arisen in connection with the
implementation of the contract. An additional ATM Management Agreement was
signed with ING Bank in Hungary in July of 1997 and with Bank Wspolpracy
Regionalnej S.A. Krakow in Poland in April of 1998.
Under ATM Management Agreements, the Company can offer banks the option of
expanding the card base which may be accepted on managed ATMs. The banks may
elect to permit acceptance on Euronet managed ATMs of all cards accepted on
the Euronet network through certain Acceptance Agreements in the country
concerned. This could increase the volume of transactions processed by the
Company.
Acceptance and Management Agreements
The following table sets forth bank and card issuer agreements with the
Company as of March 31, 1998. It also identifies whether the agreement is an
Acceptance Agreement or an ATM Management Agreement.
ACCEPTANCE AGREEMENTS
HUNGARY
Orszagos es Takarek Penztar Bank ("OTP")(1)
Magyar Kulkereskedelmi Bank Rt. (MKB)
Budapest Fejlesztesi es Hitelbank Rt. (Budapest Bank)(2)
Mezobank Rt.(2)
Citibank Budapest Rt.
Postabank es Takarekpenztar Rt.
Creditanstalt Rt.
Deutsche Bank Rt.
Inter-Europa Bank Rt.
ING(2)
American Express
Diners Club International
POLAND
Wielkopolskie Bank Kreditowy S.A. (WBK)
Bank Depozytowo-Kredytowy w Lublinie S.A.
Bank Wspolpracy Regionalnej S.A. Krakow(2)
Bank Polska Kasa Opieki S.A. (PekaO)
Bank Przemyslowo-Handlowy SA
Cuprum Bank SA
Bank Rozwoju Eksportu SA
CROATIA
Diners Club International
Atlas American Express
Raiffeisenbank Austria
CZECH REPUBLIC
Bank Austria
46
<PAGE>
ATM MANAGEMENT AGREEMENTS
GERMANY
Service Bank
HUNGARY
Budapest Bank
ING(2)
Deutsche Bank Rt.(2)
- - --------
(1) OTP terminated this agreement effective July 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Comparison of Results of Operations for the Year Ended December 31, 1995,
1996 and 1997--Revenues" and "Risk Factors--Dependence on Relationships
with Banks and International Card Organizations; Termination of OTP
Contract".
(2) These entities have both an acceptance and ATM Management Agreement with
the Company.
In order to be able to accept VISA and EUROPAY cards, Euronet must have a
relationship with a bank in each market giving it access to a VISA or EUROPAY
"gateway" to accept the cards. The agreements with MKB, WBK and Bank Austria
permit Euronet to process all VISA cards issued in Hungary, Poland and the
Czech Republic, respectively. The agreements with OTP and PekaO permit Euronet
to process all EUROPAY cards in Hungary and Poland, respectively. As a result
of the termination of the Company's contract with OTP, OTP will no longer act
as the Company's EUROPAY gateway. The Company is engaged in negotiations with
one of its other client banks in Hungary to serve as the Company's EUROPAY
gateway. These negotiations are in the document preparation stage and the
Company believes it will be successful in finalizing that agreement and
implementing acceptance of EUROPAY cards in Hungary after the termination of
the OTP contract through the EUROPAY gateway established under that agreement.
Moreover, the Company has received expressions of interest from several other
banks to act as its EUROPAY gateway and believes that, even if such agreement
is not finalized, an agreement can be reached with another bank in Hungary to
act as the Company's EUROPAY gateway. The Company can accept all VISA and
EUROPAY cards in Germany through its agreement with Service Bank.
In January 1998, OTP notified the Company that it was terminating its
contract with Euronet effective as of July 27, 1998. OTP advised the Company
that it terminated the contract since it desired to promote the use of its own
ATM network. OTP also indicated that the Company selected ATM sites which OTP
believed to be in competition with OTP ATM sites and that the Company failed
to provide OTP with certain transaction reports on a timely basis. It should
be noted that the reporting failure had been corrected more than two months
prior to OTP's notice of termination. As a result of this termination, the
Company will not have a direct connection with OTP and will not be able to
accept OTP proprietary bank cards and OTP will no longer act as the Company's
EUROPAY sponsor in Hungry. The Company will still be able to accept all OTP
issued VISA cards through its VISA gateway and, subject to the completion of a
new EUROPAY sponsor agreement with a bank in Hungary, the Company will be able
to accept all OTP issued EUROPAY cards through are new EUROPAY gateway. For
the year ended December 31, 1997 the Company's contract with OTP represented
approximately 51% of its consolidated revenues and approximately 26% for the
three months ended March 31, 1998. The financial impact of the OTP contract
termination is difficult to assess. The Company believes that such impact may
be mitigated in part because (i) the Company believes that VISA and EUROPAY
cards represent over 95% of the cards issued by OTP and (ii) the Company
receives a higher fee for transactions processed through its VISA and EUROPAY
gateway(s) than for OTP proprietary bank cards. However, the Company believes
that some of OTP's cardholders will be dissuaded from patronizing Euronet's
ATMs due to the higher fees passed through to customers for transactions
processed through the VISA and EUROPAY connection.
OTHER SERVICES
The Euronet Network constitutes a distribution network through which
financial and other products or services may be sold at a low incremental
cost. The Company has already developed certain services in addition to cash
withdrawal and balance inquiry transactions and will continue to implement
additional services as markets develop.
47
<PAGE>
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.
Euronet also plans to introduce payment processing capabilities on its ATMs
which would allow ATM card holders to pay utility bills. The bill payment
system 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. The Company has signed its first bill payment
agreement with a utility in Hungary and a corresponding settlement bank and is
currently working to develop the system operationally.
Euronet is exploring various markets (in particularly Croatia) regarding
providing on-line point of sale authorization for purchases made at retail
outlets with credit and debit cards. If such services are implemented by the
Company, 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.
The Company's ATMs are upgradable 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 ATM Network at an ATM through a connection with the
cardholder's bank and used to purchase goods from retail locations. All ATMs
now ordered by Euronet include chip card readers.
In addition to transactions over its network, the Company is developing
services which are complementary to, or promote, ATM transactions. During
1997, the Company developed a new card issuance product, referred to as the
"Blue Diamond." This product combines IBM hardware and Arksys software (the
Software that runs the Company's ATM Network) and is intended to permit banks
to rapidly implement card issuance programs. In exchange for a fee, Euronet
acts as a consultant in connection with the installation of the hardware and
software necessary to implement an ATM processing network and assists banks in
issuing credit and debit cards to their account holders. The Blue Diamond
system interfaces automatically with Euronet's Arksys ATM network software and
facilitates the acceptance on Euronet of transaction by the cards issued in
connection with the Blue Diamond service. The market for this product appears
to be strongest among banks wishing to issue a small number of cards or to
initiate their first card programs. The Company's primary motivation in the
development of this program is to promote the issuance of cards by banks,
which ultimately will be used on Euronet's network.
TRANSACTION VOLUMES
The Company monitors and reports on a regular basis to the public the number
of transactions which are made by cardholders on its networks. These include
cash withdrawals, balance inquiries and certain types of denied transactions
(transactions which have been requested by a cardholder but which are denied
by a bank). Certain transactions on the Euronet network are not billable to
banks, and these are excluded for reporting purposes. The average number of
transactions processed each month at Euronet's ATMs over its entire network
increased on average approximately 26% per month in 1996 and 12.8% in 1997.
The number of transactions processed grew from 241,099 in January 1997 to
892,417 in December 1997. By the end of March 1998, the number of transactions
processed had reached 1,053,364. During 1996, substantially all of the growth
was in Hungary, since the Company had very few ATMs in Poland. The Company
believes that the lower average rates of transaction growth in 1997 as
compared with 1996 resulted from the relatively higher number of ATMs which
the Company operated in Poland, where card issuance has grown slower than in
Hungary.
The Company's experience during 1997 has been that transaction growth varies
substantially from one month to another. For example, transaction growth was
3% in April and 5% in June, but was 21% in July and 23% in December. The
number of transactions decreased in January in each of 1996 and 1997 by 3% and
5%, respectively. The Company believes this shrinkage results from the fact
that consumers have less funds available during the period immediately
following Christmas.
48
<PAGE>
The transaction volumes processed on any given ATM are affected by a number
of factors, including location of the ATM and the amount of time the ATM has
been installed at that location. The Company's experience is that the number
of transactions on a newly installed ATM is initially very low and increases
for a period of three to six months after installation as consumers become
familiar with the location of the machine. Because the Company is continuing
to build out its ATM network rapidly, the number of newly installed machines
is relatively high in proportion to older machines. The Company anticipates
that the number of transactions per machine will increase as the network
matures and card issuance continues.
ATM NETWORK TECHNOLOGY
The Company uses IBM/Diebold and NCR ATMs. It currently has long term
contracts with these manufacturers to purchase these ATMs at contractually
defined prices which include tiered quantity discounts. However, there are no
contractually defined commitments with respect to quantities to be purchased.
Because Euronet is one of the largest purchasers of new ATMs in Europe, it has
substantial negotiating leverage with ATM manufacturers and believes it has
received favorable prices as compared with lower volume purchasers. 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 upgradable 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 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 ATM 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. Except in Germany, all ATMs in the
network are linked through VSAT telecommunications to the Processing Center,
and the Processing Center is, in most cases, linked by VSAT telecommunications
to the Card Issuers. The VSAT telecommunications providers generally guarantee
uninterrupted service for 99% of the time. The Company strives to continually
improve the terms of its agreements with its telecommunications providers and
intends to enter into multi-country agreements with lower rates for service.
The Company's agreements with its satellite telecommunications providers
contain certain assurances with respect to the repair of satellite malfunction
to ensure continuous reliable communications for the network. 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. It consists of two production IBM
AS400 computers which run the ARKSYS Gold Net ATM software package, as well as
a real time back up A/S 400. The back up machine provides high availability
during a failure of either production A/S 400. The Processing Center also
includes two A/S 400's used for product and connection testing and
development. The ARKSYS 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.
To protect against power fluctuations or short term interruptions, the
Processing Center has full uninterruptable power supply systems with battery
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 and permit the orderly shutdown of the switch in an
emergency.
49
<PAGE>
The Company is formulating plans to create an off-site disaster recovery
back up system to provide protection against both natural and man-made
disasters. Because such a disaster recovery site would require duplication of
all of the telecommunications and processing capabilities of the Company at a
second location, the Company has estimated the cost of such center at $1
million if it is required to establish the site on its own. Euronet had
intended to put such a center in place in Hungary in 1997, but the high cost
of such a system has led the Company to seek methods of reducing the cost (for
example by having the center placed in a hub maintained by one of the
Company's telecommunications providers) or using the equipment in the recovery
site to meet other requirements arising as a result of the geographical
expansion of the Company's business, in particular a requirement that the
Company process its German transactions in a member state of the European
Union. The Company now expects to establish such back up site by mid-1999.
COMPETITION
Competitive factors in the Company's business are network availability and
response time, price both to the Card Issuer and to its customers, ATM
location and access to other networks. Principal competitors of the Company
include ATM networks owned by banks. Larger banks, in particular, may be able
to develop their own network of ATMs. Because banks control the relationship
with their cardholders, they may promote the use of their own ATM networks by
charging through to customers a higher fee for use of the Euronet network. The
Company seeks to counter such charge through by contractual provisions and
offering additional services (such as bill payment) to the banks and their
customers. Certain national networks consisting of consortiums of banks also
compete with the Company. In the Czech Republic, ISC MUZO (formed by a
consortium of four banks) offers ATM driving and switching services in
addition to point of sale services to Czech banks. PolCard in Poland (formed
by a consortium of 11 banks) provides point of sale services, card management
services, switching services, and ATM driving services to customer banks. The
Company expects that ATM transactions will eventually be switched from PolCard
to and from Euronet. In Hungary, certain banks established a jointly owned
company in 1989, called Giro Bankcard Rt., to develop a central switch for ATM
transactions which would permit those banks to switch transactions among
themselves in a fashion similar to Euronet. However, the membership in this
company has been limited to six banks and during 1997, the Company has
established direct connections to two of the member banks, Postabank and
Mezobank. As a result of the Company's connection, transactions for these
banks no longer transit through the Giro Bankcard system.
EMPLOYEES
The Company's business is highly automated and it out-sources many of its
specialized, repetitive functions such as ATM maintenance and installation,
cash delivery and security. As a result, the Company's labor requirements for
operation of the network are relatively modest and are centered on monitoring
activities to ensure service quality and cash reconciliation and control. The
Company also has a customer service department to interface with cardholders
to investigate and resolve reported problems in processing transactions.
However, Euronet's roll out of ATMs, its development of new products and
individual bank connections and its expansion into new markets creates a
substantial need to increase existing staff on many levels. The Company
requires skilled staff to identify desirable locations for ATMs and negotiate
ATM lease agreements. Euronet is also expanding its systems department to add
new technical personnel and recruiting strong business leadership for new
markets. In addition, the need to ensure consistency in quality and approach
in new markets and proper coordination and administration of the Company's
expansion, is leading the Company to recruit additional staff in the areas of
financial analysis, project management, human resources, communications,
marketing and sales. The Company has a program of continual recruitment of
superior talent whenever it is identified and ongoing building of skill for
existing staff. The Company believes that its future success will depend in
part on its ability to continue to recruit, retain and motivate qualified
management, technical and administrative employees.
50
<PAGE>
As of December 31, 1996, the Company and its subsidiaries had 58 full-time
employees, 36 of which were located in its Budapest office, 21 in its Warsaw
office and 1 in its Frankfurt office. As of March 31, 1998 the number of
employees was 194 full-time employees, with 87 located in Hungary, 73 in
Poland, 7 in the Czech Republic, 10 in Germany, 11 in Croatia, 4 in Romania
and 2 in France. The Company has created a central "head office" organization
in Budapest which is independent of the Hungarian country operations and
dedicated to overall management of the Company's business.
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 do not constitute "financial
activities" subject to licensing. In addition, the Company has received advice
to the effect that its activities in each of its other markets do not
currently require it to obtain licenses. 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 in Germany may be operated only by licensed financial
institutions. The Company, therefore, may not operate its own ATM network in
Germany and must act, under its contract with Service Bank GmbH ("Service
Bank"), 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. To comply with German regulations, the
Company processes transactions in Germany through a contractor, rather than
through its Processing Center.
The Company is considering expansion into France, whose laws relative to the
operation of ATMs are similar to those of Germany. Expansion into France would
require the Company to establish and thereafter maintain a relationship with
one or more French financial institutions. Although the Company has not yet
identified a French financial institution, it has retained a managing director
for France, and is exploring potential relationships with French financial
institutions and searching for potential ATM locations. There can be no
assurance as to when or if the Company will be able to establish the necessary
relationship for the commencement of operations in France.
The Company wishes to offer the widest possible range of services on its
network and is considering taking steps to obtain a limited financial activity
licenses in some markets to be able to expand its services.
PROPERTY
The Company's executive offices and Processing Center are located in
Budapest. The Company also maintains offices in Warsaw, Zagreb, Berlin, Paris,
Prague, Bucharest, Krakow and Szczecin. All of the Company's offices are
leased. The Company's office leases provide for initial terms of 24 to 60
months.
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<PAGE>
YEAR 2000 COMPLIANCE
The Company has made an assessment of the impact of the advent of the year
2000 on its systems and operations. The Processing Center will require certain
upgrades which have been ordered and are scheduled for installation by the
fourth quarter 1998. Most of the ATMs in the Euronet network are not year 2000
compliant, and hardware and software upgrades will be installed under contract
with Company's Euronet's ATM maintenance vendors. According to the Company's
current estimates, the cost will be approximately $1,000 per ATM, and the
required installation will be finished by the end of 1998. The Company
estimates that approximately 560 of its ATMs will require upgrades for year
2000 compliance.
The Company is currently planning a survey of its bank customers concerning
the compliance of their back office systems with year 2000 requirements, and
anticipates launching such survey in the third quarter of 1998. If the
Company's bank customers do not bring their card authorization systems into
compliance with year 2000 requirements, the Company may be unable to process
transactions on cards issued by such banks and may lose revenues from such
transactions. This could have a material adverse effect on the Company's
revenues. Therefore, Euronet will monitor, and hopes to assist its bank
clients in, implementation of its customers year 2000 compliance programs, and
may, if required to accelerate the compliance programs of it banks, create
consulting capabilities in this respect.
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 been granted in Hungary, Poland
and Croatia but are still pending in the other countries.
The Company does not hold the Euronet trademark in Germany, France or
certain other Western European countries due to prior registrations by other
Companies. For the time being, the Company does not "brand" ATMs or otherwise
use the Euronet trademark in these countries, except as permissible as a
corporate name. The Company is developing an alternative trademark and
corporate identity for European countries in which the Euronet name is not
available and non-European countries.
LITIGATION
The Company is not currently involved in any material legal proceedings.
52
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Directors, Executive Officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS
Michael J. Brown(1)..... 41 Chairman, President and Chief Executive Officer
Daniel R. Henry......... 32 Director, Chief Operating Officer
Thomas A.
McDonnell(1)(2)(3)..... 52 Director
Nicholas B.
Callinan(1)(2)......... 51 Director
Steven J.
Buckley(1)(2)(3)....... 42 Director
Eriberto R. Scocimara... 61 Director
Andrzej Olechowski...... 50 Director
EXECUTIVE OFFICERS
Dennis H. Depenbusch.... 34 Vice President--Poland
Bruce S. Colwill........ 33 Chief Financial Officer and Chief Accounting Officer
Jeffrey B. Newman....... 43 Vice President and General Counsel
OTHER KEY EMPLOYEES
Anthony M. Ficarra...... 55 Chief Information Officer
Miro I. Bergman......... 35 Managing Director--Czech Republic
Thierry Michel.......... 35 Managing Director--France
Matthew Lanford......... 31 Information Systems Director
William Benko........... 38 Managing Director--Hungary
Roger Heinz............. 37 Managing Director--Germany
John Romney............. 32 Managing Director--Croatia
Timothy A. Fanning...... 32 Managing Director--Romania
</TABLE>
- - --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Stock Option Committee
The 1998 annual meeting of stockholders is presently scheduled for June 1998
at which meeting stockholders will be asked to re-elect as directors Messrs.
Brown and Olechowski who will be nominated by the Board of Directors for
election as directors for a term expiring in 2001.
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, a leading
provider of advanced database software technology, in 1988. During this
period, Innovative Software conducted three public offerings of its shares.
Mr. Brown served as President and Chief Operating Officer of Informix from
February 1988 to January 1989. He served as President of the Workstation
Products Division of Informix from January 1989 until April 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 May 1998. Mr.
Brown is married to the sister of Mr. Henry's wife.
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<PAGE>
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 oversees the daily operations of the Company's
European subsidiaries. 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. 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 May 2000. 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., an information processing and computer
software company. 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 October 1994 to April 1995 he served as President and
from 1992 to September 1995 as director of Berger Associates, Inc., a money
management firm. 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., 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 May
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. From 1993 he served as Senior Vice President and Managing
Director for Central and Eastern Europe of Advent International Corporation, a
venture capital investment and management company and the ultimate general
partner of private equity funds which are a shareholder of the Company. In
1997, he was appointed Managing Director of Emerging Markets for Advent
International Corporation. 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 May 1999.
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 April 1994 he was a co-founder of Poland Partners
L.P., a venture capital fund for investment in Poland and since that time
April 1994 he has served as 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 May 2000.
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 1984 he has been the
President of Scocimara & Company, Inc., an investment management company. Mr.
Scocimara was a partner of G.L. Ohrstrom & Co. from 1969 to 1984. 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
May 1999.
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
54
<PAGE>
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 as well as International Advisory Boards of Goldman Sachs
International, Creditanstalt, Banca Nazionale del Lavoro, International
Finance Corporation, Textron and boards of various charitable and educational
foundations. He received a Ph.D. in Economics in 1979 from the Central School
of Planning and Statistics in Warsaw. His term as Director of the Company will
expire in May 1998.
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 Retirement Management Company in Lawrence,
Kansas, a nationwide retirement community management company, 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, a leading distribution and retail
chain. 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 the multinational food and beverage
company, PepsiCo Trading Sp. z o.o. in Warsaw, Poland from 1994 to 1996. From
1989 to 1994, he was employed as an audit Manager and Senior Accountant with
KPMG, an international public accounting firm, in both Poland and Canada. 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, PLLC, of which he had been a
partner since 1993. He established the Budapest office of Arent Fox Kintner
Plotkin & Kahn, PLLC in 1991 and has resided in Budapest since that time. He
is a member of the Virginia, District of Columbia 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.
KEY EMPLOYEES
ANTHONY M. FICARRA joined the company as Chief Information Officer in
January 1998. Prior to this, he was with Bisys Inc., one of the top ten U.S.
outsourcing firms for bank processing and ATM services, from 1983 to 1997 as
Director National Operations (Banking), Vice-President (Electronic Financial
Services), Eastern Region General Manager, and finally Senior Vice
President/Chief Information Officer. From 1971 to 1983, he worked with
Tymshare Inc., a financial services provider for the accounting industry, with
the final post of Regional Vice President of the Dynatax Division. From 1969
to 1971, he was with the management and technical consulting firm Brandon
Applied Systems in the final post of Executive Vice President/General Manager.
He also previously worked with Thiokol Chemical Corporation from 1962 to 1966.
Mr. Ficarra has a B.B.A. in Management from Florida International University.
MIRO I. BERGMAN joined the Company in 1997 and is currently the Managing
Director of the Company's Czech Republic operations. Prior to joining Euronet,
he established a Colorado based company involved in international trade. From
1992 to 1996, Mr. Bergman was with First Bank System as Vice President
responsible for the bank's off-premises ATM business of over 1,200 ATMs and
served as a Manager of new co-brand card initiatives. From 1988 to 1992, Mr.
Bergman worked for Citicorp--Diners Club in various card management and
marketing positions. Mr. Bergman received a B.S. in Business Administration
from the University of New York at Albany in 1984 and an M.B.A from Cornell
University in 1988.
55
<PAGE>
THIERRY MICHEL joined the Company as Managing Director of Euronet's French
subsidiary, EFT Services France S.A.S., in November 1997. Prior to this, he
was Vice President of Business Development at GE Capital-Sovac, the French
subsidiary of the financial services company, from 1994 to 1997. From 1990 to
1993, he was Vice President of Marketing and Sales at Robeco, a Dutch-based
asset management company, and also Chief Information Officer from 1987 to
1990. From 1985 to 1987, he was Chief Information Officer at American Express
travel-related services in France. Mr. Michel received a Masters degree in
General Engineering from l'Ecole polytechnique in 1983, a Masters degree in
Systems and Telecommunications from l'Ecole National Superieure de
Telecommunication in 1985. In 1984 he received a Ph.D. in Economics from
l'Universite de Paris.
MATTHEW LANFORD was appointed Information Systems Director 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.
WILLIAM BENKO joined Euronet in January 1997 in business development and
became the Managing Director in July 1997. From May 1990 to January 1997, Mr
Benko co-owned and operated a commercial real estate brokerage company and
published a bi-weekly real estate magazine, R.E. Source, in Budapest, Hungary.
From 1988 to 1990, Mr Benko owned and operated a computer leasing firm in
Dallas, Texas and also worked with CIS Leasing Corporation, where he was
responsible for marketing IBM mainframe equipment in an eight state area. From
1982 and 1988, he worked with StorageTek in Dallas. Mr. Benko has a B.A. in
Economics from the University of Colorado.
ROGER HEINZ joined the Company as Managing Director of the Euronet's German
subsidiary, Euronet Services GmbH, in July 1997. From 1985 to 1997, Mr. Heinz
was with NCR Germany and NCR Poland as Sales Manager and Sales and Operations
Director. NCR is a leading manufacturer of ATM equipment.
JOHN ROMNEY is Managing Director of Euronet's Croatian Subsidiary, EFT
Uslege. Mr. Romney joined Euronet in February of 1997 and in April 1997 opened
the Croatian office in Zagreb. From 1993 to 1997, Mr. Romney was a partner in
and sales manager for the trading company Escalante Imports and was
responsible for accounts in 20 states in the western United States. From 1989
to 1993, Mr. Romney worked for Peterson Consulting in Chicago where he
specialized in performing financial analysis and cost allocation calculations
for multi-party litigation. Mr. Romney received a B.S. degree in Finance from
the University of Notre Dame in 1989.
TIMOTHY A. FANNING has been Managing Director of Euronet's Romanian office
since its inception in November 1997. Between August and November 1997, Mr.
Fanning worked in Euronet's European Business Development group. Mr. Fanning
was an associate with the Law Firm of McCarthy, Duffy, Neidhart & Snakard in
1997 prior to joining Euronet. From 1988 to 1993, Mr. Fanning was Manager of
Syndications and Manager of Capital Markets with The Toronto-Dominion Bank in
Chicago, Illinois, where he administered syndicated loans as well as interest
rate and currency swaps. Mr. Fanning received a B.A. in Economics in 1988 and
a law degree in 1996 from the University of Notre Dame.
56
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation awarded or paid by the Company to its Chief Executive Officer and
to the one other executive officer of the Company whose total annual salary
and bonus equaled or exceeded $100,000 during the year ended December 31, 1997
(the "Named Executive Officers") for the periods indicated:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- -----------------------------------
OTHER SECURITIES
ANNUAL UNDERLYING RESTRICTED ALL OTHER
COMPEN- OPTIONS/ STOCK LTP COMPEN-
NAME AND PRINCIPAL POSITION PERIOD SALARY ($) BONUS ($) SATION ($) SAR'S (#) AWARD(S) ($) PAYOUTS ($) SATION ($)
- - --------------------------- ------ ---------- --------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Brown........ 1997 100,000 $0 $0 -- -- -- --
Chief Executive Officer 1996 100,000 $0 $0 1,149,890 -- -- --
Jeffrey B. Newman....... 1997 133,333 $0 $0 17,500 -- -- --
Vice President and 1996 -- $0 $0 52,500 -- -- --
General Counsel
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning Options granted
to the Named Executive Officers of the Company during the year ended December
31, 1997.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (1)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED YEAR PER SHARE DATE 5% ($) 10% ($)
---- ---------- ---------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown................ -- -- -- -- -- --
Jeffrey B. Newman............... 17,500 5.8% $13.94 Apr. 22, 2007 153,419 388,793
</TABLE>
- - --------
(1) Potential realizable value is based on the assumption that the shares
appreciate at the annual rates shown (compounded annually) from the date
of grant until the expiration of the option term. Those numbers are
calculated based upon the requirements promulgated by the Commission and
do not reflect any estimate by the Company of future price increases.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning Options
exercised by the Named Executive Officers during the year ended December 31,
1997 and Options held by such individuals at December 31, 1997:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF SECURITIES THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1997 DECEMBER 31, 1997 ($)
ACQUIRED ON VALUE -------------------------------- -------------------------
NAME EXERCISE REALIZED $(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown...... 224,492 2,010,979 926,323 -- 5,196,672 --
Jeffrey B. Newman....... -- -- 10,500 42,000 58,905 235,620
</TABLE>
- - --------
(1) Based on the difference between the exercise price of the Options and the
fair market value of the Common Stock on March 7, 1997 and December 1,
1997, which are the dates the Options were exercised.
57
<PAGE>
COMPENSATION OF DIRECTORS
The Company historically has not paid fees to its directors for attendance
at meetings. Effective January 1, 1998, the Company pays each director a fee
of $2,000 for each board meeting attended, a fee of $1,000 for each committee
meeting attended, and a fee of $250 for participation in a telephonic meeting.
In addition, each Director will receive options to purchase 1,000 shares of
stock in accordance with the Company's Stock Option Plan. The Company also
reimburses directors for out-of-pocket expenses incurred in connection with
the directors' attendance at meetings. Andrzej Olechowski is paid $4,000 for
serving as a member of the Company's Advisory Board.
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 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 Messrs. Henry,
Depenbusch, Newman and Colwill, all of which expire in December 1999. The
terms of these employment agreements are substantially similar to those
contained in Mr. Brown's employment agreement.
STOCK OPTION PLANS
Milestone Options. In accordance with a 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 stock options (the "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. The Milestone Options granted to Mr.
Brown, Mr. Henry and Mr. Depenbusch are fully vested and 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 and become
exercisable in three equal installments between 1997 and 2000. See "Certain
Transactions."
The Long-Term Incentive Plan. The Euronet Long-Term Incentive Stock Option
Plan (the "Plan") was adopted by the Company on December 17, 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 issuance pursuant to Options under the Plan.
Options to purchase shares of Common Stock of the Company may
58
<PAGE>
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 from
grant date. Once vested, the Options may be exercised in whole or part. The
Plan also incorporates various prior grants of Milestone Options under the
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 440,440 Options to Mr. Henry, 287,000 to
Mr. Depenbusch and 335,510 in the aggregate to other key employees. The
Company is considering the adoption of a new stock option plan pursuant to
which options to purchase 2,000,000 shares of Common Stock may be granted to
directors, officers, employees and consultants of the Company. Such plan,
which would be subject to stockholder approval, would provide for the issuance
of incentive and non-qualified options the terms of which would be similar to
those issued under the Plan.
Determination of Option Exercise Price. The Company has granted the options
described above at an exercise price based on the estimated fair market value
of the underlying shares of Common Stock. Fair market value has been
determined by taking into consideration the per share price at which the most
recent sale of equity securities was made by the Company to new investors,
with the exception of Milestone Options issued on October 14, 1996 and
Incentive Stock Options issued in the last quarter of 1996, all with an
exercise price of $2.14 per share. The fair market value of the shares
underlying the options issued on October 14, 1996 and those issued during the
last quarter of 1996 was determined to be $4.22 per share which is the cash
price for the sale of shares in the third party purchase of shares in February
1997. Subsequent to the 1997 equity offer, the exercise price for option
grants under the Plan is equal to the closing sale price on the NASDAQ
National Market.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Directors have established an Audit Committee of
independent Directors. The Audit Committee makes 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 makes 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 are the
current members of the Compensation Committee. Mr. Brown does not participate
in decisions regarding his own compensation.
Stock Option Committee. The Directors have established a Stock Option
Committee, which makes determinations with respect to grants of options to
officers and employees of the Company. Thomas A. McDonnell and Steven J.
Buckley are members of this Committee.
59
<PAGE>
CERTAIN TRANSACTIONS
FINANCINGS
Between June 22, 1994 and the present, the Company and its existing
shareholders 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%
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>
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 at no cost.
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.
60
<PAGE>
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........................................................... 100.00%
======
</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/Euronet 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.
Such loans were repaid in 1997 by application of the proceeds of the Company's
1997 equity offering.
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
CONTRIBUTION OF PREFERRED STOCK
NEW SHAREHOLDERS COMMITMENT OF EURONET 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>
Concurrently with these transactions, Euroventures purchased the shares and
interests of Hi-Care in Bank 24 and SatComNet.
61
<PAGE>
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 terminated on the
termination of the Shareholders' Agreement which occurred on March 7, 1997 in
connection with the equity 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 Shareholder's 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. became
effective as of the closing of the 1997 equity offering and all Milestone
Options became vested upon the closing of the offering, with the exception of
49,819 Options to certain key employees which will vest equally in March of
1998 and 1999. See "Management--Stock Option Plans."
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 were to be
62
<PAGE>
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 were to 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 were
to 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 exchange became
effective as of March 6, 1997, the date of the execution of the underwriting
agreement in connection with the Company's 1997 equity offering.
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 entitled 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 retained 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, if the Company was attributed a valuation that is
higher than that used for purposes of the Subscription Agreement, including
the 1997 equity offering. The conditions for the exercise of this option were
met and the Company exercised this option on June 16, 1997. The Company
repurchased all 292,607 shares from GE Capital for a price of approximately
$4,000. These shares are currently held in treasury.
The Subscription Agreement also included 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
is a preferred provider of outsourced ATM services to certain banks affiliated
with GE Capital and GE Capital is a preferred provider of equipment financing
and satellite telecommunications to the Company.
Initial Public Offering. On March 7, 1997, the Company completed an initial
public offering of its Common Shares. The following transactions occurred in
connection with the offering:
(i) the Reorganization became effective;
(ii) the Shareholders' Agreement was terminated;
(iii) Michael Brown exercised Milestone Options to purchase 149,492
shares and sold them in the offering together with 205,023 shares which he
held directly prior to the offering, resulting in total net proceeds to him
of approximately $4,226,000.
(iv) Daniel Henry exercised Milestone and Incentive options to purchase
103,985 shares of the Company's stock and sold them in the offering,
resulting in net proceeds to him of approximately $1,174,000.
(v) Dennis Depenbusch exercised Milestone and Incentive options to
purchase 51,345 shares of the Company's stock and sold them in the
offering, resulting in net proceeds to him of approximately $569,000.
(vi) all of the shareholders of the Company as of March 6, 1997 except
DST Systems, Inc. sold 25% of the shares held as of that time, including
the following shareholders who held over 10% of the shares prior to the
offering: Michael J. Brown; HAEF, which sold 350,753 shares for total net
proceeds of approximately $4,493,000; and Poland Partners which sold
525,000 shares for total net proceeds of approximately $6,733,000.
(vii) the Company issued and sold in the offering a total of 3,833,650
shares, including 795,000 shares which were purchased by the underwriters
pursuant to their over-allotment option. Total net proceeds to the Company
in the offering were approximately $47,857,000.
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
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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 Holding N.V. at the end
of the lease at a bargain purchase price of $1 plus incidental expenses.
In addition, payments of $94,000, $425,000, $320,000 and $66,000 have been
made for the years ended December 31, 1997, 1996 and 1995, 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 Holding N.V. These services include AS400 computer
expertise, bank marketing and management support.
See "Description of Capital Stock--Registration Rights" for information
regarding the right of certain directors or officers and their affiliates to
require the Company to file a registration statement covering the public sale
by such persons of the shares of common stock owned by them, and to pay all of
the costs and expenses associated therewith, other than underwriting discounts
and fees.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the shares of Common Stock in the Company as of
February 15, 1998, by (i) each shareholder known by the Company to own
beneficially more than 5% of the Common Stock and (ii) each Director and named
Executive Officer of the Company and (iii) all Directors and Executive
Officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------------
NUMBER OF PERCENTAGE
STOCKHOLDER SHARES(1) OF OUTSTANDING(1)
----------- --------- -----------------
<S> <C> <C>
Directors and Named Executive Officers
Michael J. Brown(2)............................. 3,063,202 20.2%
Daniel R. Henry(3).............................. 759,619 5.0%
Jeffrey B. Newman(4)............................ 14,000 *
Bruce S. Colwill................................ 16,058 *
Dennis H. Depenbusch............................ 289,905 1.9%
Steven J. Buckley(5)............................ 1,000 *
Nicholas B. Callinan(6)......................... 5,898 *
Thomas A. McDonnell(7).......................... -- *
Andrzej Olechowski(8)........................... 1,400 *
Eriberto R. Scocimara(9)........................ -- *
All directors and executive officers as a group (8
persons)......................................... 4,151,082 27.5%
Five Percent Holders
DST Systems, Inc.(7)............................ 1,178,797 7.8%
333 West 11th Street
Kansas City, Missouri 64105-1594
Hungarian-American Enterprise Fund(9)........... 798,702 5.3%
1 East Putman Avenue,
Greenwich, Connecticut 06830
Poland Investment Fund L.P.(6)(10).............. 737,268 4.9%
Corporation Trust Center
1209 Orange St.
Wilmington, Delaware 19801
Advent Partners L.P.(6)(10)..................... 29,491 *
101 Federal Street
Boston, Massachusetts 02110
Advent Private Equity Fund-Central Europe L.P. 707,777 4.7%
(6)(10).........................................
101 Federal Street
Boston, Massachusetts 02110
Hungarian Private Equity Fund L.P.(6)(10)....... 294,910 1.9%
101 Federal Street
Boston, Massachusetts 02110
Poland Partners L.P.(5)......................... 1,769,446 11.7%
c/o Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
</TABLE>
- - --------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding Shares.
(1) Calculations of percentage of beneficial ownership assumes the exercise by
only the respective named stockholder of all options for the purchase of
shares of Common Stock held by such stockholder which are exercisable
within 60 days of February 15, 1998.
(2) Includes an aggregate of 926,323 shares of Common Stock issuable pursuant
to options (including Milestone Options) exercisable within 60 days of
February 15, 1998.
(3) Includes an aggregate of 689,619 shares of Common Stock issuable pursuant
to options (including Milestone Options) exercisable within 60 days of
February 15, 1998.
(4) Includes an aggregate of 14,000 shares of Common Stock issuable pursuant
to options exercisable within 60 days of February 15, 1998.
(5) Steven Buckley is also the President of Poland Partners L.P.
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<PAGE>
(6) Mr. Callinan's shares are held indirectly through his interest in Advent
Partners L.P. Mr. Callinan is also Senior Vice President and Managing
Director for Emerging Markets of Advent International Corporation.
(7) Thomas A. McDonnell is also the President of DST Systems, Inc.
(8) Includes an aggregate of 1,400 shares of Common Stock issuable pursuant to
options (including Milestone Options) exercisable within 60 days of
February 15, 1998.
(9) Eriberto R. Scocimara is also the President and Chief Executive Officer of
the Hungarian-American Enterprise Fund.
(10) These entities are affiliated through Advent International Corporation of
which Mr. Callinan is Senior Vice President and Managing Director for
Central and Eastern Europe. Such entities own in the aggregate 1,769,446
shares, which constitute approximately 11.7% of the outstanding shares.
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<PAGE>
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 is qualified in its entirety by reference to,
the Certificate of Incorporation and Bylaws, 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 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" and "Description of
Senior Discount Notes" regarding the limitation on the Company's right to
declare and pay a dividend on its Preferred and Common Stock. 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 fully paid and non-assessable.
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 BYLAWS
Certain provisions of the Certificate of Incorporation and Bylaws 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. A change of control provision in the
Indenture under which the Notes are to be issued also will delay or make more
difficult a takeover attempt. See "Risk Factors--Anti- takeover Provisions"
and "Description of Senior Discount Notes." Set forth below is a description
of certain provisions of the Company's Certificate of Incorporation and
Bylaws.
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
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<PAGE>
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 breaches resulting from grossly
negligent behavior), except in the situations described above. These
provisions may 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, 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
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<PAGE>
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 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.
SHARES ELIGIBLE FOR FUTURE SALE
An aggregate of approximately 8,960,000 shares held by directors, officers,
promoters and initial investors may be sold by such persons pursuant to Rule
144 and are subject to the registration rights agreement requiring the Company
to register such shares for resale. 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 "--Registration
Rights." In addition, of the 2,798,206 options outstanding, 1,984,365 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). Furthermore, the Company has registered under the
Securities Act approximately 2,000,000 Shares of Common Stock that may be
issued to the Company's employees and directors under its employee benefits
plans. See "Management."
The availability of all such shares for sale in the market may have an
effect on the Company's ability to sell shares of Common Stock in the future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.
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<PAGE>
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an indenture to be dated as of
May , 1998 (the "Indenture") between the Issuer, and State Street Bank and
Trust Company, as trustee (the "Trustee") which will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following summary of certain provisions of the Notes, the Indenture
and the Deposit Agreement does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Notes,
the Indenture and the Deposit Agreement, including the definitions of certain
terms contained therein and those terms made part of the Indenture through the
incorporation by reference of the Trust Indenture Act. Copies of the Indenture
are available upon request from the Issuer or the Trustee. For definitions of
certain capitalized terms used in this summary, see "--Certain Definitions"
below.
GENERAL
The Notes will mature on , 2006, will be limited to DM million
aggregate principal amount at maturity and will be senior, unsecured
obligations of the Issuer. The issue price of the Notes (for purposes of
calculating Accreted Value) will be DM . per DM1,000 principal amount at
maturity of the Notes.
Application has been made to list the Notes on the Luxembourg Stock
Exchange.
INTEREST
The Notes are being offered at a substantial discount from their principal
amount at maturity. Although for U.S. federal income tax purposes a
significant amount of original issue discount, taxable as ordinary income,
will be recognized by a holder as such discount accrues from the Issue Date,
no cash interest will be payable on the Notes prior to , 2002. Each Note
will bear cash interest at the rate set forth on the cover page hereof from
, 2002 or from the most recent interest payment date (each, an "Interest
Payment Date") to which interest has been paid or duly provided for, payable
on and in each year until the principal thereof is paid or duly
provided for to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the or next preceding such
Interest Payment Date. Based on the foregoing, the yield to maturity of each
Note will be % (computed on a semiannual bond equivalent basis). Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. If the Issuer defaults on any payment of principal, whether at
maturity, redemption or otherwise, interest will continue to accrue and, to
the extent permitted by law, cash interest will accrue on overdue installments
of interest at the rate of interest borne by the Notes.
FORM OF NOTES
The Notes will be represented by two permanent global notes (the "Global
Notes"), without coupons, in denominations of DM1,000 and integral multiples
thereof. Notes sold outside the United States will be represented by a single,
permanent global note in bearer form, deposited with DBC (the "DBC Global
Note"), which will represent the Notes held by account holders in DBC,
including such Notes held through the operator
of Euroclear and Cedel, each of which has an account with DBC. Notes sold to
U.S. investors will be represented by one or more, permanent global notes in
registered form deposited with a custodian for, and registered in the name of,
DTC or its nominee (the "DTC Global Note"). Except as set forth in "--
Description of Book-Entry System; Payment; Transfers", owners of beneficial
interests in the Global Notes will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or Holders thereof under the Indentures. No service charge will be made
for any registration of transfer or exchange of Notes, but the Issuer may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
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PAYMENT CURRENCY
The Issuer will make payment of any amounts owing in respect of the Global
Notes to DBC or Cede & Co., the nominee of DTC, as holder of the DBC Global
Note and the DTC Global Note, respectively, through Paying Agents (as defined
below) appointed under the Indenture and will pay amounts to the Paying Agents
in Deutsche Marks. State Street Bank and Trust Company will act as paying
agent in respect of the Notes represented by the DTC Global Note (the "U.S.
Paying Agent") and as a foreign exchange dealer for purposes of converting
Deutsche Marks to U.S. dollars. The amounts owing in respect of the Global
Notes that will be converted into U.S. dollars will depend upon the election
of the holders of interests in the DTC Global Note as to whether to receive
payment of principal and interest in Deutsche Marks. All holders of interests
in the DTC Global Note will receive U.S. dollars in respect of payments of
principal and interest unless they elect to receive such payments in Deutsche
Marks by following the procedure set forth in the Indenture. See "--
Description of Book-Entry System; Payment; Transfers--Payment."
SUBSTITUTION OF CURRENCY
Although there can be no assurance that a single European currency will be
adopted or, if adopted, on what time schedule, the Treaty on the European
Union provides for the introduction of the Euro in substitution for the
national currencies of the member states which adopt the Euro. If the Federal
Republic of Germany adopts the Euro, the regulations of the European
Commission relating to the Euro shall apply to the Notes and the Indenture.
The circumstances and consequences described in this paragraph entitle neither
the Issuer nor any holders of Notes to early redemption, rescission, notice,
repudiation, adjustment or renegotiation of the terms and conditions of the
Notes or the Indenture or to raise other defenses or to request any
compensation claim, nor will they affect any of the other obligations of the
Issuer under the Notes and the Indenture.
