1
AS SUBMITTED TOFILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1996MARCH , 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WashingtonWASHINGTON D.C. 20549
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FORM S-1
Registration Statement Under
The Securities Act ofREGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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EURONET SERVICES INC.
(Exact Name of Registrant as Specified in its Charter)(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6099 74-2806888
DELAWARE 6099 APPLIED FOR
(State or Other Jurisdiction of (PrimaryPrimary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
ZSIGMOND TER 10
H-1023 Budapest
Hungary
011-361-335-1224
(Address and telephone number of Registrant's principal executive offices)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 YorkBROADWAY
NEW YORK, NEW YORK 10019
(212) 664-7666
(Name, address and telephone number of agent for service)
------------------------------------(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES M. BARTOS, ESQ. CARTER STRONG, ESQ.
Shearman & Sterling Arent Fox Kintner Plotkin & Kahn
199 Bishopsgate 1050 Connecticut Avenue, N.W.
London EC2M 3TY England Washington,ARNOLD R. WESTERMAN, ESQ. JAMES M. BARTOS, ESQ.
ARENT FOX KINTNER PLOTKIN & KAHN, SHEARMAN & STERLING
PLLC 199 BISHOPSGATE
1050 CONNECTICUT AVENUE, N.W. LONDON EC2M 3TY ENGLAND
WASHINGTON, D.C. 20036
------------------------------------
Approximate date of commencement of proposed sale to the public:----------------
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. [ ]
------------------------------------[_]
CALCULATION OF REGISTRATION FEE
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- ---------------------------------------------------------------------------------------------------------------------------------PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OFOFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)REGISTERED PER SHARE(2) OFFERING PRICE(2) REGISTRATIONUNIT PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per share........ 6,095,000 $14 $85,330,000 $25,857.58% Senior Discount Notes Due
2006 $100,000,000 $1,000 $100,000,000 $29,500
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(1) Includes an additional 795,000 shares of Common Stock which the Underwriters
(as defined in the Prospectus included herein) have the option to purchase
pursuant to a 30-day over-allotment option. The amount of shares of Common
Stock registered also includes any shares initially offered or sold outside
the United States that are thereafter sold or resold in the United States.
Offers and sales of shares outside the United States are being made pursuant
to Regulation S and are not covered by this Registration Statement.
(2) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for purposesthe purpose of computing the amount ofcalculating the registration fee.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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2
INFORMATION++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION+
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES+
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS+
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE+
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES+
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL+
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY+
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED , 1997,1998
PROSPECTUS
DM 182,485,000 GROSS PROCEEDS
[LOGO OF EURONET [LOGO]
5,300,000 SHARES
COMMON STOCK
------------------------
Of the sharesAPPEARS HERE]
EURONET SERVICES INC.
. % SENIOR DISCOUNT NOTES DUE 2006
-----------
The % Senior Discount Notes due 2006 (the "Shares""Notes") of Common Stock (the "Common Stock")are being offered in the Offering, 3,088,028 shares are being offered(the
"Offering") hereby by Euronet Services Inc. ("Euronet" or(the "Issuer"). The Notes will be
issued to generate gross proceeds to the "Company")Issuer of approximately DM 182,485,000
and 2,211,972 Shares are being offered by
certain shareholderswill 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 Company (the "Selling Shareholders"). See "PrincipalIssuer, in whole or in
part, at any time after , 2002 at the redemption prices set forth herein,
together with accrued and Selling Shareholders". The Company will not receiveunpaid interest, if any, to the date of the
proceedsredemption. In addition, at any time or from time to time prior to , 2001,
the saleIssuer may redeem up to 33 1/3% of the Shares byaggregate principal amount at
maturity of the Selling Shareholders. Aoriginally 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 Shares
offered hereby are being offeredAccreted 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 December 31, 1997, after giving pro forma effect to the
Offering and the application of the net proceeds therefrom, the Issuer would
have had approximately $103.1 million of indebtedness of which approximately
$3.1 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
December 31, 1997, 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 $10.0 million.
The Notes sold outside the United States.
PriorStates will be represented by a single,
permanent global certificate 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 global registered Notes
deposited with a custodian for, and registered in the Offering, therename of, The Depositary
Trust Company ("DTC") or its nominee. See "Description of the Notes--Book
Entry; Delivery and Form."
Application has been no public market for the Shares. It
is currently expected that the initial public offering price per share in the
Offering will be between $12 and $14. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH THE OFFERING.
------------------------
Application will be made to havelist the Notes on the Luxembourg Stock Exchange.
The Issuer's Common Stock listedtrades on the Nasdaq National Market under the symbol
"EEFT".
------------------------, and as of March , 1998 the Issuer had an equity market
capitalization of $ 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.PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDSPRINCIPAL
AMOUNT OF
NOTES AT PRICE TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
THE SELLING
OFFERING PRICE DISCOUNT(1) THE COMPANY(2) SHAREHOLDERS(2)
-------------- ----------------- ----------------- --------------MATURITY PUBLIC (1) DISCOUNT (2) ISSUER (1)(3)
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Per share...................... $ $ $ $
Total(3)....................... $ $ $ $Note....................... % % % %
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Total.......................... DM DM DM DM
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(1) Plus accrued original issue discount, if any, on the Notes from , 1998.
(2) The Company and the Selling Shareholders haveIssuer has agreed to indemnify the Underwriters (as defined in "Underwriting")herein)
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.Act. See "Underwriting".
(2)(3) Before deducting estimated expenses of $ , of which $ and
$ are payable by the Issuer estimated at approximately
$ . The Underwriters have agreed to reimburse the Company andfor a portion
of the Selling Shareholders,
respectively,expenses incurred in connection with the Offering. See
"Underwriting".
(3)"Underwriting."
-----------
The Company has granted to the Underwriters an option exercisable for 30
days from the date of this Prospectus to purchase, or procure purchasers
for, up to an additional 795,000 Shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If such option is exercised in full, the
total initial public offering price, underwriting discount and proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting".
------------------------
The SharesNotes are being offered hereby are offered severally by the Underwriters, as
specified herein, subject to receiptprior sale, when,
as and acceptanceif issued to and accepted by themthe Underwriters, and subject to theirapproval
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 any orderoffers in whole or in part. It is expected that
delivery of the SharesNotes offered hereby will be made at the offices of ING Baring (U.S.)
Securities, Inc.,in New York on or about ,
1997.
------------------------
ING BARINGS
------------------------1998.
-----------
MERRILL LYNCH CAPITAL MARKETS BANK LIMITED___________________MERRILL LYNCH & CO.
FRANKFURT/MAIN BRANCH
-----------
The date of this Prospectus is , 19971998.
3
No action has been or will be taken in any jurisdiction by the Company, the
Selling Shareholders or by any Underwriter that would permit a public offering
of the Shares or possession or distribution of a prospectus in any jurisdiction
where action for that purpose is required, other than in the United States.
Persons into whose possession this Prospectus comes are advised by the Company,
the Selling Shareholders and the Underwriters to inform themselves about, and to
observe any restrictions as to, the offering of the Shares and the distribution
of this Prospectus.
Offers and sales of shares of Common Stock outside the United States are
being made pursuant to Regulation S and such shares are not being registered
under the U.S. Securities Act of 1933, as amended (the "Securities Act") for the
purpose of sales outside the United States. A registration statement under the
Securities Act is in effect for offers and sales in the United States of shares
of Common Stock that were initially offered or sold outside the United States.
------------------------
The Euronet logo is a trademark of the Company. Except as otherwise
specified, all information in this Prospectus assumes that the Underwriter's
over-allotment option is not exercised.
------------------------
Unless the context otherwise indicates, references herein to Euronet or the
Company include Euronet Services Inc. and its subsidiaries and their respective
predecessor companies. References to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") a registration statement (herein, together with all amendments,
exhibits and schedules thereto, referred to as the "Registration Statement")
under the Securities Act, with respect to the securities offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Shares,Notes,
reference is hereby made to the Registration Statement.
Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, in each instance, referenceThe Company is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
As a result of the Offering, the Company will become subject to the reporting requirements of the U.S. Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, will filefiles reports and other information with the Commission. The
Registration Statement, including the exhibits and schedules thereto, and reports and other
information filed by the Company with the Commission can be inspected without
charge and copied, upon payment of prescribed rates, at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at 7 World Trade Center, 13th Floor, New York, New York 10048 and the
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material and any part thereof will also be
available by mail from the Public Reference Section of the Commission, at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
------------------------rates, and via the
Commission's address on the World Wide Web at http://www.sec.gov.
CERTAIN PERSONS PARTICIPATING IN CONNECTION WITH THE OFFERING ING BARING (U.S.) SECURITIES INC. AND ITS
AFFILIATES, ON BEHALF OF THE UNDERWRITERS,NOTES MAY OVER-ALLOTENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAINOTHERWISE AFFECT THE MARKET PRICE OF THE
NOTES, INCLUDING PURCHASES OF SHARES ATOF NOTES TO STABILIZE THEIR MARKET PRICE,
PURCHASES OF NOTES TO COVER SOME OR ALL OF A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAILSHORT POSITION IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ONNOTES
MAINTAINED BY THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2UNDERWRITERS 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
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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. Except as otherwise indicated herein, all informationReferences in this Prospectus has been adjusted to give effect to the
reorganization of"Issuer" are to Euronet Services Inc. Unless the Company, which is subject to and effective upon the execution of the
underwriting agreement to be executedcontext otherwise requires,
references in connection with the Offering, pursuant
to which (i) 9,585,569 shares of Common Stock will be issuedthis Prospectus to the shareholders
of Euronet Holding N.V. in exchange for all of the Common Shares of Euronet
Holding N.V., (ii) options to acquire 3,113,355 shares of Common Stock will be
granted"Company" or "Euronet" are to the holdersIssuer
and its consolidated subsidiaries. Data regarding ATM density per million of
options to acquire 3,113,355 Common Sharespopulation, card issuance as a percentage of Euronet
Holding N.V.population and off-site ATM
locations as a percentage of total ATM locations included in exchange for all of such options and (iii) awards with respect
to 800,520 shares of Common Stock will bethis Prospectus
have been derived from reports issued to the holders of awards with
respect to 800,520 preferred shares of Euronet Holding N.V. in exchange for all
such awards (the "Reorganization"). Euronet Holding N.V. will be dissolved
following the Reorganization. See "Certain Transactions."by Retail Banking Research, Ltd.
THE COMPANY
EuronetOVERVIEW
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 currently
operatescommenced
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 February 28, 1998 the
Company operated a network of 175 state-of-the-art754 state of the art ATMs, 130 of which arewith 348 located in
Hungary, 317 in Poland, 54 in Germany, 32 in Croatia and 353 in the Czech
Republic. Subject to full evaluation of which are located in Poland.market opportunities, the Company
expects to install an additional 800 ATMs during 1998. Through agreements and
relationships established with local banks, international debt and internationalcredit card
issuers and ATM networksassociations of such card issuers such as American Express, Diners
Club International, VISA, Plus, Mastercard Europay and CirrusEUROPAY (together "International Card
Organizations") Euronet's, the Company's ATMs are able to process ATM transactions for
holders of credit and debit cards issued by or bearing the logologos 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 banksbank or International Card OrganizationsOrganization for allany ATM
transactions processed on itsthe Company's ATMs. The Company also offers outsourcedout-
sourced ATM management services to local banks that own proprietary ATM
networks for which the Company also receives fees ona fixed monthly fee and/or a per
transaction basisfee. 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
. , 1998, the Company's equity market capitalization was approximately $ .
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 13% of the issued credit and debit
cards, and it expects to be able to accept 34% by the end of March 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 three ATMs which are currently able to accept VISA cards.
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
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
a monthly
basis.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 permitand the location
of its ATMs make it an attractive service provider to capitalize
on the trends developing in the Central European banking market. Bank account
usagebanks and credit and debit card issuance are increasing in Central Europe as the
demand for banking services continues to grow in the region. ConnectingInternational
Card Organizations. By connecting to the Company's ATM network, enableslocal banks tocan
offer their customers the convenience of cash withdrawal and balance inquiry
services in numerous off-site locations without incurring additional branch
operational costs such as personneloperating costs. In addition, the Company believes that the services it offers are attractive to
domestic banks in the increasingly competitive banking market in Central Europe
because such banks can generally connect to Euronet's network with less labor
and expense than building their own networks. In addition,Alternatively, banks can outsource the management of their
proprietary ATM networks to the Company.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:
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 $2.9 billion for
Hungary, $1.2 billion for Poland, $2.5 billion for the Czech Republic, and $81
million for Croatia while for 1996, direct foreign investment in these
countries was $2.8 billion, $2.5 billion, $1.4 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 services
allowchanges have allowed banks the opportunity to provide ATM access to their customers, expandingexpand the
range of banking services they offer. "Western" banks entering theand products offered. In addition, many Central European
market are already accustomedcountries 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
concept of shared ATM networks andregion, the retail banking industry in many countries in Central Europe has
become more competitive. Many banks have begun to connect to Euronet's ATM network.
Euronet's ATMs currently accept over 90%implement strategies for
3
serving and attracting a larger portion of the domesticretail 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 97 ATMs per million of population in Hungary, 17 ATMs per million of
population in Poland, 115 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, 422 ATMs per million of population in France,
466 ATMs per million of population in Germany, and 522 ATMs per million of
population in the United States as of January 1997. Based on information
compiled by the Company, as of January 1, 1997, the number of cards issued as a
percentage of population is 21% in Hungary, 3% in Poland, 14% in the Czech
Republic, and 9% in Croatia as compared with 110% in Austria, 151% in the
United Kingdom, 90% in France, 123% in Germany and 254% in the United States at
the same date. 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. 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. The Company believes it can offer banks
convenient turn-key year 2000 compliance solutions, including purchasing an
existing ATM network and performing all the necessary upgrades.