RANKING
The Indebtedness evidenced by the Notes will rank pari passu in right of
payment with all other existing and future senior unsecured obligations of the
Issuer (except for any obligations preferred by law) and senior in right of
payment to all future obligations of the Issuer expressly subordinated in
right of payment to the Notes. As of March 31, 1998, after giving pro forma
effect to the Offering and the application of the net proceeds therefrom, the
Indebtedness of the Issuer would have been approximately $103.3 million, of
which $3.3 million would have been secured Indebtedness. Subject to certain
limitations, the Issuer may incur additional Indebtedness in the future,
including secured Indebtedness.
The Issuer is a holding company with no direct operations and no significant
assets other than the stock of its subsidiaries. The Issuer will be dependent
on the cash flow of its subsidiaries to meet its obligations, including the
payment of interest and principal on the Notes. Its subsidiaries are separate
legal entities that have no obligations to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans or
other payments. Because its subsidiaries will not guarantee the payment of the
principal or interest on the Notes, any right of the Issuer to receive assets
of its subsidiaries upon its liquidation or reorganization (and the consequent
right of holders of the Notes to participate in the distribution or realize
proceeds from those assets) will be effectively subordinated to the claims of
the creditors of its subsidiaries (including trade creditors and holders of
indebtedness of such subsidiary), except if and to the extent the Issuer is
itself a creditor of its subsidiaries, in which case the claims of the Issuer
may still be effectively subordinated to any security interest in the assets
of its subsidiaries held by other creditors. Accordingly, after giving effect
to the sale of the Notes and the application of the net proceeds therefrom, as
of March 31, 1998, holders of the Notes would have been effectively
subordinated to $3.3 million of indebtedness of subsidiaries of the Issuer.
For a discussion of certain adverse consequences of the Issuer being a holding
Issuer and of the terms of certain existing and potential future indebtedness
of the Issuer and its subsidiaries, see "Risk Factors--Holding Company
Structure; Reliance on Subsidiaries for Distributions to Repay Notes."
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SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
REDEMPTION
The Notes will be redeemable, at the option of the Issuer, in whole at any
time or from time to time in part, on or after , 2002 on not less than 30
nor more than 60 days' prior notice at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, together with
accrued and unpaid interest, if any, to the redemption date, if redeemed
during the 12-month period beginning on of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on a relevant Interest Payment Date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................... %
2003...........................................................
2004 and thereafter............................................ 100.00
</TABLE>
At any time or from time to time prior to , 2001 the Issuer may redeem
within 60 days of one or more Equity Offerings up to 33 1/3% of the aggregate
principal amount at maturity of the originally issued Notes with all or a
portion of the net proceeds of such offering, at a redemption price equal to
% of the Accreted Value thereof as of the redemption date, together with
accrued and unpaid interest, if any, to the date of redemption (subject to the
right of holders of record on relevant record dates to receive interest due on
relevant Interest Payment Dates); provided that immediately after giving
effect to any such redemption, at least 66 2/3% aggregate principal amount at
maturity of the originally issued Notes remains outstanding.
In addition, (i) upon the occurrence of a Change of Control, each holder of
Notes shall have the right to require that the Issuer purchase such holder's
Notes, in whole or in part and in integral multiples of DM1,000 principal
amount at maturity, at a purchase price of 101% of the Accreted Value thereof,
together with accrued and unpaid interest, if any, to the date of redemption,
and (ii) upon the occurrence of an Asset Sale, the Issuer may be obligated to
make an offer to purchase all or a portion of the outstanding Notes at a price
of 100% of the Accreted Value thereof, together with accrued and unpaid
interest, if any, to the date of purchase (in each case, subject to the right
of holders of record on relevant record dates to receive interest due on
relevant Interest Payment Dates). See "--Certain Covenants--Purchase of Notes
upon a Change of Control" and "--Limitation on Sale of Assets," respectively.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date
by the Trustee in compliance with any applicable rules of the Luxembourg Stock
Exchange or the principal U.S. securities exchange, if any, on which the Notes
are listed or, if the Notes are not listed on the Luxembourg Stock Exchange or
a U.S. securities exchange or if there are no applicable rules, on a pro rata
basis, by lot or by such other method as such Trustee will deem fair and
appropriate; provided, however, that no Note of DM1,000 in principal amount at
maturity or less will be redeemed in part. Notice of redemption will be
mailed, first-class postage prepaid, and otherwise in accordance with the
procedures set forth under "--Notices," at least 30 but not more than 60 days
before the redemption date to each holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note will state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date, cash
interest, or original issue discount, as the case may be, will cease to accrue
on Notes or portions thereof called for redemption and accepted for payment.
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CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Additional Indebtedness. The Issuer will not, and will not
permit any Restricted Subsidiary to Incur any Indebtedness (including any
Acquired Indebtedness), except for Permitted Indebtedness; provided that the
Issuer will be permitted to Incur Indebtedness if after giving pro forma
effect to such Incurrence (including the application of the net proceeds
therefrom), the ratio of (x) Total Consolidated Indebtedness outstanding as of
the date of such Incurrence to (y) Annualized Pro Forma Consolidated Operating
Cash Flow for the latest fiscal quarter for which consolidated financial
statements of the Issuer are available preceding the date of such Incurrence
would be greater than zero and less than or equal to (i) 6.0 to 1 if the
Indebtedness is Incurred prior to December 31, 1999 or (ii) 5.0 to 1 if the
Indebtedness is Incurred on or after December 31, 1999.
In making the foregoing calculation, pro forma effect will be given to: (i)
the Incurrence of such Indebtedness and (if applicable) the application of the
net proceeds therefrom, including to refinance other Indebtedness, as if such
Indebtedness was Incurred, and the application of such proceeds occurred, on
the first day of the latest fiscal quarter for which consolidated financial
statements of the Issuer are available immediately preceding the date of the
Incurrence of such Indebtedness, (ii) the Incurrence, repayment or retirement
of any other Indebtedness by the Issuer and its Restricted Subsidiaries since
the first day of such fiscal quarter as if such Indebtedness were Incurred,
repaid or retired on the first day of such fiscal quarter (except that, in
making such calculation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of such
Indebtedness during such fiscal quarter) and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Issuer or its Restricted Subsidiaries, as the case may be, since the first day
of such fiscal quarter, as if such acquisition or disposition occurred on the
first day of such fiscal quarter.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness or any portion thereof meets the criteria of more than
one of the types of Indebtedness the Issuer or any Restricted Subsidiary is
permitted to Incur, the Issuer will have the right, in its sole discretion, to
classify such item of Indebtedness or portion thereof at the time of the
Incurrence and will only be required to include the amount and type of such
Indebtedness or portion thereof under the clause permitting the Indebtedness
so classified.
Limitation on Restricted Payments. (a) The Issuer will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Capital Stock of the Issuer (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire such shares of Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock of the Issuer or any Capital
Stock of any Affiliate of the Issuer (other than Capital Stock of any
Wholly Owned Restricted Subsidiary) or any options, warrants or other
rights to acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness
(other than any Subordinated Indebtedness owed to and held by a Restricted
Subsidiary);
(iv) make any Investment (other than any Permitted Investment and subject
to the provisions of the "Limitation on Investments in Unrestricted
Subsidiaries" covenant);
(v) create or assume any guarantee of Indebtedness of any Affiliate of
the Issuer (other than (i) guarantees of any Indebtedness of any Wholly
Owned Restricted Subsidiary by the Issuer or any Restricted Subsidiary or
(ii) the guarantees of the Notes by any Restricted Subsidiary); or
(vi) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than the Issuer or any of
its Wholly Owned Restricted Subsidiaries or to all holders of Capital Stock
of such Restricted Subsidiary on a pro rata basis);
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(such payments or other actions described in (but not excluded from) clauses
(i) through (vi) are collectively referred to as "Restricted Payments"),
unless: (1) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted Payment;
(2) immediately after giving effect to such Restricted Payment, the Issuer
could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Additional Indebtedness"
covenant; and (3) immediately after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments declared or made on or after
the date of the Indenture would not exceed an amount equal to the sum of:
(A) 50% of cumulative Consolidated Adjusted Net Income (or, if the
Consolidated Adjusted Net Income is a deficit, minus 100% of the amount of
such deficit) of the Issuer during the period (taken as a single accounting
period) beginning on the first day of the fiscal quarter of the Issuer
beginning after the date of the Indenture and ending on the last day of the
last full fiscal quarter immediately preceding the date of such Restricted
Payment for which quarterly or annual consolidated financial statements of
the Issuer are available; plus
(B) the aggregate Net Cash Proceeds received by the Issuer on or after
the date of the Indenture as capital contributions or from the issuance or
sale (other than to any Subsidiary) of shares of Qualified Capital Stock of
the Issuer (including upon the exercise of options, warrants or rights) or
warrants, options or rights to purchase shares of Qualified Capital Stock
of the Issuer; plus
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Issuer from the issuance or sale (other than to any
Subsidiary) of debt securities or Redeemable Capital Stock that have been
converted into or exchanged for Qualified Capital Stock of the Issuer,
together with the aggregate net cash proceeds received by the Issuer at the
time of such conversion or exchange; plus
(D) to the extent not otherwise included in the Consolidated Adjusted Net
Income of the Issuer, an amount equal to the sum of (i) the net reduction
in Investments in any Person (other than Permitted Investments) resulting
from the payment in cash of dividends, repayments of loans or advances or
other transfers of assets, in each case to the Issuer or any Restricted
Subsidiary after the date of the Indenture from such Person and (ii) the
portion (proportionate to the Issuers equity interest in such Subsidiary)
of the fair market value of the net assets of any Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that in the case of (i) or (ii) above the
foregoing sum shall not exceed the amount of Investments previously made
(and treated as a Restricted Payment) by the Issuer or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
(b) Notwithstanding paragraph (a) above, the Issuer and any Restricted
Subsidiary may take the following actions so long as (with respect to clauses
(ii), (iii), (iv), (v) and (vi) below) no Default or Event of Default shall
have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such dividend would
have complied with the provisions of paragraph (a) above and such payment
will be deemed to have been paid on such date of declaration for purposes
of the calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Issuer, in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, shares of Qualified Capital Stock of the
Issuer;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of shares of Qualified Capital Stock of
the Issuer;
(iv) the purchase of any Subordinated Indebtedness at a purchase price
not greater than 101% of the principal amount thereof, together with
accrued interest, if any, thereof in the event of a Change of Control in
accordance with provisions similar to the "Purchase of Notes upon a Change
of Control" covenant; provided that prior to such purchase the Issuer has
made the Change of Control Offer as provided in such covenant with respect
to the Notes and has purchased all Notes validly tendered for payment in
connection with such Change of Control Offer;
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(v) Investments constituting Restricted Payments made as the result of
the receipt of non-cash consideration from any Asset Sale made in
compliance with the "Limitation on Sale of Assets" covenant; and
(vi) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out
of the net cash proceeds of a substantially concurrent incurrence (other
than to a Subsidiary) of, new Subordinated Indebtedness so long as (A) the
principal amount of such new Subordinated Indebtedness does not exceed the
principal amount (or, if such Subordinated Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as
of the date of determination) of the Subordinated Indebtedness being so
purchased, redeemed, defeased, acquired or retired, plus the lesser of the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Subordinated Indebtedness being
refinanced or the amount of any premium reasonably determined by the Issuer
as necessary to accomplish such refinancing, plus, in either case, the
amount of expenses of the Issuer incurred in connection with such
refinancing, (B) such new Subordinated Indebtedness is subordinated to the
Notes to the same extent as such Subordinated Indebtedness so purchased,
redeemed, defeased, acquired or retired and (C) such new Subordinated
Indebtedness has an Average Life longer than the Average Life of the Notes
and a final Stated Maturity of principal later than the final Stated
Maturity of principal of the Notes.
The actions described in clauses (i), (ii), (iii) and (iv) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a) and the actions described in clauses (v) and (vi) of this paragraph (b)
shall be Restricted Payments that shall be permitted to be taken in accordance
with this paragraph (b) and shall not reduce the amount that would otherwise
be available for Restricted Payments under clause (3) of paragraph (a) above.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Issuer will not, and will not permit any Restricted
Subsidiary to, issue or sell any Capital Stock of a Restricted Subsidiary
(other than to the Issuer or a Wholly Owned Restricted Subsidiary) other than
Permitted Capital Stock Sales; provided, however, that this covenant shall not
prohibit (i) the ownership by directors of directors' qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted Subsidiary,
to the extent mandated by applicable law, (ii) the issuance and sale of all,
but not less than all, of the issued and outstanding Capital Stock of any
Restricted Subsidiary owned by the Issuer or any Restricted Subsidiary in
compliance with the "Limitation on Sale of Assets" covenant.
Limitation on Transactions with Affiliates. (a) The Issuer will not, and
will not permit any Restricted Subsidiary to enter into or suffer to exist,
directly or indirectly, any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of
assets, property or services) with, or for the benefit of, any Affiliate of
the Issuer or any Restricted Subsidiary unless (i) such transaction or series
of related transactions are on terms that are no less favorable to the Issuer,
or such Restricted Subsidiary, as the case may be, than those that could have
been obtained in an arm's-length transaction with unrelated third parties who
are not Affiliates, (ii) with respect to any transaction or series of related
transactions involving aggregate consideration equal to or greater than $1.0
million (or to the extent not denominated in U.S. dollars, the U.S. Dollar
Equivalent thereof), the Issuer will deliver an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above; (iii) with respect to any transaction or
series of related transactions involving aggregate consideration equal to or
greater than $5.0 million (or, to the extent not denominated in U.S. dollars,
the U.S. Dollar Equivalent thereof), the Issuer will deliver an officers'
certificate to the Trustee certifying that such transaction or series of
related transactions complies with clause (i) above and has been approved by a
majority of the Disinterested Directors of the Board of Directors of the
Issuer, or the Issuer shall deliver to the Trustee a written opinion from an
internationally recognized investment
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banking firm to the effect that such transaction or series of related
transactions is fair to the Issuer or such Restricted Subsidiary, as the case
may be, from a financial point of view and (iv) with respect to any
transaction or series of related transactions involving aggregate
consideration equal to or greater than $10.0 million (or to the extent not
denominated in U.S. dollars, the U.S. Dollar Equivalent thereof), the Issuer
shall deliver to the Trustee a written opinion from an internationally
recognized investment banking firm to the effect that such transaction or
series of related transactions is fair to the Issuer or such Restricted
Subsidiary, as the case may be, from a financial point of view; provided,
however, that this provision will not restrict (1) any transaction or series
of related transactions among the Issuer and Restricted Subsidiaries or among
Restricted Subsidiaries, (2) Investments in Qualified Capital Stock of the
Issuer by any Person, including an Affiliate of the Issuer, (3) the Issuer
from paying reasonable and customary regular compensation and fees to
directors of the Issuer or any Restricted Subsidiary who are not executives of
any such Persons, (4) the Issuer or any Subsidiary from making any Restricted
Payment in compliance with the "Limitation on Restricted Payments" covenant,
(5) any transaction by the Issuer or any Restricted Subsidiary with a
supplier, vendor or lessor of goods or services in the ordinary course of
business, (6) any compensation payable under any employment agreement entered
into by the Issuer or any of its Restricted Subsidiaries in the ordinary
course of business, or (7) transactions that do not constitute Restricted
Payments by virtue of exceptions set forth in the definition of "Permitted
Investments" set forth below under the caption "Certain Definitions".
Limitation on Liens. The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to
exist any Lien (other than Permitted Liens) on or with respect to any of its
property or assets, including any shares of stock or indebtedness of any
Restricted Subsidiary, whether owned at the date of the Indenture or
thereafter acquired, or any income, profits or proceeds therefrom, or assign
or otherwise convey any right to receive income thereon, unless (x) in the
case of any Lien securing Subordinated Indebtedness, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Lien and (y) in the case of any other Lien, the Notes are equally and ratably
secured with the obligation or liability secured by such Lien.
Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries. (a) The Issuer will not permit any Restricted Subsidiary,
directly or indirectly, to guarantee, assume or in any other manner become
liable with respect to any Indebtedness of the Issuer unless (i) (A) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the guarantee of payment of the Notes by such
Restricted Subsidiary and (B) with respect to any guarantee of Subordinated
Indebtedness of the Issuer by a Restricted Subsidiary, any such guarantee
shall be subordinated to such Restricted Subsidiary's guarantee with respect
to the relevant Notes at least to the same extent as such Subordinated
Indebtedness is subordinated to the Notes and (ii) such Restricted Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights or reimbursement, indemnity or subrogation or any
other rights against the Issuer or any other Restricted Subsidiary as a result
of any payment by such Restricted Subsidiary under its guarantee until the
relevant Notes have been paid in full; provided that this paragraph (a) shall
not be applicable to (x) any guarantee of any Restricted Subsidiary that
existed at the time such Person became a Restricted Subsidiary or (y) any
guarantee of any Restricted Subsidiary of Indebtedness incurred pursuant to a
Bank Facility.
(b) Notwithstanding the foregoing, any guarantee of the Notes created
pursuant to the provisions described in the foregoing paragraph (a) shall
provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
who is not an Affiliate of the Issuer, of all of the Issuer's Capital Stock
in, or all or substantially all the assets of, such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by the Indenture) or (ii)
the release by the holders of the Indebtedness of the Issuer described in the
preceding paragraph of their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under
such Indebtedness, except by or as a result of payment under such guarantee),
at a time when (A) no other Indebtedness of the Issuer has been guaranteed by
such Restricted Subsidiary or (B) the holders of all such other Indebtedness
which is guaranteed by such Restricted Subsidiary also release their guarantee
by such Restricted Subsidiary (including any deemed release upon payment in
full of all obligations under such Indebtedness, except by or as a result of
payment under such guarantee).
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Purchase of Notes upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes will have the right to require
that the Issuer purchase such holder's Notes, in whole or in part in integral
multiples of DM1,000 principal amount at maturity, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
Accreted Value of the Notes, plus, accrued and unpaid interest, if any, to the
date of purchase (the "Change of Control Purchase Date"), pursuant to the
offer described below (the "Change of Control Offer") and the other procedures
set forth in the Indenture.
Within 15 days following any Change of Control, the Issuer shall notify the
Trustee and give written notice of such Change of Control to each holder of
Notes by first-class mail, postage prepaid, at the address appearing in the
security register, stating, among other things, (i) the purchase price and the
purchase date, which shall be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed, or such later date as is
necessary to comply with requirements under the Exchange Act or any applicable
securities laws or regulations; (ii) that any Note not tendered will continue
to accrue interest or original issue discount, as the case may be; (iii) that,
unless the Issuer defaults in the payment of the purchase price, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest or original issue discount, as the case may be, after the
Change of Control Purchase Date; and (iv) certain other procedures that a
holder of Notes must follow to accept a Change of Control Offer or to withdraw
such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The failure of the Issuer
to make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due would result in an Event of Default and would give the
Trustee and the holders of the Notes the rights described under "--Events of
Default."
One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Issuer's assets. This
term has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event holders
of the Notes elect to require the Issuer to purchase the Notes and the Issuer
elects to contest such election, there can be no assurance as to how a court
interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Issuer to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Issuer in a transaction which constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Issuer to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Issuer's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Issuer (including, in certain circumstances, an
acquisition of the Issuer by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined
as a Change of Control. See "--Certain Definitions" for the definition of
"Change of Control." A transaction involving the Issuer's management or its
affiliates, or a transaction involving a recapitalization of the Issuer, would
result in a Change of Control if it is the type of transaction specified by
such definition.
The Issuer will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws
and regulations in connection with a Change of Control Offer.
Limitation on Sale of Assets. (a) The Issuer will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale
unless (i) the consideration received by the Issuer or such Restricted
Subsidiary for such Asset Sale is not less than the fair market value of the
shares or assets sold (as determined by the Board of Directors of the Issuer,
whose determination shall be conclusive and evidenced by a Board Resolution)
and (ii) the consideration received by the Issuer or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 85% cash or Cash
Equivalents.
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(b) If the Issuer or any Restricted Subsidiary engages in an Asset Sale, the
Issuer may use the Net Cash Proceeds thereof, within 12 months after such
Asset Sale, to (i) permanently repay or prepay any then outstanding
unsubordinated Indebtedness of the Issuer or Indebtedness of any Restricted
Subsidiary or (ii) invest (or enter into a legally binding agreement to
invest) in ATM Network Assets or in properties or assets to replace the
properties and assets that were the subject of the Asset Sale. If any such
legally binding agreement to invest such Net Cash Proceeds is terminated, then
the Issuer may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as
provided in clause (i) or (ii) (without regard to the parenthetical contained
in such clause (ii)) above. The amount of such Net Cash Proceeds not so used
as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10.0 million (or,
to the extent not denominated in U.S. dollars, the U.S. Dollar Equivalent
thereof) the Issuer shall, within 15 business days, make an offer to purchase
(an "Excess Proceeds Offer") from all holders of Notes, on a pro rata basis,
in accordance with the procedures set forth below, the maximum Accreted Value
of Notes (expressed as a multiple of DM1,000) that may be purchased with the
Excess Proceeds. The offer price as to each Note shall be payable in cash in
an amount equal to 100% of the Accreted Value of such Note as of the date of
purchase plus, in each case, accrued interest, if any (the "Offered Price") to
the date an Excess Proceeds Offer is consummated. To the extent that the
aggregate Offered Price of Notes tendered pursuant to an Excess Proceeds Offer
is less than the Excess Proceeds, the Issuer may use such deficiency for
general corporate purposes. If the aggregate Offered Price of Notes validly
tendered and not withdrawn by holders thereof exceeds the Excess Proceeds,
Notes to be purchased will be selected on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset to zero.
Limitation on Sale and Leaseback Transactions. The Issuer will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into
any Sale and Leaseback Transaction (other than a transaction that is solely
between the Issuer and any Wholly Owned Restricted Subsidiary or solely
between Wholly Owned Restricted Subsidiaries) after the Issue Date with
respect to any property or assets (whether now owned or hereafter acquired),
unless (i) the sale or transfer of such property or assets to be leased is
treated as an Asset Sale and the Issuer complies with the "Limitation on Sale
of Assets" covenant, (ii) the Issuer or such Restricted Subsidiary would be
permitted to incur Indebtedness under the "Limitation on Additional
Indebtedness" covenant (including Permitted Indebtedness) in the amount of the
Attributable Value of such Sale and Leaseback Transaction and (iii) the Issuer
or such Restricted Subsidiary would be permitted to grant a Lien under the
"Limitation on Liens" covenant (including Permitted Liens) to secure the
amount of the Attributable Value of such Sale and Leaseback Transaction.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock to the Company or any Restricted Subsidiary, (b) pay any Indebtedness
owed to the Issuer or any other Restricted Subsidiary, (c) make Investments in
the Issuer or any other Restricted Subsidiary, (d) transfer any of its
properties or assets to the Issuer or any other Restricted Subsidiary or (e)
guarantee any Indebtedness of the Issuer or any other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of
(i) any agreement in effect on the date of the Indenture and listed on or of a
type described in a schedule attached to the Indenture, (ii) applicable law,
(iii) customary non-assignment provisions of any lease governing a leasehold
interest of the Issuer or any Restricted Subsidiary, (iv) any agreement or
other instrument of a Person acquired by the Issuer or any Restricted
Subsidiary in existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, (v) the refinancing of
Indebtedness incurred under the agreements existing on the date of the
Indenture, so long as such encumbrances or restrictions are no less favorable
to the Issuer or any Restricted Subsidiary than those contained
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in the respective agreement as in effect on the date of the Indenture, (vi)
pursuant to the Indenture or the Notes, (vii) any Bank Facility if such
encumbrance or restriction applies only (x) to amounts which at any point in
time (other than during such periods as are described in clause (y)) (1)
exceed amounts due and payable (or which are to become due and payable within
30 days) in respect of the Notes or the Indenture for interest, premium and
principal (after giving effect to any realization by the Issuer under any
applicable Currency Agreement), or (2) if paid, would result in an event
described in the following clause (y) of this sentence, or (y) during the
pendency of any event that causes, permits or, after notice or lapse of time,
would cause or permit the holder(s) of the Indebtedness governed by such
agreement or instrument to declare any such Indebtedness to be immediately due
and payable or require cash collateralization or cash cover for such
Indebtedness for so long as such cash collateralization or cash cover has not
been provided, or (viii) any arrangement arising or agreed to in the ordinary
course of business, not relating to any Indebtedness that does not
individually, or together with all such encumbrances or restrictions, detract
from the value of property or assets of the Issuer or any Restricted
Subsidiary in any manner material to the Issuer or any Restricted Subsidiary.
Limitation on Investments in Unrestricted Subsidiaries. The Issuer will not
make, and will not permit any of its Restricted Subsidiaries to make, any
Investments in Unrestricted Subsidiaries if, at the time thereof, the
aggregate amount of such Investments would exceed the amount of Restricted
Payments then permitted to be made pursuant to the "Limitation on Restricted
Payments" covenant (calculated as if no prior Investments in Unrestricted
Subsidiaries had been made by the Issuer or any Restricted Subsidiary). Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Issuer or a
Restricted Subsidiary, without duplication, under the provisions of clause
(iv) of paragraph (a) of the "Limitations on Restricted Payments" covenant and
(ii) may be made in cash or property (if made in property, the fair market
value thereof as determined by the Board of Directors of the Issuer (whose
determination shall be conclusive and evidenced by a Board Resolution) shall
be deemed to be the amount of such Investment for the purpose of clause (i)).
Business of the Issuer. The Issuer will not, and will not permit any
Restricted Subsidiary to, engage in any business other than an ATM Network
Business.
Provision of Financial Statements and Reports. Whether or not the Issuer is
required to file reports with the Commission, the Issuer will file on a timely
basis with the Commission, the annual reports, quarterly reports and other
documents that the Issuer would be required to file if it were subject to
Section 13 or 15 of the Exchange Act. The Issuer will also be required (a) to
file with the Trustee, and provide to each holder of Notes, without cost to
such holder, copies of such reports and documents within 15 days after the
date on which such reports and documents are filed with the Commission or the
date on which the Issuer would be required to file such reports and documents
if the Issuer were so required, and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, to supply at the Issuer's cost copies of such reports and
documents to any prospective holder of Notes promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Issuer will not in a single transaction or a series of related
transactions consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets substantially as an entirety to any other
Person or Persons or permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions, if such transaction or series
of related transactions, in the aggregate, would result in the sale,
assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Issuer and its
Restricted Subsidiaries on a consolidated basis substantially as an entirety
to any Person or Persons, unless: (i) at the time and immediately after giving
effect thereto either (a) the Issuer will be the surviving corporation or (b)
the Person (if other than
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the Issuer) formed by such consolidation or into which the Issuer or such
Restricted Subsidiary is merged or the Person which acquires by sale,
conveyance, transfer, lease or other disposition, all or substantially all of
the properties and assets of the Issuer and its Restricted Subsidiaries on a
consolidated basis substantially as an entirety, as the case may be (the
"Surviving Entity"), (1) will be a corporation organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and (2) will expressly assume, by a supplemental
indenture to the Indenture in form satisfactory to the Trustee, the Issuer's
obligations for the due and punctual payment of the principal of, premium, if
any, on and interest on all the Notes and the performance and observance of
every covenant of the Indenture on the part of the Issuer to be performed or
observed; (ii) immediately before and after giving effect to such transaction
or series of transactions on a pro forma basis (and treating any obligation of
the Issuer or any Restricted Subsidiary incurred in connection with or as a
result of such transaction or series of transactions as having been incurred
of the time of such transaction), no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (on the assumption
that the transaction or series of transactions occurred on the first day of
the latest fiscal quarter for which consolidated financial statements of the
Issuer are available immediately prior to the consummation of such transaction
or series of transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), the Issuer (or the Surviving Entity if the Issuer is not the
continuing obligor under the Indenture) could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
provisions of the "Limitation on Additional Indebtedness" covenant; and (iv)
if any of the property or assets of the Issuer or any of its Restricted
Subsidiaries would thereupon become subject to any Lien, the provisions of the
"Limitation on Liens" covenant are complied with.
In connection with any such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, the Issuer or the Surviving
Entity shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, and if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the
requirements of the relevant Indenture and that all conditions precedent
therein provided for relating to such transaction have been complied with.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all of substantially all of the properties
and assets of the Issuer in accordance with the immediately preceding
paragraphs in which the Issuer is not the continuing obligor under the
Indenture, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer under the Indenture with the
same effect as if such successor had been named as the Issuer therein. When a
successor assumes all the obligations of its predecessor under the Indenture,
the predecessor shall be released from those obligations; provided that in the
case of a transfer by lease, the predecessor shall not be released from the
payment of principal and interest on the Notes.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(ii) default in the payment of the principal of or premium, if any, on
any Note at its Maturity;
(iii) (A) default in the performance, or breach, of any covenant or
agreement of the Issuer contained in the Indenture (other than a default in
the performance, or breach, of a covenant or agreement which is
specifically dealt with in the immediately preceding clauses (i) and (ii)
or in clauses (B), (C) or (D) of this clause (iii)) and continuance of such
default or breach for a period of 30 days after written notice shall have
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been given to the Issuer by the Trustee or to the Issuer and the Trustee by
the holders of at least 25% in aggregate principal amount at maturity of
the Notes then outstanding; (B) default in the performance or breach of the
provisions of the "Limitation on Sale of Assets" covenant; (C) default in
the performance or breach of the provisions of "--Consolidation, Merger and
Sale of Assets"; and (D) failure to make or consummate a Change of Control
Offer in accordance with the provisions of the "Purchase of Notes upon a
Change of Control" covenant;
(iv) (A) one or more defaults in the payment of principal of or premium,
if any, or interest on Indebtedness of the Issuer or any Restricted
Subsidiary aggregating $10.0 million or more (or, to the extent not
denominated in U.S. dollars, the U.S. Dollar Equivalent thereof), when the
same becomes due and payable at the stated maturity thereof, and such
default or defaults shall have continued after any applicable grace period
and shall not have been cured or waived or (B) Indebtedness of the Issuer
or any Restricted Subsidiary aggregating $10.0 million or more (or, to the
extent not denominated in U.S. dollars, the U.S. Dollar Equivalent thereof)
shall have been accelerated or otherwise declared due and payable, or
required to be prepaid or repurchased (other than by regularly scheduled
required prepayment), prior to the stated maturity thereof;
(v) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Issuer or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $10.0 million (or, to
the extent not denominated in U.S. dollars, the U.S. Dollar Equivalent
thereof) and either (A) an enforcement proceeding shall have been commenced
by any creditor upon such judgment or order or (B) there shall have been a
period of 30 days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, was not in effect;
(vi) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Issuer or any Significant Subsidiary;
If an Event of Default (other than an Event of Default specified in clause
(vi) above) shall occur and be continuing, the Trustee or the holders of not
less than 25% in aggregate principal amount at maturity of the Notes then
outstanding, by written notice to the Issuer (and to the Trustee if such
notice is given by the holders), may, and the Trustee upon the written request
of such holders shall, declare the Accreted Value of, premium, if any,
and accrued interest on all of such outstanding Notes immediately due and
payable, and upon any such declaration all such amounts payable in respect of
the Notes shall become immediately due and payable. If an Event of Default
specified in clause (vi) above occurs and is continuing, then the Accreted
Value of, premium, if any, and accrued interest on all of the outstanding
Notes shall ipso facto become immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount at
maturity of the outstanding Notes by written notice to the Issuer and the
Trustee, may rescind such declaration and its consequences if (a) the Issuer
has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue
interest on all outstanding Notes, (ii) all unpaid Accreted Value and premium,
if any, on any outstanding Notes that have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes, (iii) to the extent that payment of such interest is lawful, interest
upon overdue interest and overdue principal at the rate borne by the Notes,
(iv) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and (b) all Events of Default, other than the non-
payment of amounts of Accreted Value of, premium, if any, or interest on the
Notes that has become due solely by such declaration of acceleration, have
been cured or waived. No such rescission shall affect any subsequent default
or impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because of an Event of Default specified
in subparagraph (iv)(A) or (iv)(B) above has occurred and is continuing, such
Event of Default and all consequences thereof (including, without limitation,
any acceleration
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or resulting payment default) will be automatically annulled, waived and
rescinded if the Indebtedness that is the subject of such Event of Default has
been discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness or the default that is the basis
for such Event of Default has been cured and no other Event of Default has
occurred and has not been cured or waived.
The holders of not less than a majority in aggregate principal amount at
maturity of the outstanding Notes may, on behalf of the holders of all the
Notes, waive any past defaults under the Indenture, except a default in the
payment of principal of, premium, if any, or interest on any Note or in
respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Note
outstanding.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each holder of the Notes, notice of the
Default or Event of Default within 30 days after the occurrence thereof.
Except in the case of a Default or an Event of Default in payment of principal
of, or premium, if any, or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if a committee of its trust officers in
good faith determines that withholding the notice is in the interests of the
holders of such Notes.
The Issuer is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Issuer of its obligations under the
Indenture and as to any default in such performance. The Issuer is also
required to notify the Trustee within five business days of the occurrence of
any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE
The Issuer may, at its option and at any time, elect to have the obligations
of the Issuer on the Notes discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Issuer will be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes and to have satisfied all its other obligations under such Notes and the
Indenture insofar as such Notes are concerned except for (i) the rights of
holders of outstanding Notes to receive payments in respect of principal of,
premium, if any,
and interest on such Notes when such payments are due, (ii) the Issuer's
obligations to issue temporary Notes, register the transfer or exchange of any
such Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an
office or agency for payments in respect of the Notes and segregate and hold
such payments in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee and (iv) the defeasance provisions of the applicable
Indenture. In addition, the Issuer may, at its option and at any time, elect
to have the obligations of the Issuer released with respect to certain
covenants set forth in the Indenture, and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Issuer must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the Notes, cash in Deutsche Marks or
U.S. dollars, or a combination thereof, in such amounts as will be sufficient,
in the opinion of an internationally recognized firm of independent public
accountants or an internationally recognized investment banking firm, to pay
and discharge the principal of, premium, if any, and interest on the
outstanding Notes on the Stated Maturity of such principal, premium, if any,
or installment of interest; (ii) no Default or Event of Default with respect
to the Notes will have occurred and be continuing on the date of such deposit
or, insofar as an event of bankruptcy under clause (vi) of "--Events of
Default" above is concerned, at any time during the period ending on the first
day following the date that is six months after such deposit; (iii) such
defeasance or covenant defeasance will not result in a breach or violation of,
or constitute a default under, any material agreement or instrument (other
than the Indenture) to which the Issuer is a party or by which it is bound;
(iv) in the case of defeasance, the Issuer shall have delivered to the Trustee
an Opinion of Counsel in the United States stating that the Issuer has
received from, or there has
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been published by, the Internal Revenue Service a ruling, or since the date of
this Prospectus, there has been a change in applicable federal income tax law,
in either case to the effect that, and based thereon such opinion shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of such
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (v) in the case of covenant defeasance, the
Issuer shall have delivered to the Trustee an Opinion of Counsel in the United
States to the effect that the holders of the Notes outstanding will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such covenant defeasance and will be subject to U.S. federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred; (vi) in the
case of defeasance or covenant defeasance, the Issuer shall have delivered to
the Trustee an Opinion of Counsel in the United States to the effect that
after the first day following six months after the date of such deposit or
after the date such opinion is delivered, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; (vii) the Issuer shall
have delivered to the Trustee an officers' certificate stating that the
deposit was not made by the Issuer with the intent of preferring the holders
of the Notes over the other creditors of the Issuer with the intent of
hindering, delaying or defrauding creditors of the Issuer; and (viii) the
Issuer shall have delivered to the Trustee an officers' certificate and an
Opinion of Counsel in the United States, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes as expressly
provided for in the Indenture) and the Trustee, at the expense of the Issuer,
will execute proper instruments acknowledging satisfaction and discharge of
the Indenture when (i) either (a) all the Notes theretofore authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid) have been delivered to the Trustee for cancellation or (b) all the
Notes not theretofore delivered to the Trustee for cancellation (x) have
become due and payable, (y) will become due and payable at Stated Maturity
within one year or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Issuer,
and the Issuer has irrevocably deposited or caused to be deposited with the
Trustee trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire Indebtedness on such Notes not theretofore delivered to
the Trustee for cancellation, for Accreted Value of, premium, if any, and
interest on the Notes to the date of such deposit (in the case of Notes which
have become due and payable) or to the Stated Maturity or redemption date, as
the case may be; (ii) the Issuer has paid or caused to be paid all other sums
payable under the Indenture by the Issuer; and (iii) the Issuer has delivered
to the Trustee an officers' certificate and an Opinion of Counsel in the
United States, each stating that all conditions precedent provided in the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with.
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by a supplemental
indenture entered into by the Issuer and the Trustee with the consent of the
holders of a majority in aggregate outstanding principal amount at maturity of
the Notes; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Note affected thereby,
(i) change the Stated Maturity of the principal of, or any installment of
interest on, any Note or reduce the principal amount or Accreted Value thereof
or premium, if any, or the rate of interest thereon or change the coin or
currency in which the principal of any such Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in the
case of redemption, on or after the redemption date); (ii) amend, change or
modify the redemption provisions of the Indenture or the Notes or the
obligation of the Issuer to make and consummate an Excess Proceeds Offer with
respect to any Asset Sale in accordance with the "Limitation on Sale of
Assets" covenant or the obligation of the Issuer to make and consummate a
Change of
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Control Offer in the event of a Change of Control in accordance with the
"Purchase of Notes upon a Change of Control" covenant, including, in each
case, amending, changing or modifying any definition relating thereto; (iii)
reduce the percentage in principal amount at maturity of outstanding Notes,
the consent of whose holders is required for any waiver of compliance with
certain provisions of the Indenture; (iv) modify any of the provisions
relating to supplemental indentures requiring the consent of holders or
relating to the waiver of past defaults or relating to the waiver of certain
covenants, except to increase the percentage of outstanding Notes required for
such actions or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the holder of each Note
affected thereby; (v) except as otherwise permitted under "--Consolidation,
Merger and Sale of Assets," consent to the assignment or transfer by the
Issuer of any of its rights or obligations under the Indenture; or (vi) amend
or modify any of the provisions of the Indenture relating to any guarantee of
the Notes in any manner adverse to the holders of such Notes.
Notwithstanding the foregoing, without the consent of any holder of the
Notes, the Issuer and the Trustee may modify or amend the Indenture: (a) to
evidence the succession of another Person to the Issuer or any other obligor
on the Notes, and the assumption by any such successor of the covenants of the
Issuer or such obligor in the Indenture and in the Notes in accordance with
"--Consolidation, Merger, Sale of Assets"; (b) to add to the covenants of the
Issuer or any other obligor upon the Notes for the benefit of the holders of
such Notes or to surrender any right or power conferred upon the Issuer or any
other obligor upon such Notes, as applicable, in the Indenture or in such
Notes; (c) to cure any ambiguity, or to correct or supplement any provision in
the Indenture or the Notes or make any other provisions with respect to
matters or questions arising under the Indenture or the Notes; provided that,
in each case, such provisions shall not adversely affect the interest of the
holders of such Notes; (d) to comply with the requirements of the Commission
in order to effect or maintain the qualification, if any, of the Indenture
under the Trust Indenture Act; (e) to add a guarantor of the Notes under the
Indenture; (f) to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture; or (g) to mortgage, pledge, hypothecate
or grant a security interest in favor of the Trustee for the benefit of the
holders of the Notes as additional security for the payment and performance of
the Issuer's and any guarantor's obligations under the Indenture, in any
property, or assets, including any of which are required
to be mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to the Indenture or otherwise.
The holders of a majority in aggregate principal amount at maturity of the
Notes outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, agent, incorporator or stockholder of the
Issuer, as such, shall have any liability for any obligations of the Issuer
under the Notes or the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holder of the Notes by
accepting a Note irrevocably waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Notes. Such waiver may not be effective to waive liabilities under the U.S.
federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
NOTICES
Any notice or communication to holders of the Notes will be in writing and
delivered in person or mailed by first class mail, postage prepaid, addressed
to the holders at their respective addresses as they appear on the
registration books of the registrar under the Indenture and shall be
sufficiently given if so mailed within the time prescribed. If a notice or
communication is mailed in the manner provided above, it is duly given,
whether or not received by the addressee. In addition, all notices will be
published (so long as the Notes are listed on the Luxembourg Stock Exchange
and the rules of the Exchange so require) in a leading daily newspaper of
general circulation in Luxembourg (which is expected to be the Luxemburger
Wort) or, if in the opinion of the Trustee such publication shall not
practicable, in an English language newspaper of general circulation in
Europe. Any such notice shall be deemed to have been given on the date of such
publication, or, if published more than once or on different dates, on the
first date on which publication in such newspaper is made.
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THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. If an Event of Default has occurred and is continuing,
the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a
prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein, contain limitations on the rights of the Trustee thereunder
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage
in other transactions; provided, however, that if it acquires any conflicting
interest (as defined below) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York.
CERTAIN DEFINITIONS
"Accreted Value" is defined to mean, for any Specified Date, the amount
calculated pursuant to clause (i), (ii), (iii) or (iv) below for each DM1,000
principal amount at maturity of Notes:
(i) if the Specified Date occurs on one or more of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL
ACCRUAL DATE ACCRETED VALUE
------------ --------------
<S> <C>
, 1998................................................... DM
, 1999................................................... DM
, 1999................................................... DM
, 2000................................................... DM
, 2000................................................... DM
, 2001................................................... DM
, 2001................................................... DM
, 2002................................................... DM1,000
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
and (b) an amount equal to the product of (i) the Accreted Value for the
first Semi-Annual Accrual Date less the original issue price multiplied by
(2) a fraction, the numerator of which is the number of days from the Issue
Date to the Specified Date, using a 360-day year of twelve 30-day months,
and the denominator of which is the number of days elapsed from the Issue
Date to the first Semi-Annual Accrual Date, using a 360-day year of twelve
30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b)
an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal DM1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition; provided that,
notwithstanding the foregoing, for purposes of the "Limitation on Additional
Indebtedness" covenant, such Indebtedness shall be deemed to be incurred on
the date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Restricted Subsidiary.
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"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person
that owns, directly or indirectly, 10% or more of such specified Person's
Voting Stock or any executive officer or director of any such specified Person
or other Person or, with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of the Issuer are available immediately preceding the
date of the transaction giving rise to the need to calculate Annualized Pro
Forma Consolidated Operating Cash Flow (the "Transaction Date") multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (i) any Restricted Subsidiary
that is a Restricted Subsidiary on the Transaction Date shall be deemed to
have been a Restricted Subsidiary at all times
during such fiscal quarter and (ii) any Restricted Subsidiary that is not a
Restricted Subsidiary on the Transaction Date shall be deemed not to have been
a Restricted Subsidiary at any time during such fiscal quarter.