4
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,
Tangelmann, 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 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 Provider 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 December 31, 1997, the
Company had a total of 21 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 25%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 theall credit and debit cards issued
by Diners Club at all of Euronet's ATMs in Poland.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, all major international credit and debitthe Company has signed agreements
with
5
American Express or its local franchise to accept cards including those
bearingin these countries. The
Company expects to begin accepting American Express cards in Croatia under this
agreement at the VISA, end of March. This will enable the Company to accept
approximately 34% of the cards issued in Croatia. Prior to being permitted to
accept VISA/Plus, Europay, Mastercard and Mastercard/EUROPAY/Cirrus logos and American Express cards may be used at Euronet'sits
ATMs, locatedthe 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 HungaryCentral Europe. With
over 754 ATMs in operation and all VISA,
Plusa monthly average of 50 ATMs purchased or leased
for the six months ended February 28, 1998, Euronet believes it is the largest
purchaser of ATMs in Central Europe and American Express cards may be usedone 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 Euronet'scontractually 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, located in Poland.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 strategy,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.
STRATEGY
The Company's objective, for the shortnear term, is to become themaintain and enhance its
position as a leading
low-cost ATM service provider in Central and Western Europe by
meeting westerninternational standards of reliability and customer service and, for the medium term, to become a leading
provider of a broader range of electronic fund transfer services in the region.
The keyservice. Key
elements of Euronet's business strategy are toto: (i) expand its ATM networkbase in
Hungary,
Polandexisting and other Centralnew European markets;markets, (ii) leverage its critical mass and achieve
further economies of scale, (iii) continue to form strategic relationships with
banks and International Card Organizations; expandOrganizations, (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.
6
CORPORATE STRUCTURE
The corporate structure of the rangeCompany and its operating subsidiaries is set
forth in the chart below. This chart gives effect to an internal reorganization
of services offered beyond the basic cash withdrawal function, such as pointCompany 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 sale authorizationthe Netherlands and bill paying;the Issuer will transfer
all the shares of capital stock of its existing subsidiaries, other than its
Hungarian and expand ATM network management services.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.
Euronet Services Inc.
(Issuer of the Notes)
100%
Euronet Holding N.V.
100% 100% 100% 100% 100% 100% 100%
Euronet Bank/ Bankomat 24/ EFT Services do.o Euronet Euronet EFT Services Euronet s.r.l
Tech Rt. Euronet sp. z.o.o (Croatia) Services GmbH Services spol.s.r.o France S.A.S (Romania)
(Hungary) (Poland) (Germany) (Czech Republic) (France)
----------------
The Company's principal executive offices are located at Zsigmond ter 10,
H-102314-24 Horvat u.,
1027 Budapest, Hungary and its telephone number at suchthis address is 011-361-335-1224.
3011-36 1-
224-1000.
7
5
THE OFFERING
TOTAL SHARES OFFERED IN THE OFFERING(1).............. 5,300,000 Shares
SHARES TO BE OFFERED BY THE
COMPANY.................. 3,088,028 Shares
SHARES TO BE OFFERED BY THE
SELLING SHAREHOLDERS..... 2,211,972 Shares
SHARES TO BE OUTSTANDING
AFTER THE OFFERING(1)(2)... 13,729,560 Shares
OVER-ALLOTMENT OPTION......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 connectionaddition, 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 Offering,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."
8
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 granthave 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
UnderwritersNotes. As of December 31, 1997, after giving pro forma
effect to the Offering and the application of the net
proceeds therefrom, the Company would have had
approximately $103.1 million of indebtedness of which
$3.1 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 December 31, 1997, 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
$10.0 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 option exercisable for
30 days from the date of this Prospectusoffer to
purchase upspecified amounts of Notes in the event of
certain asset sales. There can be no assurance that the
Company will have sufficient funds to 795,000 additional Shares, solely to
cover over-allotments, ifcomplete any
at the initial
public offering price. See "Underwriting."
USE OF PROCEEDS............ Assuming an offering pricepurchase of $13 per Share (the
midpointNotes upon a sale of assets of the range on the cover page of this
Prospectus) and no exerciseCompany.
See "Description of the over-allotment
option grantedNotes--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
9
("Global Registered Notes") deposited with a custodian
for, and registered in the Underwriters,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 and the Selling
Shareholders from the Offering,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 $36.9$96.7 million and $26.8 million,
respectively.(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 will not receive any ofcurrently intends to use the net proceeds
from the saleOffering, together with the existing cash
reserves of the Shares by the
Selling Shareholders. Approximately 80%approximately $ . million at March 31,
1998, as follows: (i) approximately $60 to 90% of
the proceeds$70 million
to the Company will be used to
implement the Company's strategy of expandingexpand its
independent ATM network and the provision of ATM
management services in its existing markets of Hungary,
Poland, Germany, the Czech Republic, Croatia, and
other Central European markets. The remainderplanned 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 $10 to $12 million to repay a significant
portion of the net proceeds to be received byCompany's capitalized lease obligations
which have an effective interest rate of approximately
13.5% per annum and (iii) the Companyremainder will be used
for general corporate purposes, including expansion
into new markets, the pursuit of possible acquisitionsstrategic
acquisition and joint venturesventure opportunities consistent
with the Company's strategy of expanding its strategic goals. See "Use of
Proceeds."
DIVIDENDS.................. The Company currently intends to retain all future
earnings, if any,ATM
network and to fund operating losses and working
capital needs.
Governing Law......... The Indenture and the development and
growthNotes will be governed by the
laws of its business. Consequently, the Company
does not anticipate paying dividendsState of New York.
Listing............... Application has been made to list the Notes on the
Shares
in the foreseeable future. See "Dividend Policy."
PROPOSED LISTING........... Application will be made to have the Shares listed
on the Nasdaq National Market under the symbol
"EEFT."
- ---------------
(1) Does not include up to 795,000 shares of CommonLuxembourg Stock that may be offered
pursuant to the exercise by the Underwriters of the over-allotment option
granted by the Company to the Underwriters. See "Underwriting."
(2) Does not include 2,857,911 shares of Common Stock reserved for issuance
under the Company's stock option plans.
4Exchange.
10
6
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below with respect to the
Company's statement of operations data for the period from June 22, 1994
(inception) to December 31, 1994, the year ended December 31, 1995 and for the
nine months ended September 30, 1996 and with respect to the balance sheet data
as of December 31, 1994 and 1995 and September 30, 1996 have been derived
from, and are qualified by reference to, the audited consolidated financial
statements of the Company and the notes thereto, included elsewhere in this Prospectus (the
"Consolidated Financial Statements"), prepared in accordanceconformity with
generally accepted accounting principles as applied in the United States ("U.S.
GAAP,GAAP"), which have been audited by KPMG Polska Sp. z o.o., independent public
accountants. The results of operations for the nine months ended September 30,
1996 are not necessarily indicative of the results for any future period or for
the full year ending December 31, 1996. The summary consolidated financial data
with respect to the Company's statement of operations data for the nine months
ended September 30, 1995 have been derived from the Company's unaudited
consolidated financial statements prepared in accordance with U.S. GAAP, whichas of December 31, 1996 and
1997, and for each of the years in the opinion ofthree-year period ended December 31,
1997 (the "Consolidated Financial Statements"), and the Company, include all adjustments, consisting solely of
normal recurring adjustments, necessary to present fairly the information
contained therein.independent auditors'
report thereon, are included elsewhere in this Prospectus. 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.
PERIOD FROM
JUNE 22, 1994
NINE MONTHS ENDED (INCEPTION) SEPTEMBER 30,TO YEAR ENDED TO
--------------------- DECEMBER 31,
DECEMBER 31, -------------------------------------------
1994 1995 1996 1995 1995 1994
---------- ----------1997
-------------------------- ------------ -------------
(UNAUDITED)------------
(IN THOUSANDS EXCEPT PER SHARE DATA)THOUSANDS)
CONSOLIDATED STATEMENTSTATEMENTS
OF OPERATIONS DATA:
Revenues...................................Revenues
Transaction fees....... $ 638 $ 9-- $ 62 $ 1,198 $ 4,627
Other.................. -- -- 63 663
--------- ---------- ------------ ------------
Total revenues........ -- 62 1,261 5,290
Total operating
expenses............... 240 2,170 9,007 13,812
--------- ---------- ------------ ------------
Operating loss.......... (240) (2,108) (7,746) (8,522)
Loss before income taxes................... (2,774) (1,401)tax
benefit................ (228) (2,089) (7,899) (8,065)
Net loss................ $ (228) Net loss................................... (2,555) (1,300)$ (1,941) $ (7,576)(/1/) $ (7,965)
OTHER FINANCIAL DATA:
EBITDA(2)............... $ (228) Pro forma net loss per share............... (0.19)
Pro forma number$(1,849) $ (7,037) $ (5,152)
Cash flows from
operating activities... (258) (2,461) (2,255) (6,340)
Cash flows from
investing activities... (356) (418) (1,252) (39,320)
Cash flows from
financing activities... 2,650 1,254 5,637 50,635
Capital
expenditures(3)........ 356 394 1,061 7,612
Ratio of shares
Outstanding(1).......................... 13,109,320
- ---------------
(1) See Note 2(k) to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus for an explanation of the pro forma number of
shares outstanding used in determining pro forma net loss per share.
earnings to
fixed charges(4)....... -- -- -- --
AS OF DECEMBER AS OF 31,
SEPTEMBER 30, ----------------------------------------------------------------------------
1994 1995 1996 1995 1994
------------- ------ ------1997
-------------------------- ------------ ------------
(IN THOUSANDS)THOUSANDS, EXCEPT SUMMARY NETWORK DATA)
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents................................. $ 776equivalents............ $2,036 $ 411 $2,036$ 2,541 $ 7,516
Investment securities... -- -- 194 31,944
Working capital........................................... (370)capital......... 2,071 526 2,071631 33,496
Total assets.............................................. 7,432assets............ 2,527 4,519 2,527
Capital lease obligations, less11,934 70,033
Obligations under
capital leases,
excluding current
portion........... 2,363installments........... -- 1,119 3,834 11,330
Total stockholders'
equity................. 2,422 2,097 5,136 49,219
SUMMARY NETWORK DATA:
Number of operational
ATMs at end of period.. -- Total shareholders' equity................................ 2,542 2,097 2,42253 166 693
ATM transactions during
the period............. -- 45,000 1,138,000 5,758,000
Average annual revenues
per ATM................ $ -- $ 1,170 $ 11,516 $ 12,317
5(footnotes appear on following page)
11
7- --------
(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) 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.
(3) Capital expenditures do not include $1,906,000, $4,189,000 and $11,006,000
relating to ATMs acquired under capital lease obligations during the years
ended December 31, 1995, 1996 and 1997, respectively.
(4) For the period from June 22, 1994 (inception) to December 31, 1994 and for
the years ended December 31, 1995, 1996 and 1997, the Company incurred net
losses 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 and for the years ended December 31, 1995, 1996 and 1997, earnings
were inadequate to cover fixed charges with a coverage deficiency of
$228,000, $1,941,000, $7,576,000 and $7,965,000, respectively.
12
RISK FACTORS
The Shares involveAn investment in the Notes involves a high degree of risk. Accordingly,
prospective purchasers of shares of Common Stock should consider carefully all of the information set
forth in this Prospectus and, in particular, the risks described below, prior
to making any investment decision. 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
December 31, 1997, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Company's total indebtedness
would be approximately $103.1 million, its stockholders' equity would be
approximately $49.2 million and the Company's total assets would be
approximately $158.5 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 $ . at March 31, 1998)
offering, 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; HISTORY OFHISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE
CASH FLOW
The Company has had a limited operating history. For the period from June
22, 1994 (inception) to December 31, 1994 and the yearyears ended December 31,
1995, 1996 and the nine months ended September 30, 1996,1997, the Company had net losses of
13
approximately $228,000, $1.9 million, $7.6 million and $2.6$8 million,
respectively, resulting in an aggregate net loss of $4.7approximately $17.7
million as of September 30, 1996.December 31, 1997. (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 development and expansion of its ATM network
business. As a result of the Company's strategy of continuing expansion and
increasing its market share, the Company's net losses are expected to
increase over the near
term.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 generate significant revenuespositive cash flow from operations in any future
period. If the futureCompany cannot achieve and sustain operating profitability or
have sufficient
resources at any timepositive cash flow from operations, it may not be able to pay cash dividends onmeet its debt
service or working capital requirements, including its obligations with
respect to the Shares.Notes. See "Consolidated Financial Statements" including the
notesNotes 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 December 31, 1997, the Company's
subsidiaries had approximately $21 million of such liabilities including
approximately $14 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
14
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 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 Central
European 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
Central European markets in the
near to medium term, and the Company's requirements with respect to related
infrastructure and operational costs, management believes the net proceeds
from the Offering and funds expected to be
available through financing arrangements will provide sufficient funds necessary for the Company to
expand its business as currently planned.planned through the year 2000. There can be
no assurance, however, that additional financing will not be required orrequired. 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 availableable to raise additional required capital
on satisfactory terms or at all. If the Company or, if available, thatis able to raise additional
funds through the incurrence of debt, and it can be obtained on terms
acceptabledoes so, it would likely become
subject to the Company.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 prospects and the value of the Shares and limit the Company's
ability to pay cash dividends on the Shares.business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --Operations--
Liquidity and Capital Resources."