"Asset Sale" means any sale, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital
Stock of any Restricted Subsidiary; (ii) all or substantially all of the
properties and assets of the Issuer or its Restricted Subsidiaries; (iii) any
material license or other authorization of the Issuer or any Restricted
Subsidiary pertaining to an Electronics Fund Transfer Business or (iv) any
other properties or assets of the Issuer or any Restricted Subsidiary, other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include any transfer of properties or assets
(A) that is governed by the provisions of the Indenture described under "--
Consolidation, Merger, Sale of Assets," (B) of the Issuer to any Restricted
Subsidiary, or of any Restricted Subsidiary to the Issuer or any Restricted
Subsidiary in accordance with the terms of the Indenture, (C) having a fair
market value of less than $250,000 (or, to the extent not denominated in U.S.
dollars, the U.S. Dollar Equivalent thereof) in any given fiscal year or (D)
any transfer by the Issuer or a Restricted Subsidiary of property or equipment
to a Person who is not an Affiliate of the Issuer in exchange for property or
equipment that has a fair market value at least equal to the fair market value
of the property or equipment so transferred; provided that, in the event of a
transfer described in this clause (D), the Issuer shall deliver to the Trustee
an officers' certificate certifying that such exchange complies with this
clause (D).
"ATM Network Assets" means all assets, rights (contractual or otherwise) and
properties, whether tangible or intangible, used or useful in connection with
an ATM Network Business.
"ATM Network Business" means, when used in reference to any Person, that
such Person is engaged primarily in the business of (i) operating or managing
ATMs or networks of ATMs, (ii) processing financial transactions on behalf of
Persons issuing credit and debit cards and Persons operating ATMs or networks
of ATMs, (iii) creating, developing, manufacturing, installing, operating,
maintaining, leasing or servicing ATMs or point of sale authorization
equipment or related equipment, software and other devices for use in an ATM
Network Business, (iv) providing goods or services to any Person engaged in an
ATM Network Business or (v) evaluating, participating in or pursuing any other
activity, service or opportunity that is reasonably related to those
identified in (i), (ii), (iii) or (iv) above including, but not limited to,
activities reasonably related to the issuance of credit and debit cards.
"Attributable Value" means, with respect to any lease at the time of
determination, the present value (discounted at the interest rate implicit in
the lease or, if not known, at the Issuer's incremental borrowing rate) of the
obligations of the lessee of the property subject to such lease for rental
payments during the remaining term of the lease included in such transaction,
including any period for which such lease has been extended or
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may, at the option of the lessor, be extended, or until the earliest date on
which the lessee may terminate such lease without penalty or upon payment of
penalty (in which case the rental payments shall include such penalty), after
excluding from such rental payments all amounts required to be paid on account
of maintenance and repairs, insurance, taxes, assessments, water utilities and
similar charges.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
all successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount
of each such principal payment by (b) the sum of all such principal payments.
"Bank Facility" means Indebtedness of the Issuer or any Restricted
Subsidiary under a senior bank facility with one or more banks or other
commercial financial institutions.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States federal or state law, or any similar law of any
other jurisdiction, relating to bankruptcy, insolvency, receivership, winding-
up, liquidation, reorganization or relief of debtors or any amendment to,
succession to or change in any such law.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participations, rights in or other
equivalent equity interests (however designated) issued by such Person, and
any rights (other than debt securities convertible into capital stock),
warrants or options exchangeable for or convertible into such capital stock,
whether now outstanding or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required
to be classified and accounted for as a capital lease obligation under GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
government of the United States of America, the Federal Republic of Germany,
the Republic of France or the United Kingdom or any agency or instrumentality
thereof, (ii) deposits, certificates of deposit or acceptances with a maturity
of 180 days or less of any financial institution that is a member of the
Federal Reserve system, in each case having combined capital and surplus and
undivided profits (or any similar capital concept) of not less than $500
million (or, if not denominated in U.S. dollars, the U.S. Dollar Equivalent
thereof); (iii) commercial paper, with a maturity of 180 days or less issued
by a corporation (other than an Affiliate of the Issuer) organized under the
laws of a member state of the European Union or the United States or any state
thereof or the District of Columbia and rated at least "A-2" by Standard &
Poor's Corporation or "P-2" by Moody's Investors Service; and (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States
government (in the case of any U.S. government obligations), in each case
maturing within one year from the date of acquisition.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed
to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the Issuer; (b) the Issuer consolidates with, or
merges with or into another Person or conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any
Person consolidates with or merges with or into the Issuer, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Issuer
is converted into or exchanged for cash, securities or other property, other
than any such transaction where (i) the outstanding Voting Stock of the Issuer
is not converted or exchanged at all (except to the extent necessary to
reflect a change in the jurisdiction of incorporation of the Issuer) or is
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converted into or exchanged for (A) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation or (B) Voting Stock
(other than Redeemable Capital Stock) of the surviving or transferee
corporation and cash, securities and other property (other than Capital Stock
of the Surviving Entity) in an amount that could be paid by the Issuer as a
Restricted Payment as described under the "Limitation on Restricted Payments"
covenant and (ii) immediately after such transaction, no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
other than Permitted Holders, is the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed
to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the surviving or transferee corporation; (c)
during any consecutive two year period, individuals who at the beginning of
such period constituted the Board of Directors of the Issuer (together with
any new directors whose election to such Board of Directors, or whose
nomination for election by the stockholders of the Issuer, was approved by a
vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Issuer then in office; or (d) the Issuer is liquidated or
dissolved or a special resolution is passed by the shareholders of the Issuer
approving the plan of liquidation or dissolution other than in a transaction
which complies with the provisions described under "--Consolidation, Merger
and Sales of Assets."
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Issuer and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all
fees and expenses relating thereto), (b) any net after-tax gains or losses
(less all fees and expenses relating thereto) attributable to asset
dispositions other than in the ordinary course of business, (c) the portion of
net income (or loss) of any Person (other than the Issuer or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Issuer or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Issuer or any
Restricted Subsidiary in cash dividends or distributions during such period,
(d) net income (but not loss) of any Person combined with the Issuer or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination, (e) the net income of any Restricted
Subsidiary, to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary is not at the date of
determination permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted Subsidiary or
its stockholders and (f) any gain or loss, net of taxes, realized upon the
termination of any employee benefit plan.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of the Issuer and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization
of debt discount, (ii) the net cost of Interest Rate Agreements (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) accrued interest, (v) the consolidated amount of any interest
capitalized by the Issuer and (vi) amortization of debt issuance costs, plus
(b) the interest component of Capitalized Lease Obligations of the Issuer and
its Restricted Subsidiaries paid, accrued and/or scheduled to be paid or
accrued during such period, plus (c) cash and non-cash dividends due (whether
or not declared) on Redeemable Capital Stock or Preferred Stock by the Issuer
and any Restricted Subsidiary (to any Person other than the Issuer and any
Wholly Owned Subsidiary), plus (d) one third of operating lease rental
payments paid, accrued and/or scheduled to be paid or accrued during such
period, in each case as determined on a consolidated basis in accordance with
GAAP; provided that the Consolidated Interest Expense attributable to interest
on any Indebtedness computed on a pro forma basis and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which
was not outstanding during the period for which the computation is being made
but which bears, at the option of the Issuer, a fixed or floating rate of
interest, shall be computed by applying, at the option of the Issuer, either
the fixed or the floating rate.
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"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Adjusted Net Income for such period (a) increased by (to the
extent included in computing Consolidated Adjusted Net Income) the sum of (i)
the Consolidated Tax Expense for such period (other than taxes attributable to
extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated
Interest Expense for such period; (iii) depreciation of the Issuer and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; (iv) amortization of the Issuer and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; and (v) any other non-cash charges that were deducted in computing
Consolidated Adjusted Net Income (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period) of the Issuer
and Restricted Subsidiaries for such period in accordance with GAAP and (b)
decreased by any non-cash gains that were included in computing Consolidated
Adjusted Net Income.
"Consolidated Tax Expense" means, for any period, the provision for federal,
state, provincial, local and foreign income taxes of the Issuer and all
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Issuer or any of its Restricted Subsidiaries
designed solely to protect against or manage exposure to fluctuations in
currency exchange rates.
"Default" means any event that after notice or passage of time or both would
be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver
a resolution of the Board of Directors under the Indenture, a member of the
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"Equity Offerings" is defined to mean any underwritten public offerings or
flotations or placings of Common Stock of the Issuer for cash that has been
registered under the Securities Act or admitted to listing on the Nasdaq
National Market or New York Stock Exchange.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Subsidiaries" means Euronet Holding N.V., Euronet-Bank Tech Rt.
(Bank Tech), SatComNet Kft (SatComNet), Bankomat 24/Euronet Sp. z o.o., EFT-
Usluge d o.o., Euronet Services GmbH, Euronet Services France SAS and Euronet
Services spol. sro.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in effect in the United States on the date of
the Indenture.
"guarantee" means, as applied to any obligation, (a) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Incur" or "incur" means, with respect to any Indebtedness, to create,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of, or otherwise incur such Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness. Incurrence, Incurred and
Incurring shall have the meanings correlative to the foregoing.
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"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities, contingent or otherwise, of such Person: (i) for borrowed
money (including overdrafts), (ii) in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance
facilities or other similar facilities, (iii) evidenced by bonds, notes,
debentures or other similar instruments, (iv) for the deferred purchase price
of property or services or created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person, or (v) for Capitalized Lease Obligations, (b) all obligations of such
Person under or in respect of Interest Rate Agreements or Currency Agreements,
(c) all indebtedness referred to in (but not excluded from) the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (d) all guarantees by such
Person of Indebtedness referred to in this definition of any other Person and
(e) all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends. For purposes
hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Redeemable Capital Stock as if such Redeemable Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
market value shall be determined in good faith by the board of directors of
the Issuer of such Redeemable Capital Stock. Notwithstanding the foregoing,
trade accounts, liabilities with respect to pre-paid goods and services,
accrued liabilities arising in the ordinary course of business and any
liability for Taxes owed by such Person will not be considered Indebtedness
for purposes of this definition. For purposes of the "Limitation on Additional
Indebtedness" and "Limitation on Restricted Payments" covenants and the
definition of "Events of Default," in determining the principal amount of any
Indebtedness to be incurred by the Issuer or a Restricted Subsidiary or which
is outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof
shall be due upon any declaration of acceleration thereof shall be the
accreted value thereof at the date of determination and (y) effect shall be
given to the impact of any Currency Agreement with respect to such
Indebtedness.
"Interest Rate Agreements" means any interest rate protection agreements and
other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and other
similar agreements) designed solely to protect the Issuer or any Restricted
Subsidiary against fluctuations in interest rates in respect of Indebtedness
of the Issuer or any Restricted Subsidiary.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued or owned
by, any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the fair market value of the net assets of any Subsidiary at the time that
such Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be
an "Investment" made by the Issuer in such Unrestricted Subsidiary at such
time. "Investments" shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.
"Issue Date" means the date of the Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim,
or preference or priority or other encumbrance upon or with respect to any
property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired. A Person shall be deemed to own subject to a Lien any
property which such Person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
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"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of, or stock or
other assets when disposed for, cash or Cash Equivalents (except to the extent
that such obligations are financed or sold with recourse to the Issuer or any
Restricted Subsidiary), net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel, accountants,
consultants and investment banks) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale, (iii) payments made to
retire Indebtedness where payment of such Indebtedness is secured by the
assets or properties which are the subject of such Asset Sale, (iv) amounts
required to be paid to any Person (other than
the Issuer or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Issuer or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Issuer or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, trade
creditors, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital
Stock, or debt securities or Redeemable Capital Stock that have been converted
into or exchanged for Qualified Capital Stock, as referred to under the
"Limitation on Restricted Payments" covenant, the proceeds of such issuance or
sale in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Issuer or any
Subsidiary of the Issuer), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Participant" is defined to mean, with respect to DTC, Persons who have
accounts with DTC.
"Permitted Capital Stock Sales" is defined to mean the issuance, sale or
grant by the Issuer or any Restricted Subsidiary of Capital Stock of any
Existing Subsidiary; provided that such issuance, sale or grant is made to a
financial institution, international credit or debit card issuer or other
entity engaged in an ATM Network Business pursuant to an agreement between the
Issuer or a Restricted Subsidiary, on the one hand, and a financial
institution, international credit or debit card issuer or other entity engage
in an ATM Network Business, on the other hand, to invest in, manage or
establish an ATM Network Business; and, provided further, that such issuances,
sales or grants of Capital Stock, in the aggregate, shall not exceed 5.0% of
the outstanding Capital Stock of the Issuer or any Existing Subsidiary, as the
case may be, and that no dividends, in cash or otherwise, or other
distributions on or in respect of any Capital Stock issued, sold or granted in
connection with a Permitted Capital Stock Sale shall be declared or paid
during the term of the Indenture.
"Permitted Holder" means Michael Brown and Daniel Henry;
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Issuer pursuant to the Notes;
(b) Indebtedness of the Issuer or any Restricted Subsidiary outstanding
on the date of the Indenture, or undrawn amounts under agreements or
facilities existing on the date of the Indenture;
(c) (i) Indebtedness of any Restricted Subsidiary owed to and held by the
Issuer or another Restricted Subsidiary and (ii) Indebtedness of the Issuer
owed to and held by any Wholly Owned Restricted Subsidiary
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that is Subordinated Indebtedness; provided that an incurrence of
Indebtedness shall be deemed to have occurred upon (x) any sale or other
disposition (excluding assignments as security to financial institutions)
of any Indebtedness of the Issuer or Restricted Subsidiary referred to in
this clause (c) to a Person (other than the Issuer, a Restricted Subsidiary
or a Wholly Owned Restricted Subsidiary, as the case may be) or (y) any
sale or other disposition of Capital Stock of a Wholly Owned Restricted
Subsidiary which holds Indebtedness of the Issuer or a Restricted
Subsidiary that holds Indebtedness of another Restricted Subsidiary such
that such Wholly Owned Subsidiary ceases to be Wholly Owned or such
Restricted Subsidiary ceases to be a Restricted Subsidiary;
(d) Obligations under any Interest Rate Agreement of the Issuer or any
Restricted Subsidiary to the extent relating to (i) Indebtedness of the
Issuer or such Restricted Subsidiary, as the case may be (which
Indebtedness (x) bears interest at fluctuating interest rates and (y) is
otherwise permitted to be incurred under the "Limitation on Additional
Indebtedness" covenant), or (ii) Indebtedness for which a lender has
provided a commitment in an amount reasonably anticipated to be incurred by
the Issuer or a Restricted Subsidiary in the following 12 months after such
Interest Rate Agreement has been entered into, but only to the extent that
the notional principal amount of such Interest Rate Agreement does not
exceed the principal amount of the Indebtedness (or Indebtedness subject to
commitments) to which such Interest Rate Agreement relates;
(e) Indebtedness of the Issuer or any Restricted Subsidiary under
Currency Agreements to the extent relating to (i) Indebtedness of the
Issuer or a Restricted Subsidiary (which Indebtedness is otherwise
permitted to be incurred under the "Limitation on Additional Indebtedness"
covenant) or (ii) obligations to purchase assets, properties or services
incurred in the ordinary course of business of the Issuer or any Restricted
Subsidiary, including any purchases of network or customer equipment;
provided that such Currency Agreements do not increase the Indebtedness or
other obligations of the Issuer and its Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange rates
or by reason of fees, indemnities and compensation payable thereunder;
(f) Indebtedness of the Issuer or any Restricted Subsidiary in respect of
performance bonds of the Issuer or any Restricted Subsidiary or surety
bonds provided by the Issuer or any Subsidiary incurred in the ordinary
course of business in connection with an ATM Network Business;
(g) Indebtedness consisting of guarantees, indemnities or obligations in
respect of purchase price adjustments in connection with the acquisition or
disposition of assets, including, without limitation, shares of Capital
Stock;
(h) Indebtedness of the Issuer or any Restricted Subsidiary to the extent
it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of the Issuer or of any Restricted Subsidiary
incurred or outstanding pursuant to clause (b) of this definition or the
proviso of the "Limitation on Additional Indebtedness" covenant or incurred
or outstanding pursuant to clause (b) and (k) of this definition; provided
that (i) Indebtedness of the Issuer may not be replaced, renewed,
refinanced or extended to such extent under this clause (h) with
Indebtedness of any Subsidiary and (ii) any such replacement, renewal,
refinancing or extension (x) shall not result in a lower Average Life of
such Indebtedness as compared with the Indebtedness being replaced,
renewed, refinanced or extended, (y) shall not exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount to
be due and payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being replaced,
renewed, refinanced or extended plus the amount of accrued interest thereon
and the amount of any reasonably determined prepayment premium necessary to
accomplish such replacement, renewal, refinancing or extension and such
reasonable fees and expenses incurred in connection therewith, and (z) in
the case of any replacement, renewal, refinancing or extension by the
Issuer of Subordinated Indebtedness, such new Indebtedness is made
subordinate to the Notes at least to the same extent as the Indebtedness
being replaced, renewed, refinanced or extended;
(i) Indebtedness of the Issuer Incurred (including Acquired Indebtedness)
(i) in order to finance the acquisition of ATM Network Assets or an ATM
Network Business, provided, that the aggregate principal amount of all such
Indebtedness shall not exceed $50.0 million (or, to the extent not
denominated in U.S. dollars, the U.S. Dollar Equivalent thereof) at any
time outstanding;
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(j) Indebtedness of any Restricted Subsidiary to finance the day to day
operations and working capital requirements of such Restricted Subsidiary,
provided, that the aggregate principal amount of all such Indebtedness
Incurred by all Restricted Subsidiaries shall not exceed $5.0 million (or,
to the extent not denominated in U.S. dollars, the U.S. Dollar Equivalent
thereof) at any time outstanding;
(k) Indebtedness of the Issuer, to the extent the net proceeds thereof
are promptly (A) used to purchase Notes tendered in a Change of Control
Offer or Excess Proceeds Offer or (B) deposited to defease all of the Notes
as described above in "Defeasance or Covenant Defeasance of the Notes";
(l) Indebtedness of the Issuer or any Restricted Subsidiary under
Capitalized Lease Obligations relating to ATM Network Assets that is
Incurred in the ordinary course of business and which is secured by the ATM
Network Assets subject to such Capitalized Lease Obligations; and
(m) in addition to the items referred to in clauses (a) through (l)
above, Indebtedness of the Issuer having an aggregate principal amount not
to exceed $200 million (or, to the extent not denominated in U.S. dollars,
the U.S. Dollar Equivalent thereof) at any time outstanding.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Issuer or any Restricted Subsidiary;
(c) Investments of the Issuer or any Restricted Subsidiary if as a result
of such Investment a Person (i) becomes a Restricted Subsidiary or (ii) is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Issuer or a Restricted Subsidiary
as a result of such Investment; provided, in each case, such Restricted
Subsidiary is engaged in an ATM Network Business;
(d) Investments in assets used in the ordinary course of business;
(e) Investments in prepaid expenses; or
(f) Investments by the Issuer or any Restricted Subsidiary in any entity
the primary business of which is the conduct of the ATM Network Business,
provided, that the sum of all such Investments does not exceed $10.0
million at any time;
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of the Indenture;
(b) Liens securing Permitted Indebtedness;
(c) Liens on any property or assets of a Restricted Subsidiary granted in
favor of the Issuer or any Restricted Subsidiary;
(d) Liens securing the Notes;
(e) Any interest or title of a lessor under any Capitalized Lease
Obligations relating to ATM Network Assets.
(f) any interest or title of a lessor under any Capitalized Lease
Obligation so long as the Attributable Value secured by such Lien does not
exceed $10 million (or, to the extent not denominated in U.S. dollars, the
U.S. Dollar Equivalent thereof);
(g) statutory Liens of landlords and carriers, warehouseman's, mechanics,
suppliers, materialmen's, repairmen's or other like Liens arising in the
ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate proceeding, if a reserve or
other appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made therefor;
(h) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(i) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance bonds and other obligations of a like nature
incurred in the ordinary course of business (other than contracts for the
payment of money);
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(j) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of
the Issuer or any Restricted Subsidiary incurred in the ordinary course of
business;
(k) Liens arising by reason of any judgment, decree or order of any court
so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired;
(l) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Issuer or any Restricted Subsidiary; provided that such Lien does
not extend to any property or assets of the Issuer or any Restricted
Subsidiary other than the assets acquired in connection with the incurrence
of such Acquired Indebtedness;
(m) Liens securing Interest Rate Agreements or Currency Agreements
permitted to be incurred pursuant to clause (d) and (e), respectively, of
the definition of "Permitted Indebtedness" or any collateral for the
Indebtedness to which such Interest Rate Agreements or Currency Agreements
relate;
(n) Liens arising from Purchase Money Indebtedness, so long as such Liens
extend only to the assets constructed, expanded, installed, acquired or
improved with such Purchase Money Indebtedness and do not secure any
Indebtedness in an amount in excess of such Purchase Money Indebtedness;
(o) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (m); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets;
(p) cash deposited by the Issuer or a Subsidiary of the Issuer with banks
that participate in the Company's ATM network in the ordinary course of
business to secure cash contributed by such banks for use in the Company's
ATM Network; and
(q) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security.
"Person" means any individual, corporation, limited liability Issuer,
partnership, joint venture, association, joint-stock Issuer, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued
after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Purchase Money Indebtedness" means Indebtedness of the Issuer or any
Restricted Subsidiary incurred at any time within 180 days of, and for the
purpose of financing all or any part of the cost of, the construction,
expansion, installation, acquisition, improvement by the Issuer or any
Restricted Subsidiary of any ATM Network Asset; provided that the proceeds of
such Indebtedness are expended for such purposes within such 180-day period;
and provided, further, that the net cash proceeds from the issuance of such
Indebtedness does
not exceed, as of the date of incurrence of such Indebtedness, 100 percent of
the lesser of cost and the fair market value of such ATM Network Asset.
"Qualified Capital Stock" of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of
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the relevant Notes or is redeemable at the option of the holder thereof at any
time prior to such final Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to such final Stated
Maturity.
"Restricted Subsidiary" means the Existing Subsidiaries and any Subsidiary
that is not designated an Unrestricted Subsidiary by the Board of Directors of
the Issuer.
"S&P" means Standard and Poor's Ratings Services, a division of McGraw-Hill,
Inc., and its successors.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Issuer or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its subsidiaries, (i) for the most recent
fiscal year of the Issuer accounted for more than 5% of the consolidated
revenues of the Issuer and the Restricted Subsidiaries, (ii) as of the end of
such fiscal year, was the owner of more than 5% of the consolidated assets of
the Issuer and the Restricted Subsidiaries, in each case as set forth on the
most recently available consolidated financial statements of the Issuer and
the Restricted Subsidiaries for such fiscal year, or (iii) owns one or more
material licenses or concessions related to the operation of ATM Network
Business.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Issuer that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Issuer or
by one or more other Subsidiaries of the Issuer or by the Issuer and one or
more other of its Subsidiaries.
"Tax" is defined to mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and any other liabilities
related thereto).
"Taxing Authority" is defined to mean any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Issuer and its
Restricted Subsidiaries outstanding as of the date of determination determined
on a consolidated basis in accordance with GAAP.
"Total Consolidated Indebtedness to Annualized Pro Forma Consolidated
Operating Cash Flow Ratio" means, at any date of determination, the ratio of
(i) Total Consolidated Indebtedness to (ii) Annualized Pro Forma
Consolidated Operating Cash Flow for the latest full fiscal quarter for which
consolidated financial statements of the Issuer are available preceding the
date of the transaction giving rise to the need to calculate the Total
Consolidated Indebtedness to Annualized Consolidated Operating Cash Flow
Ratio.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"U.S. Dollar Equivalent" means, with respect to any monetary amount in a
currency other than the U.S. dollar, at any time for the determination
thereof, the amount of U.S. dollars obtained by converting such foreign
currency involved in such computation into U.S. dollars at the spot rate for
the purchase of U.S. dollars with the
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applicable foreign currency as quoted by Reuters at approximately 11:00 a.m.
(New York time) on the date not more than two business days prior to such
determination. For purposes of determining whether any Indebtedness can be
incurred (including Permitted Indebtedness), any Investment can be made and
any transaction described in the "Limitation on Transactions with Affiliates"
covenant can be undertaken (a "Tested Transaction"), the U.S. Dollar
Equivalent of such Indebtedness, Investment or transaction described in the
"Limitation or Transaction with Affiliates" covenant shall be determined on
the date incurred, made or undertaken and no subsequent change in the U.S.
Dollar Equivalent shall cause such Tested Transaction to have been incurred,
made or undertaken in violation of the Indenture.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Issuer, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Issuer may designate
any Subsidiary (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary so long as (i) neither the Issuer nor any other
Subsidiary is directly or indirectly liable for or provides credit support for
or guarantees any Indebtedness of such Subsidiary, (ii) no default with
respect to any Indebtedness of such Subsidiary would permit (upon notice,
lapse of time or otherwise) any holder of any other Indebtedness of the Issuer
or any other Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its stated maturity, (iii) any Investment in such Subsidiary made as result
of designating such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the "Limitation on Investments in Unrestricted Subsidiaries"
covenant, (iv) neither the Issuer nor any other Restricted Subsidiary has a
contract, agreement, arrangement, understanding or obligation of any kind,
whether written or oral, with such Subsidiary other than those that might be
obtained at the time from persons who are not Affiliates of the Issuer and (v)
neither the Issuer nor any other Restricted Subsidiary has any obligation (1)
to subscribe for additional shares of Capital Stock or other equity interest
in such Subsidiary or (2) to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results. Any such designation by the Board of Directors of the Issuer shall be
evidenced to the Trustee by filing a board resolution with the Trustee giving
effect to such designation. The Board of Directors of the Issuer may designate
any Unrestricted Subsidiary as a Restricted Subsidiary if immediately after
giving effect to such designation, there would be no Default or Event of
Default under the Indenture and the Issuer could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation
on Additional Indebtedness" covenant. In no event shall the Existing
Subsidiaries be designated as Unrestricted Subsidiaries.
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board
of directors, managers or trustees of such Person (irrespective of whether or
not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Subsidiary, such Subsidiary if all
the outstanding Capital Stock of such Subsidiary (other than any directors'
qualifying shares, shares owned by foreign nationals to the extent mandated by
applicable law and shares issued, sold or granted pursuant to a Permitted
Capital Stock Sale) is owned directly by the Issuer or by the Issuer and one
or more Wholly Owned Restricted Subsidiaries.
DESCRIPTION OF BOOK-ENTRY SYSTEM; PAYMENT; TRANSFERS
The Notes will be represented by permanent global notes without interest
coupons. One of the permanent notes, the DBC Global Note, will be kept in
custody by DBC, will be issued in bearer form and will represent the Notes
sold outside the United States to non-U.S. persons and held through financial
institutions that are account holders in DBC ("DBC Accountholders"). The DBC
Global Note will include the Notes which are held through Euroclear and Cedel,
each of which has an account with DBC. The other permanent global note, the
DTC Global Note, will be issued in registered form in the name of Cede & Co.,
as nominee of DTC, and will represent the Notes sold to investors and held
through financial institutions that are participants in DTC. Together, the
Notes represented by the DBC Global Note and the DTC Global Note will equal
the aggregate principal amount of the Notes outstanding at any time. The
amount of Notes represented by each of the DBC
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Global Note and the DTC Global Note is evidenced by a register maintained for
that purpose by the Registrar (as defined below). Definitive certificates
representing individual Notes and interest coupons shall not be issued except
in the limited circumstances described below.
DTC
DTC has advised the Issuer and the Underwriters that it intends to follow
the procedures as described below:
State Street Bank and Trust Company, as custodian for DTC will act as
securities depository for the DTC Global Note which will be issued as a fully
registered security registered in the name of Cede & Co. (DTC's nominee).
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations ("Direct Participants"). DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to DTC's system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The Rules applicable to DTC
and its Participants are on file with the Commission.
Purchase of registered Notes represented by the DTC Global Note must be made
by or through Direct Participants, which will receive a credit for such Notes
on DTC's records. The ownership interest of each actual purchaser of each
registered Note ("Beneficial Owners") is in turn recorded on the Direct and
Indirect Participants' records. Transfers of ownership interest in such Notes
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in such Notes, except in the event that
use of the book-entry system for such Notes is discontinued as described
below.
Conveyance of registered Notes and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners are governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Redemption notices for Notes represented by the DTC Global Note shall be
sent to Cede & Co. If less than all of the Notes represented by the DTC Global
Note are being redeemed, DTC's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the Notes
represented by the DTC Global Note. Under its usual procedures, DTC will mail
an Omnibus Proxy to the Issuer as soon as possible after the record date. The
Omnibus Proxy will assign Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Notes represented by the DTC Global
Note are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Principal, premium (if any), and interest payments on Notes represented by
the DTC Global Note will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the responsibility
of such Participant and not of DTC, the U.S.
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Paying Agent or the Issuer, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
premium (if any) and interest to DTC is the responsibility of Issuer or the
U.S. Paying Agent, disbursement of such payments to Direct Participants shall
be the responsibility of DTC, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer believes to be reliable, but
the Issuer takes no responsibility for the accuracy thereof.
So long as DTC or its nominee is the registered owner of the DTC Global
Note, DTC or its nominee, as the case may be, will be considered the sole
owner or Holder of the Notes represented by the DTC Global Note for all
purposes under the Indenture. Except as set forth below owners of beneficial
interests in such the DTC Global Note will not be entitled to have Notes
represented by the DTC Global Note registered in their names, will not receive
or be entitled to receive physical delivery of Notes in definitive form and
will not be considered the owners or Holders thereof under the Indentures.
Accordingly, such person owning a beneficial interest in the DTC Global Note
must rely on the procedures of DTC and, if such person is not a Participant,
those of the Participant through which such person owns its interests in order
to exercise any rights of a Holder under the Indentures or such Note.
The Indenture provides that DTC, as a Holder, may appoint agents and
otherwise authorize Participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action which a
Holder is entitled to give or take under the Indenture, including the right to
sue for payment of principal or interest pursuant to Section 316(b) of the
Trust Indenture Act. The Issuer understands that under existing industry
practices, when the Issuer requests any action of Holders or when a Beneficial
Owner desires to give or take any action which a Holder is entitled to give or
take under the Indenture, DTC generally will give or take such action, or
authorize the relevant Participants to give or take such action, and such
Participants would authorize Beneficial Owners owning through such
Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners owning through them.
The Issuer has been informed by DTC that DTC will assist its Participants
and their customers (Beneficial Owners) in taking any action a Holder is
entitled to take under the Indenture or exercise any rights available to Cede
& Co., as the holder of record of the DTC Global Notes, including the right to
demand acceleration upon an Event of Default or to institute suit for the
enforcement of payment or interest pursuant to Section 316(b) of the Trust
Indenture Act. DTC has advised the Issuer that it will act with respect to
such matters upon written instructions from a Participant to whose account
with DTC the relevant beneficial ownership in the registered Notes is
credited. The Issuer understands that a Participant will deliver such written
instructions to DTC upon itself receiving similar written instructions from
either Indirect Participants or Beneficial Owners, as the case may be. Under
Rule 6 of the rules and procedures filed by DTC with the Commission pursuant
to Section 17 of the Exchange Act, Participants are required to indemnify DTC
against all liability DTC may sustain, without fault on the part of DTC or its
nominee, as a result of any action they may take pursuant to the instructions
of the Participant in exercising any such rights.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
such laws may impair the ability to transfer beneficial interests in the
Global Notes.
Neither the Issuer nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the DTC Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
If DTC is at any time unwilling, unable or ineligible to continue as
depositary or ceases to be a clearing agency registered under the Exchange Act
and, in either case a successor depositary is not appointed by the Issuer
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within 60 days or if an Event of Default under the Indenture has occurred and
is continuing, the Issuer will issue Notes under the Indenture in definitive
registered form, without coupons, in denominations of DM1,000 principal amount
at maturity and any integral multiple thereof, in exchange for the DTC Global
Note representing such Notes. In addition, the Issuer may at any time and in
its sole discretion determine not to have any Notes in registered form
represented by the DTC Global Note and, in such event, will issue Notes in
definitive registered form in exchange for the DTC Global Note representing
such Notes. In any such instance, an owner of a beneficial interest in a DTC
Global Note will be entitled to physical delivery in definitive form of
registered Notes represented by such registered Global Note equal in principal
amount at maturity to such beneficial interest and to have such Notes
registered in its name. Upon the exchange of the DTC Global Note for Notes in
definitive form, the DTC Global Note will be cancelled by the applicable
Trustee.
Transfers and Registrar
Transfers of Notes will be limited to transfers of book-entry interests
between and within DBC and DTC. Transfers of Notes between DBC Accountholders
on the one hand and DTC Participants on the other hand shall be effected by an
increase or a reduction in the aggregate amount of Notes represented by the
DBC Global Note and a corresponding reduction or increase in the aggregate
amount of Notes represented by the DTC Global Note.
Except as set forth above, owners of legal co-ownership interests in the DBC
Global Note or of beneficial interests in the DTC Global Note will not be
entitled to have Notes registered in their names, and will not receive or be
entitled to receive physical delivery of definitive certificates representing
individual Notes.
The Issuer has appointed . as registrar (the "Registrar") for all
Notes and as paying agent in respect of the Notes represented by the DTC
Global Note (the "U.S. Paying Agent") and [State Street Bank and Trust
Company] as paying agent for the Notes represented by the DBC Global Note (the
"DM Paying Agent") (the DM Paying Agent and the U.S. Paying Agent are referred
to as the "Paying Agents"). So long as the Notes are listed as the Luxembourg
Stock Exchange and the rules of such exchange so require, the Company will
have a paying agent and transfer agent in Luxembourg. . , as the
Registrar, provides the link between DTC and DBC. The Issuer shall ensure that
for as long as any Notes shall be outstanding there shall always be a
Registrar, a U.S. Paying Agent and a DM paying agent to perform the functions
assigned to any of them in the Note Indenture.
Payment
Payment of principal of premium, if any, and interest on the Notes
represented by the Global Notes will be made in Deutsche Marks through the DM
Paying Agent to DBC as the registered holders of the DBC Global Note and to
Cede & Co., the nominee for DTC, as the registered Holder of the DTC Global
Note.
Any person holding beneficial interests in the DTC Global Note (a "DTC Note
Holder") shall receive payments of principal and interest in respect of the
Notes in U.S. dollars, unless such DTC Note Holder elects to receive payment
in Deutsche Marks in accordance with the procedures set forth below. To the
extent that the
DTC Note Holders have not made such election in respect of any payment of
principal or interest, the aggregate amount designated for all such DTC Note
Holders in respect of such payment (the "DM Conversion Amount") shall be
credited to the U.S. Paying Agent's account with the Paying Agent and
converted by the U.S. Paying Agent into U.S. dollars and paid by wire transfer
of same-day funds to the registered holder of the DTC Global Note for payment
through DTC's settlement system to the relevant DTC Participants. All costs of
any such conversion and wire transfer shall be deducted from such payments.
Any such conversion shall be based on . 's bid quotation, at or prior to
11:00 a.m. New York time, on the second New York Business Day (as defined
below) preceding the relevant payment date, for the purchase by the U.S.
Paying Agent of the DM Conversion Amount of U.S. dollars for settlement on
such payment date. If such bid quotation is not available for any reason, the
U.S. Paying Agent shall endeavor to obtain a bid quotation from a leading
foreign exchange bank in New York City selected by the U.S. Paying Agent for
such purpose. If no bid quotation from a leading foreign exchange bank is
available, payment of the DM Conversion Amount will be made in Deutsche Marks
to the account or accounts specified by DTC to the U.S. Paying Agent.
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In addition to acting in its capacity as U.S. Paying Agent, [State Street
Bank and Trust Company] may act as a foreign exchange dealer for purposes of
converting Deutsche Marks to U.S. dollars as described in the paragraph above
and, when acting as a foreign exchange dealer, it will derive profits from
such activities in addition to the fees earned by it for its services as
Trustee, Registrar and U.S. Paying Agent. Each such conversion will be made on
such terms, conditions, and charges not inconsistent with the terms of the
Notes as . may from time to time establish in accordance with its regular
foreign exchange practices, and subject to applicable U.S. law and
regulations.
A DTC Note Holder may elect to receive payment of principal and interest
with respect to the Notes in Deutsche Marks by causing DTC through the
relevant DTC Participant to notify the U.S. Paying Agent by the time specified
below of (i) such DTC Note Holder's election to receive all or a portion of
such payment in Deutsche Marks and (ii) wire transfer instructions to a
Deutsche Mark account in the Federal Republic of Germany. Such election in
respect of any payment must be made by the DTC Note Holder at the time and in
the manner required by the DTC procedures applicable from time to time and
shall, in accordance with such procedures, be irrevocable and shall relate
only to such payment. DTC notification of such election, wire transfer
instructions and the amount payable in Deutsche Marks must be received by the
U.S. Paying Agent prior to 5:00 p.m. New York time on the fifth New York
Business Day following the relevant Record Date in the case of interest, and
prior to the payment date for the payment of principal. Any payments in
Deutsche Marks shall be made by wire transfer of same-day funds to Deutsche
Mark accounts designated by DTC. The term "New York Business Day" shall mean
any day other than a Saturday or Sunday or a day on which banking institutions
in New York City are authorized or required by law or executive order to
close.
Payments by DTC Participants and Indirect DTC Participants (as defined
herein) to owners of beneficial interests in the DTC Global Note will be
governed by standing instructions and customary practices as is now the case
with securities held by the accounts of customers registered in "street name",
and will be the responsibility of the DTC Participants or Indirect DTC
Participants. Neither the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records of DTC relating to
or payments made by DTC on account of beneficial interests in the DTC Global
Note or for maintaining, supervising or reviewing any records of DTC relating
to such beneficial interests. Substantially similar principles will apply with
regard to the DBC Global Note and payments to holders of interest therein.
DBC
DBC is incorporated under the laws of the Federal Republic of Germany and
acts as a specialized depositary and clearing organization. DBC is subject to
regulations and supervision by the German Banking Supervisory Authority. DBC
holds securities for DBC Accountholders and facilitates the clearance and
settlement of securities transactions between its DBC Accountholders through
electronic book-entry changes in securities accounts with simultaneous payment
in Deutsche Marks in same-day funds. Thus, the need for physical delivery of
certificates is eliminated. DBC provides to the DBC Accountholders, among
other things, services for safekeeping, administration, clearance and
settlement of domestic German and internationally traded securities and
securities lending and borrowing. DBC Accountholders include banking
institutions located in Germany, including German branches of non-German
financial institutions, securities brokers or dealers admitted to a German
Stock Exchange that meet certain additional requirements, certain foreign
clearing institutions and, subject to certain requirements, other credit
institutions within the European Union. Indirect access to DBC is available to
others such as securities brokers and dealers, banks, trust companies,
clearing corporations and others, including individuals, that clear through or
maintain custodial relationships with DBC Accountholders either directly or
indirectly.
CONSENT TO JURISDICTION AND SERVICE
The Indenture provides that the Issuer will irrevocably appoint CT
Corporation System, 1633 Broadway, New York, New York 10019, as its agent for
service of process in any suit, action or proceeding with respect to the
Indenture or the Notes and for actions brought under federal or state
securities laws brought in any federal or state court located in the Borough
of Manhattan in the City of New York and submits to such jurisdiction.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the principal United States federal
income tax considerations of acquiring, owning, and disposing of Notes that
may be relevant to prospective investors. This summary is of a general nature
and is not intended to be, nor should it be construed to be, legal or tax
advice to any person purchasing and holding Notes pursuant to this Prospectus.
The following discussion applies only to persons that hold the Notes as
capital assets within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). This discussion does not purport to deal
with all aspects of United States federal income taxation that may be relevant
to a prospective investor or to certain classes of persons who are subject to
special treatment under the United States federal income tax law, including,
but not limited to, dealers in securities or currencies, banks, insurance
companies, tax-exempt organizations, persons that hold the Notes as a "hedge"
against currency risks, as part of a "straddle" with other investments, or as
part of a "conversion transaction," persons that have a "functional currency"
other than the U.S. dollar, and persons who have ceased to be United States
citizens or to be taxed as resident aliens. In addition, except as expressly
indicated, the discussion generally is limited to the United States federal
income tax consequences to initial holders of the Notes. It does not consider
the tax treatment of holders of an interest in pass-through entities that hold
the Notes nor does it include any description of the tax laws of any state,
local, or foreign governments that may be applicable to the Notes or holders
thereof.
This summary is based upon the United States federal tax laws as in effect
on the date of this Prospectus, which are subject to change.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT WITH ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF ACQUIRING, OWNING, AND
DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY AND AFFECT OF ANY STATE,
LOCAL, OR FOREIGN INCOME TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
U.S. HOLDERS
The following discussion is limited to the United States federal income tax
consequences relevant to a holder of a Note that is (i) a citizen or resident
of the United States, (ii) a corporation organized under the laws of the
United States or any political subdivision thereof or therein, (iii) an
estate, the income of which is subject to United States federal income tax
regardless of the source, or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more U.S. persons have the authority to control all substantial
decisions of the trust (a "U.S. Holder").
Special consideration relevant to the United States federal income taxation
of payments on Notes denominated in a currency other than the U.S. dollar
("Foreign Currency") are discussed separately below under the heading FOREIGN
CURRENCY NOTES.
PAYMENTS OF INTEREST
In general, interest on a Note (subject to the original issue discount rules
described below) will be taxable to a beneficial owner who is a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with such U.S. Holder's method of accounting for United States federal income
tax purposes.
Original Issue Discount
The Notes will be issued with original issue discount ("OID") for United
States federal income tax purposes. The following summary is a general
discussion of the United States federal income tax consequences to U.S.
Holders of the purchase, ownership, and disposition of Notes issued with OID
and that mature more than one year from the date of issuance.
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For United States federal income tax purposes, OID is the excess of the
stated redemption price at maturity of a Note over its issue price, if such
excess equals or exceeds a de minimis amount (generally 1/4 of 1% of the
Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date). Generally, the issue
price of a Note will equal the first price at which a substantial amount of
such Notes has been sold (ignoring sales to bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement
agents, or wholesalers). The stated redemption price at maturity of a Note is
the sum of all payments provided by the Note other than qualified stated
interest payments. The term "qualified stated interest" generally means stated
interest that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate. Because
the Notes do not provide for the payment of qualified stated interest
throughout their term, the stated redemption price at maturity will be the sum
of the face amount of the Notes and the total amount of interest provided for
under the terms of the Notes. Accordingly, the difference between the first
price at which a substantial amount of the Notes are sold and the total amount
payable under those Notes (principal and interest) will be OID that is
includible in the gross income of a U.S. Holder of the Notes on an annual
basis.
A U.S. Holder of a Note with a maturity date more than one year from the
date of issue must include OID in income as ordinary interest for United
States federal income tax purposes as it accrues under a constant yield method
in advance of the cash payments attributable to such income, regardless of the
U.S. Holder's regular method of tax accounting. In general, the amount of OID
included in income by the initial U.S. Holder will be the sum of the daily
portions of OID for each day during the taxable year (or portion of the
taxable year) on which the U.S. Holder held the Note. The daily portion of OID
is determined by allocating to each day in any accrual period (i.e., the
interval between compounding dates) a ratable portion of the OID allocable to
that accrual period. The amount of OID allocable to each accrual period
generally is equal to the difference between the product of the Note's
adjusted issue price at the beginning of the accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and appropriately adjusted to take into account the length of the
particular accrual period). The adjusted issue price of a Note at the
beginning of any accrual period is the sum of the issue price of the Note plus
the amount of OID allocable to all prior accrual periods minus the amount of
any prior payments on the Note that were not qualified stated interest
payments. Under these rules, U.S. Holders of Notes generally will have to
include in income increasingly greater amounts of OID over the life of the
Notes.