RISKS RELATED TO RAPID EXPANSION OF BUSINESS
The continued rapid expansion and development of the Company's business will
depend on various factors including the increasing demand for ATM services in the
Company's current target markets, the ability to locate appropriate 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."Business--Strategy."
6
8
DEPENDENCE ON RELATIONSHIPS WITH BANKS AND INTERNATIONAL CARD ORGANIZATIONSORGANIZATIONS;
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 the renewal ofretaining and renewing such card
acceptance agreements, which generally provide for a two to five year term.
The Company's card acceptance agreements
15
with banks generally include termination and/or renewal clauses, butwhich provide
that either party may elect to terminate or not to renew an agreement upon
completion of its term. BanksIn some cases, banks may elect not to renewterminate their contracts
for reasons unrelatedwith the Company by giving notice prior to the Company and its performance.expiration of their terms.
There can be no assurance that the Company will be able to continue to sign or
maintain suchthe 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"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. 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. The Company will however,
still be able to accept all OTP issued Visa and EUROPAY cards through its VISA
and EUROPAY gateways. As of December 31, 1997, the Company's contract with OTP
represented approximately 51% of its consolidated revenues. 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--
Comparison of Results of Operations for the years ended December 31, 1995,
1996 and 1997--Revenues."
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-disclosurenon-
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 substantially alla
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 dependent on the
increased issuance of credit and debit cards, increased market acceptance of
Euronet's services in its target markets, the maintenance of the level of
transaction fees received by the Company, installation by the Company of
larger numbers of ATMs and continued usage of the Company's ATMs by credit and
debit cardholders. A decline in usage of Euronet'sthe Company's ATMs by ATM cardholders
or in the levels of fees received
16
by Euronetthe Company in connection with such usage would have a material adverse
impact on the Company's business, growth financial condition and results of
operations. COMPETITIONBanks 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 are currentlycan be no
other independent, non-bank owned ATM networksassurance as to when or if the Company will be able to establish the necessary
relationship for the commencement of operations in Central Europe.France. See "Business--the
Euronet Network--Germany" and --"France" and "--Regulation."
COMPETITION
Principal competitors of the Company include ATM networks owned by banks and
regional networks consisting of consortiums of local banks. 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 alternate methods of electronic funds transfertheir own ATM networks in the future which could lead to a decline in
the usage of Euronet's ATMs. See "Business -- Competition."Business--Competition."
7
9
HOLDING COMPANY STRUCTURE RISKS
The Company conducts all of its operations through its subsidiaries.
Accordingly, the primary internal source of the Company's cash is dividends and
other distributions from its subsidiaries. Each of these subsidiaries was formed
under the laws of, and has its operations in, a country other than the United
States. In addition, each of the Company's operating subsidiaries receives its
revenues in the local currency of the jurisdiction in which it is situated. As a
consequence, the Company's ability to obtain dividends or other distributions is
subject to, among other things, restrictions on dividends under applicable local
laws and foreign currency exchange regulations of the jurisdictions in which its
subsidiaries operate. See "-- Inflation; Exchange Rate and Currency Risk." The
subsidiaries' ability to make distributions to the Company are also subject to
their having sufficient funds from their operations legally available for the
payment thereof which are not needed to fund their operations, obligations or
other business plans and, in some cases, obtaining the approval of the other
partners, stockholders or creditors of these entities. The laws under which the
Company's operating subsidiaries are organized provide generally that dividends
may be declared by the shareholders out of yearly profits subject to the
maintenance of registered capital and required reserves and after the recovery
of accumulated losses. If the Company's subsidiaries are unable to make
distributions to the Company, the Company's growth may be inhibited after the
proceeds of the Offering are exhausted unless the Company is able to obtain
additional debt or equity financing. See "-- Political, Economic and Legal
Risks." The Company may not be able to obtain debt financing if its subsidiaries
cannot make distributions to service the debt financing or obtain upstream
guarantees from its subsidiaries with respect to such debt financing. Because
the Company is the sole shareholder of each of its subsidiaries, the Company's
claims as such will generally rank junior to all other creditors of and
claimants against its subsidiaries. In the event of a subsidiary's liquidation,
there may not be assets sufficient for the Company to recoup its investment
therein.
POLITICAL, ECONOMIC AND LEGAL RISKS
The Company's principal operating subsidiaries currently operate in Hungary,
Poland, the Czech Republic, Croatia and Poland.other countries in Central Europe.
These and other countries in Central Europe have undergone significant
political and economic change in recent years. Changes in political,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, or Hungary,the Czech Republic, Croatia and
other countries in Central Europe, but there can be no assurance that foreign
exchange control restrictions, taxes or limitations will not be imposed or
increased in the future with regard to repatriation of earnings and
investments from Poland and Hungary.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"Business--Government Regulation."
17
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.
8
10Hungary, Poland, the Czech Republic, Croatia and Hungaryother 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 otherthese emerging markets will not have an adverse effect on the
market valueCompany's operations and liquidity ofprofitability and, therefore, on the Shares.
INFLATION;Company's
ability to pay principal and interest on the Notes.
INFLATION, EXCHANGE RATE AND CURRENCY RISK
AlthoughThe 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 inflation adjusted, the Company generally receives paymentdenominated in
local currency primarily Hungarian forints and Polish zlotys.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 22%15%
in 1995.1997. In addition, the exchange rate for the zloty has stabilized and the
rate of devaluation of the zloty has decreased significantly since 1991.
However,Similarly, in Hungary, in recent
years, the forint has continued to depreciate, principally by
way of devaluation, against the major currencies of the OECD and has limited
convertibility to other currencies. Significant amounts of the Company's
expenditures, including for the acquisition of ATMs and executive salaries are
madeThe inflation rate in U.S. dollars or are denominatedHungary was
approximately 18.0% in U.S. dollars.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 maywill
continue to have, an effect on the financial condition and results of
operations of the Company. CONCENTRATIONThe Company anticipates that in the future a
substantial portion of its assets will be denominated in the foreign
currencies of 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."
18
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 OWNERSHIP
After completionCURRENCY
Stage III of the Offering, directors, officersEuropean Economic and certain
significant shareholdersMonetary 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 own beneficiallyrequire certain
upgrades which have been ordered and are scheduled for installation by the
fourth quarter of 1998. Most of the ATMs in the aggregateEuronet 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 61%$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 outstanding Shares. Such concentration of ownershipNotes due to factors that may haveor may not relate to the effect of delaying or preventing transactions involving an actual or
potential change in controlCompany'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 transactionsactual and
anticipated period-to-period fluctuations in whichthe 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.
19
ORIGINAL ISSUE DISCOUNT
The Notes will be issued at a substantial discount from their principal
amount at maturity. Consequently, United States holders of Shares might receivethe 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 premiumbankruptcy 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 their Shares over prevailing
market prices. See "Principalthe Notes and Selling Shareholders" and "Description(ii) that portion of Capital Stock.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 --
CertainStock--Certain Provisions of the Company's
Certificate of Incorporation and By-Laws" and "-- Preferred"--Preferred Stock." DILUTION TO PROSPECTIVE INVESTORS
Investors subscribing for Shares in the Offering will incur immediate and
substantial dilution in net tangible book value per Share of $10.12 (assuming no
exercise of the over-allotment option and an initial public offering price equal
to $13 per Share (the midpoint of the range specified on the cover page of this
Prospectus)). See "Dilution."
ABSENCE OF PRIOR PUBLIC TRADING MARKET FOR THE SHARES
Prior to the Offering, there has been no public trading market for the
Shares. Application will be made to list the Shares on the Nasdaq National
Market in the United States. There can be no assurance that the market price of
the Shares will not decline below the initial public offering price, which was
determined by negotiation among the Company and representatives of the
Underwriters. See "Underwriting" for a description of the factors
9
11
considered in determining the initial public offering price of the Shares. The
trading prices of the Shares may be subject to wide fluctuations in response to
many factors, including actual or anticipated period-to-period fluctuations in
the Company's operating results, changes in currency exchange rates and other
external factors, including general economic conditions in Poland, Hungary and
the Company's other markets or other events or factors. In addition, the
international stock markets have from time to time experienced extreme price and
volume fluctuations which have particularly affected the market prices for early
high-growth phase companies such as the Company. These broad market fluctuations
may adversely affect the market prices of the Shares.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of Shares following the Offering, or the
perception that such sales could occur, could adversely affect the market price
of the Shares. The Company and its directors,Directors,
officers and certain other
shareholders have agreed not to offer for sale, sell or otherwise dispose of (or
enter into any transaction which is designed to, or could be expected to, result
in the disposition by any person of), directly or indirectly, any Shares, with
certain limited exceptions, for a period of 180 days after the date of this
Prospectus without the prior written consent of ING Barings on behalf of the
Underwriters. Presently, 9,585,569 Shares, and 8,429,560 Shares after giving
effect to the Offering (assuming the Underwriters' over-allotment option is not
exercised), held by the Company's existing shareholders are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Of such
Shares, after giving effect to the Offering (assuming the Underwriters'
over-allotment option is not exercised), 434,217 Shares will be eligible for
resale under Rule 144 immediately following the expiration of the 180-day
lock-up period described above, 6,863,709 Shares, 466,669 Shares and 664,965
Shares will not be eligible for resale under Rule 144 until March 27, 1998,
October 14, 1998 and February [20], 1999, respectively. Such Shares may be
resold only in compliance with the registration requirements of the Securities
Act or pursuant to an exemption therefrom. In addition, Michael Brown and the
other existingsignificant shareholders of the Company, were granted rights entitling them,
under specified circumstances, to causewhich are
associated with certain directors of the Company, to register for sale all or
partown beneficially in the
aggregate approximately 63% of theirthe outstanding shares of Common Stock and to include such shares in any
registered public offeringsthe
Company. Such concentration of sharesownership may have the effect of Common Stock bydelaying or
preventing transactions involving an actual or potential change in control of
the Company. See "Principal Stockholders" and "Description of Share Capital -- Registration Rights", "Shares Eligible for
Future Sale" and "Underwriting.Stock."
In addition,The Indenture pursuant to which the notes are issued contains a provision
which accelerates the maturity date of the 2,857,911 options to
purchase Shares outstanding, 2,018,494 are currently exercisable. Any Shares
issued onNotes in the exerciseevent of these options would be available for sale subject to
Rule 701a change of
control. Such provision may also delay or another exemption from the registration requirementsimpede a change of the
Securities Act (including Regulation S under the Securities Act) following the
expirationcontrol. See
"Description of the 180-day lock-up period described above. Furthermore, the
Company intends to register under the Securities Act, as soon as practicable
following the Offering, approximately 3,094,511 shares of Common Stock reserved
for issuance to its employees and directors under its employee benefits plans.
See "Management."
10Notes".
20
12
USE OF PROCEEDS
Assuming an offering price of $13 per Share (the midpoint of the range on
the cover page of this Prospectus) and no exercise of the over-allotment option
granted to the Underwriters, theThe net proceeds to the Company from the sale of the SharesNotes being offered by
the Company hereby, after deducting the underwriting discounts and commissionsdiscount and estimated
offering expenses, are estimated to be approximately $36.9 million.$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 will not receive anycurrently intends to use the net proceeds from the saleOffering,
together with the existing cash reserves of the Shares by the Selling Shareholders.
The Company intendsapproximately $ . million at
March 31, 1998, as follows: (i) approximately $60 to use approximately 80%$70 million to 90% of the proceeds to
cover expenditures relating to the expansion and operation ofexpand its
ATM network and the provision of ATM management services in its existing
markets of Hungary, Poland, Germany, the Czech Republic, Croatia, and Poland,planned
future markets such as well asFrance and Romania, including the purchase and
installation of an aggregate of approximately 2,000 ATM machines in Germany and other central European countries. The primary costs incurredsuch
markets through the year ending December 31, 1999; (ii) approximately $10 to
build and operate$12 million to repay a significant portion of the Company's ATM network include installationcapitalized lease
obligations which have an effective interest rate of ATMs,
customs, duties, lease payments of ATMs, computerapproximately 13.5% per
annum and network equipment,
telecommunications, salaries, ATM maintenance and service fees, insurance, and
other related items. Approximately 10% to 20% of(iii) the proceedsremainder will be reservedused for general corporate purposes,
including expansion into new markets, the pursuit of possible strategic
acquisition and joint venture opportunities consistent with the Company's
strategy of expanding its ATM network and other businesses. The
Company regularly explores acquisitionto fund operating losses and joint venture opportunities, although
it currently has no agreements or understandings to enter into any such
transactions.working
capital needs.
Pending utilization of the net proceeds from the Offering, the Company
intends to invest such proceeds primarily in short-term investment grade
interest-bearing
securities.
11
13
DILUTION
The Company's consolidated net tangible book value as of September 30, 1996
was $2.5 million. "Consolidated net tangible book value" is the consolidated
book value of tangible assets less total liabilities. Investors subscribing for
Shares in the Offering will incur immediate and substantial dilution in net
tangible book value per Share of $10.12 (assuming an initial public offering
price of $13 per Share, the midpoint of the range specified on the cover page of
this Prospectus).
The following table illustrates the effect of the Offering on consolidated
net tangible book value:
PER SHARE
-----------------
Initial public offering price............................................. $13.00
Pro forma consolidated net tangible book value before the Offering(1)... $ 0.68
Increase in consolidated net tangible book value attributable to new
investors............................................................ $ 3.20
Pro forma consolidated net tangible book value after the Offering......... $ 3.88
------
Dilution to new investors purchasing Shares(2)............................ $ 9.12
======
- ---------------
(1) Pro forma consolidated net tangible book value before the Offering per Share
is determined by dividing the Company's consolidated net tangible book value
at September 30, 1996securities issued by the number of Shares then outstanding.