A U.S. Holder who purchases a Note for an amount that is greater than its
adjusted issue price but less than or equal to the sum of all amounts payable
on the Note after the purchase date (other than payments of qualified stated
interest), will be considered to have purchased the Note at an acquisition
premium. Under the acquisition premium rules, the amount of original issue
discount that such U.S. Holder must include in its gross income with respect
to the Note for any taxable year (or portion thereof in which the U.S. Holder
holds the Note) will be reduced (but not below zero) by the portion of the
acquisition premium properly allocable to the period.
Market Discount
If a U.S. Holder purchases a Note for an amount that is less than its
adjusted issue price as of the purchase date, the U.S. Holder will be treated
as having purchased such Note at a market discount, unless such market
discount is less than a specified de minimis amount. Under the market discount
rules, a U.S. Holder will be required to treat any payment that does not
constitute qualified stated interest on, or any gain realized on the sale,
exchange, retirement, or other disposition of, a Note as ordinary income to
the extent of the lesser of (i) the amount of such payment or realized gain,
or (ii) the market discount which has not previously been included in income
and is treated as having accrued on such Note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless
the U.S. Holder elects to accrue market discount on the basis of semiannual
compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note
or certain earlier dispositions because a current deduction is only allowed to
the extent the interest
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expense exceeds an allocable portion of market discount. A U.S. Holder may
elect to include market discount in income currently as it accrues (on either
a ratable or semiannual compounding basis), in which case the rules described
above regarding the treatment as ordinary income of gain upon the disposition
of the Note and upon the receipt of certain cash payments and regarding the
deferral of interest deductions will not apply. Generally, such currently
included market discount is treated as ordinary interest for United States
federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the
taxable year to which such election applies and may be revoked only with the
consent of the Internal Revenue Service (the "IRS").
Premium
If a U.S. Holder purchases a Note for an amount in excess of the sum of all
amounts payable on the Note after the purchase date (other than payments of
qualified stated interest), the Note will not be subject to the OID rules and
the U.S. Holder may elect to treat such excess as amortizable bond premium, in
which case the amount of qualified stated interest required to be included in
the U.S. Holder's income each year with respect to interest on the Note will
be reduced by the amount of amortizable bond premium allocable (based on the
Note's yield to maturity) to such year. However, if such Note may be
optionally redeemed after the U.S. Holder acquires the Note at a price in
excess of its principal amount, special rules may apply. Any election to
amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by the U.S. Holder and may be revoked only with the
consent of the IRS. A U.S. Holder that does not elect to amortize bond premium
generally will be entitled to treat the premium as capital loss when the Note
matures.
Election to Treat All Interest as OID
U.S. Holders generally may, upon election, include in income all interest
(including stated interest, acquisition discount, OID, de minimis OID, market
discount, de minimis market discount, and unstated interest, as adjusted by
any amortizable bond premium or acquisition premium) that accrues on a debt
instrument by using the constant yield method applicable to OID, subject to
certain limitations and exceptions.
SALE, EXCHANGE, REDEMPTION, REPAYMENT, OR OTHER DISPOSITION OF THE NOTES
Upon the disposition of a Note by sale, exchange, redemption, or repayment,
a U.S. Holder generally will recognize gain or loss equal to the difference
between (i) the amount realized on such disposition (other than amounts
attributable to accrued interest), and (ii) the U.S. Holder's tax basis in the
Note. A U.S. Holder's tax basis in a Note generally will equal the U.S. dollar
cost of the Note (net of accrued interest) to the U.S. Holder (which in the
case of Note purchased with a Foreign Currency will be the U.S. dollar value
of the purchase price on the date of purchase), increased by amounts
includible in income as OID or market discount (if the U.S. Holder elects to
include market discount in income on a current basis), and reduced by any
amortized bond premium and any payments (other than payments of qualified
stated interest) made on such Note. The amount realized by a U.S. Holder on
the disposition of a Note for an amount in Foreign Currency will be the U.S.
dollar value of such amount on the date of the disposition. Because the Note
is held as a capital asset, such gain or loss (except to the extent that the
market discount rules otherwise provide) will constitute capital gain or loss.
In the case of a U.S. Holder who is an individual, any capital gain generally
will be subject to United States federal income tax at preferential rates if
specified minimum holding periods are met.
FOREIGN CURRENCY NOTES
The following discussion applies to U.S. Holders of the Notes because the
Notes are denominated in a Foreign Currency (i.e., German deutsche marks)
(Foreign Currency Notes). This discussion assumes that the Foreign Currency
Notes are not denominated in, or indexed to, a currency that is considered a
hyperinflationary currency.
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Payments of Interest and OID
In general, the amount of income recognized by a cash basis U.S. Holder of a
Foreign Currency Note will be the U.S. dollar value of the interest payment,
based on the spot rate in effect on the date of receipt, regardless of whether
the payment is in fact converted into U.S. dollars. Accrual basis U.S. Holders
may determine the amount of income recognized with respect to such interest
payment in accordance with either of two methods. Under the first method, the
amount of income recognized will be based on the average exchange rate in
effect during the interest accrual period (or, with respect to an accrual
period that spans two taxable years, the partial period within the taxable
year). Under the second method, an accrual basis U.S. Holder may elect to
translate interest income into U.S. dollars at the spot rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, at the exchange rate in effect on the last day of the
taxable year. Additionally, if a payment of interest is actually received
within 5 business days of the last day of the accrual period or taxable year,
an accrual basis U.S. Holder applying the second method instead may translate
such accrued interest into U.S. dollars at the spot rate in effect on the day
of actual receipt (in which case no exchange gain or loss will result). Any
election to apply the second method will apply to all debt instruments held by
the U.S. Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the U.S. Holder and may not be
revoked without the consent of the IRS. Upon receipt of an interest payment
(including a payment attributable to accrued but unpaid interest upon the sale
or retirement of a Foreign Currency Note) determined by reference to a Foreign
Currency, an accrual basis U.S. Holder will recognize exchange gain or loss
(which will be treated as ordinary income or loss) if the exchange rate in
effect on the date of receipt differs from the rate applicable to the previous
accrual of that interest income.
OID is determined in units of the Foreign Currency at the time of
acquisition of the Foreign Currency Note and is translated into U.S. dollars
in the same manner that an accrual basis U.S. Holder accrues stated interest.
Exchange gain or loss will be determined when OID is considered paid to the
extent the exchange rate on the date of payment differs from the exchange rate
at which the OID was accrued.
Amortizable Bond Premium
Amortizable bond premium on a Foreign Currency Note will be computed in
units of Foreign Currency and will reduce interest income in units of the
Foreign Currency. At the time amortized bond premium offsets interest income,
a U.S. Holder may realize ordinary income or loss, measured by the difference
between exchange rates at that time and at the time of the acquisition of the
Foreign Currency Note.
Market Discount
Market discount on a Foreign Currency Note is determined in units of the
Foreign Currency. Accrued market discount that is required to be taken into
account on the maturity or upon disposition of a Foreign Currency Note is
translated into U.S. dollars at the exchange rate on the maturity or the
disposition date, as the case may be (and no part is treated as exchange gain
or loss). Accrued market discount currently includible in income by an
electing U.S. Holder is translated into U.S. dollars at the average exchange
rate for the accrual period (or the partial accrual period during which the
U.S. Holder held the Foreign Currency Note), and exchange gain or loss is
determined on maturity or disposition of the Foreign Currency Note (as the
case may be) in the manner described above under Foreign Currency Notes--
Payments Of Interest And OID with respect to the computation of exchange gain
or loss on the receipt of accrued interest by an accrual method holder.
Exchange Gain or Loss
Gain or loss recognized by a U.S. Holder on the sale, exchange, repayment,
retirement, or other disposition of a Foreign Currency Note that is
attributable to changes in exchange rates will be treated as ordinary income
or loss. However, exchange gain or loss is taken into account only to the
extent of total gain or loss realized on the transaction.
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Exchange of Amounts in Other Than U.S. Dollars
The cost of a Foreign Currency Note to a U.S. Holder will be the U.S. dollar
value of the Foreign Currency purchase price translated at the spot rate for
the date of purchase (or, in some cases, the settlement date). Foreign
Currency received as interest on a Note or on the sale, exchange, repayment,
retirement, or other disposition of a Note will have a tax basis equal to its
U.S. dollar value at the time such interest is received or at the time of such
disposition, as the case may be. Foreign Currency that is purchased generally
will have a tax basis equal to the U.S. dollar value of the Foreign Currency
on the date of purchase. Any gain or loss recognized on a sale or other
disposition of a Foreign Currency (including its use to purchase Foreign
Currency Notes or upon exchange for U.S. dollars) will be ordinary income or
loss.
NON-U.S. HOLDERS
The following is a brief summary of the United States federal income tax
consequences that may be applicable to a holder of a Note other than a U.S.
Holder (a "Non-U.S. Holder"). For purposes of the following discussion,
interest (including OID) and gain on the sale, exchange, or other disposition
of a Note will be considered "U.S. trade or business income" if such income or
gain is (i) effectively connected with the conduct of a trade or business in
the United States, or (ii) if a tax treaty applies, attributable to a
permanent establishment in the United States. In addition, any Additional
Amounts payable by the Company to a Non-U.S. Holder will be treated as
interest for United States federal income tax purposes.
INTEREST AND OID
In general, any interest or OID paid to a Non-U.S. Holder of a Note will not
be subject to United States federal income tax if (i) the interest or OID is
not U.S. trade or business income, and (ii) as discussed below, either (A)
with respect to such payment of interest or OID, the Company meets the 80%
foreign business requirements of Section 861(c)(1) of the Code (the 80%
foreign business requirements test), or (B) the interest or OID qualifies as
"portfolio interest."
United States federal income tax will not be imposed on any interest or OID
paid to a Non-U.S. Holder of a Note if the 80% foreign business requirements
test is satisfied. The 80% foreign business requirements test will be met
generally if it is shown to the satisfaction of the Secretary of the U.S.
Treasury that at least 80% of the gross income from all sources of the Company
for the relevant testing period is active foreign business income. For
purposes of this test, (i) the testing period is the three-year period ending
with the close of the Company's taxable year immediately preceding the payment
of interest or OID (or the taxable year of the payment if the Company had no
gross income for such three-year period), and (ii) active foreign business
income is gross income that is derived from sources outside the United States
and is attributable to the active conduct of a trade or business in a foreign
country or possession of the United States by the Company (or a subsidiary).
If interest or OID is received by a "related person" (as defined in Section
861(c)(2)(B) of the Code), a portion of the payment would not qualify for
exemption from United States federal income tax under the 80% foreign business
requirements test.
In addition, any interest or OID paid to a Non-U.S. Holder of a Note
generally will not be subject to United States federal income tax if the
interest or OID qualifies as portfolio interest. Interest or OID on the Notes
generally will qualify as portfolio interest if (i) the Non-U.S. Holder does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (ii) the Non-
U.S. Holder is not a controlled foreign corporation (as defined in the Code)
with respect to which the Company is a "related person" within the meaning of
the Code, and (iii) either (A) the Non-U.S. Holder certifies to the Company or
its agent under penalties of perjury that it is not a United States person and
such certificate provides such Non-U.S. Holder's name and address, or (B) in
the case of a Note held by a securities clearing organization, bank, or other
financial institution that holds customers' securities in the ordinary course
of its trade or business (a "financial institution"), the financial
institution certifies to the Company or its agent under penalties of perjury
that such certificate has been received from the Non-U.S. Holder by it or by
another financial institution and the financial institution furnishes the
payor with a copy of the Non-U.S. Holder's certificate.
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If the 80% foreign business requirement test is not met and the interest or
OID neither qualifies as portfolio interest nor is treated as U.S. trade or
business income, the gross amount of the payment generally will be subject to
United States withholding tax at the rate of 30%, unless such rate is reduced
or eliminated by an applicable income tax treaty. U.S. trade or business
income generally will be subject to United States federal income tax at
regular rates in the same manner as if the Non-U.S. Holder were a U.S. Holder
(and, in the case of a Non-U.S. Holder that is a corporation, such income,
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 such income generally will not be subject to the 30% withholding
tax. To claim the benefit of a lower or zero withholding rate under an income
tax treaty or to claim exemption from withholding because the income is U.S.
trade or business income, the Non-U.S. Holder must provide the payor with a
properly executed IRS Form 1001 or 4224, respectively (or, in the case of
payments made after December 31, 1998, IRS Form W-8) prior to the payment of
interest or OID.
SALE, EXCHANGE, REPAYMENT, RETIREMENT, OR OTHER DISPOSITION OF THE NOTES
Any gain realized by a Non-U.S. Holder on the sale, exchange, repayment,
retirement, or other disposition of a Note will not be subject to United
States federal income or withholding taxes unless (i) such gain is U.S. trade
or business income, or (ii) in the case of an individual, such Non-U.S. Holder
is present in the United States for 183 days or more and certain other
conditions are met.
UNITED STATES FEDERAL ESTATE TAX
Notes held by an individual who is neither a citizen nor a resident of the
United States for United States federal estate tax purposes at the time of
such individual's death will not be subject to United States federal estate
tax unless (i) the Company would not meet the 80% foreign business
requirements test (as described above under "Non-U.S. Holders--Interest And
OID") with respect to any interest or OID on the Note were such interest or
OID received by the Non-U.S. Holder at the time of death, and (ii) the income
from such Notes would not qualify as portfolio interest (as described above
under Non-U.S. Holders--Interest And OID), without regard to the certification
requirements, if received by such individual at the time of his or her death.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments made in respect of the Notes to a U.S. Holder must be reported by
the Company to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Generally, individuals are not exempt recipients,
whereas corporations and certain other entities generally are exempt
recipients. In addition, backup withholding of United States federal income
tax at a rate of 31% may apply to payments made in respect of the Notes to
U.S. Holders who are not exempt recipients and who fail to provide certain
identifying information (such as the registered owner's taxpayer
identification number) in the required manner.
The Company will be required to report annually to the IRS and to each Non-
U.S. Holder the amount of interest or OID paid to, and the amount of tax
withheld with respect to, each Non-U.S. Holder. This information also may be
made available to tax authorities in the country in which the Non-U.S. Holder
resides in accordance with the provisions of an applicable income tax treaty.
Under current Treasury Regulations, information reporting and backup
withholding will not apply to payments of principal on the Notes by the
Company or any agent thereof (in its capacity as such) to a Non-U.S. Holder of
a Note if the Non-U.S. Holder has provided the required certification that it
is not a United States person or has otherwise established an exemption,
provided that neither the Company nor its agent has actual knowledge that the
holder is a United States person or that the conditions of any exemption are
not in fact satisfied. Compliance with the certification procedures described
in the discussion of portfolio interest (see "--Non-U.S. Holders--Interest And
OID") would establish an exemption for those non-U.S. Holders who are not
exempt recipients.
Payment of the proceeds from a sale of a Note to or through the U.S. office
of a broker generally will be subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its
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taxpayer identification number (or, in the case of a Non-U.S. Holder,
certifies its non-U.S. status) or otherwise establishes an exemption from
information reporting and backup withholding. Payment of the proceeds from the
sale of a Note to or through a foreign office of a broker will not be subject
to information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes, a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year preceding
the payment was effectively connected with a U.S. trade or business, then
information reporting may apply to such payments.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a beneficial owner would be allowed
as a refund or a credit against such beneficial owner's United States federal
income tax provided the required information is furnished to the IRS.
In October 1997, final Treasury Regulations were issued that effect the
information reporting and backup withholding requirements applicable to
payments in respect of a Note made after December 31, 1998. Holders of the
Notes should consult their own tax advisors with respect to the possible
application of such final regulations to any payments made in respect of the
Notes.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Issuer, Merrill Lynch Capital Markets Bank
Limited Frankfurt/Main Branch, as lead manager and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (together, the "Underwriters"), the Issuer has
agreed to sell to the Underwriters, and the Underwriters have agreed to
purchase from the Issuer, DM aggregate principal amount at maturity of the
Notes. Each of the Underwriters has agreed to purchase the principal amount of
the Notes set forth opposite its name below, if any Notes are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
INITIAL PURCHASERS AMOUNT
------------------ ---------
<S> <C>
Merrill Lynch Capital Markets Bank Limited Frankfurt/Main Branch..... DM
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
-----
Total............................................................ DM
=====
</TABLE>
The Purchase Agreement provides that the obligation of the Underwriters to
pay for and accept delivery of the Notes is subject to, among other
conditions, the delivery of certain legal opinions by its counsel.
The Underwriters have agreed to reimburse the Company for $250,000 of the
expenses incurred in connection with the Offering.
The Underwriters have advised the Issuer that they propose initially to
offer the Notes to the public at the price to public set forth on the cover
page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % per Note. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of % per Note to certain other
dealers. After the Offering, the public offering price, concession and
discount may be changed.
The Issuer has agreed that it will not for a period of 180 days from the
date of this Prospectus, without the consent of the Underwriters, directly or
indirectly offer, sell, grant any option to purchase, or otherwise dispose of,
any debt securities of the Issuer or securities of the Issuer that are
convertible into, or exchangeable for, the Notes or such other debt
securities.
The Issuer has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Underwriters do not intend to confirm sales of Notes offered hereby to
any accounts over which it exercises discretionary authority.
There is currently no public market for the Notes. Accordingly, there can be
no assurance as to the liquidity of any market that may develop for the Notes,
the ability of holders of the Notes to sell their Notes or at what price such
holders would be able to sell their Notes. If such a market were to develop,
the Notes could trade at prices that may be lower than the initial offering
price thereof, depending on many factors, including prevailing interest rates,
the Issuer's operating results and markets for similar debt securities. The
Underwriters, have advised the Issuer that they currently intend to make a
market in the Notes. However, they are not obligated to do so, and any market
making with respect to the Notes may be discontinued at any time without
notice at the sole discretion of the Underwriters. If an active public market
does not develop, the market price and liquidity of the Notes may be adversely
affected. The Issuer does not intend to apply for listing of the Notes on any
national securities exchange or for quotation of the Notes through an
automated quotation system.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to the Notes. There can be no assurance that the market for
the Notes will not be subject to similar disruptions.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriter and certain selling group members to
bid for and purchase the Notes. As an exception to these rules,
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the Underwriters are permitted to engage in certain transactions that
stabilize the price of the Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
If Underwriters create a short position in the Notes in connection with the
Offering, i.e., if they sell more Notes than are set forth on the cover page
of this Prospectus, the Underwriters may reduce that short position by
purchasing Notes in the open market.
The Underwriters may also impose a penalty bid on selling group members.
This means that if the Underwriters purchase Notes in the open market to
reduce the short position or to stabilize the price of the Notes, they may
reclaim the amount of the selling concession from selling group members who
sold those Notes as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Issuer nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Notes. In addition,
neither the Issuer nor the Underwriters make any representation that the
Underwriters will engage in such transaction or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for the
Issuer by Arent Fox Kintner Plotkin & Kahn, PLLC and for the Underwriters by
Shearman & Sterling.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 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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GENERAL INFORMATION REQUIRED
BY THE LUXEMBOURG STOCK EXCHANGE
1. The issuance of the Notes was authorized pursuant to resolutions of the
Board of Directors of the Issuer adopted on March 17, 1998 and May , 1998.
2. In connection with the application to list the Notes on the Luxembourg
Stock Exchange, legal notices relating to the issuance of the Notes and
copies of the Certificate and Articles of Association of the Issuer will be
lodged with the Chief Registrar of the District Court in Luxembourg
(Greffler en Chef du Tribunal d Arrondissement de et a Luxembourg) where
such documents are available for inspection and where copies of such
documents may be obtained upon request.
3. The Notes have been accepted for clearance through the Euroclear and Cedel
settlement systems and will have the following reference numbers:
ISIN:
Euroclear and Cedel Bank Common Code:
4. So long as any of the Notes remains outstanding, copies of the latest annal
report of the Issuer, including its consolidated annual accounts and a
summary of its nonconsolidated annual accounts, and of the latest unaudited
quarterly filings of the Company with the U.S. Securities and Exchange
Commission (which include quarterly financial information) may be obtained
from, and copies of the Trust Indentures (incorporating the form of the
Global Notes and the Notes) and the Certificate of Incorporation and
Articles of Incorporation of the Issuer will be available for inspection
at, the specified offices for the time being of the Luxembourg Paying
Agent.
5. Except as disclosed in this Prospectus, there has been no change (nor any
development or event likely to involve a prospective change) which is
materially adverse to the condition (financial or other), prospects,
results or operations or general affairs of the issuer or the Euronet group
since March 31, 1998.
6. Except as disclosed in this Prospectus under the section entitled
"Litigation", neither the Issuer nor any of its subsidiaries is involved in
any litigation, arbitration or administrative proceedings which, if
determined adversely to the Issuer or any such subsidiary, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), prospects, results of operations or general
affairs of the Issuer or the Euronet group and, so far as the Issuer is
aware having made all reasonable enquiries, there are no such litigation,
arbitration or administrative proceedings pending or threatened.
7. Legal opinions in connection with the issue of the Notes will be given by
Arent Fox Kintner Plotkin & Kahn, PLLC, legal advisers to the Issuer.
110
<PAGE>
EURONET SERVICES INC. 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 and 1997 and as of
March 31, 1998 (unaudited)............................................... F-3
Consolidated Statements of Operations and Comprehensive Loss for the years
ended December 31, 1995, 1996 and 1997 and for the three months ended
March 31, 1997 and 1998 (unaudited)...................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1997 and
1998 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Euronet Services Inc.:
We have audited the accompanying consolidated balance sheets of Euronet
Services Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations and comprehensive loss, changes
in stockholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1997. These consolidated financial statements
are the responsibility of the Company'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
Services Inc. and subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1997 in conformity with generally accepted
accounting principles in the United States of America.
KPMG Polska Sp. z o.o.
Warsaw, Poland
March 17, 1998
F-2
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1996 1997 1998
------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents................ $ 2,541 $ 7,516 $ 11,703
Restricted cash (note 4)................. 152 847 1,168
Trade accounts receivable................ 172 647 745
Investment securities (notes 5 and 6).... 194 31,944 21,825
Prepaid expenses and other current
assets.................................. 433 1,857 2,116
------- -------- -----------
Total current assets................... 3,492 42,811 37,557
Property, plant, and equipment, at cost:
Equipment--Automatic teller machines..... 6,773 23,581 24,891
Vehicles and office equipment............ 471 1,808 2,510
Computers and software................... 662 1,050 1,123
------- -------- -----------
7,906 26,439 28,524
Less accumulated depreciation and
amortization............................ (622) (2,351) (3,287)
------- -------- -----------
Net property, plant and equipment........ 7,284 24,088 25,237
Loans receivable, excluding current
portion................................. 21 21 18
Deposits for ATM leases.................. 666 2,542 2,549
Deferred income taxes (note 8)........... 471 571 571
------- -------- -----------
Total assets........................... $11,934 $ 70,033 $ 65,932
======= ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................... $ 1,670 4,420 4,149
Short term borrowings (note 6)........... 194 158 198
Current installments of obligations under
capital leases (note 7)................. 637 3,140 3,849
Note payable--shareholder................ 262 -- --
Accrued expenses......................... 98 1,597 1,187
------- -------- -----------
Total current liabilities.............. 2,861 9,315 9,383
Obligations under capital leases, excluding
current installments (note 7)............. 3,834 11,330 10,575
Other long-term liabilities................ 103 169 --
------- -------- -----------
Total liabilities...................... 6,798 20,814 19,958
------- -------- -----------
Stockholders' equity (note 1):
Common stock, $0.02 par value. Authorized
30,000,000 shares in 1997 and 2,100,000
in 1996; issued and outstanding
15,133,321 shares in 1997 and 499,100
shares in 1996.......................... 10 304 304
Preferred stock, $0.02 par value.
Authorized 10,000,000 shares in 1997,
none issued and outstanding............. -- -- --
Series A convertible preferred stock,
$0.02 par value. Authorized
7,700,000 shares in 1996, issued and
outstanding 4,419,800 in 1996........... 88 -- --
Series B convertible preferred stock,
$0.02 par value. Authorized
7,700,000 shares in 1996, issued and
outstanding 4,666,669 in 1996........... 93 -- --
Additional paid in capital............... 11,666 63,358 63,385
Treasury stock........................... -- (4) (4)
Subscription receivable.................. (500) (253) (253)
Accumulated losses....................... (7,005) (14,970) (18,617)
Cumulative translation adjustment........ -- -- 375
Restricted reserve (note 3).............. 784 784 784
------- -------- -----------
Total stockholders' equity............. 5,136 49,219 45,974
------- -------- -----------
Total liabilities and stockholders'
equity................................ $11,934 $ 70,033 $ 65,932
======= ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------------
1995 1996 1997 1997 1998
-------- -------- ------- ------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues: (UNAUDITED)
Transaction fees...... $ 62 $ 1,198 $ 4,627 $ 709 $ 1,876
Other................. -- 63 663 86 125
-------- -------- ------- ------ -----------
Total revenues...... 62 1,261 5,290 795 2,001
Operating expenses:
ATM operating costs... 510 1,176 5,172 688 2,472
Professional fees..... 394 1,125 1,166 104 348
Salaries.............. 452 989 3,796 580 1,717
Communication......... 20 263 818 53 132
Rent and utilities.... 112 290 783 84 280
Travel and related
costs................ 71 254 701 78 352
Fees and charges...... 112 427 458 75 116
Share compensation
expense (note 9)..... -- 4,172 108 19 27
Foreign exchange
loss/(gain).......... 158 79 (8) (169) (174)
Other................. 341 232 818 188 383
-------- -------- ------- ------ -----------
Total operating
expenses............... 2,170 9,007 13,812 1,700 5,653
-------- -------- ------- ------ -----------
Operating loss...... (2,108) (7,746) (8,522) (905) (3,652)
Other income/expense:
Interest income....... 126 225 1,609 75 461
Interest expense...... (107) (378) (1,152) (111) (456)
-------- -------- ------- ------ -----------
19 (153) 457 (36) 5
-------- -------- ------- ------ -----------
Loss before income
tax benefit........ (2,089) (7,899) (8,065) (941) (3,647)
Income tax benefit (note
8)..................... 148 323 100 126 --
-------- -------- ------- ------ -----------
Net loss............ $ (1,941) $ (7,576) $(7,965) $ (815) $ (3,647)
Other comprehensive
income-cumulative
translation
adjustment............. -- -- -- -- 375
-------- -------- ------- ------ -----------
Comprehensive loss.. $ (1,941) $ (7,576) $(7,965) $ (815) $ (3,272)
======== ======== ======= ====== ===========
Pro forma loss per
share--basic and
diluted (note 2(k)).... (0.56) (0.24)
======= ===========
</TABLE>
- - --------
The Company has adopted SFAS 130 "Reporting Comprehensive Income" during the
three months ended March 31, 1998. Other comprehensive income only includes
changes in equity during the period resulting from cumulative translation
adjustments. The adoption of this statement had no effect on presentation of
prior years' statement of operations.
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED PREFERRED ADDITIONAL
COMMON STOCK STOCK PAID IN TREASURY SUBSCRIPTION ACCUMULATED RESTRICTED
STOCK SERIES A SERIES B CAPITAL STOCK RECEIVABLE LOSSES RESERVE TOTAL
------ --------- --------- -------------- -------- ------------ ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
--------------
BALANCE JANUARY 1,
1995.................. $2,650 -- -- -- -- -- (457) 229 $ 2,422
Capital contributions
(note 1).................1,066 -- -- 550 -- -- -- -- 1,616
Net loss for 1995...... -- -- -- -- -- -- (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 Euronet
Services N.V.
(note 1).............. (3,709) 63 -- 122 -- -- 3,524 -- --
Capital contribution
(note 1).............. -- -- 67 6,933 -- ( 500) -- -- 6,500
Reimbursement of
capital............... -- -- -- (57) -- -- -- -- (57)
Change in par value of
shares................ 3 25 26 (54) -- -- -- -- --
Share compensation
expense (note 9)...... -- -- -- 4,172 -- -- -- -- 4,172
Net loss from March 28,
1996 through December
31, 1996.............. -- -- -- -- -- -- (6,919) -- (6,919)
Transfer to restricted
reserve............... -- -- -- -- -- -- (86) 86 --
------ --- ---- -------------- --- ----- ------- --- -------
BALANCE DECEMBER 31,
1996.................. 10 88 93 11,666 -- (500) (7,005) 784 5,136
GE Capital share issue
(note 1).............. -- -- 11 2,989 -- -- -- -- 3,000
Formation of Euronet
Services Inc.
(note 1).............. 192 (88) (104) -- -- -- -- -- --
Net proceeds from
public offering
(note 1).............. 77 -- -- 47,780 -- -- -- -- 47,857
Milestone awards and
options exercised
(note 9).............. 25 -- -- 815 -- (253) -- -- 587
Subscription paid (note
1).................... -- -- -- -- -- 500 -- -- 500
Treasury stock
repurchase (note 1)... -- -- -- -- (4) -- -- -- (4)
Share compensation
expense (note 9)...... -- -- -- 108 -- -- -- -- 108
Net loss for 1997...... -- -- -- -- -- -- (7,965) -- (7,965)
------ --- ---- -------------- --- ----- ------- --- -------
BALANCE DECEMBER 31,
1997.................. $ 304 -- -- 63,358 (4) (253) (14,970) 784 $49,219
====== === ==== ============== === ===== ======= === =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------------
1995 1996 1997 1997 1998
-------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities: (UNAUDITED)
Net loss.................. $( 1,941) $(7,576) $ (7,965) $ (815) $(3,647)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Share compensation
expense................. -- 4,172 108 19 27
Depreciation and
amortization of
property, plant and
equipment............... 133 484 1,761 305 938
Loss on disposal of fixed
assets.................. -- -- 11 -- 6
Deferred income taxes.... (148) (323) (100) (126) --
(Increase)/decrease in
restricted cash......... (180) 28 (695) (322) (306)
Increase in trade
accounts receivable..... (33) (139) (475) (56) (152)
(Increase)/decrease in
deposits for ATM
leases.................. (772) 106 (1,876) 166 (7)
Increase in trade
accounts payable........ 288 1,306 2,750 396 (180)
Increase in prepaid
expenses and other
current assets.......... (293) -- (1,424) (501) (287)
Increase/(decrease) in
accrued expenses and
other long-term
liabilities............. 485 (313) 1,565 191 (566)
-------- ------- -------- ------- -------
Net cash used in
operating activities.... (2,461) (2,255) (6,340) (743) (4,176)
-------- ------- -------- ------- -------
Cash flows from investing
activities:
Fixed asset purchases.... (394) (1,061) (7,612) (368) (1,254)
Proceeds from sale of
fixed assets............ -- -- 42 -- 60
Purchase of investment
securities.............. -- (194) (75,692) (6,750) --
Proceeds from maturity of
investment securities... -- -- 43,942 -- 10,119
Net (increase)/decrease
in loan receivable...... (24) 3 -- 3 3
-------- ------- -------- ------- -------
Net cash provided by
(used in) investing
activities.............. (418) (1,252) (39,320) (7,115) 8,928
-------- ------- -------- ------- -------
Cash flows from financing
activities:
Proceeds from issuance of
shares and other capital
contributions........... 1,616 6,500 51,944 51,356 --
Reimbursement of
capital................. -- (57) -- -- --
Repayment of obligations
under capital leases.... (523) (1,101) (1,007) (247) (648)
Repurchase of treasury
stock................... -- -- (4) -- --
Decrease/(increase) in
bank borrowings......... -- 194 (36) (12) 40
Proceeds from/(repayment
of) loan from
shareholder............. 161 101 (262) -- --
-------- ------- -------- ------- -------
Net cash provided by
(used in) financing
activities.............. 1,254 5,637 50,635 51,097 (608)
-------- ------- -------- ------- -------
Effects of exchange rate
differences on cash...... -- -- -- -- 43
Net (decrease)/increase in
cash and cash
equivalents.............. (1,625) 2,130 4,975 43,239 4,187
Cash and cash equivalents
at beginning of period... 2,036 411 2,541 2,541 7,516
-------- ------- -------- ------- -------
Cash and cash equivalents
at end of period......... $ 411 $ 2,541 $ 7,516 $45,780 $11,703
======== ======= ======== ======= =======
Supplemental disclosures
of cash flow information:
Interest paid during
year.................... $ 107 $ 325 $ 877 $ 111 $ 356
======== ======= ======== ======= =======
</TABLE>
- - --------
Supplemental schedule of noncash investing and financing activities (in
thousands):
Capital lease obligations of $1,906, $4,189 and $11,006 during the years ended
December 31, 1995, 1996 and 1997, respectively, were incurred when the Company
entered into leases primarily for new automatic teller machines.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND FORMATION OF HOLDING COMPANY
Euronet Services Inc. (the "Company") was established as a Delaware
corporation on December 13, 1996 and capitalized on March 6, 1997. Euronet
Services Inc. succeeded Euronet Holding N.V. as the group holding company.
Euronet Services Inc. and its subsidiaries (collectively "Euronet") is an
independent shared automatic teller machine (ATM) network and service provider
to banks and financial institutions. Euronet serves banks 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, all of which are wholly owned, are:
--Euronet Holding N.V., incorporated in the Netherlands Antilles
--Euronet-Bank Tech Rt. (Bank Tech), incorporated in Hungary
--SatComNet Kft (SatComNet), incorporated in Hungary
--Bankomat 24/Euronet Sp. z o.o. (Bankomat), incorporated in Poland
--EFT-Usluge d o.o., incorporated in Croatia
--Euronet Services GmbH, incorporated in Germany
--Euronet Services France SAS, incorporated in France
--Euronet Services spol. sro, incorporated in the Czech Republic
The following is a description of the events leading up to the formation of
the Company. Bank Tech was established on June 22, 1994 by Michael Brown
(Chairman, President and Chief Executive Officer of Euronet) 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 Tech and Daniel
Henry transferred his interest to Michael Brown for a purchase price equal to
his original contribution. The additional capital raised by Bank Tech did not
result in a new controlling group, accordingly the accounting bases of the
assets and liabilities of Bank Tech remained unchanged. On February 20, 1995,
the joint venture agreement was amended under which a new investor and a
shareholder of Bank Tech 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 Tech. 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. Furthermore and
pursuant to such amended joint venture agreement, the shareholders of
SatComNet and a new shareholder agreed to contribute $956,000 in cash as
additional capital to Bank Tech and also agreed to exchange their interest
held in such companies to create identical ownership of Bank Tech and
SatComNet. The capital raised by Bank Tech and the exchange of shares did not
result in a new controlling group, accordingly, the accounting bases of the
assets and liabilities of Bank Tech 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 Tech and SatComNet terminated
their amended joint venture agreement and entered into a shareholders'
agreement reorganizing the ownership of Bank Tech, SatComNet and Bankomat.
Under the shareholders' agreement, the investors contributed, on March 27,
1996, all of their shares and interest in Bank Tech, SatComNet and Bankomat in
exchange for 499,100 common shares and 4,419,800 Series A convertible
preferred shares of Euronet Holding N.V. The transaction 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, the
Company recorded the assets and liabilities received at their historical cost,
common shares ($7,000) and Series A convertible preferred shares ($63,000)
were established for the par value
F-7
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the shares issued, accumulated losses were eliminated ($3,524,000) and the
resulting difference was recorded as additional paid in capital ($122,000). In
addition, new shareholders contributed $5,500,000 in cash and a subscription
receivable of $500,000 to the capital of Euronet Holding N.V. in exchange for
4,200,000 Series B convertible preferred shares.
On November 26, 1996, Euronet Holding N.V. called on a $1 million dollar
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.) in return for 466,669
series B convertible preferred shares.
On February 3, 1997, Euronet Holding N.V. signed a Subscription Agreement
with General Electric Capital Corporation ("GE Capital") under which GE
Capital purchased 710,507 shares of Series B Convertible Preferred Shares of
Euronet Holding N.V. for an aggregate purchase price of $3 million. Pursuant
to the "claw back" option of this agreement, on June 16, 1997, the Company
repurchased 292,607 shares of Euronet Holding N.V. at the original par value.
The following table illustrates the issuance of equity securities by date,
including the number of shares issued for cash or other consideration, the
nature of the non-cash consideration received and the values assigned to each
issuance up to the capitalization of the Company on March 6, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------------------------------
BANK EURONET
DATE TYPE OF SHARES TECH(/1/) SATCOMNET BANKOMAT HOLDING N.V. VALUE
- - ---- ------------------ --------- --------- -------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
June 22, 1994........... Common 1,044 -- -- -- $ 10
July 19, 1994........... Common 275,522 -- -- -- $2,640
------
$2,650
February 20, 1995....... Common 53,434 1(/2/) -- -- $1,447
August 8, 1995.......... Common -- -- 3,140 -- $ 2
December 7, 1995........ (/3/) -- -- -- -- $ 167
------
$1,616
March 27, 1996.......... Common -- -- -- 499,100 --(/4/)
March 27, 1996.......... series A preferred -- -- -- 4,419,800 --(/4/)
March 27 ,1996.......... series B preferred -- -- -- 4,200,000 $5,500(/5/)
November 26, 1996....... series B preferred -- -- -- 466,669 $1,000
------
$6,500
February 3, 1997........ series B preferred -- -- -- 710,507(/6/) $3,000
</TABLE>
- - --------
(1) On March 28, 1995, Bank Tech changed its legal structure from a company
limited by quotas ( "Kft") to a company limited by shares ("RT"). Upon the
transformation, the quotas were exchanged for 330,000 shares of common
shares.
(2) SatComNet's legal structure is a company limited by quotas.
(3) No shares were issued at this date. Amount contributed was recorded as an
increase to additional paid capital. The consideration includes $61,000 of
non-cash contribution (2 ATMs) which was valued at the transferors'
historical cost basis.
(4) On March 27, 1996, the common shares and series A preferred shares were
issued in exchange for the shares of Bank Tech, SatComNet and Bankomat.
Such shares were recorded on an historical cost basis.
(5) The value excludes $500,000 of subscription receivable.
(6) On June 16, 1997, Euronet repurchased 292,607 shares at the original par
value.
F-8
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective March 5, 1997, Euronet Holding N.V. changed the stated par value
of all common and preferred shares of the Company from $0.10 to $0.14. Euronet
Holding N.V. then effected a seven-for-one stock split which became effective
on March 5, 1997, thus reducing the par value of such shares to $0.02. This
change in par value and stock split was retroactively taken into account for
common and preferred shares. Subsequently, effective March 6, 1997, the
holders of all of the preferred shares of Euronet Holding N.V. converted all
of such preferred shares into common shares of Euronet Holding N.V.
Pursuant to an Exchange Agreement which became effective on March 6, 1997,
entered into between Euronet Services Inc. and the shareholders and option
holders of Euronet Holding N.V., 10,296,076 shares of common stock in the
Company were issued to the shareholders of Euronet Holding N.V. in exchange
for all the common shares of Euronet Holding N.V. In addition, options to
acquire 3,113,355 shares of common stock of the Company were issued to the
holders of options to acquire 3,113,355 common shares of Euronet Holding N.V.
and awards with respect to 800,520 shares of common stock of the Company were
issued to the holders of awards with respect to 800,520 preferred shares of
Euronet Holding N.V. in exchange for all such awards.
On March 7, 1997, the Company consummated an initial public offering of
6,095,000 shares of common stock at a price of $13.50 per share. Of the
6,095,000 shares sold, 3,833,650 shares were sold by the Company and 2,261,350
shares by certain selling shareholders. Net proceeds to the Company were
approximately $47.9 million after deduction of the underwriting discount and
other expenses of the offering.
The following table provides a summary of common stock issued since the
establishment of Euronet Services Inc. in December 1996:
<TABLE>
<CAPTION>
NUMBER
DATE OF SHARES
-------------- ----------
<S> <C> <C>
Exchange agreement with Euronet Holding N.V. ..... March 6, 1997 10,296,076
Exercise of awards in the initial public offering
.................................................. March 7, 1997 800,520
Stock options exercised in the initial public
offering ......................................... March 7, 1997 304,822
Shares issued in the initial public offering ...... March 7, 1997 3,038,650
Additional shares issued in the initial public
offering to cover over-allotment ................. March 16, 1997 795,000
Repurchase of GE Capital shares ................... June 16, 1997 (292,607)
Stock options exercised ........................... Various 190,860
----------
15,133,321
==========
</TABLE>
(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 the period from January 1, 1995 through March
27, 1996 have been presented as if the operating entities had been combined
from their respective dates of incorporation/acquisition. For the period from
March 27, 1996 to March 6, 1997 the consolidated financial statements include
the accounts of Euronet Holding N.V. and its subsidiaries. Subsequent to March
6, 1997 the consolidated financial statements include the accounts of the
Company and its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
F-9
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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 formation of the Euronet Services Inc. has also been
accounted for at historical cost. The transfer of assets by shareholders have
been recorded at the transferors' historical cost basis.
(c) Foreign currencies
Foreign currency transactions are recorded at the exchange rate prevailing
at the date of the transactions. Assets and liabilities denominated in foreign
currencies are remeasured at rates of exchange at balance sheet date. Gains
and losses on foreign currency transactions are included in the statement of
operations.
The financial statements of foreign subsidiaries where the local currency is
the functional currency are translated to U.S. dollars using (i) exchange
rates in effect at period end for assets and liabilities, and (ii) average
exchange rates during the period for results of operations. Adjustments
resulting from translation of financial statements are reflected as a separate
component of stockholders' equity.
The financial statements of foreign subsidiaries where the functional
currency in the U.S. dollar are remeasured using historical exchange rates for
non-monetary items while current exchange rates are used for monetary items.
Foreign exchange gains and losses arising from the remeasurement are reported
in the statement of operations.
(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.
Depreciation and amortization periods are as follows:
<TABLE>
<S> <C>
Automatic teller machines................................ 7 years
Computers and software................................... 3 years
Vehicles & office equipment.............................. 5 years
Cassettes................................................ 1 year
Leasehold improvements................................... Over the lease term
</TABLE>
(e) Impairment of long-lived assets
Euronet 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 expected to be generated by the
assets. 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-10
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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.
A valuation allowance for deferred tax assets has been established on the
basis of the Company's estimate of taxable income for future periods.
(g) Risks and uncertainties
Euronet at this time, remains dependent on a limited group of customers and
network services are limited to those areas where ATMs have been installed.
The Company 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 recognizes revenue at the point at which the service is performed.
(i) Cash equivalents
For the purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
(j) Investment securities
The Company has classified all of its investment securities as held-to-
maturity. Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold the security to maturity. Held-to-
maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of 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 or
term of the related held-to-maturity security as an adjustment to yield using
the effective interest method.
(k) Pro forma loss per share
The Company, effective for the year ended December 31, 1997, adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." Pursuant to the provisions of the statement, basic loss per share has
been computed by dividing net loss attributable to common shareholders by the
weighted average number of common shares outstanding during the period. The
effect of potential common shares (stock options outstanding) is antidilutive.
Accordingly, dilutive loss per share does not assume the exercise of stock
options outstanding.
F-11
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides a reconciliation of the numerator and
denominator in the pro forma loss per share calculation for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Net loss attributable to common shareholders (in thousands).. (7,965)
Weighted average number of common shares outstanding......... 14,284,917
Pro forma loss per share--basic and diluted.................. $ (0.56)
</TABLE>
The capital structure of the Company before March 7, 1997 (consummation of
the initial public offering) is not indicative of the continuing capital
structure. The historical loss per share has been replaced with a pro forma
loss per share. The pro forma loss per share assumes as of January 1, 1997 (i)
the conversion of the preferred shares to common stock, reduction in par value
and the seven-to-one stock split and, (ii) 800,520 shares of common stock
awarded to shareholders on February 15, 1996 and exercised in connection with
the initial public offering.
(l) Stock-based compensation
SFAS No. 123 "Accounting for Stock-Based Compensation", encourages but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
and related Interpretations. Accordingly, compensation cost for share options
is measured as the excess, if any, of the fair market value of the Company's
shares at the date of the grant over the exercise price. Such compensation
cost is charged to expense on a straight-line basis over the vesting period of
the respective options. If vesting is accelerated as a result of certain
milestones, the unrecognized compensation would be recorded as expense on the
date such milestones have or have been deemed to have been achieved. The
Company has adopted the disclosure-only provisions of SFAS No. 123 (refer to
note (9)).
(m) Reclassifications
Certain amounts have been reclassified in the prior year financial
statements to conform to the 1997 financial statements presentation.
(3) RESTRICTED RESERVE
The restricted reserve arose from the provisions of Hungarian accounting law
in relation to share capital contributed in foreign currency to Bank Tech 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 recorded as a separate non distributable
reserve.
The reserve has remained frozen during the year as the laws in Hungary have
now changed and no longer require this accounting. However, the change in the
law is not retroactive and the historical reserve remains undistributable.
F-12
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) RESTRICTED CASH
The restricted cash balance as of December 31, 1996 and 1997 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
ATM deposits................................................... $ 152 $ 347
Other.......................................................... -- 500
------ ------
$ 152 $ 847
====== ======
</TABLE>
The ATM deposit balances held are equivalent to the value of certain banks'
cash held in Euronet's ATM network. The Company also has deposits with
commercial banks to cover guarantees and deposits with customs officials to
cover charges.
(5) INVESTMENT SECURITIES
The amortized cost for short-term held-to-maturity securities by class
security type at December 31, 1996 and 1997, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
--------------
(IN THOUSANDS)
<S> <C> <C>
U.S. State and Municipal obligations......................... $ -- $ 12,448
Corporate debentures......................................... -- 8,298
U.S. Federal Agency obligations.............................. -- 7,967
Foreign government obligations............................... 194 3,231
----- --------
Total...................................................... $ 194 $ 31,944
===== ========
</TABLE>
The carrying value of all investment securities at December 31, 1996 and
1997 approximates fair market value.
All investment securities held at December 31, 1997 mature on or before July
1, 1998.
(6) SHORT TERM BORROWINGS
Short term borrowings represent Hungarian forint denominated loans granted
by a commercial bank in Hungary to permit such bank to supply cash to the ATM
network. The loan outstanding at December 31, 1997 is due on June 16, 1998
together with interest accrued at 27%. Euronet has collateralized this loan by
the pledge of certain investment securities with a value approximately the
outstanding balance of the loan.
(7) LEASES
(a) Capital leases
The Company leases the majority of its ATMs under capital lease agreements
that expire between 1999 and 2002 and bear interest at rates between 11% and
15%. Lease installments are paid on a monthly, quarterly or semi-annual basis.
Euronet has the right to extend the term of certain leases at the conclusion
of the lease period. In addition to the related equipment, one lease in Poland
is secured by a 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 (see note [11]).
F-13
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Euronet also has two lease agreements for computers for use as its central
processing and authorization center for ATM transactions. One lease has a term
expiring in 1999 and the other in 2000 and they bear interest at a rate of 15%
and 12%, respectively, and are payable quarterly.
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 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
ATMs........................................................ $5,870 $15,940
Other....................................................... 225 1,161
------ -------
6,095 17,101
Less accumulated amortization............................... (410) (1,811)
------ -------
Net book value.............................................. $5,685 $15,290
====== =======
</TABLE>
Amortization of assets held under capital leases, amounted to $96,000,
$1,314,000 and $1,401,000 for the years ended December 31, 1995, 1996 and
1997, respectively. These amounts are included with depreciation expense.
(b) Operating leases
The Company also has non-cancellable operating rental leases for office
space which expire over the next 2 to 5 years. Rent expense under these leases
amounted to $158,000, $270,000 and $433,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
(c) Future minimum lease payments
Future minimum lease payments under the capital leases and the non-
cancellable operating lease (with initial or remaining lease terms in excess
of one year) as of December 31, 1997 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31,
1998.................................................. $ 5,031 $ 962
1999.................................................. 5,536 1,007
2000.................................................. 5,256 1,007
2001.................................................. 1,103 1,007
2002.................................................. 959 1,007
-------
Total minimum lease payments............................ 17,885
Less amounts representing interest...................... (3,415)
-------
Present value of net minimum capital lease payments..... 14,470
Less current installments of obligations under capital
leases................................................. (3,140)
-------
Long term capital lease obligations..................... $11,330
=======
</TABLE>
F-14
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The income tax benefit consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
U.S. Federal.................................. -- -- --
Netherlands Antilles.......................... -- -- --
Europe........................................ -- -- --
------- ------- -------
Total current............................... -- -- --
Deferred tax benefit:
U.S. Federal.................................. -- -- --
Netherlands Antilles.......................... -- -- --
Europe........................................ $ 148 $ 323 $ 100
------- ------- -------
Total deferred.............................. 148 323 100
======= ======= =======
Total income taxes.......................... $ 148 $ 323 $ 100
======= ======= =======
The sources of income/(loss) before income taxes
are presented as follows:
United States................................. -- -- (353)
Netherlands Antilles.......................... (2,089) (4,416) 425
Europe........................................ (2,089) (3,483) (8,137)
------- ------- -------
Loss before income taxes.................... $(2,089) $(7,899) $(8,065)
======= ======= =======
</TABLE>
The income tax benefit has been calculated on the basis of the taxable
losses of the combined entities for the year ended December 31, 1995 and the
period January 1, 1996 through March 27, 1996. Upon formation of Euronet
Holding N.V. on March 27, 1996 and through March 7, 1997, the income tax
benefit was calculated solely on the basis of the taxable loss of Euronet
Holding N.V. Subsequent to March 7, 1997, the income tax benefit was
calculated solely on the basis of the taxable loss of the Company. The
difference between the actual income tax benefit and the tax benefit computed
by applying the statutory income tax rate (34% for United States, 3% for
Netherlands Antilles, 18% for Hungary and 38% for Poland) to losses before
taxes is attributable to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit at statutory rates......... $ 427 $ 267 $ 2,742
Non-deductible expenses....................... (153) (209) (261)
Tax-exempt interest........................... -- -- 265
Stock options exercised....................... -- -- 1,006
Stock options granted in prior year........... -- -- 1,402
Foreign currency gains and losses............. -- -- 542
Tax holiday................................... (8) (4) --
Difference in foreign tax rates............... -- 806 44
Adjustment to deferred tax asset for enacted
changes in tax rates......................... -- -- (113)
Utilization of tax loss carried forward....... -- -- 145
Change in valuation allowance................. (118) (537) (5,672)
------- ------- ---------
Actual income tax benefit..................... $ 148 $ 323 $ 100
======= ======= =========
</TABLE>
F-15
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of the formation of the Company a portion of the stock
compensation cost recorded in 1996 became a temporary difference for which the
Company recognized a gross deferred tax asset of $1,402,404 in 1997. A
valuation allowance for this deferred tax asset was established. During 1997,
certain of the stock options were exercised resulting in a deduction of
$1,005,937 in the Company's tax return. Because of the tax loss position of
the Company in the United States, this tax deduction has not been realized but
recharacterized as a tax loss carryforward. The Company has also established a
valuation allowance for the deferred tax asset resulting from the tax loss
carryforward in the United States. Should this tax loss carryforward be
utilized in the future, $951,553 of the tax benefit would be recorded as an
adjustment to additional paid in capital.
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 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Tax loss carryforwards...................................... 989 4,808
Leasing..................................................... 5 167
Leasehold improvements...................................... 48 82
Stock compensation costs.................................... -- 1,402
Unrealised exchange rate differences........................ -- 34
Accrued expenses............................................ 84 321
Other....................................................... -- 84
------ -------
Deferred tax asset.......................................... 1,126 6,898
Valuation allowance......................................... (655) (6,327)
------ -------
Net deferred tax assets..................................... 471 571
====== =======
</TABLE>
The valuation allowance relates to deferred tax assets established under
SFAS No. 109 for loss carryforwards at December 31, 1996 and 1997 of
$8,686,000 and $19,989,000, respectively. The tax operating loss carryforwards
will expire through 2000 for Bankomat and through 2002 for Bank Tech,
SatComNet and Euronet Holding N.V. The tax operating losses for Euronet
Services Inc. and Euronet Services GmbH can be carried forward indefinitely.
Based on the Company's forecast of sufficient taxable income for future
periods in which the tax losses are expected to be absorbed, the Company
believes that it will realise the benefit of the deferred tax assets, net of
the existing valuation allowance.
(9) STOCK PLANS
The Company has established a share compensation plan which provides certain
employees options to purchase shares of its common stock. 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 the Company and
its subsidiaries. The Company 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. At December 31, 1997, the Company has authorized options
for the purchase of 1,299,550 shares of common stock, of which 1,289,447 have
been awarded to employees and 1,061,316 remain unexercised.
In accordance with the shareholders' agreement dated February 15, 1996 and
amended on October 14, 1996, the Company has reserved 2,850,925 shares of
common stock for the purpose of awarding common stock ("milestone awards") to
certain investors and options to acquire shares of common stock ("milestone
options") to the founders, management and key employees. The Company 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.
F-16
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Upon the initial public offering, all milestone 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) vested and all shares became immediately issuable to
beneficiaries of milestone awards and options. Upon the initial public
offering, 800,520 milestone awards and 232,078 milestone options were
exercised. As at December 31, 1997, 1,736,890 milestone options remain
unexercised.
Share option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at December 31, 1994 (none exercisable).. 440,440 0.71
Granted........................................ 110,110 0.71
---------
Balance at December 31, 1995 (88,130 shares
exercisable).................................... 550,550 0.76
Granted........................................ 2,562,805 2.02
---------
Balance at December 31, 1996 (271,780 shares
exercisable).................................... 3,113,335 1.80
Granted........................................ 226,497 12.65
Exercised...................................... (495,682) 1.34
Forfeited...................................... (45,964) 3.25
---------
Balance at December 31, 1997 (1,984,365 shares
exercisable).................................... 2,798,206 2.67
=========
</TABLE>
At December 31, 1997, the range of exercise prices, weighted-average
remaining contractual life and number exercisable of outstanding options was
as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE CONTRACTUAL NUMBER
EXERCISE PRICE SHARES REMAINING LIFE (YEARS) EXERCISABLE
-------------- --------- ---------------------- -----------
<S> <C> <C> <C>
0.71............................ 326,396 6.6 150,220
0.95............................ 66,150 7.3 11,018
1.43............................ 378,700 7.8 116,900
2.14............................ 1,806,890 8.2 1,706,227
10.75........................... 51,191 9.8 --
11.50........................... 28,260 9.6 --
11.77........................... 27,804 9.8 --
13.94........................... 112,815 9.3 --
--------- ---------
2,798,206 1,984,365
========= =========
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its share option
plans. The exercise price of the options is established based on the estimated
fair value of the underlying shares at grant date. For options granted prior
to the initial public offering, the fair value was determined by taking into
consideration the per share price at which the most recent sale of equity
securities was made by Euronet to investors. For options granted after the
initial public offering, the fair value is determined by the market price of
the share at the date of grant. However, in contemplation of the initial
public offering in March 1997, compensation expense was recognized in 1996
relating to all options granted during the fourth quarter of 1996. Such
compensation expense was calculated as the excess of the fair market value of
the underlying shares (determined as $4.22, which is the cash price per share
at which GE Capital subscribed for preferred shares of Euronet Holding N.V. in
February 1997) over the exercise price of $2.14 per share. Compensation
expense of $4,172,000 has been recorded in the 1996 consolidated financial
statements and an additional compensation expense of $343,000 with respect to
these options will be recognized over the remaining vesting period of such
options. Of this amount, $108,000 has been expensed in the year ended December
31, 1997.
F-17
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides the fair value of options granted during 1995,
1996 and 1997 together with a description of the assumptions used to calculate
the fair value:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
------------ ------------ -------------
MINIMUM MINIMUM BLACK-SCHOLES
PRICING MODEL/METHOD USED VALUE METHOD VALUE METHOD PRICING MODEL
------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Expected volatility................. 0% 0% 54%
Average risk-free rate.............. 7.17% 7.17% 6.86%
Average expected lives.............. 3 years 3 years 4 years
Expected dividend yield............. 0% 0% 0%
Weighted-average fair value (per
share)............................. $ 0.18 $ 2.10 $ 6.20
</TABLE>
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, consolidated net loss and
net loss per share would have been increased to the amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands, except per share data)
Net loss-as reported............. $ (1,914) $ (7,576) $ (7,965)
Net loss-as adjusted............. $ (1,914) $ (8,189) $ (8,484)
Pro forma loss per share-as re-
ported.......................... $ (0.56)
Pro forma loss per share-as ad-
justed.......................... $ (0.59)
</TABLE>
As adjusted amounts reflect only options granted since December 31, 1994.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the as adjusted amounts presented above
because compensation cost is reflected over the options' vesting periods and
compensation cost for options granted prior to January 1, 1995 is not
considered.
F-18
<PAGE>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) BUSINESS SEGMENT INFORMATION
Euronet and its subsidiaries operate in one business segment, the service of
providing an independent shared ATM network to the banks and financial
institutions that it serves.
Total revenues for the years ended December 31, 1995, 1996 and 1997 and long
lived assets at December 31, 1996 and 1997 for the Company analyzed by
geographical location is as follows:
<TABLE>
<CAPTION>
LONG-
TOTAL REVENUES LIVED ASSETS
------------------ --------------
1995 1996 1997 1996 1997
---- ------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Hungary.................................... $62 $1,246 $4,562 $4,709 $10,212
Poland..................................... -- 15 663 2,575 9,204
Other...................................... -- -- 65 -- 4,672
--- ------ ------ ------ -------
Total...................................... $62 $1,261 $5,290 $7,284 $24,088
=== ====== ====== ====== =======
</TABLE>
Total revenues are attributed to countries based on location of customer.
Long-lived assets consist of property, plant, and equipment.
(11) RELATED PARTIES
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 the Company. Windham has signed an undertaking to contribute
these assets to Euronet at the end of the lease at a bargain purchase price of
$1 plus incidental expenses.
In addition, payments of $320,000, $425,000 and $94,000 have been made for
the years ended December 31, 1995, 1996 and 1997, respectively, to Windham.
These payments cover the services and related expenses of consultants seconded
by Windham to the Company. These services include AS400 computer expertise,
bank marketing and management support.
(12) FINANCIAL INSTRUMENTS
Euronet's financial instruments (cash, receivables, investment securities,
accounts payable, short term borrowings, notes payable and accrued expenses)
are principally short-term in nature. Accordingly, the carrying value of these
investments approximates its fair value.
(13) CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Euronet is subject to concentrations of business and credit risk. Euronet's
financial instruments mainly include trade receivables, cash and short-term
investments. Euronet's customer base, even though limited, includes the most
significant international card organizations and certain banks in the markets
in which it operates. Therefore, the Company is dependent on these entities
and its operations are directly affected by the financial condition of those
entities. The Company has two individually significant customers in Hungary
which account for 51% and 18%, respectively, of total consolidated revenue for
the year ended December 31, 1997. In January 1998, the Company's most
significant customer which accounts for 51% of consolidated revenues for the
year ended December 31, 1997, notified the Company that it was terminating its
contract effective July 1998.
Cash and short-term investments are placed with high-credit quality
financial institutions or in short-term duration, high-quality debt securities
issued by the Hungarian government. Euronet 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>
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has made an assessment of the impact of the advent of the year
2000 on its systems and operations. The Processing Center will require certain
upgrades which have been ordered and are scheduled for installation by the
fourth quarter of 1998. Most of the ATMs in the Company's network are not year
2000 compliant, and hardware and software upgrades will be installed under
contract with the Company's ATM maintenance vendors. According to the
Company's current estimates, the cost will be approximately $1,000 per ATM,
and the required installation will be finished by the end of 1998. The Company
estimates that approximately 560 of its ATMs will require upgrades for year
2000 compliance.
The Company is currently planning a survey of its bank customers concerning
the compliance of their back office systems with year 2000 requirements, and
anticipates launching such survey in the third quarter of 1998. If the
Company's bank customers do not bring their card authorization systems into
compliance with year 2000 requirements, the Company may be unable to process
transactions on cards issued by such banks and may lose revenues from such
transactions. This could have a material adverse effect on the Company's
revenues. Therefore, Euronet will monitor, and hopes to assist its bank
clients in, implementation of its customers' year 2000 compliance programs,
and may, if required to accelerate the compliance programs of its banks,
create consulting capabilities in this respect.
(14) COMMITMENTS
The Company is committed to purchase ATMs from certain suppliers for
approximately $1.2 million.
F-20
<PAGE>
THE COMPANY
EURONET SERVICES INC.
Horvat u. 14-24
1027 Budapest
Hungary
TRUSTEE, PRINCIPAL PAYING AGENT AND REGISTRAR
STATE STREET BANK
Financial Markets Group
Corporate Trust
Two International Place
Boston, Massachusetts 02110-2804
TRANSFER AGENT AND LUXEMBOURG PAYING AGENT
BANQUE GENERALE DU LUXEMBOURG, S.A.
50, Avenue J.F. Kennedy
L-2951 Luxembourg
Grand Dutchy of Luxembourg
LEGAL ADVISORS
TO THE COMPANY
ARENT FOX KINTNER PLOTKIN & KAHN, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
TO THE UNDERWRITERS
SHEARMAN & STERLING
199 Bishopsgate
London, EC2M 3TY
England
LISTING AGENT
BANQUE GENERALE DU LUXEMBOURG, S.A.
50, Avenue J.F. Kennedy
L-2951 Luxembourg
Grand Dutchy of Luxembourg
AUDITORS
KPMG POLSKA AUDYT SP. Z.O.O.
Centrum LIM -- Hotel Marriott
Al. Jerozolimskie 65/79
00-697 Warsaw
Poland
F-21
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE ISSUER OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICI-
TATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AU-
THORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUAL-
IFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 1
Forward-Looking Statements................................................. 1
Prospectus Summary......................................................... 2
Risk Factors............................................................... 13
Use of Proceeds............................................................ 21
Capitalization............................................................. 22
Selected Consolidated Financial Data....................................... 23
Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................................. 25
Business................................................................... 32
Management................................................................. 49
Certain Transactions....................................................... 56
Principal Stockholders..................................................... 61
Description of Capital Stock............................................... 63
Description of the Notes................................................... 66
Certain United States Federal Income Tax Considerations.................... 97
Underwriting............................................................... 104
Legal Matters.............................................................. 105
Experts.................................................................... 105
Index to Consolidated Financial Statements................................. F-1
</TABLE>
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DM182,485,000
GROSS PROCEEDS
[LOGO OF EURONET SERVICES INC. APPEARS HERE]
EURONET SERVICES INC.
% SENIOR DISCOUNT NOTES DUE 2006
-------------
PROSPECTUS
-------------
MERRILL LYNCH CAPITAL MARKETS BANK LIMITED
FRANKFURT/MAIN BRANCH
MERRILL LYNCH & CO.
, 1998
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
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................. $ 29,500
National Association of Securities Dealers, Inc. filing fee......... 10,500
Transfer agent fees and other expenses.............................. 60,000
Legal Fees.......................................................... 200,000
Underwriting Fees................................................... 3,000,000
Listing and Rating Agency Fees...................................... 100,000
Accounting Fees..................................................... 40,000
Printing Fees....................................................... 200,000
----------
Total............................................................. $3,640,000
==========
</TABLE>
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 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 of the Underwriting Agreement filed as
Exhibit 1.1 hereto.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
For information regarding the issuance by the Company of shares of its
Common Stock during the three years ended on the date of this Registration
Statement, see "Management--Certain Transactions" in the Prospectus. Except
for the shares of Common Stock offered and sold by the Company in its March
1997 public offering, all of the shares of Common Sock were issued by the
Company in reliance on the exemption from the registration requirements of
Section 5 of the Securities Act of 1933 provided by Section 4(2) of such Act.
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(a)* By-Laws of the Company.
3.2(b)** Amended By-Law provision.
4.2 Form of Notes is attached as an exhibit to the form of Indenture
(included as Exhibit 4.3)
4.3**** Form of Indenture between the Company and , as Trustee
5.1**** Form of Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC as to
the legality of the Notes.
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 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***** Registration Rights Agreement dated as of March 13, 1996 between
the Company and its principal stockholders.
10.8***** Master Lease Agreement dated as of September 29, 1997 and
Operating Lease Agreement dated June 13, 1997, June 16, 1997,
June 17, 1997, July 28, 1997 and September 17, 1997, between a
subsidiary of the Company and ING Lease (Polska) Sp. z o.o.
10.9***** Master Rental Agreement dated as of March 10, 1995 between HFT
Corporation and a subsidiary of the Company.
10.10***** Leasing, Servicing, Processing, Software License and Software
Service Contract for Automatic Teller Machines dated January 10,
1997 between a subsidiary of the Company and Service Bank GmbH
and Co. KG.
10.11***** Milestone Stock Option Agreement dated October 14, 1996 between
the Company and Dennis Depenbusch, and list of options granted to
Messrs. Brown and Henry under agreements containing the same
terms as the Depenbusch agreement.
10.12***** Form of Automatic Teller Machine Site Agreement.
10.13***** Lease dated February 21, 1997 between a subsidiary of the Company
and Central Business Center Rt., as amended on May 13, 1997,
November 7, 1997, and January 20, 1998.
10.14***** Form of ATM Agreement between banks and the Company.
12***** Statement re: computation of ratios.
21.1***** List of Registrant's Subsidiaries (included in the financial
statements filed as part of the Prospectus).
23.1**** Consent of KPMG Polska Sp. z o.o.
23.2**** Consent of Arent Fox Kintner Plotkin & Kahn, PLLC.
24.1 Power of Attorney (included on signature page).
25*** Statement of Eligibility of Trustee.
</TABLE>
II-2
<PAGE>
- - --------
* Previously filed as an exhibit to the Registration Statement
No. 333-18121 and incorporated by reference herein.
** Previously filed as an exhibit to the Form 10-Q for the quarter ended
June 30, 1997 and incorporated by reference herein.
*** To be filed by amendment.
**** Filed herewith.
***** Filed on March 20, 1998 as part of this Registration Statement.
All other Exhibits were previously filed.
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:
(1) That 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) That 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
BUDAPEST, HUNGARY ON THE 6TH DAY OF MAY, 1998.
Euronet Services Inc.
By: Daniel R. Henry
-----------------------------
DANIEL R. HENRY
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Daniel R.
Henry his or her true and lawful attorney-in-fact and agent, each acting
alone, with full power of substitution and resubstitution, for him or her in
his or her name, place and stead, in any and all capacities, to sign any or
all Amendments (including post-effective Amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and thing
appropriate or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the
Michael J. Brown Board of Directors, May 6, 1998
- - ------------------------------------- Chief Executive
MICHAEL J. BROWN Officer and
President
(principal
executive officer)
Director and Chief
Daniel R. Henry Operating Officer May 6, 1998
- - -------------------------------------
DANIEL R. HENRY
Steven J. Buckley* Director May 6, 1998
- - -------------------------------------
STEVEN J. BUCKLEY
Eriberto R. Scocimara* Director May 6, 1998
- - -------------------------------------
ERIBERTO R. SCOCIMARA
Andrezej Olechowski* Director May 6, 1998
- - -------------------------------------
ANDRZEJ OLECHOWSKI
Thomas A. McDonnell* Director May 6, 1998
- - -------------------------------------
THOMAS A. MCDONNELL
Nicholas B. Callinan* Director May 6, 1998
- - -------------------------------------
NICHOLAS B. CALLINAN
Chief Financial
Bruce S. Colwill* Officer and Chief May 6, 1998
- - ------------------------------------- Accounting Officer
BRUCE S. COLWILL (principal financial
officer and principal
accounting officer)
</TABLE>
*Signed by Power of Attorney
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1**** Form of Underwriting Agreement.
3.1* Certificate of Incorporation.
3.2(a)* By-Laws of the Company.
3.2(b)** Amended By-Law provision.
4.2 Form of Notes is attached as an exhibit to the form of Indenture
(included as Exhibit 4.3)
4.3**** Form of Indenture between the Company and , as Trustee
5.1**** Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC as to the
legality of the Notes.
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 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***** Registration Rights Agreement dated as of March 13, 1996 between
the Company and its principal stockholders.
10.8***** Master Lease Agreement dated as of September 29, 1997 and
Operating Lease Agreement dated June 13, 1997, June 16, 1997,
June 17, 1997, July 28, 1997 and September 17, 1997, between a
subsidiary of the Company and ING Lease (Polska) Sp. z o.o.
10.9***** Master Rental Agreement dated as of March 10, 1995 between HFT
Corporation and a subsidiary of the Company.
10.10***** Leasing, Servicing, Processing, Software License and Software
Service Contract for Automatic Teller Machines dated January 10,
1997 between a subsidiary of the Company and Service Bank GmbH
and Co. KG.
10.11***** Milestone Stock Option Agreement dated October 14, 1996 between
the Company and Dennis Depenbusch, and list of options granted to
Messrs. Brown and Henry under agreements containing the same
terms as the Depenbusch agreement.
10.12***** Form of Automatic Teller Machine Site Agreement.
10.13***** Lease dated February 21, 1997 between a subsidiary of the Company
and Central Business Center Rt., as amended on May 13, 1997,
November 7, 1997, and January 20, 1998.
10.14***** Form of ATM Agreement between banks and the Company.
12***** Statement re: computation of ratios.
21.1***** List of Registrant's Subsidiaries (included in the financial
statements filed as part of the Prospectus).
23.1**** Consent of KPMG Polska Sp. z o.o.
23.2**** Consent of Arent Fox Kintner Plotkin & Kahn, PLLC.
24.1 Power of Attorney (included on signature page).
25*** Statement of Eligibility of Trustee.
</TABLE>
- - --------
* Previously filed as an exhibit to the Registration Statement No. 333-18121
and incorporated by reference herein.
** Previously filed as an exhibit to the Form 10-Q for the quarter ended June
30, 1997 and incorporated by reference herein.
*** To be filed by amendment.
**** Filed herewith.
***** Filed on March 20, 1998 as part of this Registration Statement.
<PAGE>
================================================================================
EURONET SERVICES INC.
(a Delaware corporation)
Senior Discount Notes due 2006
PURCHASE AGREEMENT
Dated: ., 1998
================================================================================
<PAGE>
Draft of April 23, 1998
EURONET SERVICES INC.
(a Delaware corporation)
DM .
Senior Discount Notes due 2006
PURCHASE AGREEMENT
-------------------
., 1998
MERRILL LYNCH CAPITAL MARKETS BANK LIMITED
FRANKFURT/MAIN BRANCH
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Euronet Services Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch Capital Markets Bank Limited Frankfurt/Main Branch,
[Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated]
("Merrill Lynch" or the "Underwriter"), with respect to the issue and sale by
the Company and the purchase by the Underwriter of DM . aggregate principal
amount at maturity of the Company's Senior Discount Notes due 2006 (the
"Securities"). The Securities are to be issued pursuant to an indenture dated
as of ., 1998 (the "Indenture") between the Company and ., as trustee (the
"Trustee").
The Company understands that the Underwriter proposes to make a public
offering of the Securities as soon as the Underwriter deems advisable after this
Agreement has been executed and delivered and the Indenture has been qualified
under the Trust Indenture Act of 1939, as amended (the "1939 Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-.) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the
<PAGE>
"1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the
1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434
("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriter for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated ., 1998 together with the Term Sheet
and all references in this Agreement to the date of the Prospectus shall mean
the date of the Term Sheet. For purposes of this Agreement, all references to
the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company represents
and warrants to the Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(b) hereof, and agrees with the Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time, the Registration Statement, the Rule
462(b) Registration Statement and any
2
<PAGE>
amendments and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations
and the 1939 Act and the rules and regulations of the Commission under the
1939 Act (the "1939 Act Regulations"), and did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time, included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectus shall not be "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration Statement at the
time it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriter for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included in the
--------------------
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles in the United States ("GAAP") applied on a consistent
basis throughout the periods involved. The supporting schedules included
in the Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the Registration
Statement.
3
<PAGE>
(iv) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each "significant subsidiary"
-----------------------------
of the Company (as such term is defined in Rule 1-02 of Regulation S-X)
(each a "Subsidiary" and, collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
each such Subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the preemptive
or similar rights of any securityholder of such Subsidiary. The only
subsidiaries of the Company are the subsidiaries listed on Exhibit 21 to
the Registration Statement.
(vii) Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company is as set forth in the Prospectus in the column
entitled "Historical" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this
4
<PAGE>
Agreement, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus). The shares of issued
and outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in violation
of the preemptive or other similar rights of any securityholder of the
Company.
(viii) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by the Company.
(ix) Authorization of the Indenture. The Indenture has been duly
------------------------------
authorized by the Company and duly qualified under the 1939 Act and, when
duly executed and delivered by the Company and the Trustee, will constitute
a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law).
(x) Authorization of the Securities. The Securities have been
-------------------------------
duly authorized and, at the Closing Time, will have been duly executed by
the Company and, when authenticated, issued and delivered in the manner
provided for in the Indenture and delivered against payment of the purchase
price therefor as provided in this Agreement, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law),
and will be in the form contemplated by, and entitled to the benefits of,
the Indenture.
(xi) Description of the Securities and the Indenture. The
-----------------------------------------------
Securities and the Indenture will conform in all material respects to the
respective statements relating thereto contained in the Prospectus and will
be in substantially the respective forms filed or incorporated by
reference, as the case may be, as exhibits to the Registration Statement.
(xi) Absence of Defaults and Conflicts. Neither the Company nor
---------------------------------
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or
assets of the
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Company or any subsidiary is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a Material
Adverse Effect; and the execution, delivery and performance of this
Agreement, the Indenture and the Securities and the consummation of the
transactions contemplated herein and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectus
under the caption "Use of Proceeds") and compliance by the Company with its
obligations hereunder and under the Indenture and the Securities have been
duly authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action result
in any violation of the provisions of the charter or by-laws of the Company
or any subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any subsidiary or any of their assets, properties or operations.
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.
(xiii) Absence of Labor Dispute. No labor dispute with the
------------------------
employees of the Company or any subsidiary exists or, to the knowledge of
the Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xiv) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any
subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be expected
to materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement or the
performance by the Company of its obligations hereunder; the aggregate of
all pending legal or governmental proceedings to which the Company or any
subsidiary is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.
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(xv) Accuracy of Exhibits. There are no contracts or documents
--------------------
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xvi) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xvii) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement or for the due execution, delivery or
performance of the Indenture by the Company, except such as have been
already obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws and except for the qualification of
the Indenture under the 1939 Act.
(xviii) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the Company and its
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
7
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(xix) Title to Property. The Company and its subsidiaries have
-----------------
good and marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or any of
its subsidiaries; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one enterprise,
and under which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither the
Company nor any subsidiary has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Company or
any subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises under any such
lease or sublease.
(xx) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xxi) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (C)
there are no pending or threatened administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its subsidiaries and (D)
there are no events or circumstances that might reasonably be expected to
form the basis of an order for clean-up or remediation, or an action, suit
or proceeding by any private party or
8
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governmental body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxii) Registration Rights. Except as described in the Registration
-------------------
Statement, there are no persons with registration rights or other similar
rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xxiii) Filing of Income Tax Returns. All United States federal
----------------------------
income tax returns of the Company and its subsidiaries required by law to
be filed have been filed and all taxes shown by such returns or otherwise
assessed, which are due and payable, have been paid, except assessments
against which appeals have been or will be promptly taken and as to which
adequate reserves have been provided. The United States federal income tax
returns of the Company through the fiscal year ended December 31, 1997 have
been settled and no assessment in connection therewith has been made
against the Company. The Company and its subsidiaries have filed all other
tax returns that are required to have been filed by them pursuant to
applicable foreign, state, local or other law, except insofar as the
failure to file such returns would not result in a Material Adverse Effect,
and has paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company and its subsidiaries, except for such
taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. The charges, accruals and reserves on
the books of the Company in respect of any income and corporation tax
liability for any years not finally determined are adequate to meet any
assessments or reassessments for additional income tax for any years not
finally determined, except to the extent of any inadequacy that would not
result in a Material Adverse Effect.
(xxiv) System of Internal Accounting Controls. The Company and its
--------------------------------------
subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization and
(D) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(xxv) Insurance. The Company and its subsidiaries carry or are
---------
entitled to the benefits of insurance, with financially sound and reputable
insurers, in such amounts and covering such risks as is generally
maintained by companies of established repute engaged in the same or
similar business, and all such insurance is in full force and effect.
(xxvi) Solvency of the Company. The Company is, and immediately
-----------------------
after the Closing Time will be, Solvent. As used herein, the term "Solvent"
means, with respect
9
<PAGE>
to the Company on a particular date, that on such date (A) the fair market
value of the assets of the Company is greater than the total amount of
liabilities (including contingent liabilities) of the Company, (B) the
present fair salable value of the assets of the Company is greater than the
amount that will be required to pay the probable liabilities of the Company
on its debts as they become absolute and matured, (C) the Company is able
to realize upon its assets and pay its debts and other liabilities,
including contingent obligations, as they mature, and (D) the Company does
not have unreasonably small capital.
(xxvii) No Stabilization or Manipulation. Neither the Company nor
--------------------------------
any of its officers, directors or controlling persons has taken, and none
of them will take, directly or indirectly, any action designed to cause or
to result in, or that has constituted or which might reasonably be expected
to cause or to result in, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Securities.
(xxviii) Absence of Relationships. No relationship, direct or
------------------------
indirect, exists between or among any of the Company or any affiliate of
the Company, on the one hand, and any director, officer, stockholder,
customer or supplier of any of them, on the other hand, which is required
by the 1933 Act or by the 1933 Act Regulations to be described in the
Registration Statement or the Prospectus which is not so described or is
not described as required.
(xxix) No Distribution of Materials. The Company has not
----------------------------
distributed and, prior to the later to occur of (i) the Closing Time and
(ii) completion of the distribution of the Securities, will not distribute
any offering material in connection with the offering and sale of the
Securities other than the Registration Statement, any preliminary
prospectus, the Prospectus or other materials, if any, permitted by the
1933 Act and approved by the Underwriter.
(xxx) Supplies of Merchandise. No supplier of merchandise to the
-----------------------
Company or any of its subsidiaries has ceased shipments of merchandise to
the Company, other than in the normal and ordinary course of business
consistent with past practices, which cessation would not result in a
Material Adverse Effect.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Underwriter or to counsel
for the Underwriter shall be deemed a representation and warranty by the Company
to the Underwriter as to the matters covered thereby.
10
<PAGE>
SECTION 2. Sale and Delivery to the Underwriter; Closing.
---------------------------------------------
(a) Securities. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriter and the Underwriter agrees to purchase from
the Company, at the price set forth in Schedule A, DM . aggregate principal
amount at maturity of the Securities.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the offices of Shearman &
Sterling, 199 Bishopsgate, London EC2M 3TY, United Kingdom, or at such other
place as shall be agreed upon by the Underwriter and the Company, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Underwriter and the Company (such time and date of payment and delivery being
herein called "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Underwriter for the account of the Underwriter of certificates for the
Securities to be purchased by it.
(c) Denominations; Registration. Certificates for the Securities shall be
in such denominations (DM 1,000 or integral multiples thereof) and registered in
such names as the Underwriter may request in writing at least one full business
day before the Closing Time. The Securities, which may be in temporary form,
will be made available for examination and packaging by the Underwriter in The
City of New York not later than 10:00 A.M. (Eastern time) on the business day
prior to the Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with the
------------------------
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of
Rule 430A or Rule 434, as applicable, and will notify the Underwriter
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus,
or of the initiation or threatening of any proceedings for any of such
purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus
11
<PAGE>
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Underwriter
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or
to the Prospectus, will furnish the Underwriter with copies of any such
documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Underwriter or counsel for the Underwriter shall object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Underwriter and counsel for the Underwriter, without
charge, signed copies of the Registration Statement as originally filed and
of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and signed copies of all consents and
certificates of experts. The copies of the Registration Statement and each
amendment thereto furnished to the Underwriter will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to the
Underwriter, without charge, as many copies of each preliminary prospectus
as the Underwriter reasonably requested, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The Company
will furnish to the Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the
Prospectus (as amended or supplemented) as the Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto furnished
to the Underwriter will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1939 Act and
the 1939 Act Regulations so as to permit the completion of the distribution
of the Securities as contemplated in this Agreement and in the Prospectus.
If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur
or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriter or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that
the Prospectus will not include any untrue statements of a material fact or
omit to state a material fact necessary in order to
12
<PAGE>
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to
amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company
will furnish to the Underwriter such number of copies of such amendment or
supplement as the Underwriter may reasonably request.
(f) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(h) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, directly or indirectly, issue, sell,
offer or contract to sell, grant any option for the sale of, or otherwise
transfer or dispose of, any debt securities of the Company.
(i) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission thereunder.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
-------------------
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriter of this Agreement, the Indenture and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriter, (iv) the fees and
disbursements of the Company's U.S. and local counsel, accountants and other
advisors, (v) the reasonable fees and disbursements of counsel for the
Underwriter in connection with the preparation of the Blue Sky Survey and any
supplement thereto, (vi) the printing and delivery to the Underwriter of copies
of each preliminary prospectus, any Term Sheets and of the Prospectus and any
amendments or supplements thereto, (vii) the preparation, printing and delivery
to the Underwriter of copies of the Blue Sky Survey and any supplement thereto,
(viii) the fees and
13
<PAGE>
expenses of the Trustee, including the fees and disbursements of counsel for the
Trustee in connection with the Indenture and the Securities, (ix) any fees
payable in connection with the rating of the Securities, and (x) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the
Underwriter in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Securities.
(b) Termination of Agreement. If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the Underwriter for all of its out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
Underwriter.
SECTION 5. Conditions of the Underwriter's Obligations. The obligations of
-------------------------------------------
the Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Company contained in Section 1 hereof or in certificates of
any officer of the Company or any subsidiary of the Company delivered pursuant
to the provisions hereof, to the performance by the Company of its covenants and
other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriter. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if
the Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinion of U.S. Counsel for Company. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Arent Fox Kintner Plotkin & Kahn, PLLC, U.S. counsel for the
Company, in form and substance satisfactory to counsel for the Underwriter,
to the effect set forth in Exhibit A hereto and to such further effect as
counsel to the Underwriter may reasonably request.
(c) Opinion of Polish Counsel for Company. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Bak Marselek Szczepanowski, Polish counsel for the Company, in
form and substance satisfactory to counsel for the Underwriter, to the
effect set forth in Exhibit B hereto and to such further effect as counsel
to the Underwriter may reasonably request.
(d) Opinion of Hungarian Counsel for Company. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Attila
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<PAGE>
Beczner, Hungarian counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, to the effect set forth in
Exhibit C hereto and to such further effect as counsel to the Underwriter
may reasonably request.
(e) Opinion of Czech Counsel for Company. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of ., Czech counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, to the effect set forth in
Exhibit D hereto and to such further effect as counsel to the Underwriter
may reasonably request.
(f) Opinion of German Counsel for Company. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of ., German counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, to the effect set forth in
Exhibit E hereto and to such further effect as counsel to the Underwriter
may reasonably request.
(g) Opinion of Croatian Counsel for Company. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of ., Croatian counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, to the effect set forth in
Exhibit F hereto and to such further effect as counsel to the Underwriter
may reasonably request.
(h) Opinion of Counsel for the Underwriter. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Shearman & Sterling, counsel for the Underwriter, with respect to
the matters set forth in clauses (i), (ii), (v) through (xi), inclusive,
and the penultimate paragraph of Exhibit A hereto. In giving such opinion
such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law
of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Underwriter.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(i) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Underwriter shall have received a certificate of the President or a
Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the
15
<PAGE>
same force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are contemplated by the Commission.
(j) Accountants' Comfort Letter. At the time of the execution of
this Agreement, the Underwriter shall have received from KPMG Polska Sp. z
o.o a letter dated such date, in form and substance satisfactory to the
Underwriter, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(k) Bring-down Comfort Letter. At Closing Time, the Underwriter
shall have received from KPMG Polska Sp. z o.o a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (i) of this Section, except that
the specified date referred to shall be a date not more than three business
days prior to Closing Time.
(l) Maintenance of Rating. At Closing Time, the Securities shall be
rated at least . by Moody's Investors Service Inc. and . by Standard &
Poor's Ratings Group, a division of McGraw-Hill, Inc., and the Company
shall have delivered to the Underwriter a letter dated as of Closing Time,
from each such rating agency, or other evidence satisfactory to the
Underwriter, confirming that the Securities have such ratings; and since
the date of this Agreement, there shall not have occurred a downgrading in
the rating assigned to the Securities or any of the Company's other debt
securities by any "nationally recognized statistical rating agency", as
that term is defined by the Commission for purposes of Rule 436(g)(2) under
the 1933 Act, and no such organization shall have publicly announced that
it has under surveillance or review its rating of the Securities or any of
the Company's other debt securities.
(m) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(n) Additional Documents. At Closing Time, counsel for the
Underwriter shall have been furnished with such documents and opinions as
they may require for the purpose of enabling them to pass upon the issuance
and sale of the Securities as herein contemplated, or in order to evidence
the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and
substance to the Underwriter and counsel for the Underwriter.
16
<PAGE>
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Underwriter by notice to the
Company at any time at or prior to Closing Time, and such termination shall
be without liability of any party to any other party except as provided in
Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such
termination and remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of the Underwriter. The Company agrees to indemnify
and hold harmless the Underwriter and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- - -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by
Merrill Lynch expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information, if
17
<PAGE>
applicable, or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) Indemnification of Company, Directors and Officers. The Underwriter
agrees to indemnify and hold harmless the Company, its directors, each of its
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this Section,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by Merrill Lynch expressly for use
in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
--------
however, that counsel to the indemnifying party shall not (except with the
- - -------
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and
18
<PAGE>
expenses of counsel, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by Section 6(a)(ii) effected without
its written consent if (i) such settlement is entered into more than 45 days
after receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriter on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriter on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriter on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriter, in each case as
set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriter on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency
19
<PAGE>
or body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section, the Underwriter shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriter.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Underwriter may terminate this Agreement,
by notice to the Company, at any time at or prior to Closing Time (i) if there
has been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Underwriter, impracticable to market
the Securities or to enforce contracts for the sale of the Securities, or (iii)
if trading in any securities of the Company has been suspended or materially
limited by the Commission or the Nasdaq
20
<PAGE>
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by U.S. Federal, New York State, Hungarian,
Polish, Czech, German or Croatian authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to the Underwriter at North Tower, World Financial
Center, New York, New York 10281, attention of Marisa Drew; and notices to the
Company shall be directed to it at Euronet Services Inc., Zsigmond Ter 10, H-
1023, Budapest, Hungary, attention of Daniel Henry.