(2) Dilution, for this purpose, represents the difference between the initial
public offering price per Share in the Offering and the pro forma
consolidated net tangible book value per Share at September 30, 1996 after
giving effect to the Offering.U.S. Federal Government or agencies or
instrumentalities thereof.
21
CAPITALIZATION
The following table sets forth on a pro forma basis as of September 30,
1996 the number of Shares issued by the Company, the total cash consideration
paid to the Company, and the average price per Share paid by existing
shareholders and by new investors purchasing the Shares offered by the Company
hereby at an assumed initial public offering price of $13 per Share, the
midpoint of the range specified on the cover page of this Prospectus:
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
Existing shareholders(1)(2).............. 10,641,532 77.5% $11,685,802 22.5% $ 1.10
New investors(1)......................... 3,088,028 22.5% $40,144,364 77.5% $ 13.00
--------- ------- ---------- -------
Total(2)............................... 13,729,560 100.0% $51,830,166 100.0%
========= ====== ========== ======
- ---------------
(1) Sales by Selling Shareholders of 2,211,972 Shares will reduce the number of
Shares held by existing shareholders to 8,429,560, or 61%, and will increase
the number of Shares held by new investors to 5,300,000 or 39%, of the total
number of Shares outstanding after the Offering. See "Principal and Selling
Shareholders." Includes 255,444 Shares to be issued upon the exercise of
options in connection with the Offering and 800,520 Shares to be awarded in
connection with the Offering. See "Management -- Stock Option Plans" and
"Certain Transactions."
(2) Excludes 2,857,911 Shares reserved for issuance upon the exercise of options
to be outstanding upon completion of the Offering (of which options
2,018,494 will then be exercisable) at a weighted average exercise price of
$1.77 per Share. See "Management -- Stock Option Plans."
12
14
DIVIDEND POLICY
The Company currently intends to retain all future earnings to fund the
development and growth of its business. Consequently, the Company does not
anticipate paying dividends on the Shares in the foreseeable future. See
"Description of Capital Stock -- Common Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
13
15
CAPITALIZATION
The table below sets forth the cash and cash equivalents, short-term debt
(including the current portion of long-term debt) and theactual capitalization of the Company on a
consolidated basis at September 30, 1996 (i) on a historical basis
for the Company's predecessor Euronet Holding N.V., (ii) on a pro forma basis
giving effect to the Reorganization as if it had occurred on such dateDecember 31, 1997 and (iii) as adjusted to reflect the
completion of the Offering (assuming no exercise of
the over-allotment option granted to the Underwriters and an offering price of
$13 per share (the midpoint of the range on the cover page of this Prospectus))
and the receipt and application of the estimated
net proceeds therefrom. See "Use of Proceeds" and "Description of Capital Stock.the Notes."
AT SEPTEMBER 30, 1996
--------------------------------------
PRO PRO FORMA
HISTORICAL FORMADECEMBER 31, 1997
---------------------
ACTUAL AS ADJUSTED
---------- --------------- -----------
(UNAUDITED)
(IN THOUSANDS)
Cash and cash equivalents.................................equivalents................................ $ 7767,516 $ 4,776 $41,734
Short-term borrowings (including current portion92,616
======== ========
Investment securities(1)................................. $ 31,944 $ 31,944
======== ========
Current installments of long-term debt)(1)...................................... 1,038 1,038 570obligations under capital
leases(2)............................................... $ 3,140 $ 476
======== ======= =======
Capital lease obligations,========
Long-term liabilities
Obligations under capital leases, excluding current
portion(2)... 2,363 2,363 2,363installments(2)..................................... $ 11,330 $ 2,444
Notes offered hereby(3).............................. -- 100,000
Other long-term liabilities............................... 60 60 60liabilities.......................... 169 169
-------- ------- ---------------
Total long-term liabilities............................. 2,423 2,423 2,423
Shareholders' equityliabilities........................ 11,499 102,613
-------- --------
Stockholders' equity(4):
Common stock(3),
$0.01stock, $0.02 par value; 30,000,000 shares
authorized; 9,585,56915,133,321 shares issued and outstanding pro forma
and 13,729,560 shares issued and outstanding as pro
forma adjusted..................................... 130 96 137outstanding.. 304 304
Additional paid in capital.............................. 6,612 5,699 43,084capital............................. 63,358 63,358
Subscription receivable................................. (3,000) -- --receivable................................ (253) (253)
Treasury stock......................................... (4) (4)
Accumulated losses(4)................................... (1,942) -- --losses..................................... (14,970) (14,970)
Restricted reserve(5)................................... 742 742 742
--------- ------- -------reserve..................................... 784 784
-------- --------
Total shareholders' equity................................ 2,542 6,537 43,963stockholders' equity......................... 49,219 49,219
-------- --------
Total capitalization............................... $ 60,718 $151,832
======== ======= =======
Total capitalization...................................... 4,965 8,960 43,386
======== ======= =======
- -----------------------
(1) See Notes 7, 8At December 31, 1997, investment securities consisted of $7,967,000 of
U.S. government securities and 13 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.$23,977,000 of other securities. At March
5, 1998, U.S. government securities consisted of $7,840,000 and other
securities consisted of $13,725,000.
(2) See Note 87 to the Company'sNotes to the Consolidated Financial Statements included
elsewhere in this Prospectus.
(3) At September 30, 1996,The principal amount of Notes has been translated into U.S. dollars at the
historical capital stockNoon Buying Rate on December 31, 1997 of Euronet Holding N.V.
consisted of Common Shares, $0.01 par value; 5,600,000 shares authorized;
499,100 shares issued and outstanding; Series A Convertible Preferred
Shares, $0.01 par value; 5,600,000 shares authorized; 4,419,800 shares
issued and outstanding; and Series B Convertible Preferred Shares, $0.01 par
value; 6,300,000 shares authorized; 4,200,000 shares issued and outstanding.
(4) Accumulated losses of Euronet Holding N.V. have been reclassified as
additional paid in capital in connectionDM 1.7991= $1.00, Interest on the
Notes accrues with the Reorganization.
(5)result that the principal amount of the Notes
increases over time. The Company will be obligated to pay an aggregate
amount of DM 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 Note 4"Description of the
Notes".
(4) See Notes 1 and 3 to the Company'sNotes to the Consolidated Financial Statements
included elsewhere in this Prospectus.