SECTION 11. Parties. This Agreement shall each inure to the benefit of and
-------
be binding upon the Underwriter and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriter
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriter and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from the Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 12. Consent to Jurisdiction. Each of the parties hereto
-----------------------
irrevocably agrees that any legal suit, action or proceeding arising out of or
based upon this Agreement or the transactions contemplated hereby by the
Underwriter, the directors, officers, employees or agents of the Underwriter or
by each person, if any, who controls the Underwriter, may be instituted in any
New York State or U.S. Federal court sitting in the Borough of Manhattan, New
York City, New York, U.S.A., irrevocably waives, to the extent permitted by
applicable law, any objection which it may now or hereafter have to the laying
of venue of any such proceeding and irrevocably submits to the nonexclusive
jurisdiction of such courts in any such suit, action or proceeding. The Company
has appointed CT Corporation System, 1633 Broadway, New York, NY 10019, as its
authorized agent (the "Authorized Agent") upon which process may be served in
any such action arising out of or based on this Agreement or the transactions
contemplated hereby which may be
21
<PAGE>
instituted in any New York court by the Underwriter or by any person who
controls the Underwriter, expressly consents to the jurisdiction of any such
court in respect of any such action, and waives any other requirements of or
objections to personal jurisdiction with respect thereto. Such appointment shall
be irrevocable for a period of three years from Closing Time. The Company
represents and warrants that the Authorized Agent has agreed to act as said
agent for service of process and the Company agrees to take any and all action,
including the filing of any and all documents and instruments, that may be
necessary to continue such appointment in full force and effect as aforesaid for
a period of three years from Closing Time. Service of process upon the
Authorized Agent and written notice of such service to the Company shall be
deemed, in every respect, effective service of process upon the Company.
SECTION 13. Currency Indemnity. The obligation of the Company in respect
------------------
of any sum due to the Underwriter shall, notwithstanding any judgment in a
currency other than United States dollars, not be discharged until the first
business day following receipt by the Underwriter of any sum adjudged to be so
due in such other currency, on which (and only to the extent that) the
Underwriter may in accordance with normal banking procedures purchase United
States dollars promptly with such other currency; if the United States dollars
so purchased are less than the sum originally due to the Underwriter hereunder,
the Company agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify the Underwriter against such loss. If the United States
dollars so purchased are greater than the sum originally due to the Underwriter
hereunder, the Underwriter agrees to pay to the Company an amount equal to the
excess of the dollars so purchased over the sum originally due to the
Underwriter hereunder.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
22
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriter and the Company in accordance with its terms.
Very truly yours,
EURONET SERVICES INC.
By:
------------------------------------
Name: Michael J. Brown
Title: President and Chief Executive
Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH CAPITAL MARKETS BANK LIMITED
FRANKFURT/MAIN BRANCH
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
--------------------------------------
Authorized Signatory
23
<PAGE>
SCHEDULE A
EURONET SERVICES INC.
DM . Senior Notes due 2006
1. The initial public offering price of the Securities shall be __% of
the principal amount thereof, plus accreted amortization of original issue
discount on the Notes, if any, from the date of issuance.
2. The purchase price to be paid by the Underwriter for the Securities
shall be __% of the principal amount thereof, plus accreted amortization of
original issue discount on the Notes, if any, from the date of issuance.
3. The interest rate on the Securities shall be __% per annum.
4. The redemption price supplied on page . of the Prospectus (and
correspondingly in the Indenture) with respect to redemptions of Notes from the
proceeds of the Equity Offerings shall be .% of the principal amount thereof.
5. The redemption price supplied on page . of the Prospectus (and
correspondingly in the Indenture) relating to the Notes shall be:
Redemption
Year Price
2002 .%
2003 .%
2004 and thereafter .%
Sch A-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S U.S. COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Historical"
under the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to the Purchase Agreement or pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the exercise
of convertible securities or options referred to in the Prospectus); the shares
of issued and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(v) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vi) The Indenture has been duly authorized, executed and delivered by
the Company and (assuming the due authorization, execution and delivery thereof
by the Trustee) constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(vii) The Securities are in the form contemplated by the Indenture, have
been duly authorized by the Company and, assuming that the Securities have been
duly authenticated by the Trustee in the manner described in its certificate
delivered to you today (which fact such counsel need not determine
A-1
<PAGE>
by an inspection of the Securities), the Securities have been duly executed,
issued and delivered by the Company and constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), and will be entitled to the benefits of the
Indenture.
(viii) The Indenture has been duly qualified under the 1939 Act.
(ix) The Securities and the Indenture conform as to legal matters in
all material respects to the descriptions thereof contained in the Prospectus.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(xi) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, and the Trustee's Statement of Eligibility on Form T-1 (the
"Form T-1"), as to which we need express no opinion) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(xii) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(xiii) To the best of our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company or any
subsidiary is subject, before or brought by any court or governmental agency or
body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
(xiv) The information in the Prospectus under "Business--Property",
"Business--Regulatory Matters", "Management", "Description of the Notes",
"Certain United States Federal Income Tax Considerations" and "Description of
Capital Stock" and in the Registration Statement under Items 14 and 15, to the
extent that it constitutes matters of law, summaries of legal matters, the
Company's
A-2
<PAGE>
charter and by-laws or legal proceedings, or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(xvi) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xvii) To the best of our knowledge, neither the Company nor any
subsidiary is in violation of its charter or by-laws and no default by the
Company or any subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states and except for the
qualification of the Indenture under the 1939 Act, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or the due execution, delivery
or performance of the Indenture by the Company or for the offering, issuance,
sale or delivery of the Securities.
(xix) The execution, delivery and performance of the Purchase Agreement,
the Indenture and the Securities and the consummation of the transactions
contemplated in the Purchase Agreement and in the Registration Statement
(including the issuance and sale of the Securities and the use of the proceeds
from the sale of the Securities as described in the Prospectus under the caption
"Use Of Proceeds") and compliance by the Company with its obligations under the
Purchase Agreement, the Indenture and the Securities do not and will not,
whether with or without the giving of notice or lapse of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(xii) of the Purchase Agreement) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to, any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company or any subsidiary is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any subsidiary is subject (except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any subsidiary, or any applicable
law, statute,
A-3
<PAGE>
rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their respective
properties, assets or operations.
(xx) To the best of our knowledge, except as described in the
Registration Statement, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xxi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom and the Form T-1, as to which we need make no statement), at the time
such Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial data included therein or
omitted therefrom and the Form T-1, as to which we need make no statement), at
the time the Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the laws of: (i) Poland, upon the opinion of Bak
Marselek Szczepanowski, Polish counsel to the Company; (ii) Hungary, upon the
opinion of Attila Beczner, Hungarian counsel to the Company; (iii) the Czech
Republic, upon the opinion of ., Czech counsel to the Company; (iv) Germany,
upon the opinion of ., German counsel to the Company; and (v) Croatia, upon the
opinion of ., Croatian counsel to the Company (which opinions shall be dated and
furnished to the Underwriter at the Closing Time, shall be satisfactory in form
and substance to counsel for the Underwriter and shall expressly state that the
Underwriter may rely on such opinions as if they were addressed to them),
provided that Arent Fox Kintner Plotkin & Kahn, PLLC shall state in their
opinion that they believe that they and the Underwriter are justified in relying
upon such opinions, and (B), as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of responsible
officers of the Company and public officials. Such opinion shall not state that
it is to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-4
<PAGE>
Exhibit B
FORM OF OPINION OF COMPANY'S POLISH COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
(i) Bankomat 24 Sp. z o.o ("Bankomat") has been duly organized and is
validly existing under the laws of Poland, has the corporate power and authority
under such laws to own or lease, as the case may be, and operate its properties
and conduct its business as described in the Prospectus, and its conduct of
business as currently conducted or as proposed to be conducted in the Prospectus
does not violate any statute, rule, regulation or order of any Polish
governmental agency or body or any court having jurisdiction over it or any of
its properties, or any agreement or instrument to which it is a party or by
which it is bound or to which any of its properties is subject.
(ii) Bankomat has good title to all properties (real and personal)
described in the Prospectus as owned by it, free and clear of any encumbrances,
equities or claims, except such encumbrances as are described in the Prospectus
or which are not material in amount; any properties described in the Prospectus
held under lease by Bankomat are held under valid and enforceable leases with
such exceptions as are not material and do not interfere in any material
respects with the use made or proposed to be made of such properties as
contemplated in the Prospectus by Bankomat; and, to the best of our knowledge,
after due inquiry, there is no material claim of any sort that has been asserted
by anyone adverse to the rights of Bankomat under any of the leases mentioned
above.
(iii) Bankomat has all licenses, concessions, franchises, permits,
authorizations, approvals and orders of and from all Polish governmental
regulatory bodies that are necessary to own or lease, as the case may be, its
properties and conduct its business as described in the Prospectus; all of such
licenses, concessions, franchises, permits, authorizations, approvals and orders
are in full force and effect under applicable law and is in compliance with all
material terms and requirements applicable thereto to the best of our knowledge,
after due inquiry, and no condition or event has occurred and is continuing that
could reasonably be expected to cause the revocation, cancellation, lapsing,
expiration or termination of such licenses, concessions, franchises, permits,
authorizations, approvals or orders.
(iv) All outstanding shares of capital stock of Bankomat have been
validly authorized, are validly issued, fully paid and non-assessable and owned,
directly or indirectly, by Bankomat and are free of any encumbrances, equities
or claims and were not issued in violation of any preemptive or other rights.
(v) The execution, delivery and performance of the Purchase Agreement
and the Indenture, and the consummation of the transactions herein and therein
contemplated, will not conflict with, result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any statute, rule,
regulation or order of any Polish governmental agency or body in any court
having
B-1
<PAGE>
jurisdiction over it or any of its properties, or any agreement or instrument to
which it is a party or by which it is bound or to which any of its properties is
subject, or its charter and by-laws (or other constitutive documents).
(vi) Bankomat is not in violation of its charter or by-laws (or other
constitutive documents) or, to the best of our knowledge, after due inquiry, in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or by
which it or any of its properties may be bound.
(vii) To ensure the legality, validity, enforceability or admissibility
into evidence of the Purchase Agreement and the Indenture and any other
documents to be furnished hereunder or thereunder, it is not necessary that the
Purchase Agreement or the Indenture or any such other document be filed or
recorded with any court or other authority in Poland, or that any stamp or
similar tax be paid in Poland.
(viii) The laws of Poland permit parties to a contract to agree to the
laws under which the contracts will be interpreted; the choice of law provisions
set forth in Section 14 of the Purchase Agreement and Section . of the Indenture
will be recognized by Polish courts; Bankomat can sue and be sued in its own
name; under the laws of Poland, the irrevocable submission of Bankomat to the
jurisdiction of U.S. Federal and state courts in New York City and the agreement
of Bankomat that the Purchase Agreement and the Indenture shall be governed by
and construed in accordance with the laws of New York is legal, valid and
binding; service of process effected in the manner set forth in Section 12 of
the Purchase Agreement and Section . of the Indenture is legal, valid and
binding.
(ix) Any judgment given by a New York Court will be admissible in
Polish courts and will be enforceable thereby without reexamination of the
issues, except if according to New York law, judgments issued by Polish courts
would be subject to reexamination of the issues dealt therein.
Our opinion is limited to matters of Polish law and we have relied, without
independent investigation, as to all matters governed by the Federal law of the
United States and District of Columbia and New York State law, upon the opinion
of Arent Fox Kintner Plotkin & Kahn, PLLC referred to below, in which case the
opinion shall state that we believe you and we are entitled to so rely. Insofar
as such opinion involves factual matters, we have relied, to the extent we deem
proper, upon certificates of officers of Bankomat and certificates of public
officials. In giving such opinion, we may also state that we have assumed that
any documents referred to in our opinion and executed by Bankomat 24 have been
duly executed and delivered pursuant to New York law.
B-2
<PAGE>
[OPINIONS OF OTHER LOCAL COUNSEL TO CONFORM TO POLISH OPINION]
B-3
<PAGE>
Annex A
FORM OF ACCOUNTANTS' COMFORT LETTER
Annex A-1
<PAGE>
Table of Contents
PURCHASE AGREEMENT............................................................ 1
SECTION 1. Representations and Warranties.............................. 2
------------------------------
(a) Representations and Warranties by the Company............... 2
(i) Compliance with Registration Requirements......... 2
-----------------------------------------
(ii) Independent Accountants........................... 3
-----------------------
(iii) Financial Statements.............................. 3
--------------------
(iv) No Material Adverse Change in Business............ 3
--------------------------------------
(v) Good Standing of the Company...................... 4
----------------------------
(vi) Good Standing of Subsidiaries..................... 4
-----------------------------
(vii) Capitalization.................................... 4
--------------
(viii) Authorization of Agreement........................ 5
--------------------------
(ix) Authorization of the Indenture.................... 5
------------------------------
(x) Authorization of the Securities................... 5
-------------------------------
(xi) Description of the Securities and the Indenture... 5
-----------------------------------------------
(xii) Absence of Defaults and Conflicts................. 5
---------------------------------
(xiii) Absence of Labor Dispute.......................... 6
------------------------
(xiv) Absence of Proceedings............................ 6
----------------------
(xv) Accuracy of Exhibits.............................. 7
--------------------
(xvi) Possession of Intellectual Property............... 7
-----------------------------------
(xvii) Absence of Further Requirements................... 7
-------------------------------
(xviii) Possession of Licenses and Permits................ 7
----------------------------------
(xix) Title to Property................................. 8
-----------------
(xx) Investment Company Act............................ 8
----------------------
(xxi) Environmental Laws................................ 8
------------------
(xxii) Registration Rights............................... 9
-------------------
(xxiii) Filing of Income Tax Returns...................... 9
----------------------------
(xxiv) System of Internal Accounting Controls............ 9
--------------------------------------
(xxv) Insurance......................................... 9
---------
(xxvi) Solvency of the Company........................... 9
-----------------------
(xxvii) No Stabilization or Manipulation................. 10
--------------------------------
(xxviii) Absence of Relationships......................... 10
------------------------
(xxix) No Distribution of Materials..................... 10
----------------------------
(xxx) Supplies of Merchandise.......................... 10
-----------------------
(b) Officer's Certificates..................................... 10
SECTION 2. Sale and Delivery to the Underwriter; Closing.............. 11
---------------------------------------------
(a) Securities................................................. 11
(b) Payment.................................................... 11
(c) Denominations; Registration................................ 11
<PAGE>
SECTION 3. Covenants of the Company................................... 11
------------------------
(a) Compliance with Securities Regulations and Commission
Requests................................................... 11
(b) Filing of Amendments....................................... 12
(c) Delivery of Registration Statements........................ 12
(d) Delivery of Prospectuses................................... 12
(e) Continued Compliance with Securities Laws.................. 12
(f) Rule 158................................................... 13
(g) Use of Proceeds............................................ 13
(h) Restriction on Sale of Securities.......................... 13
(i) Reporting Requirements..................................... 13
SECTION 4. Payment of Expenses........................................ 13
-------------------
(a) Expenses................................................... 13
(b) Termination of Agreement................................... 14
SECTION 5. Conditions of the Underwriter's Obligations................ 14
-------------------------------------------
(a) Effectiveness of Registration Statement.................... 14
(b) Opinion of U.S. Counsel for Company........................ 14
(c) Opinion of Polish Counsel for Company...................... 14
(d) Opinion of Hungarian Counsel for Company................... 14
(e) Opinion of Czech Counsel for Company....................... 15
(f) Opinion of German Counsel for Company...................... 15
(g) Opinion of Croatian Counsel for Company.................... 15
(h) Opinion of Counsel for the Underwriter..................... 15
(i) Officers' Certificate...................................... 15
(j) Accountants' Comfort Letter................................ 16
(k) Bring-down Comfort Letter.................................. 16
(l) Maintenance of Rating...................................... 16
(m) No Objection............................................... 16
(n) Additional Documents....................................... 16
(o) Termination of Agreement................................... 17
SECTION 6. Indemnification............................................ 17
---------------
(a) Indemnification of the Underwriter......................... 17
(b) Indemnification of Company, Directors and Officers......... 18
(c) Actions against Parties; Notification...................... 18
(d) Settlement without Consent if Failure to Reimburse......... 18
SECTION 7. Contribution............................................... 19
------------
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery................................................... 20
--------
SECTION 9. Termination of Agreement................................... 20
------------------------
(a) Termination; General....................................... 20
(b) Liabilities................................................ 21
ii
<PAGE>
SECTION 10. Notices.................................................... 21
-------
SECTION 11. Parties.................................................... 21
-------
SECTION 12. Consent to Jurisdiction.................................... 21
-----------------------
SECTION 13. Currency Indemnity......................................... 22
------------------
SECTION 14. GOVERNING LAW AND TIME..................................... 22
----------------------
SECTION 15. Effect of Headings......................................... 22
------------------
SCHEDULES
Schedule A - Pricing Information.............................. Sch A-1
EXHIBITS
Exhibit A - Form of Opinion of Company's U.S. Counsel......... A-1
Exhibit B - Form of Opinion of Company's Polish Counsel....... B-1
Exhibit C - Form of Opinion of Company's Hungarian Counsel.... C-1
Exhibit D - Form of Opinion of Company's Czech Counsel........ D-1
Exhibit E - Form of Opinion of Company's German Counsel....... E-1
Exhibit F - Form of Opinion of Company's Croatian Counsel..... F-1
ANNEXES
Annex A - Form of Accountants' Comfort Letter................. Annex A-1
iii
<PAGE>
================================================================================
EURONET SERVICES INC.
TO
STATE STREET BANK AND TRUST COMPANY,
Trustee
--------------------
Indenture
Dated as of ., 1998
---------------------
DM 182,485,000
.% Senior Discount Notes due 2006
================================================================================
<PAGE>
EURONET SERVICES INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of ., 1998
Trust Indenture
Act Section Indenture Section
(S) 310(a)(1) ........................................... 607
(a)(2) ........................................... 607
(b) ........................................... 608
(S) 312(c) ........................................... 701
(S) 314(a) ........................................... 703
(a)(4) ........................................... 1008(a)
(c)(1) ........................................... 102
(c)(2) ........................................... 102
(e) ........................................... 102
(S) 315(b) ........................................... 601
(S) 316(a)(last
sentence) ........................................... 101
(a)(1)(A) ........................................... 502, 512
(a)(1)(B) ........................................... 513
(b) ........................................... 508
(c) ........................................... 104(d)
(S) 317(a)(1) ........................................... 503
(a)(2) ........................................... 504
(b) ........................................... 1003
(S) 318(a) ........................................... 111
- - -----------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
RECITALS OF THE COMPANY...................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.................................................... 2
-----------
Accreted Value.......................................................... 2
Acquired Indebtedness................................................... 3
Act..................................................................... 3
Affiliate............................................................... 3
Agent................................................................... 4
Annualized Pro Forma Consolidated Operating Cash Flow................... 4
Asset Sale.............................................................. 4
ATM Network Assets...................................................... 5
ATM Network Business.................................................... 5
Attributable Value...................................................... 5
Average Life............................................................ 5
Bank Facility........................................................... 5
Bankruptcy Law.......................................................... 5
Board of Directors...................................................... 5
Board Resolution........................................................ 6
Business Day............................................................ 6
Capital Stock........................................................... 6
Capitalized Lease Obligation............................................ 6
Cash Equivalents........................................................ 6
Cedel................................................................... 6
Change of Control....................................................... 6
Closing Date............................................................ 7
Commission.............................................................. 7
Company................................................................. 7
Company Request or Company Order........................................ 8
Consolidated Adjusted Net Income........................................ 8
Consolidated Interest Expense........................................... 8
Consolidated Operating Cash Flow........................................ 9
Consolidated Tax Expense................................................ 9
Corporate Trust Office.................................................. 9
Corporation............................................................. 9
- - --------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
ii
Page
Currency Agreements.................................................... 9
DBC.................................................................... 9
DBC Accountholder...................................................... 9
DBC Global Note........................................................ 9
Default................................................................ 10
Defaulted Interest..................................................... 10
Disinterested Director................................................. 10
DM..................................................................... 10
DM Paying Agent........................................................ 10
DTC.................................................................... 10
DTC Global Note........................................................ 10
DTC Participant........................................................ 10
Equity Offerings....................................................... 10
Euroclear.............................................................. 10
Event of Default....................................................... 10
Exchange Act........................................................... 10
Existing Subsidiaries.................................................. 10
Federal Bankruptcy Code................................................ 10
Generally Accepted Accounting Principles or GAAP....................... 11
Global Notes........................................................... 11
guarantee.............................................................. 11
Holder................................................................. 11
Incur.................................................................. 11
Indebtedness........................................................... 11
Indenture.............................................................. 12
Interest Payment Date.................................................. 12
Interest Rate Agreements............................................... 12
Investment............................................................. 12
Issue Date............................................................. 12
Lien................................................................... 12
Maturity............................................................... 13
Moody's................................................................ 13
Net Cash Proceeds...................................................... 13
Note Register.......................................................... 13
Notes.................................................................. 14
Officers' Certificate.................................................. 14
Opinion of Counsel..................................................... 14
Outstanding............................................................ 14
Paying Agent........................................................... 15
Permitted Capital Stock Sales.......................................... 15
Permitted Holder....................................................... 15
Permitted Indebtedness................................................. 15
Permitted Investments.................................................. 17
<PAGE>
iii
Page
Permitted Liens........................................................ 18
Person................................................................. 19
Predecessor Note....................................................... 19
Preferred Stock........................................................ 20
Purchase Money Indebtedness............................................ 20
Qualified Capital Stock................................................ 20
Redeemable Capital Stock............................................... 20
Redemption Date........................................................ 20
Redemption Price....................................................... 20
Regular Record Date.................................................... 20
Responsible Officer.................................................... 20
Restricted Payments.................................................... 21
Restricted Subsidiary.................................................. 21
S&P.................................................................... 21
Sale and Leaseback Transaction......................................... 21
Significant Subsidiary................................................. 21
Special Record Date.................................................... 21
Stated Maturity........................................................ 21
Subordinated Indebtedness.............................................. 21
Subsidiary............................................................. 21
Tax.................................................................... 21
Taxing Authority....................................................... 22
Total Consolidated Indebtedness........................................ 22
Total Consolidated Indebtedness to Annualized Pro Forma Consolidated
Operating Cash Flow Ratio.............................................. 22
Trust Indenture Act or TIA............................................. 22
Trustee................................................................ 22
Unrestricted Subsidiary................................................ 22
U.S. Dollar Equivalent................................................. 23
U.S. Paying Agent...................................................... 23
Vice President......................................................... 23
Voting Stock........................................................... 23
Wholly Owned........................................................... 23
SECTION 102. Compliance Certificates and Opinions.......................... 24
------------------------------------
SECTION 103. Form of Documents Delivered to Trustee........................ 24
--------------------------------------
SECTION 104. Acts of Holders............................................... 25
---------------
SECTION 105. Notices, etc., to Trustee, Company............................ 26
----------------------------------
SECTION 106. Notice to Holders; Waiver..................................... 26
-------------------------
SECTION 107. Effect of Headings and Table of Contents...................... 27
----------------------------------------
SECTION 108. Successors and Assigns........................................ 27
----------------------
SECTION 109. Separability Clause........................................... 27
-------------------
SECTION 110. Benefits of Indenture......................................... 27
---------------------
SECTION 111. Governing Law................................................. 27
-------------
<PAGE>
iv
Page
SECTION 112. Legal Holidays................................................ 28
--------------
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally............................................... 29
---------------
SECTION 202. Form of Face of DTC Global Note............................... 29
-------------------------------
SECTION 203. Form of Face of DBC Global Note............................... 31
-------------------------------
SECTION 204. Form of Reverse of Note....................................... 34
-----------------------
SECTION 205. Form of Trustee's Certificate of Authentication............... 37
-----------------------------------------------
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms............................................... 38
---------------
SECTION 302. Denominations................................................. 38
-------------
SECTION 303. Execution, Authentication, Delivery and Dating................ 38
----------------------------------------------
SECTION 304. Temporary Notes............................................... 39
---------------
SECTION 305. Form of Notes................................................. 40
-------------
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes................... 41
-------------------------------------------
SECTION 307. Payment of Interest; Interest Rights Preserved................ 41
----------------------------------------------
SECTION 308. Persons Deemed Owners......................................... 43
---------------------
SECTION 309. Cancellation.................................................. 43
------------
SECTION 310. Computation of Interest....................................... 43
-----------------------
SECTION 311. Registration, Registration of Transfer and Exchange........... 43
---------------------------------------------------
SECTION 312. Registrar and Paying Agent.................................... 46
--------------------------
SECTION 313. Holder to Be Treated as Owner................................. 47
-----------------------------
SECTION 314. Paying Agent to Hold Money in Trust........................... 48
-----------------------------------
SECTION 315. Payment....................................................... 48
-------
SECTION 316. CUSIP Numbers................................................. 49
-------------
SECTION 317. Deposit of Moneys............................................. 50
-----------------
SECTION 318. Substitution of Currency...................................... 50
------------------------
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture....................... 51
---------------------------------------
SECTION 402. Application of Trust Money.................................... 52
--------------------------
<PAGE>
v
Page
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default............................................. 53
-----------------
SECTION 502. Acceleration of Maturity; Rescission and Annulment............ 54
--------------------------------------------------
SECTION 503. Collection of Indebtedness and Suits for Enforcement
----------------------------------------------------
by Trustee.............................................. 55
----------
SECTION 504. Trustee May File Proofs of Claim.............................. 56
--------------------------------
SECTION 505. Trustee May Enforce Claims Without Possession of Notes........ 57
------------------------------------------------------
SECTION 506. Application of Money Collected................................ 57
------------------------------
SECTION 507. Limitation on Suits........................................... 58
-------------------
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.................................... 58
--------------------
SECTION 509. Restoration of Rights and Remedies............................ 59
----------------------------------
SECTION 510. Rights and Remedies Cumulative................................ 59
------------------------------
SECTION 511. Delay or Omission Not Waiver.................................. 59
----------------------------
SECTION 512. Control by Holders............................................ 59
------------------
SECTION 513. Waiver of Past Defaults....................................... 60
-----------------------
SECTION 514. Waiver of Stay or Extension Laws.............................. 60
--------------------------------
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults............................................ 61
------------------
SECTION 602. Certain Rights of Trustee..................................... 61
-------------------------
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes..... 62
---------------------------------------------------------
SECTION 604. May Hold Notes................................................ 62
--------------
SECTION 605. Money Held in Trust........................................... 63
-------------------
SECTION 606. Compensation and Reimbursement................................ 63
------------------------------
SECTION 607. Corporate Trustee Required; Eligibility....................... 64
---------------------------------------
SECTION 608. Resignation and Removal; Appointment of Successor............. 64
-------------------------------------------------
SECTION 609. Acceptance of Appointment by Successor........................ 65
--------------------------------------
SECTION 610. Merger, Conversion, Consolidation or Succession to Business... 66
-----------------------------------------------------------
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.................. 67
--------------------------------------------
SECTION 702. Reports by Trustee............................................ 67
------------------
SECTION 703. Reports by Company............................................ 67
------------------
<PAGE>
vi
Page
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.......... 69
----------------------------------------------------
SECTION 802. Successor Substituted......................................... 70
---------------------
SECTION 803. Notes to Be Secured in Certain Events......................... 70
-------------------------------------
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders............ 72
--------------------------------------------------
SECTION 902. Supplemental Indentures with Consent of Holders............... 73
-----------------------------------------------
SECTION 903. Execution of Supplemental Indentures.......................... 74
------------------------------------
SECTION 904. Effect of Supplemental Indentures............................. 74
---------------------------------
SECTION 905. Conformity with Trust Indenture Act........................... 74
-----------------------------------
SECTION 906. Reference in Notes to Supplemental Indentures................. 74
---------------------------------------------
SECTION 907. Notice of Supplemental Indentures............................. 74
---------------------------------
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.......... 75
---------------------------------------------------
SECTION 1002. Maintenance of Office or Agency.............................. 75
-------------------------------
SECTION 1003. Money for Note Payments to Be Held in Trust.................. 75
-------------------------------------------
SECTION 1004. Corporate Existence.......................................... 77
-------------------
SECTION 1005. Payment of Taxes and Other Claims............................ 77
---------------------------------
SECTION 1006. Maintenance of Properties.................................... 77
-------------------------
SECTION 1007. Insurance.................................................... 77
---------
SECTION 1008. Statement by Officers As to Default.......................... 78
-----------------------------------
SECTION 1009. Provision of Financial Statements and Reports................ 78
---------------------------------------------
SECTION 1010. Purchase of Notes upon Change of Control..................... 78
----------------------------------------
SECTION 1011. Limitation on Additional Indebtedness........................ 79
-------------------------------------
SECTION 1012. Limitation on Restricted Payments............................ 80
---------------------------------
SECTION 1013. Limitation on Issuances and Sales of Capital Stock of
-----------------------------------------------------
Restricted Subsidiaries................................. 83
-----------------------
SECTION 1014. Limitation on Transactions with Affiliates................... 84
------------------------------------------
SECTION 1015. Limitation on Liens.......................................... 85
-------------------
SECTION 1016. Limitation on Issuances of Guarantees of Indebtedness
-----------------------------------------------------
by Restricted Subsidiaries.............................. 85
--------------------------
SECTION 1017. Limitation on Sale of Assets................................. 86
----------------------------
SECTION 1018. Limitation on Sale and Leaseback Transactions................ 86
---------------------------------------------
SECTION 1019. Limitation on Dividends and Other Payment
-----------------------------------------
Restrictions Affecting Restricted Subsidiaries.......... 87
----------------------------------------------
<PAGE>
vii
Page
SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries....... 88
------------------------------------------------------
SECTION 1021. Business of the Company...................................... 88
-----------------------
SECTION 1022. Waiver of Certain Covenants.................................. 88
---------------------------
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.......................................... 89
-------------------
SECTION 1102. Applicability of Article..................................... 89
------------------------
SECTION 1103. Election to Redeem; Notice to Trustee........................ 89
-------------------------------------
SECTION 1104. Selection by Trustee of Notes to Be Redeemed................. 90
--------------------------------------------
SECTION 1105. Notice of Redemption......................................... 90
--------------------
SECTION 1106. Deposit of Redemption Price.................................. 91
---------------------------
SECTION 1107. Notes Payable on Redemption Date............................. 91
--------------------------------
SECTION 1108. Notes Redeemed in Part....................................... 92
----------------------
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Defeasance or
----------------------------------------
Covenant Defeasance..................................... 93
-------------------
SECTION 1202. Defeasance and Discharge..................................... 93
------------------------
SECTION 1203. Covenant Defeasance.......................................... 93
-------------------
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.............. 94
-----------------------------------------------
SECTION 1205. Deposited Money and U.S. Government Obligations to
--------------------------------------------------
Be Held in Trust; Other Miscellaneous Provisions........ 95
------------------------------------------------
SECTION 1206. Reinstatement................................................ 96
-------------
<PAGE>
INDENTURE, dated as of ., 1998 between EURONET SERVICES INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 14-24 Horvat u.,
1027 Budapest, Hungary and STATE STREET BANK AND TRUST COMPANY, a banking
corporation duly organized and existing under the laws of Massachusetts, Trustee
(herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of .% Senior
Discount Notes due 2006 (herein called the "Notes"), of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Notes, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Accreted Value" is defined to mean, for any Specified Date, the
amount calculated pursuant to clause (i), (ii), (iii) or (iv) below for each DM
1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one or more of the following
dates (each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<PAGE>
3
Semi-Annual
Accrual Date Accreted Value
- - ------------ --------------
, 1998 ......................................................... DM
, 1999 ......................................................... DM
, 1999 ......................................................... DM
, 2000 ......................................................... DM
, 2000 ......................................................... DM
, 2001 ......................................................... DM
, 2001 ......................................................... DM
, 2002 ......................................................... DM 1,000
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the original issue
price and (b) an amount equal to the product of (i) the Accreted Value for the
first Semi-Annual Accrual Date less the original issue price multiplied by (2) a
fraction, the numerator of which is the number of days from the Issue Date to
the Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days elapsed from the Issue Date to the
first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the immediately
preceding Semi-Annual Accrual Date multiplied by (2) a fraction the numerator of
which is the number of days from the immediately preceding Semi-Annual Accrual
Date to the Specified Date, using a 360-day year of twelve 30-day months, and
the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal DM 1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing
at the time such Person becomes a Restricted Subsidiary or (b) assumed in
connection with the acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition; provided that,
--------
notwithstanding the foregoing, for purposes of the "Limitation on Additional
Indebtedness" covenant (Section 1011), such Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Restricted Subsidiary.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Affiliate" means, with respect to any specified Person, (i) any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common
<PAGE>
4
control with such specified Person or (ii) any other Person that owns, directly
or indirectly, 10% or more of such specified Person's Voting Stock or any
executive officer or director of any such specified Person or other Person or,
with respect to any natural Person, any Person having a relationship with such
Person by blood, marriage or adoption not more remote than first cousin. For the
purposes of this definition, "control," when used with respect to any specified
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting notes, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar.
"Annualized Pro Forma Consolidated Operating Cash Flow" means
Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available immediately
preceding the date of the transaction giving rise to the need to calculate
Annualized Pro Forma Consolidated Operating Cash Flow (the "Transaction Date")
multiplied by four. For purposes of calculating "Consolidated Operating Cash
Flow" for any fiscal quarter for purposes of this definition, (i) any Restricted
Subsidiary that is a Restricted Subsidiary on the Transaction Date shall be
deemed to have been a Restricted Subsidiary at all times during such fiscal
quarter and (ii) any Restricted Subsidiary that is not a Restricted Subsidiary
on the Transaction Date shall be deemed not to have been a Restricted Subsidiary
at any time during such fiscal quarter.
"Asset Sale" means any sale, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Restricted Subsidiary; (ii) all or substantially all of the properties
and assets of the Company or its Restricted Subsidiaries; (iii) any material
license or other authorization of the Company or any Restricted Subsidiary
pertaining to an Electronics Fund Transfer Business or (iv) any other properties
or assets of the Company or any Restricted Subsidiary, other than in the
ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any transfer of properties or assets (A) that is
governed by the provisions of the Indenture described under Article Eight, (B)
of the Issuer to any Restricted Subsidiary, or of any Restricted Subsidiary to
the Company or any Restricted Subsidiary in accordance with the terms of the
Indenture, (C) having a fair market value of less than $250,000 (or, to the
extent not denominated in U.S. Dollars, the U.S. Dollar Equivalent thereof) in
any given fiscal year or (D) any transfer by the Company or a Restricted
Subsidiary of property or equipment to a Person who is not an Affiliate of the
Company in exchange for property or equipment that has a fair market value at
least equal to the fair market value of the property or equipment so
transferred; provided that, in the event of a transfer described in this clause
--------
(D), the Company shall deliver to the Trustee an officers' certificate
certifying that such exchange complies with this clause (D).
<PAGE>
5
"ATM Network Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or useful in
connection with an ATM Network Business.
"ATM Network Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) operating or
managing ATMs or networks of ATMs, (ii) processing financial transactions on
behalf of Persons issuing credit and debit cards and Persons operating ATMs or
networks of ATMs, (iii) creating, developing, manufacturing, installing,
operating, maintaining, leasing or servicing ATMs or point of sale authorization
equipment or related equipment, software and other devices for use in an ATM
Network Business, (iv) providing goods or services to any Person engaged in an
ATM Network Business or (v) evaluating, participating in or pursuing any other
activity, service or opportunity that is reasonably related to those identified
in (i), (ii), (iii) or (iv) above including, but not limited to, activities
reasonably related to the issuance of credit and debit cards.
"Attributable Value" means, with respect to any lease at the time of
determination, the present value (discounted at the interest rate implicit in
the lease or, if not known, at the Company's incremental borrowing rate) of the
obligations of the lessee of the property subject to such lease for rental
payments during the remaining term of the lease included in such transaction,
including any period for which such lease has been extended or may, at the
option of the lessor, be extended, or until the earliest date on which the
lessee may terminate such lease without penalty or upon payment of penalty (in
which case the rental payments shall include such penalty), after excluding from
such rental payments all amounts required to be paid on account of maintenance
and repairs, insurance, taxes, assessments, water utilities and similar charges.
"Average Life" means, as of the date of determination with respect to
any Indebtedness, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years from the date of determination to the date or dates
of all successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
"Bank Facility" means Indebtedness of the Company or any Restricted
Subsidiary under a senior bank facility with one or more banks or other
commercial financial institutions.
"Bankruptcy Law" means Title 11 of the United States Code, as
amended, or any similar United States federal or state law, or any similar law
of any other jurisdiction, relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
<PAGE>
6
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalent equity interests (however designated) issued by such Person, and any
rights (other than debt notes convertible into capital stock), warrants or
options exchangeable for or convertible into such capital stock, whether now
outstanding or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required to
be classified and accounted for as a capital lease obligation under GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the government of the United States of America, the Federal Republic of
Germany, the Republic of France or the United Kingdom or any agency or
instrumentality thereof, (ii) deposits, certificates of deposit or acceptances
with a maturity of 180 days or less of any financial institution that is a
member of the Federal Reserve system, in each case having combined capital and
surplus and undivided profits (or any similar capital concept) of not less than
$500 million (or, if not denominated in U.S. Dollars, the U.S. Dollar Equivalent
thereof); (iii) commercial paper, with a maturity of 180 days or less issued by
a corporation (other than an Affiliate of the Company) organized under the laws
of a member state of the European Union or the United States or any state
thereof or the District of Columbia and rated at least ''A-2'' by Standard &
Poor's Corporation or "P-2" by Moody's Investors Service; and (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States government
(in the case of any U.S. government obligations), in each case maturing within
one year from the date of acquisition.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all notes that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more
<PAGE>
7
than 50% of the total outstanding Voting Stock of the Company; (b) the Company
consolidates with, or merges with or into another Person or conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with or merges with or into the Company, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Company is converted into or exchanged for cash, notes or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is not converted or exchanged at all (except to the extent necessary to
reflect a change in the jurisdiction of incorporation of the Company) or is
converted into or exchanged for (A) Voting Stock (other than Redeemable Capital
Stock) of the surviving or transferee corporation or (B) Voting Stock (other
than Redeemable Capital Stock) of the surviving or transferee corporation and
cash, notes and other property (other than Capital Stock of the Surviving
Entity) in an amount that could be paid by the Company as a Restricted Payment
as described under the "Limitation on Restricted Payments" covenant (Section
1012) and (ii) immediately after such transaction, no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-
5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all notes that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total outstanding Voting
Stock of the surviving or transferee corporation; (c) during any consecutive two
year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election to such Board of Directors, or whose nomination for election by the
stockholders of the Company, was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (d) the Company is liquidated or dissolved or a special
resolution is passed by the shareholders of the Company approving the plan of
liquidation or dissolution other than in a transaction which complies with the
provisions described in Article Eight.
"Closing Date" means the date on which the Notes are originally
issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
<PAGE>
8
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Adjusted Net Income" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary gains or losses (less
all fees and expenses relating thereto), (b) any net after-tax gains or losses
(less all fees and expenses relating thereto) attributable to asset dispositions
other than in the ordinary course of business, (c) the portion of net income (or
loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash dividends or distributions during such period, (d) net income
(but not loss) of any Person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination, (e) the net income of any Restricted Subsidiary, to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary or its stockholders and (f)
any gain or loss, net of taxes, realized upon the termination of any employee
benefit plan.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of debt discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) accrued interest, (v) the consolidated amount
of any interest capitalized by the Company and (vi) amortization of debt
issuance costs, plus (b) the interest component of Capitalized Lease Obligations
of the Company and its Restricted Subsidiaries paid, accrued and/or scheduled to
be paid or accrued during such period, plus (c) cash and non-cash dividends due
(whether or not declared) on Redeemable Capital Stock or Preferred Stock by the
Company and any Restricted Subsidiary (to any Person other than the Company and
any Wholly Owned Subsidiary), plus (d) one third of operating lease rental
payments paid, accrued and/or scheduled to be paid or accrued during such
period, in each case as determined on a consolidated basis in accordance with
GAAP; provided that the Consolidated Interest Expense attributable to interest
--------
on any Indebtedness computed on a pro forma basis and (A) bearing a floating
--- -----
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
the floating rate.
<PAGE>
9
"Consolidated Operating Cash Flow" means, with respect to any period,
the Consolidated Adjusted Net Income for such period (a) increased by (to the
extent included in computing Consolidated Adjusted Net Income) the sum of (i)
the Consolidated Tax Expense for such period (other than taxes attributable to
extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated
Interest Expense for such period; (iii) depreciation of the Company and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; (iv) amortization of the Company and the Restricted
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; and (v) any other non-cash charges that were deducted in computing
Consolidated Adjusted Net Income (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period) of the Company and
Restricted Subsidiaries for such period in accordance with GAAP and (b)
decreased by any non-cash gains that were included in computing Consolidated
Adjusted Net Income.
"Consolidated Tax Expense" means, for any period, the provision for
federal, state, provincial, local and foreign income taxes of the Company and
all Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this Indenture
is located at Two International Place, Fourth Floor, Boston, MA 02110-2804,
except that with respect to presentation of Notes for payment or for
registration of transfer or exchange, such term shall mean the office or agency
of the Trustee at which, at any particular time, its corporate agency business
shall be conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"Currency Agreements" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries designed solely to protect against or manage exposure to
fluctuations in currency exchange rates.
"DBC" means Deutsche Borse Clearing, Frankfurt am Main and any
successor thereto.
"DBC Accountholder" has the meaning specified in Section 313.
"DBC Global Note" means the bearer global Note without coupons,
deposited with DBC, the face of which shall be substantially in the form of
Section 203, which will represent all of the Notes sold outside of the United
States (except for Notes sold outside of the United States to investors electing
settlement through DTC).
<PAGE>
10
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"DM" means Deutsche Mark.
"DM Paying Agent" has the meaning set forth in Section 315.
"DTC" means The Depositary Trust Company and any successor depositary
for beneficial interests in the Notes.
"DTC Global Note" means the bearer global Note or Notes without
coupons, deposited with State Street Bank and Trust Company as custodian for
DTC, the face of which shall be substantially in the form of Section 202, which
will represent all of the Notes sold in the United States and to investors
electing settlement through DTC.
"DTC Participant" has the meaning specified in Section 313.
"Equity Offerings" is defined to mean any underwritten public
offerings or flotations or placings of Common Stock of the Company for cash that
has been registered under the Securities Act or admitted to listing on the
Nasdaq National Market or New York Stock Exchange.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Subsidiaries" means Euronet Holding N.V., Euronet-Bank Tech
Rt. (Bank Tech), SatComNet Kft (SatComNet), Bankomat 24/Euronet Sp. z o.o., EFT-
Usluge d o.o., Euronet Services GmbH, Euronet Services France SAS and Euronet
Services spol. sro.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
<PAGE>
11
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in effect in the United States on the date of the
Indenture.
"Global Notes" means the DTC Global Note and the DBC Global Note.
"guarantee" means, as applied to any obligation, (a) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder" means a Person in whose name a Note is registered in the
Note Register.
"Incur" or "incur" means, with respect to any Indebtedness, to
create, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of, or otherwise incur such Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness. Incurrence, Incurred and
Incurring shall have the meanings correlative to the foregoing.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities, contingent or otherwise, of such Person: (i)
for borrowed money (including overdrafts), (ii) in connection with any letters
of credit and acceptances issued under letter of credit facilities, acceptance
facilities or other similar facilities, (iii) evidenced by bonds, notes,
debentures or other similar instruments, (iv) for the deferred purchase price of
property or services or created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person, or
(v) for Capitalized Lease Obligations, (b) all obligations of such Person under
or in respect of Interest Rate Agreements or Currency Agreements, (c) all
indebtedness referred to in (but not excluded from) the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or with respect to
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (d) all guarantees by such Person of Indebtedness
referred to in this definition of any other Person and (e) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant
<PAGE>
12
to the Indenture, and if such price is based upon, or measured by, the fair
market value of such Redeemable Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the Company of such
Redeemable Capital Stock. Notwithstanding the foregoing, trade accounts,
liabilities with respect to pre-paid goods and services, accrued liabilities
arising in the ordinary course of business and any liability for Taxes owed by
such Person will not be considered Indebtedness for purposes of this definition.
For purposes of the "Limitation on Additional Indebtedness" and "Limitation on
Restricted Payments" covenants (Sections 1011 and 1012) and the definition of
"Events of Default," in determining the principal amount of any Indebtedness to
be incurred by the Company or a Restricted Subsidiary or which is outstanding at
any date, (x) the principal amount of any Indebtedness which provides that an
amount less than the principal amount at maturity thereof shall be due upon any
declaration of acceleration thereof shall be the accreted value thereof at the
date of determination and (y) effect shall be given to the impact of any
Currency Agreement with respect to such Indebtedness.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements or arrangements
(including, without limitation, interest rate swaps, caps, floors, collars and
other similar agreements) designed solely to protect the Company or any
Restricted Subsidiary against fluctuations in interest rates in respect of
Indebtedness of the Company or any Restricted Subsidiary.
"Investment" means, with respect to any Person, any direct or
indirect advance, loan or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other notes or evidences of Indebtedness issued or owned by, any
other Person and all other items that would be classified as investments on a
balance sheet prepared in accordance with GAAP. In addition, the fair market
value of the net assets of any Subsidiary at the time that such Subsidiary is
designated an Unrestricted Subsidiary shall be deemed to be an "Investment" made
by the Company in such Unrestricted Subsidiary at such time. "Investments" shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Issue Date" means the date of the Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, note interest, hypothecation, assignment for note, claim,
or preference or priority or other encumbrance upon or with respect to any
property of any kind, real or personal,
<PAGE>
13
movable or immovable, now owned or hereafter acquired. A Person shall be deemed
to own subject to a Lien any property which such Person has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary), net of (i) brokerage commissions and other fees
and expenses (including fees and expenses of legal counsel, accountants,
consultants and investment banks) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale, (iii) payments made to
retire Indebtedness where payment of such Indebtedness is secured by the assets
or properties which are the subject of such Asset Sale, (iv) amounts required to
be paid to any Person (other than the Company or any Restricted Subsidiary)
owning a beneficial interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, trade creditors, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee and (b) with
respect to any issuance or sale of Capital Stock or options, warrants or rights
to purchase Capital Stock, or debt notes or Redeemable Capital Stock that have
been converted into or exchanged for Qualified Capital Stock, as referred to
under the "Limitation on Restricted Payments" covenant (Section 1012), the
proceeds of such issuance or sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Subsidiary of the Company), net of
attorney's fees, accountant's fees and brokerage, consultation, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Note Register" has the meaning specified in Section 311.
<PAGE>
14
"Notes" means any of the notes, as defined in the first paragraph of
the recitals hereof, that are authenticated and delivered under this Indenture.
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Notes; provided that, if such Notes
--------
are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has
been made;
(iii) Notes, except to the extent provided in Sections 1202 and 1203,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Twelve; and
(iv) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
- - -------- -------
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in
good
<PAGE>
15
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgees right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Paying Agent" means the DM Paying Agent, any successor thereof, the
U.S. Paying Agent, any successor thereof, and any other Person (including the
Company acting as Paying Agent) authorized by the Company to pay the principal
of (and premium, if any) or interest on any Notes on behalf of the Company.
"Permitted Capital Stock Sales" is defined to mean the issuance, sale
or grant by the Company or any Restricted Subsidiary of Capital Stock of the
Company or any Existing Subsidiary; provided that such issuance, sale or grant
--------
is made to a financial institution, international credit or debit card issuer or
other entity engaged in an ATM Network Business pursuant to an agreement between
the Company or a Restricted Subsidiary, on the one hand, and a financial
institution, international credit or debit card issuer or other entity engage in
an ATM Network Business, on the other hand, to invest in, manage or establish an
ATM Network Business; and, provided further, that such issuances, sales or
-------- -------
grants of Capital Stock, in the aggregate, shall not exceed 5.0% of the
outstanding Capital Stock of the Issuer or any Existing Subsidiary, as the case
may be, and that no dividends, in cash or otherwise, or other distributions on
or in respect of any Capital Stock issued, sold or granted in connection with a
Permitted Capital Stock Sale shall be declared or paid during the term of the
Indenture.
"Permitted Holder" means Michael Brown and Daniel Henry;
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company pursuant to the Notes;
(b) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture, or undrawn amounts under agreements or
facilities existing on the date of the Indenture, and listed on or of a type
described in a schedule thereto;
(c) (i) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or another Restricted Subsidiary and (ii) Indebtedness of the
Company owed to and held by any Wholly Owned Restricted Subsidiary that is
Subordinated Indebtedness; provided that an incurrence of Indebtedness shall be
--------
deemed to have occurred upon (x) any sale or other disposition (excluding
assignments as security to financial institutions) of any Indebtedness of the
Company or Restricted Subsidiary referred to in this clause (c) to a Person
(other than the Company, a Restricted Subsidiary or a Wholly Owned Restricted
Subsidiary, as the case may be) or (y) any sale or other disposition of Capital
Stock of a Wholly Owned Restricted Subsidiary which holds Indebtedness of the
Company or a Restricted Subsidiary that holds Indebtedness of another Restricted
Subsidiary such that
<PAGE>
16
such Wholly Owned Subsidiary ceases to be Wholly Owned or such Restricted
Subsidiary ceases to be a Restricted Subsidiary;
(d) Obligations under any Interest Rate Agreement of the Company or
any Restricted Subsidiary to the extent relating to (i) Indebtedness of the
Company or such Restricted Subsidiary, as the case may be (which Indebtedness
(x) bears interest at fluctuating interest rates and (y) is otherwise permitted
to be incurred under the "Limitation on Additional Indebtedness" covenant
(Section 1011)), or (ii) Indebtedness for which a lender has provided a
commitment in an amount reasonably anticipated to be incurred by the Company or
a Restricted Subsidiary in the following 12 months after such Interest Rate
Agreement has been entered into, but only to the extent that the notional
principal amount of such Interest Rate Agreement does not exceed the principal
amount of the Indebtedness (or Indebtedness subject to commitments) to which
such Interest Rate Agreement relates;
(e) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements to the extent relating to (i) Indebtedness of the Company or
a Restricted Subsidiary (which Indebtedness is otherwise permitted to be
incurred under the "Limitation on Additional Indebtedness" covenant (Section
1011)) or (ii) obligations to purchase assets, properties or services incurred
in the ordinary course of business of the Company or any Restricted Subsidiary,
including any purchases of network or customer equipment; provided that such
--------
Currency Agreements do not increase the Indebtedness or other obligations of the
Company and its Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(f) Indebtedness of the Company or any Restricted Subsidiary in
respect of performance bonds of the Company or any Restricted Subsidiary or
surety bonds provided by the Company or any Subsidiary incurred in the ordinary
course of business in connection with an ATM Network Business;
(g) Indebtedness consisting of guarantees, indemnities or obligations
in respect of purchase price adjustments in connection with the acquisition or
disposition of assets, including, without limitation, shares of Capital Stock;
(h) Indebtedness of the Company or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of the Company or of any Restricted Subsidiary incurred
or outstanding pursuant to clause (b) of this definition or the proviso of the
covenant "Limitation on Additional Indebtedness" (Section 1011); provided that
--------
(i) Indebtedness of the Company may not be replaced, renewed, refinanced or
extended to such extent under this clause (i) with Indebtedness of any
Subsidiary and (ii) any such replacement, renewal, refinancing or extension (x)
shall not result in a lower Average Life of such Indebtedness as compared with
the Indebtedness being replaced, renewed, refinanced or extended, (y) shall not
exceed the sum of the principal amount (or, if such Indebtedness provides for a
lesser amount to be due and payable upon a declaration of acceleration thereof,
an amount no greater than such
<PAGE>
17
lesser amount) of the Indebtedness being replaced, renewed, refinanced or
extended plus the amount of accrued interest thereon and the amount of any
reasonably determined prepayment premium necessary to accomplish such
replacement, renewal, refinancing or extension and such reasonable fees and
expenses incurred in connection therewith, and (z) in the case of any
replacement, renewal, refinancing or extension by the Company of Subordinated
Indebtedness, such new Indebtedness is made subordinate to the Notes at least to
the same extent as the Indebtedness being replaced, renewed, refinanced or
extended;
(i) Indebtedness of the Company Incurred (including Acquired
Indebtedness) (i) in order to finance the acquisition of ATM Network Assets or
an ATM Network Business, provided that the aggregate principal amount of all
--------
such Indebtedness shall not exceed $50.0 million (or, to the extent not
denominated in U.S. Dollars, the U.S. Dollar Equivalent thereof) at any time
outstanding;
(j) Indebtedness of any Restricted Subsidiary to finance the day to
day operations and working capital requirements of such Restricted Subsidiary,
provided that the aggregate principal amount of all such Indebtedness Incurred
- - --------
by all Restricted Subsidiaries shall not exceed $5.0 million (or, to the extent
not denominated in U.S. Dollars, the U.S. Dollar Equivalent thereof) at any time
outstanding;
(k) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Notes tendered in a Change of Control
Offer or Excess Proceeds Offer or (B) deposited to defease all of the Notes as
described in Article 12;
(l) Indebtedness of the Company or any Restricted Subsidiary under
Capitalized Lease Obligations relating to ATM Network Assets that is Incurred in
the ordinary course of business and which is secured by the ATM Network Assets
subject to such Capitalized Lease Obligations; and
(m) in addition to the items referred to in clauses (a) through (l)
above, Indebtedness of the Company having an aggregate principal amount not to
exceed $200 million (or, to the extent not denominated in U.S. Dollars, the U.S.
Dollar Equivalent thereof) at any time outstanding.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any Restricted Subsidiary;
(c) Investments of the Company or any Restricted Subsidiary if as a
result of such Investment a Person (i) becomes a Restricted Subsidiary or (ii)
is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary as a
result of such Investment; provided, in each case, such Restricted Subsidiary is
--------
engaged in an ATM Network Business;
<PAGE>
18
(d) Investments in assets used in the ordinary course of business;
(e) Investments in prepaid expenses; or
(f) Investments by the Company or any Restricted Subsidiary in any
entity the primary business of which is the conduct of the ATM Network Business,
provided that the sum of all such Investments does not exceed $10.0 million at
- - --------
any time;
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of the Indenture;
(b) Liens securing Permitted Indebtedness;
(c) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Restricted Subsidiary;
(d) Liens securing the Notes;
(e) any interest or title of a lessor under any Capitalized Lease
Obligation so long as the Attributable Value secured by such Lien does not
exceed $10 million (or, to the extent not denominated in U.S. Dollars, the U.S.
Dollar Equivalent thereof);
(f) statutory Liens of landlords and carriers, warehouseman's,
mechanics, suppliers, materialmen's, repairmen's or other like Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate proceeding, if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor;
(g) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and if a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made therefor;
(h) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like nature
incurred in the ordinary course of business (other than contracts for the
payment of money);
(i) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any Restricted Subsidiary incurred in the ordinary course of
business;
<PAGE>
19
(j) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(k) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness by
the Company or any Restricted Subsidiary; provided that such Lien does not
--------
extend to any property or assets of the Company or any Restricted Subsidiary
other than the assets acquired in connection with the incurrence of such
Acquired Indebtedness;
(l) Liens securing Interest Rate Agreements or Currency Agreements
permitted to be incurred pursuant to clause (d) and (e), respectively, of the
definition of "Permitted Indebtedness" or any collateral for the Indebtedness to
which such Interest Rate Agreements or Currency Agreements relate;
(m) Liens arising from Purchase Money Indebtedness, so long as such
Liens extend only to the assets constructed, expanded, installed, acquired or
improved with such Purchase Money Indebtedness and do not secure any
Indebtedness in an amount in excess of such Purchase Money Indebtedness;
(n) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (a) through (m); provided that any
--------
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall not
extend to any additional property or assets;
(o) cash deposited by the Company or a Subsidiary of the Company with
banks that participate in the Company's ATM network in the ordinary course of
business to secure cash contributed by such banks for use in the Company's ATM
Network; and
(p) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
<PAGE>
20
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participation or other equivalents (however designated) of
such Person, preferred or preference stock whether now outstanding, or issued
after the Issue Date, and includes, without limitation, all classes and series
of preferred or preference stock of such Person.
"Purchase Money Indebtedness" means Indebtedness of the Company or
any Restricted Subsidiary incurred at any time within 180 days of, and for the
purpose of financing all or any part of the cost of, the construction,
expansion, installation, acquisition, improvement by the Company or any
Restricted Subsidiary of any ATM Network Asset; provided that the proceeds of
such Indebtedness are expended for such purposes within such 180-day period; and
provided, further, that the net cash proceeds from the issuance of such
Indebtedness does not exceed, as of the date of incurrence of such Indebtedness,
100 percent of the lesser of cost and the fair market value of such ATM Network
Asset.
"Qualified Capital Stock" of any person means any and all Capital
Stock of such person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any note into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the relevant Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt notes at any time prior to such final
Stated Maturity.
"Redemption Date", when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the . or . (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust
<PAGE>
21
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning specified in Section 1012.
"Restricted Subsidiary" means the Existing Subsidiaries and any
Subsidiary that is not designated an Unrestricted Subsidiary by the Board of
Directors of the Company.
"S&P" means Standard and Poor's Ratings Services, a division of
McGraw-Hill, Inc., and its successors.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company or a Restricted Subsidiary
sells or transfers any property or asset in connection with the leasing, or the
resale against installment payments, of such property or asset to the seller or
transferor.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its subsidiaries, (i) for the most
recent fiscal year of the Company accounted for more than 5% of the consolidated
revenues of the Company and the Restricted Subsidiaries, (ii) as of the end of
such fiscal year, was the owner of more than 5% of the consolidated assets of
the Company and the Restricted Subsidiaries, in each case as set forth on the
most recently available consolidated financial statements of the Company and the
Restricted Subsidiaries for such fiscal year, or (iii) owns one or more material
licenses or concessions related to the operation of ATM Network Business.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company, by one or more other Subsidiaries of the Company or by the Company and
one or more other of its Subsidiaries.
<PAGE>
22
"Tax" is defined to mean any tax, duty, levy, impost, assessment or
other governmental charge (including penalties, interest and any other
liabilities related thereto).
"Taxing Authority" is defined to mean any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Total Consolidated Indebtedness" means, at any date of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and its Restricted Subsidiaries outstanding as of the date of
determination determined on a consolidated basis in accordance with GAAP.
"Total Consolidated Indebtedness to Annualized Pro Forma Consolidated
Operating Cash Flow Ratio" means, at any date of determination, the ratio of (i)
Total Consolidated Indebtedness to (ii) Annualized Pro Forma Consolidated
Operating Cash Flow for the latest full fiscal quarter for which consolidated
financial statements of the Company are available preceding the date of the
transaction giving rise to the need to calculate the Total Consolidated
Indebtedness to Annualized Consolidated Operating Cash Flow Ratio.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time
of determination shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither the Company nor any other
Subsidiary is directly or indirectly liable for or provides credit support for
or guarantees any Indebtedness of such Subsidiary, (ii) no default with respect
to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time
or otherwise) any holder of any other Indebtedness of the Company or any other
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of the
"Limitation on Investments in Unrestricted Subsidiaries" covenant (Section
1020), (iv) neither the Company nor any other Restricted Subsidiary has a
contract, agreement, arrangement, understanding or obligation of any kind,
whether written or oral, with such Subsidiary other than those that might be
obtained at the time from persons who are not Affiliates of the Company and (v)
neither the Company nor any other Restricted Subsidiary has any obligation (1)
to subscribe for additional shares of Capital
<PAGE>
23
Stock or other equity interest in such Subsidiary or (2) to maintain or preserve
such Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing a board
resolution with the Trustee giving effect to such designation. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such designation,
there would be no Default or Event of Default under the Indenture and the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Additional Indebtedness" covenant
(Section 1011). In no event shall the Existing Subsidiaries be designated as
Unrestricted Subsidiaries.
"U.S. Dollar Equivalent" means, with respect to any monetary amount
in a currency other than the U.S. dollar, at any time for the determination
thereof, the amount of U.S. Dollars obtained by converting such foreign currency
involved in such computation into U.S. Dollars at the spot rate for the purchase
of U.S. Dollars with the applicable foreign currency as quoted by Reuters at
approximately 11:00 a.m. (New York time) on the date not more than two business
days prior to such determination. For purposes of determining whether any
Indebtedness can be incurred (including Permitted Indebtedness), any Investment
can be made and any transaction described in the "Limitation on Transactions
with Affiliates" covenant (Section 1014) can be undertaken (a "Tested
Transaction"), the U.S. Dollar Equivalent of such Indebtedness, Investment or
transaction described in the "Limitation or Transaction with Affiliates"
covenant (Section 1014) shall be determined on the date incurred, made or
undertaken and no subsequent change in the U.S. Dollar Equivalent shall cause
such Tested Transaction to have been incurred, made or undertaken in violation
of the Indenture.
"U.S. Paying Agent" has the meaning set forth in Section 315.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or
classes of Capital Stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Subsidiary, such Subsidiary
if all the outstanding Capital Stock of such Subsidiary (other than any
directors' qualifying shares, shares owned by foreign nationals to the extent
mandated by applicable law and shares issued, sold or granted pursuant to a
Permitted Capital Stock Sale) is owned directly by the Company or by the Company
and one or more Wholly Owned Restricted Subsidiaries.
<PAGE>
24
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his
<PAGE>
25
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in
<PAGE>
26
or pursuant to such Board Resolution, which shall be a date not earlier than the
date 30 days prior to the first solicitation of Holders generally in connection
therewith and not later than the date such solicitation is completed. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of Outstanding Notes have authorized or agreed or consented
to such request, demand, authorization, direction, notice, consent, waiver or
other Act, and for that purpose the Outstanding Notes shall be computed as of
such record date; provided that no such authorization, agreement or consent by
--------
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 105. Notices, etc., to Trustee, Company
----------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the
<PAGE>
27
sufficiency of such notice with respect to other Holders. Any notice mailed to a
Holder in the manner herein prescribed shall be conclusively deemed to have been
received by such Holder, whether or not such Holder actually receives such
notice. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, the Holders, any Paying Agent
and any Note Registrar and their successors hereunder, any benefit or any legal
or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture and the Notes shall be governed by and construed in
accordance with the law of the State of New York. This Indenture is subject to
the provisions of the Trust Indenture Act that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
<PAGE>
28
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, Stated
Maturity or Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium, if any) or interest need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, Redemption Date or at the Stated
Maturity or Maturity; provided that no interest shall accrue for the period from
--------
and after such Interest Payment Date, Redemption Date, Stated Maturity or
Maturity, as the case may be.
<PAGE>
29
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
---------------
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
SECTION 202. Form of Face of DTC Global Note.
-------------------------------
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EURONET SERVICES INC.
. % Senior Discount Notes due 2006
[CUSIP]
[CINS] [ISIN]
[WKN]
<PAGE>
30
No._____ DM__________
The following information is supplied for purposes of Sections 1273 and
1275 of the Internal Revenue Code:
Issue Date:_______________ Original issue discount under
Section 1273 of the Internal Revenue
Code (for each DM 1,000 principal
amount): DM__________
Issue Price (for each DM 1,000 Yield to Maturity: _____%
principal amount): DM__________
Method used to determine yield to maturity Original issue discount for
for [short] accrual period of [issue [short] accrual period of [issue
date] to date] to [date]: exact method [date] (for each DM 1,000 principal
amount): DM__________
EURONET SERVICES INC., a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________, or registered assigns, the principal sum of __________
Deutsche Marks on ., at the office or agency of the Company referred to below,
and to pay interest thereon on ., and semi-annually thereafter, on . and . in
each year, from [date and year original issue discount fully accretes], or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of _____% per annum, until the principal hereof is
paid or duly provided for, and (to the extent lawful) to pay on demand interest
on any overdue interest at the rate of ____% per annum from the date on which
such overdue interest becomes payable to the date payment of such interest has
been made or duly provided for. The principal on this Note shall not accrue
interest until [date and year original issue discount fully accretes], except in
the case of a default in payment of the amount due at Maturity, in which case,
the amount then due on this Note shall bear interest at the rate of _____% per
annum from the date of such default in payment, as provided in the Indenture.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the [date] or [date] (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date, and such defaulted interest, and (to the extent lawful)
interest on such defaulted interest at _____% per annum, may be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of Notes not less than 10 days prior to such Special Record Date, or may
be paid at any time in any other lawful manner not
<PAGE>
31
inconsistent with the requirements of any securities exchange on which the Notes
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture. Payment of the principal of (and premium,
if any) and interest on this Note will be made at the office or agency of the
Company maintained for that purpose in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
-------- -------
payment of interest may be made at the option of the Company (i) by check mailed
to the address of the Person entitled thereto as such address shall appear on
the Note Register or (ii) by transfer to an account maintained by the payee
located in the United States.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: EURONET SERVICES INC.
By
--------------------------------------
Title:
Attest:
- - --------------------------
Authorized Signature
SECTION 203. Form of Face of DBC Global Note.
-------------------------------
THIS GLOBAL CERTIFICATE HAS BEEN CREATED IN ORDER TO BE HELD IN CUSTODY
BY DEUTSCHE BORSE CLEARING AG ("DBC") AND TO SERVE AS THE BASIS FOR THE DELIVERY
AND TRANSFER OF NOTES TO BE HELD IN THE DBC DEPOSITARY AND CLEARING SYSTEM
THROUGHOUT THE LIFE OF THE SECURITIES.
EURONET SERVICES INC.
<PAGE>
32
.% Senior Discount Notes due 2006
[CUSIP]
[CINS] [ISIN]
[WKN]
No._____ DM__________
The following information is supplied for purposes of Sections 1273
and 1275 of the Internal Revenue Code:
Issue Date: Original issue discount under Section 1273 of
the Internal Revenue Code (for each DM 1,000
principal amount): DM__________
Issue Price (for each DM 1,000 Yield to Maturity: _____%
principal amount): DM__________
Method used to determine yield to maturity Original issue discount for
for [short] accrual period of [issue [short] accrual period of
date] to [date]: exact method [issue date] to [date] (for
each DM 1,000 principal
amount): DM__________
EURONET SERVICES INC., a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________, or registered assigns, the principal sum of __________
Deutsche Marks on ., at the office or agency of the Company referred to below,
and to pay interest thereon on ., and semi-annually thereafter, on . and . in
each year, from [date and year original issue discount fully accretes], or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of _____% per annum, until the principal hereof is
paid or duly provided for, and (to the extent lawful) to pay on demand interest
on any overdue interest at the rate of ____% per annum from the date on which
such overdue interest becomes payable to the date payment of such interest has
been made or duly provided for. The principal on this Note shall not accrue
interest until [date and year original issue discount fully accretes], except in
the case of a default in payment of the amount due at Maturity, in which case,
the amount then due on this Note shall bear interest at the rate of _____% per
annum from the date of such default in payment, as provided in the Indenture.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the [date] or [date] (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date, and such defaulted interest, and (to the extent
<PAGE>
33
lawful) interest on such defaulted interest at _____% per annum, may be paid to
the Person in whose name this Note (or one or more Predecessor Notes) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Notes not less than 10 days prior to such Special Record
Date, or may be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture. Payment of the principal of (and premium, if
any) and interest on this Note will be made at the office or agency of the
Company maintained for that purpose in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
-------- -------
payment of interest may be made at the option of the Company (i) by check mailed
to the address of the Person entitled thereto as such address shall appear on
the Note Register or (ii) by transfer to an account maintained by the payee
located in the United States.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: EURONET SERVICES INC.
By
--------------------------------------
Title:
Attest:
- - ----------------------------
Authorized Signature
<PAGE>
34
SECTION 204. Form of Reverse of Note.
-----------------------
This Note is one of a duly authorized issue of notes of the Company
designated as its .% Senior Discount Notes due 2006 (herein called the "Notes"),
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to DM . million at maturity, which may be issued
under an indenture (herein called the "Indenture") dated as of ., 1998, between
the Company and State Street Bank and Trust Company, trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Notes are redeemable, at the option of the Company, in whole at any
time or from time to time in part, on or after ., 2002, on not less than 30 nor
more than 60 days prior notice at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, together with
accrued and unpaid interest, if any, to the Redemption Date, if redeemed during
the 12-month period beginning on . of the years indicated below (subject to the
right of holders of record on relevant record dates to receive interest due on a
relevant Interest Payment Date):
Year Redemption Price
- - ---- ----------------
2002 ................................................ %
2003 ................................................ %
2004 and thereafter .................................. 100.00%
At any time or from time to time prior to ., 2001 the Company may
redeem within 60 days of one or more Equity Offerings up to 33 1/3% of the
aggregate principal amount at maturity of the originally issued Notes with all
or a portion of the net proceeds of such offering, at a redemption price equal
to .% of the Accreted Value thereof as of the Redemption Date, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of holders of record on relevant record dates to receive interest due on
relevant Interest Payment Dates); provided that immediately after giving effect
--------
to any such redemption, at least 66 2/3% aggregate principal amount at maturity
of the originally issued Notes remains outstanding.
Upon the occurrence of a Change in Control, the Holder of this Note may
require the Company, subject to certain limitations provided in the Indenture,
to repurchase this Note, in whole or in part and in integral multiples of DM
1,000 principal amount at maturity, at a purchase price of 101% of the Accreted
Value thereof, together with accrued
<PAGE>
35
and unpaid interest, if any, to the Redemption Date, subject to the right of
holders of record on relevant record dates to receive interest due on relevant
Interest Payment Dates.
Upon the occurrence of an Asset Sale, the Company may be obligated to
make an offer to purchase all or a portion of the outstanding Notes at a price
of 100% of the Accreted Value thereof, together with accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on relevant record dates to receive interest due on relevant Interest
Payment Dates).
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Record Date referred to on the face hereof. Notes
(or portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Note in part only, a new Note or
Notes for the unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the Accreted
Value of, premium, if any, and accrued interest on all Outstanding Notes may be
declared to be due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Notes at the time outstanding. The Indenture
also contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Notes at the time outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by or on behalf of the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange therefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and
<PAGE>
36
unconditional, to pay the principal of (and premium, if any, on) and interest on
this Note at the times, place, and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable on the Note Register of the
Company, upon surrender of this Note for registration of transfer at the office
or agency of the Company maintained for such purpose in The City of New York,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of DM 1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE>
37
SECTION 205. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By
--------------------------------------
Authorized Officer
<PAGE>
38
ARTICLE THREE
THE NOTES
Section 301. Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to DM . million, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 303, 304, 306, 311, 906,
1010, 1017 or 1108.
The Notes are senior, unsecured obligations of the Company and shall be
known and designated as the ".% Senior Discount Notes due 2006" of the Company.
Their Stated Maturity shall be ., and they shall bear interest at the rate of .%
per annum (computed on a semiannual bond equivalent basis) calculated from .,
1998. Cash interest on the Notes will not accrue prior to ., 2002. Commencing
., 2002, cash interest will be payable on the Notes semiannually on . and . of
each year. The issue price of the Notes (for purposes of calculating Accreted
Value) will be in DM . per DM 1,000 principal amount at maturity of the Notes.
The principal of, premium, if any, and interest on the Notes shall be
payable at the office or agency of the Company maintained for such purpose in
the City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; provided, however, that at the option of the
-------- -------
Company interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Note Register.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in registered form without coupons and
only in denominations of DM 1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by its Chairman,
its President or a Vice President, under its corporate seal reproduced thereon
and attested by its Secretary or an Assistant Secretary. The signature of any
of these officers on the Notes may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that
<PAGE>
39
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes or did not hold such offices at the
date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Nine, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon Company Request of the
successor Person, shall authenticate and deliver Notes as specified in such
request for the purpose of such exchange. If Notes shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Notes, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Notes at the time
Outstanding for Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as
<PAGE>
40
the officers executing such Notes may determine, as conclusively evidenced by
their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. Form of Notes.
-------------
Notes initially offered and sold to U.S. investors shall be issued in
the form of one or more permanent global certificates in registered form (the
"DTC Global Note"), deposited with the Trustee, as custodian for DTC (in such
capacity, the "Custodian"), duly executed by the Company and authenticated by
the Trustee as provided above. The face of the DTC Global Note shall be
substantially in the form of Section 202 and shall bear the legend included
therein.
Notes sold outside of the United States to non-U.S. persons shall be
issued in the form of one permanent global certificate in bearer form (the "DBC
Global Note"), deposited with Deutsche Borse Clearing, Frankfurt am Main ("DBC")
duly executed by the Company and authenticated by the Trustee as provided above.
The face of the DBC Global Note shall be substantially in the form of Section
203 and shall bear the legend included therein.
The aggregate principal amount of each of the DTC Global Note and the
DBC Global Note (together, the "Global Notes") may from time to time be
increased or decreased by adjustments made on the records of the Registrar as
hereinafter provided. Every Global Note shall have affixed to its reverse a
schedule for the purpose of recording such adjustments. Together, the Notes
represented by the DBC Global Note and the DTC Global Note will be equal to the
aggregate principal amount of the Notes outstanding at any time.
The Global Notes shall be typed, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
<PAGE>
41
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such note or indemnity as may be required by them to save each
of them harmless, then, in the absence of notice to the Company or the Trustee
that such Note has been acquired by a bona fide purchaser, the Company shall
execute and upon Company Order the Trustee shall authenticate and deliver, in
exchange for any such mutilated Note or in lieu of any such destroyed, lost or
stolen Note, a new Note of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 1002; provided,
--------
however, that each installment of interest may at the Company's option be paid
- - -------
by (i) mailing a check for such interest, payable to or upon the written order
of the Person entitled thereto pursuant to Section 308, to the address of such
Person as it appears in the Note Register or (ii) transfer to an account located
in the United States maintained by the payee.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder
<PAGE>
42
on the Regular Record Date by virtue of having been such Holder, and such
defaulted interest and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Notes (such defaulted interest and interest
thereon herein collectively called "Defaulted Interest") shall be paid by the
Company, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a special record date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner (each such date to be called a "Special Record Date"). The
Company shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Note and the date of the proposed
payment, and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date, and in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be given in the manner provided for in Section 106,
not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so given, such Defaulted Interest shall be paid to the
Persons in whose names the Notes (or their respective Predecessor Notes)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee of the proposed payment pursuant to this clause, such manner
of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
<PAGE>
43
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Note is registered as the owner of such Note for
the purpose of receiving payment of principal of, premium, if any, and (subject
to Sections 307 and 311) interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and none of the Company, the
Trustee or any agent of the Company or the Trustee shall be affected by notice
to the contrary.
SECTION 309. Cancellation.
------------
All Notes surrendered for payment, redemption, registration of transfer
or exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Company may
at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold, and all Notes so delivered
shall be promptly cancelled by the Trustee. If the Company shall so acquire any
of the Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that cancelled Notes be
returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 311. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 1002, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered
<PAGE>
44
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Notes which the Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the selection of Notes to be redeemed under Section 1104 and ending
at the close of business on the day of such mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Note so selected
for redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
SECTION 312. Transfer Mechanics.
-------------------
Except as otherwise provided in this Section 312, transfers of Global
Notes shall be limited to transfers of book-entry interests between and within
DBC and DTC except as provided below. Transfers of interests in the Global
Notes between DBC Accountholders, on the one hand, and DTC Participants, on the
other hand, shall be effected by an increase or a reduction in the aggregate
amount of Notes represented by the DBC Global Note and the corresponding
reduction or increase in the aggregate amount of Notes represented by the DTC
Global Note. Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in another
Global Note will, upon transfer, cease to be an interest in such first Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
Transfers of interests in the DBC Global Note to parties who will hold
the interests through the DBC Global Note and transfers of interests in the DTC
Global Note to parties who will hold the interests through the DTC Global Note
will be effected in the
<PAGE>
45
ordinary way in accordance with the respective rules and operating procedures of
DBC, DTC, Euroclear or Cedel Bank, as the case may be.
Notwithstanding any other provisions of this Section 312, unless and
until it is exchanged in whole or in part for Notes in definitive registered
form, a DTC Global Note representing all or a portion of the Notes may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or by DTC or any such nominee to a successor
depositary or a nominee of such successor depositary.
If DTC notifies the Company that it is unwilling or unable to continue
as depositary for the DTC Global Note or if at any time DTC shall no longer be
eligible under the next sentence of this paragraph, the Company shall appoint a
successor depositary with respect to the Notes. Each depositary appointed
pursuant to this Section 312 must, at the time of its appointment and at all
times while it serves as depositary, be a clearing agency registered under the
Exchange Act and any other applicable statute or regulation.
If (i) DTC notifies the Company that it is unwilling or unable to
continue as depositary for the DTC Global Note or if at any time DTC shall no
longer be eligible to serve as depositary and a successor depositary for the
Notes is not appointed by the Company within 60 days after the Company receives
such notice or becomes aware of such ineligibility or (ii) an Event of Default
has occurred and is continuing, then the Company will execute, and the Trustee,
upon receipt of an authentication order, will authenticate and deliver, Notes in
definitive registered form in any authorized denominations, in an aggregate
principal amount at maturity equal to the principal amount at maturity of the
Global Note representing such Notes in exchange for the DTC Global Note.
The Company may at any time and in its sole discretion determine that
the registered Notes shall no longer be represented by a DTC Global Note. In
such event the Company will execute, and the Trustee will, upon receipt of an
authentication order, authenticate and deliver, Notes in definitive registered
form in any authorized denominations, in an aggregate principal amount at
maturity equal to the principal amount at maturity of the DTC Global Note
representing such Notes in exchange for such DTC Global Note.
Upon the exchange of the DTC Global Note for Notes in definitive
registered form without coupons, in authorized denominations, the DTC Global
Note shall be cancelled by the Trustee. Notes in definitive registered form
issued in exchange for the DTC Global Note pursuant to this Section 312 shall be
registered in such names and in such authorized denominations as DTC, pursuant
to instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Notes to or as directed by
the Persons in whose names such Notes are so registered.
<PAGE>
46
All Notes issued upon any transfer or exchange of Notes shall be valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Notes surrendered upon such transfer or
exchange.
SECTION 313. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in New York City where
Notes may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency in New York City and in Frankfurt am Main,
Germany where Notes may be presented for payment (respectively, the "U.S. Paying
Agent" and the "DM Paying Agent") and an office or agency in New York City where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. In addition, so long as any Notes are listed on the
Luxembourg Stock Exchange, the Company shall maintain an office in Luxembourg
(the "Luxembourg Paying Agent") where Notes may be presented for payment. The
Company shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Note Register"). The Note Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. The Company may have one or more co-Registrars and one
or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as a Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
The Company initially appoints the Trustee as Registrar, U.S. Paying
Agent, authenticating agent and agent for service of notice and demands. The
Company also appoints [State Street Bank and Trust Company, German branch] as DM
Paying Agent and [State Street Bank and Trust Company, Luxembourg branch] as
Luxembourg Paying Agent. If, at any time, the Trustee is not the Registrar, the
Company shall furnish, or cause to be furnished, to the Trustee at least seven
Business Days before each Interest Payment Date and at such other times as the
Trustee may reasonably request, the names and addresses of the Holders as they
appear in the Note Register. At the option of the Company, payment of
<PAGE>
47
interest may be made by check mailed to the address of the Holders as such
address appears in the Note Register.
SECTION 314. Holder to Be Treated as Owner.
-----------------------------
(a) The Company, the Trustee, any Paying Agent, any Registrar and any
agent of any of the foregoing may deem and treat each Holder of a Note as the
absolute owner of such Note for the purpose of receiving payment of or on
account of the principal of and, subject to the provisions of this Indenture,
interest on such Note and for all other purposes. Neither the Company, the
Trustee, any Paying Agent, any Registrar nor any agent of the foregoing shall be
affected by any notice to the contrary. All such payments so made to any such
Person, or upon his order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for moneys payable
upon any Note.
(b) Members of, or participants in, DTC ("DTC Participants") shall have
no rights under this Agreement with respect to the DTC Global Note held on their
behalf by DTC, or the Custodian as DTC's custodian, or under the DTC Global
Note, and DTC may be treated by the Company, the Agents and any agent of the
Company or the Agents as the absolute owner of the DTC Global Note for all
purposes whatsoever. Notwithstanding the foregoing, DTC, as a Holder, may
appoint agents and otherwise authorize DTC Participants to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action which a Holder is entitled to give or take under this Indenture,
including the right to sue for payment of principal or interest pursuant to
Section 316(b) of the TIA. Except as provided in Section 311, owners of
beneficial interests in the DTC Global Note will not be authorized to have Notes
registered in their names, and will not receive and will not be entitled to
receive physical delivery of definitive certificates representing individual
Notes. Beneficial interests in the DTC Global Note may be held only through DTC
Participants.
(c) DBC accountholders ("DBC Accountholders") shall have no rights
under this Agreement with respect to the DBC Global Note held on their behalf by
DBC or under the DBC Global Note and DBC may be treated by the Company, the
Agents and any agent of the Company or the Agents as the absolute owner of the
DBC Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Agents or any agent of the Company
or the Agents, from giving effect to any written certification, proxy or other
authorization furnished by DBC or impair, as between DBC and the DBC
Accountholders, the operation of customary practices governing the exercise of
the rights of an owner of a co-ownership interest in the DBC Global Note. The
Holder of the DBC Global Note may grant proxies and otherwise authorize any
person, including DBC Accountholders and persons that may hold interests through
DBC Accountholders, to take any action which a Holder is entitled to take under
this Indenture or the Notes. Except as provided in Section 312, owners of co-
ownership interests in the DBC Global Note will not be entitled to have Notes
registered in their names, and will not receive and will not be entitled to
receive physical delivery of definitive certificates representing
<PAGE>
48
individual Notes. Co-ownership interests in the DBC Global Note may be held
only by or through DBC Accountholders.
SECTION 315. Paying Agent to Hold Money in Trust.
-----------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that such Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, and interest on the Notes (whether such money has
been paid to it by the Company or any other obligor on the Notes), and such
Paying Agent shall promptly notify the Trustee of any default by the Company (or
any other obligor on the Notes) in making any such payment. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed, and the Trustee may at any time during the
continuance of any payment default, upon written request to a Paying Agent,
require such Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed. Upon doing so, the Paying Agent shall have no
further liability for the money so paid over to the Trustee. If the Company or
any Subsidiary of the Company or any Affiliate of any of them acts as Paying
Agent, it will, on or before each due date of any principal of, premium, if any,
or interest on the Notes, segregate and hold in a separate trust fund for the
benefit of the Holders a sum of money sufficient to pay such principal, premium,
if any, or interest so becoming due until such sum of money shall be paid to
such Holders or otherwise disposed of as provided in this Indenture, and will
promptly notify the Trustee of its action or failure to act.
SECTION 316. Payment.
-------
Payment of principal of, premium, if any, and interest on the Notes
shall be made by the Company in Deutsche Marks through the DM Paying Agent.
Payment of principal of, premium, if any, and interest on the Notes represented
by the DBC Global Note will be made by the DM Paying Agent in Deutsche Marks
directly to DBC. Payment of principal of, premium, if any, and interest on the
Notes represented by the DTC Global Note will be made by the DM Paying Agent in
Deutsche Marks to the U.S. Paying Agent which in turn shall make payments in
U.S. Dollars and Deutsche Marks to the registered holder of the DTC Global Note
as provided below.
Any person holding beneficial interests in the DTC Global Note (a "DTC
Note Holder") shall receive payments of principal and interest in respect of the
Notes in U.S. Dollars, unless such DTC Note Holder elects to receive payment in
Deutsche Marks in accordance with the procedures set forth below. To the extent
that the DTC Note Holders have not made such election in respect of any payment
of principal or interest, the aggregate amount designated for all such DTC Note
Holders in respect of such payment (the "DM Conversion Amount") shall be
credited to the U.S. Paying Agent's account and converted by the U.S. Paying
Agent into U.S. Dollars and paid by wire transfer of same-day funds to the
registered holder of the DTC Global Note for payment through DTC's settlement
system to the relevant DTC Participants. All costs of any such conversion and
wire transfer shall be
<PAGE>
49
deducted from such payments. Any such conversion shall be based on .'s bid
quotation, at or prior to 11:00 a.m. New York time, on the second New York
Business Day (as defined below) preceding the relevant payment date, for the
purchase by the U.S. Payment Agent of the DM Conversion Amount of U.S. Dollars
for settlement on such payment date. If such bid quotation is not available for
any reason, the U.S. Paying Agent shall endeavor to obtain a bid quotation from
a leading foreign exchange bank in New York City selected by the U.S. Paying
Agent for such purpose. If no bid quotation from a leading foreign exchange bank
is available, payment of the DM Conversion Amount will be made in Deutsche Marks
to the account or accounts specified by DTC to the U.S. Paying Agent.
A DTC Note Holder may elect to receive payment of principal and
interest with respect to the Notes in Deutsche Marks by causing DTC through the
relevant DTC Participant to notify the U.S. Paying Agent by the time specified
below of (i) such DTC Note Holder's election to receive all or a portion of such
payment in Deutsche Marks and (ii) wire transfer instructions to a Deutsche Mark
account in the Federal Republic of Germany. Such election in respect of any
payment must be made by the DTC Note Holder at the time and in the manner
required by the DTC procedures applicable from time to time and shall, in
accordance with such procedures, be irrevocable and shall relate only to such
payment. DTC notification of such election, wire transfer instructions and the
amount payable in Deutsche Marks must be received by the U.S. Paying Agent prior
to 5:00 p.m. New York time on the fifth New York Business Day following the
relevant Record Date in the case of interest, and prior to 5:00 p.m. New York
time on the fifth New York Business Day prior to the payment date for the
payment of principal. Any payments in Deutsche Marks shall be made by wire
transfer of same-day funds to Deutsche Mark accounts designated by DTC. The
term "New York Business Day" shall mean any day other than a Saturday or Sunday
or a day on which banking institutions in New York City are authorized or
required by law or executive order to close.
SECTION 317. CUSIP Numbers.
-------------
The Company in issuing the Notes may use a "CUSIP," "CINS," "ISIN"
and/or "WKN" number, and if so, such CUSIP, CINS, ISIN and/or WKN number shall
be included in notices of redemption or exchange as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
- - --------
correctness or accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption or exchange and that reliance may be
placed only on the other identification numbers printed on the Notes. The
Company shall promptly notify the Trustee of any change in any CUSIP, CINS,
ISIN and/or WKN number.
SECTION 318. Deposit of Moneys.
-----------------
In order to provide for the payment of principal of and interest on the
Notes as the same shall become due and payable, the Company hereby agrees to pay
to the Trustee or such Paying Agent or Agents as the Trustee may specify by wire
transfer of immediately available funds prior to 10:00 a.m., local time, on (in
the case of amounts payable in respect
<PAGE>
50
of the DTC Global Note) the second Business Day preceding and (in the case of
amounts payable to DBC in respect of the DBC Global Note) the Business Day
preceding each Interest Payment Date or the maturity date (including a date
fixed for redemption) of the Notes in such coin or currency of the Federal
Republic of Germany as at the time of payment shall be legal tender for the
payment of public and private debts, an amount in cash which shall be sufficient
to pay the interest or principal or both, as the case may be, becoming due on
such date.
SECTION 319. Substitution of Currency.
------------------------
If the Federal Republic of Germany adopts the Euro, the regulations of
the European Commission relating to the Euro shall apply to the Notes and this
Indenture. The circumstances and consequences described in this paragraph
entitle neither the Company nor any Holder to early redemption, rescission,
notice, repudiation, adjustment or renegotiation of the terms and conditions of
the Notes or this Indenture or to raise other obligations of the Company under
the Notes and this Indenture.
<PAGE>
51
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Notes expressly
provided for herein or pursuant hereto) and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture when:
(1) either
(a) all of the Notes theretofore authenticated and delivered
(other than (i) destroyed, lost or stolen Notes which have been replaced or
paid as provided in Section 306 and (ii) Notes for whose payment money has
theretofore been deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee for cancellation; or
(b) all the Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee trust
funds in trust for such purpose an amount sufficient to pay and discharge
the entire Indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for Accreted Value of, premium, if any and
interest on the Notes to the date of such deposit (in the case of Notes
which have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
<PAGE>
52
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal of, premium, if
any, and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
<PAGE>
53
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days;
or
(2) default in the payment of the principal of or premium, if any, on
any Note at its Maturity; or
(3) default in the performance, or breach, of any covenant or agreement
of the Company in this Indenture (other than a default in the performance,
or breach, of a covenant or agreement which is specifically dealt with
elsewhere in this Section, default in the performance of or breach of the
provisions of the "Limitation on Sale of Assets" covenant (section 1017) or
of the provisions of Article Eight, or failure to make or consumate a
Change of Control Offer in accordance with the provisions of the "Purchase
of Notes upon a Change of Control" covenant (section 1010) ), and
continuance of such default or breach for a period of 30 days after there
has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount at maturity of the Outstanding Notes a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(4) (A) one or more defaults in the payment of principal of, premium,
if any, or interest on Indebtedness of the Company or any Restricted
Subsidiary aggregating $10.0 million or more (or, to the extent not
denominated in U.S. Dollars, the U.S. Dollar Equivalent thereof) when the
same becomes due and payable at the stated maturity thereof, and such
default or defaults shall have continued after any applicable grace period
and shall not have been cured or waived or (B) Indebtedness of the Company
or any Restricted Subsidiary aggregating $10.0 million or more (or, to the
extent not denominated in U.S. Dollars, the U.S. Dollar Equivalent thereof)
shall have been accelerated or otherwise declared due and payable, or
required to be prepaid or repurchased (other than by regularly scheduled
required prepayment), prior to the stated maturity thereof; or
(5) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Significant
<PAGE>
54
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $10.0 million (or, to
the extent not denominated in U.S. Dollars, the U.S. Dollar Equivalent
thereof) and either (i) an enforcement proceeding shall have been commenced
by any creditor upon such judgment or order or (ii) there shall have been a
period of 30 days during which a stay of enforcement of such judgment or
order, by reason of pending appeal or otherwise, was not in effect; or
(6) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the U.S. Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Significant Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 90 consecutive days; or
(7) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the U.S. Federal Bankruptcy Code or any other applicable
federal or state law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or any
Significant Subsidiary or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(6) or (7)) shall occur and be continuing, the Trustee or the Holders
of not less than 25% in aggregate principal amount at maturity of the Notes
Outstanding may declare the Accreted Value of, premium, if any, and accrued
interest on all of such Outstanding Notes immediately due and payable by a
notice in writing to the Company (and to the Trustee if such notice is given by
the Holders), and upon any such declaration all such amounts payable in respect
of the Notes shall become immediately due and payable. If an Event of Default
specified in Section 501(6) or (7) occurs and is continuing, then the Accreted
Value of, premium, if any, and accrued interest on all of the outstanding Notes
shall ipso facto become immediately due and payable without any declaration or
---- -----
other act on the part of the Trustee or any Holder of Notes.
<PAGE>
55
At any time after a declaration of acceleration has been made
hereunder, but before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter provided in this Article, the Holders of
a majority in aggregate principal amount at maturity of the Notes Outstanding,
by written notice to the Company and the Trustee, may rescind such declaration
and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid Accreted Value and premium, if any, on any
Outstanding Notes that have become due otherwise than by such declaration
of acceleration, and interest thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne by the
Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
Accreted Value of, premium, if any, or interest on the Notes that has
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513;
provided however, that no such rescission shall affect any subsequent default or
- - -------- -------
impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Notes because an Event of Default specified in
Section 501(4) has occurred and is continuing, such Event of Default and all
consequences thereof (including, without limitation, any acceleration or
resulting payment default) will be automatically annulled, waived and rescinded
if the Indebtedness that is the subject of such Event of Default has been
discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness or the default that is the basis
for such Event of Default has been cured and no other Event of Default has
occurred and has not been cured or waived.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- - -------
The Company covenants that if
<PAGE>
56
(a) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of or premium, if
any, on any Note at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Notes, the whole amount then due and payable on such
Notes for principal of, premium, if any, and interest, and interest on any
overdue principal and premium, if any and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Notes, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal, premium, if any, or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal of,
premium, if any, and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in
order to have
<PAGE>
57
the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding,
and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee upon
presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal, premium, if any, and interest,
respectively; and
<PAGE>
58
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- - --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Twelve) and in
such Note of the principal of, premium, if any, and (subject to Section 307)
interest on such Note on the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
<PAGE>
59
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided that
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
<PAGE>
60
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
at maturity of the Outstanding Notes may, on behalf of the Holders of all the
Notes, waive any past default hereunder, except a default
(1) in respect of the payment of the principal of, premium, if any, or
interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
<PAGE>
61
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
------------------
If a Default or an Event of Default occurs and is continuing and is
known to the Trustee, the Trustee shall mail notice of the Default or Event of
Default to each Holder within 30 days after the occurrence thereof; provided,
--------
however, that, except in the case of a Default or an Event of Default in the
- - -------
payment of the principal of, premium, if any, or interest on any Note, the
Trustee may withhold such notice if and so long as a committee of its trust
officers in good faith determines that the withholding of such notice is in the
interest of the Holders.
SECTION 602. Certain Rights of Trustee.
-------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
<PAGE>
62
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Notes.
- - -----
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 604. May Hold Notes.
--------------
The Trustee, any Paying Agent, any Registrar or any other agent of the
Company or of the Trustee, in its individual or any other capacity, may become
the owner or pledgee of Notes and, subject to TIA Sections 310(b) and 311, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Registrar or such other agent.
<PAGE>
63
SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 606. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of, premium, if any, or
interest on particular Notes.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(6) or (7), the expenses (including
the reasonable charges and expenses of its counsel) of and the compensation for
such services are intended to constitute expenses of administration under any
applicable Federal or State bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
<PAGE>
64
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital
and surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of Federal,
State, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee required
by Section 609 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of not
less than a majority in principal amount of the Outstanding Notes, delivered to
the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA Section
310(b) after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
<PAGE>
65
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Notes in the manner provided for in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
<PAGE>
66
SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- - --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
--------
however, that the right to adopt the certificate of authentication of any
- - -------
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
<PAGE>
67
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after June 15 of each year commencing with the first
June 15 after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such June 15 if required by TIA Section 313(a).
SECTION 703. Reports by Company.
------------------
The Company shall:
(1) file with the Trustee, within 15 days after the Company is required
to file the same with the Commission, copies of the annual reports and of
the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a note listed and registered on a national securities exchange
as may be prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
<PAGE>
68
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
<PAGE>
69
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets substantially as an entirety to any other Person or
Persons or permit any Restricted Subsidiary to enter into any such transaction
or series of related transactions, if such transaction or series of related
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis substantially as an entirety to any Person or Persons,
unless:
(1) at the time and immediately after giving effect thereto either (A)
the Company shall be the surviving corporation or (B) the Person (if other
than the Company) formed by such consolidation or into which the Company or
such Restricted Subsidiary is merged or the Person which acquires by sale,
conveyance, transfer, lease or other disposition, all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries
on a consolidated basis substantially as an entirety, as the case may be
(the "Surviving Entity"), (i) shall be a corporation organized and validly
existing under the laws of the United States of America, any state thereof
or the District of Columbia and (ii) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the Company's obligations for the due and
punctual payment of the principal of, premium, if any, on and interest on
all the Notes and the performance and observance of every covenant of this
Indenture on the part of the Company to be performed or observed;
(2) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any obligation of
--- -----
the Company or any Restricted Subsidiary incurred in connection with or as
a result of such transaction or series of transactions as having been
incurred at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing;
(3) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction
--- -----
or series of transactions occurred on the first day of the latest fiscal
quarter for which consolidated financial statements of the Company are
available immediately prior to the consummation of such transaction or
series of transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
---------
calculation), the Company (or the Surviving Entity if the Company is not
the continuing obligor under the Indenture) could incur at least $1.00 of
<PAGE>
70
additional Indebtedness (other than Permitted Indebtedness) under the
provisions of the "Limitation on Additional Indebtedness" covenant (Section
1011); and
(4) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the "Limitation of Liens" covenant (Section 1015) are
complied with.
In connection with any such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, the Company or the
Surviving Entity shall have delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, conveyance, transfer, lease or other disposition, and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with this Article and that all
conditions precedent herein provided for relating to such transaction have
been complied with.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company in accordance with Section 801 in which the Company is not
the continuing obligor under the Indenture, the Surviving Entity shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor had been
named as the Company herein. When a successor assumes all the obligations of
the Company hereunder, the Company (which term shall for this purpose mean the
Person named as the "Company" in the first paragraph of this Indenture) shall be
discharged of all obligations and covenants under this Indenture and the Notes
and may be dissolved and liquidated provided, however, that in the case of a
-------- -------
transfer by lease, the Company shall not be released from the payment of
principal and interest on the Notes.
SECTION 803. Notes to Be Secured in Certain Events.
-------------------------------------
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any conveyance, lease or transfer of
the property of the Company substantially as an entirety to any other Person,
any property or assets of the Company would thereupon become subject to any
Lien, then unless such Lien could be created pursuant to Section 1015 without
equally and ratably securing the Notes, the Company, prior to or simultaneously
with such consolidation, merger, conveyance, lease or transfer, will as to such
property or assets, secure the Notes Outstanding (together with, if the Company
shall so determine any other Indebtedness of the Company now existing or
hereinafter created which is not subordinate in right of payment to the Notes)
equally and ratably with (or prior to) the Indebtedness which upon such
consolidation, merger, conveyance, lease or transfer is to become secured as to
such property or assets by
<PAGE>
71
such Lien, or will cause such Notes to be so secured; provided that, for the
--------
purpose of providing such equal and ratable security, the principal amount of
the Notes shall mean that amount which would at the time of making such
effective provision be due and payable pursuant to Section 502 upon a
declaration of acceleration of the Maturity thereof, and the extent of such
equal and ratable note shall be adjusted, to the extent permitted by law, as and
when said amount changes over time as provided in Section 502.
<PAGE>
72
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company or any
other obligor on the Notes and the assumption by any such successor of the
covenants of the Company or such obligor contained herein and in the Notes
in accordance with Article Eight hereof; or
(2) to add to the covenants of the Company or any other obligor on the
Notes for the benefit of the Holders or to surrender any right or power
herein conferred upon the Company or any other Obligor on the Notes; or
(3) to cure any ambiguity, or to correct or supplement any provision
herein or in the Notes which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising hereunder or in the Notes; provided that such action
--------
shall not adversely affect the interests of the Holders; or
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification, if any, of this Indenture under the
Trust Indenture Act; or
(5) to add a guarantor of the Notes hereunder; or
(6) to evidence and provide acceptance of the appointment of a
successor Trustee hereunder; or
(7) to mortgage, pledge, hypothecate or grant a note interest in favor
of the Trustee for the benefit of the Holders as additional security for
the payment and performance of the Company's and any guarantor's
obligations hereunder, in any property or assets, including any of which
are required to be mortgaged, pledged or hypothecated, or in which a
security interest is required to be granted to the Trustee pursuant hereto
or otherwise; or
(8) to secure the Notes pursuant to the requirements of Section 803 or
otherwise.
<PAGE>
73
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
aggregate principal amount at maturity of the Outstanding Notes, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
- - -------- -------
consent of the Holder of each Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount or Accreted Value
thereof or premium, if any, or the rate of interest thereon or reduce the
amount of the principal of the Notes that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502
or the amount thereof provable in bankruptcy pursuant to Section 504, or
change the coin or currency in which the principal of any such Note or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date); or
(2) amend, change or modify the redemption provisions hereof or of the
Notes or the obligation of the Company to make and consummate an Excess
Proceeds Offer with respect to any Asset Sale in accordance with the
"Limitation on Sale of Assets" covenant (Section 1017) or the obligation of
the Company to make and consummate a Change of Control Offer in the event
of a Change of Control in accordance with the "Purchase of Notes upon a
Change of Control" covenant (Section 1010), including, in each case,
amending, changing or modifying any definition relating thereto, or
(3) reduce the percentage in principal amount at maturity of
Outstanding Notes the consent of whose Holders is required for any waiver
of compliance with certain provisions hereof, or
(4) modify any of the provisions relating to supplemental indentures
requiring the consent of Holders or relating to the waiver of past defaults
or relating to the waiver of certain covenants, except to increase the
percentage of Outstanding Notes required for such actions or to provide
that certain other provisions hereof cannot be modified or waived without
the consent of the Holder of each Note affected thereby, or
(5) except as otherwise permitted under Article Eight, consent to the
assignment or transfer by the Company of any of its rights or obligations
hereunder, or
<PAGE>
74
(6) amend or modify any of the provisions hereof relating to any
guarantee of the Notes in any manner adverse to the Holders of such Notes.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
<PAGE>
75
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that it
shall duly and punctually pay the principal of, premium, if any, and interest on
the Notes in accordance with the terms of the Notes and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the City of New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Corporate Trust Office of the Trustee shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company shall give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of the City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
-------- -------
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the City of New York for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
-------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of, premium, if any, or interest on
any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal of, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and shall promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it shall, on or before each due date of the principal of, premium, if
any, or interest on any
<PAGE>
76
Notes, deposit with a Paying Agent a sum sufficient to pay the principal,
premium, if any, or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal,
premium, if any, or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
- - -------- -------
to make any such repayment, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, the City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
<PAGE>
77
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
-------- -------
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- - -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company shall cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
-------- -------
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
---------
The Company shall at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
<PAGE>
78
SECTION 1008. Statement by Officers As to Default.
-----------------------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year and within 30 days after the end of each fiscal
quarter, a statement from the principal executive officer, principal financial
officer or principal accounting officer as to his or her knowledge of the
performance by the Company of its obligations under this Indenture and as to any
default in such performance. For purposes of this Section 1008(a), such
performance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Restricted Subsidiary gives any notice or
takes any other action with respect to a claimed default (other than with
respect to Indebtedness in the principal amount of less than $10.0 million), the
Company shall deliver to the Trustee by registered or certified mail or by
telegram, telex or facsimile transmission an officers' certificate specifying
such event, notice or other action within five Business Days of its occurrence.
SECTION 1009. Provision of Financial Statements and Reports.
---------------------------------------------
Whether or not the Company is required to file reports with the
Commission, the Company shall file on a timely basis with the Commission, the
annual reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company shall also be required (a) to file with the Trustee, and provide to each
Holder, without cost to such holder, copies of such reports and documents within
15 days after the date on which such reports and documents are filed with the
Commission or the date on which the Company would be required to file such
reports and documents if the Company were so required, and (b) if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, to supply at the Company's cost copies of
such reports and documents to any prospective holder of Notes promptly upon
written request.
SECTION 1010. Purchase of Notes upon Change of Control.
----------------------------------------
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require that the Company repurchase such Holder's Notes in
whole or in part in integral multiples of DM 1,000 principal amount at maturity,
at a purchase price (the "Change of Control Purchase Price") in cash in an
amount equal to 101% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below (the "Change of Control Offer") in
accordance with the procedures set forth in paragraphs (b) and (c) of this
Section.
(b) Within 15 days following any Change of Control, the Company
shall notify the Trustee and give to each Holder of the Notes in the manner
provided in Section 106 a notice stating:
<PAGE>
79
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to repurchase such Holder's Notes at the
Change of Control Purchase Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro forma
--- -----
historical income, cash flow and capitalization after giving effect to such
Change of Control);
(3) the purchase date (the "Change of Control Purchase Date") which
shall be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed or such later date as is necessary to comply
with requirements under the Exchange Act or any applicable securities laws
or regulations;
(4) that any Note not tendered shall continue to accrue interest or
original issue discount, as the case may be;
(5) that, unless the Company defaults in payment of the purchase
price, any Notes accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest or original issue discount, as the
case may be, after the Change of Control Purchase Date; and
(6) the instructions a Holder must follow in order to have its
Notes repurchased in accordance with paragraph (c) of this Section.
(c) Holders electing to have Notes purchased will be required to
surrender such Notes to the Company at the address specified in the notice at
least five Business Days prior to the Change of Control Purchase Date. Holders
will be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes delivered for purchase by the Holder
as to which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Notes purchased. Holders whose Notes are
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered.
SECTION 1011. Limitation on Additional Indebtedness.
-------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to Incur any Indebtedness (including any Acquired Indebtedness), except for
Permitted Indebtedness; provided that the Company shall be permitted to Incur
--------
Indebtedness if after giving pro forma effect to such Incurrence (including the
--- -----
application of the net proceeds therefrom), the ratio of (x) Total Consolidated
Indebtedness outstanding as of the date of such Incurrence to (y) Annualized Pro
Forma Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available preceding the
date of such Incurrence would be greater than zero and less than or equal to
<PAGE>
80
(i) 6.0 to 1 if the Indebtedness is Incurred prior to December 31, 1999 or (ii)
5.0 to 1 if the Indebtedness is Incurred on or after December 31, 1999.
In making the foregoing calculation, pro forma effect shall be given
--- -----
to: (i) the Incurrence of such Indebtedness and (if applicable) the application
of the net proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was Incurred, and the application of such proceeds occurred,
on the first day of the latest fiscal quarter for which consolidated financial
statements of the Company are available immediately preceding the date of the
Incurrence of such Indebtedness, (ii) the Incurrence, repayment or retirement of
any other Indebtedness by the Company and its Restricted Subsidiaries since the
first day of such fiscal quarter as if such Indebtedness were Incurred, repaid
or retired on the first day of such fiscal quarter (except that, in making such
calculation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such fiscal quarter) and (iii) the acquisition (whether by purchase,
merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any company, entity or business acquired or disposed of by the Company or its
Restricted Subsidiaries, as the case may be, since the first day of such fiscal
quarter, as if such acquisition or disposition occurred on the first day of such
fiscal quarter.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness or any portion thereof meets the criteria of more
than one of the types of Indebtedness the Company or any Restricted Subsidiary
is permitted to Incur, the Company shall have the right, in its sole discretion,
to classify such item of Indebtedness or portion thereof at the time of the
Incurrence and shall only be required to include the amount and type of such
Indebtedness or portion thereof under the clause permitting the Indebtedness so
classified.
SECTION 1012. Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take any of the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company (other than dividends
or distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire such shares of Qualified Capital
Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of the Company or any
Capital Stock of any Affiliate of the Company (other than Capital Stock of any
Wholly Owned Restricted Subsidiary) or any options, warrants or other rights to
acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any scheduled
principal payment, sinking fund
<PAGE>
81
payment or maturity, any Subordinated Indebtedness (other than any Subordinated
Indebtedness owed to and held by a Restricted Subsidiary);
(iv) make any Investment (other than any Permitted Investment and
subject to the provisions of the "Limitation on Investments in Unrestricted
Subsidiaries" covenant (Section 1020));
(v) create or assume any guarantee of Indebtedness of any Affiliate
of the Company (other than (i) guarantees of any Indebtedness of any Wholly
Owned Restricted Subsidiary by the Company or any Restricted Subsidiary or (ii)
the guarantees of the Notes by any Restricted Subsidiary); or
(vi) declare or pay any dividend or distribution on any Capital
Stock of any Restricted Subsidiary to any Person (other than the Company or any
of its Wholly Owned Restricted Subsidiaries or to all holders of Capital Stock
of such Restricted Subsidiary on a pro rata basis);
(such payments or other actions described in (but not excluded from) clauses (i)
through (vi) are collectively referred to as "Restricted Payments"), unless: (1)
no Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such Restricted Payment; (2) immediately after
giving effect to such Restricted Payment, the Company could incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant (Section 1011); and (3)
immediately after giving effect to such Restricted Payment, the aggregate amount
of all Restricted Payments declared or made on or after the date of the
Indenture would not exceed an amount equal to the sum of:
(A) 50% of cumulative Consolidated Adjusted Net Income (or, if the
Consolidated Adjusted Net Income is a deficit, minus 100% of the amount of such
deficit) of the Company during the period (taken as a single accounting period)
beginning on the first day of the fiscal quarter of the Company beginning after
the date of the Indenture and ending on the last day of the last full fiscal
quarter immediately preceding the date of such Restricted Payment for which
quarterly or annual consolidated financial statements of the Company are
available; plus
(B) the aggregate Net Cash Proceeds received by the Company on or
after the date of the Indenture as capital contributions or from the issuance or
sale (other than to any Subsidiary) of shares of Qualified Capital Stock of the
Company (including upon the exercise of options, warrants or rights) or
warrants, options or rights to purchase shares of Qualified Capital Stock of the
Company; plus
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any
Subsidiary) of debt notes or Redeemable Capital Stock that have been converted
into or exchanged for Qualified
<PAGE>
82
Capital Stock of the Company, together with the aggregate net cash proceeds
received by the Company at the time of such conversion or exchange; plus
(D) to the extent not otherwise included in the Consolidated
Adjusted Net Income of the Company, an amount equal to the sum of (i) the net
reduction in Investments in any Person (other than Permitted Investments)
resulting from the payment in cash of dividends, repayments of loans or advances
or other transfers of assets, in each case to the Company or any Restricted
Subsidiary after the date of the Indenture from such Person and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
--------
however, that in the case of (i) or (ii) above the foregoing sum shall not
- - -------
exceed the amount of Investments previously made (and treated as a Restricted
Payment) by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
(b) Notwithstanding paragraph (a) above, the Company and any
Restricted Subsidiary may take the following actions so long as (with respect to
clauses (ii), (iii), (iv), (v) and (vi) below) no Default or Event of Default
shall have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such dividend would have
complied with the provisions of paragraph (a) above and such payment shall be
deemed to have been paid on such date of declaration for purposes of the
calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance and sale (other
than to a Subsidiary) of, shares of Qualified Capital Stock of the Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for or out of
the net cash proceeds of a substantially concurrent issuance and sale (other
than to a Subsidiary) of shares of Qualified Capital Stock of the Company;
(iv) the purchase of any Subordinated Indebtedness at a purchase
price not greater than 101% of the principal amount thereof, together with
accrued interest, if any, thereof in the event of a Change of Control in
accordance with provisions similar to the "Purchase of Notes upon a Change of
Control" covenant (Section 1010); provided that prior to such purchase the
--------
Company has made the Change of Control Offer as provided in such covenant with
respect to the Notes and has purchased all Notes validly tendered for payment in
connection with such Change of Control Offer;
<PAGE>
83
(v) Investments constituting Restricted Payments made as the result
of the receipt of non-cash consideration from any Asset Sale made in compliance
with the "Limitation on Sale of Assets" covenant (Section 1017); and
(vi) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out of the
net cash proceeds of a substantially concurrent incurrence (other than to a
Subsidiary) of, new Subordinated Indebtedness so long as (A) the principal
amount of such new Subordinated Indebtedness does not exceed the principal
amount (or, if such Subordinated Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) of the Subordinated Indebtedness being so purchased, redeemed,
defeased, acquired or retired, plus the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms of
such Subordinated Indebtedness being refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing, (B) such new Subordinated
Indebtedness is subordinated to the Notes to the same extent as such
Subordinated Indebtedness so purchased, redeemed, defeased, acquired or retired
and (C) such new Subordinated Indebtedness has an Average Life longer than the
Average Life of the Notes and a final Stated Maturity of principal later than
the final Stated Maturity of principal of the Notes.
The actions described in clauses (i), (ii), (iii) and (iv) of this paragraph (b)
shall be Restricted Payments that shall be permitted to be taken in accordance
with this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (3) of paragraph (a) and the
actions described in clauses (v) and (vi) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
paragraph (b) and shall not reduce the amount that would otherwise be available
for Restricted Payments under clause (3) of paragraph (a) above.
SECTION 1013. Limitation on Issuances and Sales of Capital Stock of
-----------------------------------------------------
Restricted Subsidiaries.
- - -----------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, issue or sell any Capital Stock of a Restricted Subsidiary (other than to
the Company or a Wholly Owned Restricted Subsidiary) other than Permitted
Capital Stock Sales; provided, however, that this covenant shall not prohibit
-------- -------
(i) the ownership by directors of directors' qualifying shares or the ownership
by foreign nationals of Capital Stock of any Restricted Subsidiary, to the
extent mandated by applicable law, (ii) the issuance and sale of all, but not
less than all, of the issued and outstanding Capital Stock of any Restricted
Subsidiary owned by the Company or any Restricted Subsidiary in compliance with
the "Limitation on Sale of Assets" covenant (Section 1017).
<PAGE>
84
SECTION 1014. Limitation on Transactions with Affiliates.
------------------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to enter into or suffer to exist, directly or indirectly, any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with, or
for the benefit of, any Affiliate of the Company or any Restricted Subsidiary
unless (i) such transaction or series of related transactions are on terms that
are no less favorable to the Company, or such Restricted Subsidiary, as the case
may be, than those that could have been obtained in an arm's-length transaction
with unrelated third parties who are not Affiliates, (ii) with respect to any
transaction or series of related transactions involving aggregate consideration
equal to or greater than $1.0 million (or to the extent not denominated in U.S.
Dollars, the U.S. Dollar Equivalent thereof), the Company shall deliver an
officers' certificate to the Trustee certifying that such transaction or series
of related transactions complies with clause (i) above; (iii) with respect to
any transaction or series of related transactions involving aggregate
consideration equal to or greater than $5.0 million (or, to the extent not
denominated in U.S. Dollars, the U.S. Dollar Equivalent thereof), the Company
shall deliver an officers' certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above and
has been approved by a majority of the Disinterested Directors of the Board of
Directors of the Company, or the Company shall deliver to the Trustee a written
opinion from an internationally recognized investment banking firm to the effect
that such transaction or series of related transactions is fair to the Company
or such Restricted Subsidiary, as the case may be, from a financial point of
view and (iv) with respect to any transaction or series of related transactions
involving aggregate consideration equal to or greater than $10.0 million (or to
the extent not denominated in U.S. Dollars, the U.S. Dollar Equivalent thereof),
the Company shall deliver to the Trustee a written opinion from an
internationally recognized investment banking firm to the effect that such
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view;
provided, however, that this provision shall not restrict (1) any transaction or
- - -------- -------
series of related transactions among the Company and Restricted Subsidiaries or
among Restricted Subsidiaries, (2) Investments in Qualified Capital Stock of the
Company by any Person, including an Affiliate of the Company, (3) the Company
from paying reasonable and customary regular compensation and fees to directors
of the Company or any Restricted Subsidiary who are not executives of any such
Persons, (4) the Company or any Subsidiary from making any Restricted Payment in
compliance with the "Limitation on Restricted Payments" covenant (Section 1012),
(5) any transaction by the Company or any Restricted Subsidiary with a supplier,
vendor or lessor of goods or services in the ordinary course of business, (6)
any compensation payable under any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business, or (7) transactions that do not constitute Restricted Payments by
virtue of exceptions set forth in the definition of "Permitted Investments".
<PAGE>
85
SECTION 1015. Limitation on Liens.
-------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on or with respect to any of its property or
assets, including any shares of stock or indebtedness of any Restricted
Subsidiary, whether owned at the date of the Indenture or thereafter acquired,
or any income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon, unless (x) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (y) in the case
of any other Lien, the Notes are equally and ratably secured with the obligation
or liability secured by such Lien.
SECTION 1016. Limitation on Issuances of Guarantees of Indebtedness
-----------------------------------------------------
by Restricted Subsidiaries.
- - --------------------------
(a) The Company shall not permit any Restricted Subsidiary, directly
or indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless (i) (A) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for the guarantee of payment of the Notes by such Restricted
Subsidiary and (B) with respect to any guarantee of Subordinated Indebtedness of
the Company by a Restricted Subsidiary, any such guarantee shall be subordinated
to such Restricted Subsidiary's guarantee with respect to the relevant Notes at
least to the same extent as such Subordinated Indebtedness is subordinated to
the Notes and (ii) such Restricted Subsidiary waives and shall not in any manner
whatsoever claim or take the benefit or advantage of, any rights or
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its guarantee until the relevant Notes have been paid in full;
provided that this paragraph (a) shall not be applicable to (x) any guarantee of
- - --------
any Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary or (y) any guarantee of any Restricted Subsidiary of
Indebtedness incurred pursuant to a Bank Facility.
(b) Notwithstanding the foregoing, any guarantee of the Notes created
pursuant to the provisions described in the foregoing paragraph (a) shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person who is not
an Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release by
the holders of the Indebtedness of the Company described in the preceding
paragraph of their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness, except
by or as a result of payment under such guarantee), at a time when (A) no other
Indebtedness of the Company has been guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is guaranteed by such
Restricted Subsidiary also release their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all
<PAGE>
86
obligations under such Indebtedness, except by or as a result of payment under
such guarantee).
SECTION 1017. Limitation on Sale of Assets.
----------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the shares or assets sold
(as determined by the Board of Directors of the Company, whose determination
shall be conclusive and evidenced by a Board Resolution) and (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 85% cash or Cash Equivalents.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may use the Net Cash Proceeds thereof, within 12 months after
such Asset Sale, to (i) permanently repay or prepay any then outstanding
unsubordinated Indebtedness of the Company or Indebtedness of any Restricted
Subsidiary or (ii) invest (or enter into a legally binding agreement to invest)
in ATM Network Assets or in properties or assets to replace the properties and
assets that were the subject of the Asset Sale. If any such legally binding
agreement to invest such Net Cash Proceeds is terminated, then the Company may,
within 90 days of such termination or within 12 months of such Asset Sale,
whichever is later, apply or invest such Net Cash Proceeds as provided in clause
(i) or (ii) (without regard to the parenthetical contained in such clause (ii))
above. The amount of such Net Cash Proceeds not so used as set forth above in
this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10.0
million (or, to the extent not denominated in U.S. Dollars, the U.S. Dollar
Equivalent thereof) the Company shall, within 15 business days, make an offer to
purchase (an "Excess Proceeds Offer") from all holders of Notes, on a pro rata
--- ----
basis, in accordance with the procedures set forth below, the maximum Accreted
Value of Notes (expressed as a multiple of DM 1,000) that may be purchased with
the Excess Proceeds. The offer price as to each Note shall be payable in cash in
an amount equal to 100% of the Accreted Value of such Note as of the date of
purchase plus, in each case, accrued interest, if any (the "Offered Price") to
the date an Excess Proceeds Offer is consummated. To the extent that the
aggregate Offered Price of Notes tendered pursuant to an Excess Proceeds Offer
is less than the Excess Proceeds, the Company may use such deficiency for
general corporate purposes. If the aggregate Offered Price of Notes validly
tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes
to be purchased shall be selected on a pro rata basis. Upon completion of such
--- ----
offer to purchase, the amount of Excess Proceeds shall be reset to zero.
SECTION 1018. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into any Sale and Leaseback Transaction (other
than a
<PAGE>
87
transaction that is solely between the Company and any Wholly Owned Restricted
Subsidiary or solely between Wholly Owned Restricted Subsidiaries) after the
Issue Date with respect to any property or assets (whether now owned or
hereafter acquired), unless (i) the sale or transfer of such property or assets
to be leased is treated as an Asset Sale and the Company complies with the
"Limitation on Sale of Assets" covenant (Section 1017), (ii) the Company or such
Restricted Subsidiary would be permitted to incur Indebtedness under the
"Limitation on Additional Indebtedness" covenant (Section 1011) (including
Permitted Indebtedness) in the amount of the Attributable Value of such Sale and
Leaseback Transaction and (iii) the Company or such Restricted Subsidiary would
be permitted to grant a Lien under the "Limitation on Liens" covenant (Section
1015) (including Permitted Liens) to secure the amount of the Attributable Value
of such Sale and Leaseback Transaction.
SECTION 1019. Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Restricted Subsidiaries.
- - ---------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction of any kind on the ability of
any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
Investments in the Company or any other Restricted Subsidiary, (d) transfer any
of its properties or assets to the Company or any other Restricted Subsidiary or
(e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) any agreement in effect on the date of the Indenture and listed on
or of a type described in a schedule attached to the Indenture, (ii) applicable
law, (iii) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary, (iv) any
agreement or other instrument of a Person acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, (v) the
refinancing of Indebtedness incurred under the agreements listed on or of type
described in a schedule attached to the Indenture, so long as such encumbrances
or restrictions are no less favorable to the Company or any Restricted
Subsidiary than those contained in the respective agreement as in effect on the
date of the Indenture, (vi) pursuant to the Indenture or the Notes, (vii) any
Bank Facility if such encumbrance or restriction applies only (x) to amounts
which at any point in time (other than during such periods as are described in
clause (y)) (1) exceed amounts due and payable (or which are to become due and
payable within 30 days) in respect of the Notes or the Indenture for interest,
premium and principal (after giving effect to any realization by the Company
under any applicable Currency Agreement), or (2) if paid, would result in an
event described in the following clause (y) of this sentence, or (y) during the
pendency of any event that causes, permits or, after notice or lapse of time,
would cause or permit the holder(s) of the Indebtedness governed by such
agreement or instrument to declare any such Indebtedness to be immediately due
and payable or require cash collateralization or cash cover for such
<PAGE>
88
Indebtedness for so long as such cash collateralization or cash cover has not
been provided, or (viii) any arrangement arising or agreed to in the ordinary
course of business, not relating to any Indebtedness that does not individually,
or together with all such encumbrances or restrictions, detract from the value
of property or assets of the Company or any Restricted Subsidiary in any manner
material to the Company or any Restricted Subsidiary.
SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries.
------------------------------------------------------
The Company shall not make, and shall not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to the "Limitation on
Restricted Payments" covenant (Section 1012) (calculated as if no prior
Investments in Unrestricted Subsidiaries had been made by the Company or any
Restricted Subsidiary). Any Investments in Unrestricted Subsidiaries permitted
to be made pursuant to this covenant (i) shall be treated as the making of a
Restricted Payment in calculating the amount of Restricted Payments made by the
Company or a Restricted Subsidiary, without duplication, under the provisions of
clause (iv) of paragraph (a) of the "Limitations on Restricted Payments"
covenant (Section 1012) and (ii) may be made in cash or property (if made in
property, the fair market value thereof as determined by the Board of Directors
of the Company (whose determination shall be conclusive and evidenced by a Board
Resolution) shall be deemed to be the amount of such Investment for the purpose
of clause (i)).
SECTION 1021. Business of the Company
-----------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any business other than an ATM Network Business.
SECTION 1022. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1021, inclusive, if before or after the time for such compliance the Holders of
at least a majority in principal amount of the Outstanding Notes, by Act of such
Holders, waive such compliance in such instance with such term, provision or
condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
<PAGE>
89
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
-------------------
The Notes may be redeemed at the election of the Company, in whole at
any time or from time to time in part, on or after ., 2002, subject to the
conditions and at the Redemption Prices specified in the form of Note, together
with accrued interest to the Redemption Date.
At any time or from time to time prior to ., 2001 the Company may
redeem within 60 days of one or more Equity Offerings up to 33 1/3% of the
aggregate principal amount at maturity of the originally issued Notes with all
or a portion of the net proceeds of such offering, at a redemption price equal
to .% of the Accreted Value thereof as of the Redemption Date, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of holders of record on relevant record dates to receive interest due on
relevant Interest Payment Dates); provided that immediately after giving effect
--------
to any such redemption, at least 66 2/3% aggregate principal amount at maturity
of the originally issued Notes remains outstanding.
In addition, (i) upon the occurrence of a Change of Control, each
holder of Notes shall have the right to require that the Company purchase such
Holder's Notes, in whole or in part and in integral multiples of DM 1,000
principal amount at maturity, at a purchase price of 101% of the Accreted Value
thereof of the Notes, together with accrued and unpaid interest, if any, to the
date of redemption, and (ii) upon the occurrence of an Asset Sale, the Company
may be obligated to make an offer to purchase all or a portion of the
outstanding Notes at a price of 100% of the Accreted Value thereof, together
with accrued and unpaid interest, if any, to the date of purchase (subject to
the right of holders of record on relevant record dates to receive interest due
on relevant Interest Payment Dates).
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall
<PAGE>
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deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Notes to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
in compliance with any applicable rules of the Luxembourg Stock Exchange or the
principal U.S. securities exchange, if any, on which the Notes are listed or, if
the Notes are not listed on the Luxembourg Stock Exchange or a U.S. securities
exchange or if there are no applicable rules, on a pro rata basis, by lot or by
--- ----
such other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of Notes;
provided, however, that no note of DM 1,000 in principal amount at maturity or
- - -------- -------
less will be redeemed in part.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 at least 30 but not more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon
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91
surrender of such Note, the holder will receive, without charge, a new Note
or Notes of authorized denominations for the principal amount thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date,
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) cash
interest, or original issue discount, as the case may be, will cease to accrue
on such Notes or the portions thereof called for redemption and accepted for
payment. Upon surrender of any such Note for redemption in accordance with said
notice, such Note shall be paid by the Company at the Redemption Price, together
with accrued interest, if any, to the Redemption Date; provided, however, that
-------- -------
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes, or one or more Predecessor
Notes, registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
<PAGE>
92
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part pursuant to the
provisions of this Article shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed by
the Holder thereof or such Holder's attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered.
<PAGE>
93
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- - ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 1202 or Section 1203 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Twelve.
SECTION 1202. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes on the
date the conditions set forth in Section 1204 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by the
Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for
the purposes of Section 1205 and the other Sections of this Indenture referred
to in (A) and (B) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
Outstanding Notes to receive, solely from the trust fund described in Section
1204 and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (B) the Company's obligations with respect to such Notes under Sections
304, 306, 311, 1002 and 1003, (C) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and (D) this Article Twelve. Subject to
compliance with this Article Twelve, the Company may exercise its option under
this Section 1202 notwithstanding the prior exercise of its option under Section
1203 with respect to the Notes.
SECTION 1203. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company shall be released from its
obligations under any covenant contained in Section 801(2), 801(3) and Section
803 and in Sections 1007 through 1022 with respect to the Outstanding Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Notes shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Notes, the
<PAGE>
94
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 501(3), but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby.
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1202 or Section 1203 to the Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Twelve applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, cash in
Deutsche Marks or U.S. Dollars, or a combination thereof, in such amounts
as will be sufficient, in the opinion of an internationally recognized firm
of independent public accountants or an internationally recognized
investment banking firm, expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of, premium, if any, and interest on the Outstanding Notes on the
Stated Maturity (or Redemption Date, if applicable) of such principal,
premium, if any, or installment of interest. Before such a deposit, the
Company may give to the Trustee, in accordance with Section 1103 hereof, a
notice of its election to redeem all of the Outstanding Notes at a future
date in accordance with Article Eleven hereof, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given
effect in applying the foregoing.
(2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (6) and (7) of Section 501 hereof are concerned, at any time
during the period ending on the first day following the date that is six
months after such deposit (it being understood that this condition shall
not be deemed satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
<PAGE>
95
(4) In the case of an election under Section 1202, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
stating that (x) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling, or (y) since [date of final
prospectus], there has been a change in the applicable U.S. federal income
tax law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the Outstanding Notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of
such defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred.
(5) In the case of an election under Section 1203, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such covenant
defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an Opinion of
Counsel in the United States to the effect that after the first day
following six months after the date of such deposit or after the date such
opinion is delivered, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Notes over the other creditors of
the Company with the intent of hindering, delaying or defrauding creditors
of the Company.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1202
or the covenant defeasance under Section 1203 (as the case may be) have
been complied with.
SECTION 1205. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- - ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
cash deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the Outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal
<PAGE>
96
(and premium, if any) and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money held by it as provided in Section 1204 which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent defeasance or covenant defeasance, as applicable, in accordance with
this Article.
SECTION 1206. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1202 or 1203, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1205; provided, however, that if the Company makes any payment of principal of
-------- -------
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
<PAGE>
97
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
EURONET SERVICES INC.
[SEAL] By
-----------------------------------
Title:
Attest:
---------------------
Title:
STATE STREET BANK AND TRUST
COMPANY
[SEAL] By
-----------------------------------
Title:
Attest:
---------------------
Title:
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ARENT FOX KINTNER PLOTKIN & KAHN, PLLC APPEARS HERE]
May __, 1998
Euronet Services Inc.
H-1027 Budapest
Horvat u. 14-24
Hungary
Gentlemen:
In connection with the proposed public offering of DM 182,485,000
(approximately US$100 million) in principal amount of Senior Discount Notes due
2006 (the "Senior Notes") of Euronet Services Inc. (the "Company") pursuant to
Registration Statement No. 333-48309 filed with the Securities and Exchange
Commission on March 20, 1998, we, as counsel for the Company, have examined such
corporate documents, certificates and other documents, and such questions of law
as we consider necessary and appropriate for purposes of this opinion.
On the basis of such examination, we advise you that, in our opinion, the
Senior Notes, when sold and issued as contemplated by the Registration Statement
and in accordance with the terms and provisions of the Indenture filed as a
exhibit thereto, will be binding obligations of the Company in accordance with
their terms.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our Firm under the caption "Legal
Matters" in the Prospectus forming a part of such Registration Statement.
Very truly yours,
ARENT FOX KINTNER PLOTKIN & KAHN, PLLC
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
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 Data" and "Experts" in the prospectus.
KPMG Polska Sp. z o.o.
Warsaw, Poland
May 6, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF COUNSEL
The Board of Directors
Euronet Services Inc.:
We consent to the reference to our firm under the heading "Legal Matters."
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.
Arent Fox Kintner Plotkin & Kahn,
PLLC
Washington, D.C.
May 6, 1998