1422
16
SELECTED CONSOLIDATED FINANCIAL DATA
The selectedsummary consolidated financial data set forth below with respect to
the Company's statement of operations data for the period from June 22, 1994
(inception) to December 31, 1994, the year ended December 31, 1995 and for the
nine months ended September 30, 1996 and with respect to the balance sheet data
as of December 31, 1994 and 1995 and September 30, 1996 have been derived
from, and are qualified by reference to, the audited Consolidated Financial Statementsconsolidated financial
statements of the Company and the notes thereto, included elsewhere in this Prospectus,
prepared in accordanceconformity with
generally accepted accounting principles as applied in the United States
("U.S. GAAP,GAAP"), which have been audited by KPMG Polska Sp. z o.o., independent
public accountants. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of the
results for any future period or for the full year ending December 31, 1996. The
selected consolidated financial data with respect to the Company's statement of
operations for the nine months ended September 30, 1995 have been derived from
the Company's unaudited consolidated financial statements prepared in
accordance with U.S. GAAP, whichas of December 31,
1996 and 1997, and for each of the years in the opinion ofthree-year period ended
December 31, 1997 (the "Consolidated Financial Statements"), and the
Company, include all
adjustments, consisting solely of normal recurring adjustments, necessary to
present fairly the information contained therein.independent auditors' report thereon, are included elsewhere in this
Prospectus. 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.
PERIOD FROM
NINE MONTHS ENDED JUNE 22,
1994
SEPTEMBER 30,(INCEPTION) YEAR ENDED (INCEPTION) TO
----------------------- DECEMBER 31,
TO DECEMBER ---------------------------------------
31, 1994 1995 1996 1995 1995 1994
---------1997
----------- ------------ -------------
(UNAUDITED)----------- ----------- -----------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transaction fees..............................fees......................... $ 577 $ 9-- $ 62 $ 1,198 $ 4,627
Other.................................... -- Other......................................... 61-- 63 663
----------- ----------- ----------- -----------
Total revenues......................... -- 62 1,261 5,290
Operating expenses:
ATM operating costs...................... -- 510 1,176 5,172
Professional fees........................ 64 394 1,125 1,166
Salaries................................. 49 452 989 3,796
Communication............................ 12 20 263 818
Rent and utilities....................... 8 112 290 783
Travel and related costs................. 20 71 254 701
Fees and charges......................... -- 112 427 458
Share compensation expense............... -- -- 4,172(1) 108
Foreign exchange loss/(gain)............. 2 158 79 (8)
Other.................................... 85 341 232 818
----------- ----------- ----------- -----------
Total operating expenses............... 240 2,170 9,007 13,812
----------- ----------- ----------- -----------
Operating loss......................... (240) (2,108) (7,746) (8,522)
Other income/expenses:
Interest income.......................... 12 126 225 1,609
Interest expense......................... -- (107) (378) (1,152)
----------- ----------- ----------- -----------
Loss before income tax benefit............. (228) (2,089) (7,899) (8,065)
Income tax benefit(2)...................... -- 148 323 100
----------- ----------- ----------- -----------
Net loss................................... (228) (1,941) (7,576) (7,965)
=========== =========== =========== ===========
Loss per share--basic and diluted(3)....... $ (0.02) $ (0.19) $ (0.73) $ (0.56)
=========== =========== =========== ===========
Weighted average number of shares
outstanding(3)............................ 10,386,089 10,386,089 10,386,089 14,284,917
(footnotes appear on following page)
23
PERIOD FROM
JUNE 22, 1994
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------
1994 1995 1996 1997
-------------------------- ------------ ------------
(IN THOUSANDS)
OTHER FINANCIAL DATA:
EBITDA(4)............... $ (228) $(1,849) $(7,037) $ (5,152)
Cash flows from
operating activities... (258) (2,461) (2,255) (6,430)
Cash flows from
investing activities... (356) (418) (1,252) (39,320)
Cash flows from
financing activities... 2,650 1,254 5,637 50,635
Capital
expenditures(5)........ 356 394 1,061 7,612
Ratio of earnings to
fixed charges(6)....... -- -- -- --------- ------- -------- -----
Total revenues............................. 638 9 62 --
Expenses:
ATM operating costs........................... 941 227 510 41
Professional fees............................. 828 262 394 64
Salaries...................................... 716 241 452 49
Foreign exchange loss......................... 88 168 158 2
Other......................................... 775 539 656 84
--------- ------- -------- -----
Total expenses............................. 3,348 1,437 2,170 240
Operating Loss.................................. (2,710) (1,428) (2,108) (240)
Other income/expenses:
Interest income............................... 177 107 126 12
Interest expense.............................. (241) (80) (107) --
--------- ------- -------- -----
Loss before income taxes........................ (2,774) (1,401) (2,089) (228)
Deferred tax benefit(1)......................... 219 101 148 --
--------- ------- -------- -----
Net loss........................................ (2,555) (1,300) (1,941) (228)
Pro forma loss per share........................ (0.19)
Pro forma number of shares outstanding(2)....... 13,109,320
15
17
AS OF
AS OF DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------------------------------
1994 1995 1996 1995 1994
------------- ------ -------1997
-------------------------- ------------ ------------
(IN THOUSANDS)THOUSANDS, EXCEPT SUMMARY NETWORK DATA)
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents....................................equivalents............ $ 7762,036 $ 411 $ 2,0362,541 $ 7,516
Investment Securities... -- -- 194 31,944
Working capital.............................................. (370)capital......... 2,071 526 2,071631 33,496
Total assets................................................. 7,432assets............ 2,527 4,519 2,527
Capital lease obligations,11,934 70,033
Obligations under
capital leases, less
current portion.............. 2,363installments... -- 1,119 3,834 11,330
Total stockholders'
equity................. 2,422 2,097 5,136 49,219
SUMMARY NETWORK DATA:
Number of operational
ATMs at end of period.. -- Total shareholders' equity................................... 2,542 2,097 2,42253 166 693
ATM transactions during
the period ............ -- 45,000 1,138,000 5,758,000
Average annual revenues
per ATM ............... $ -- $ 1,170 $ 11,516 $ 12,317
- -----------------------
(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 Company'sNotes 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 Company'sNotes to the Consolidated Financial Statements
included elsewhere in this Prospectus for an explanation of the pro formaweighted
average number of shares outstanding used in determining pro forma net loss per share.
16(4) 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.
(5) Capital expenditures do not include $1,906,000, $4,189,000 and $11,006,000
relating to ATMs acquired under capital lease obligations during the years
ended December 31, 1995, 1996 and 1997, respectively.
(6) For the period from June 22, 1994 (inception) to December 31, 1994 and for
the years ended December 31, 1995, 1996 and 1997, the Company incurred net
losses 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 and for the years ended December 31, 1995, 1996 and 1997, earnings
were inadequate to cover fixed charges with a coverage deficiency of
$228,000, $1,941,000, $7,576,000 and $7,965,000 respectively.
24
18
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.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 in Hungary and Poland through the acquisition and
installation of ATMs and computers and software for its transaction processing
center pursuant to
capital leases and through the marketing of its services to local banks as well as
International Card Organizations. Euronet installed its first ATM in Hungary
in June 1995, and at the end of 1995, the Company had 53 ATMs installed. An
additional 46113 ATMs were installed during the first nine months of 1996 in Hungary and Poland and todayas of
December 31, 1996, the Company's ATM network consistsconsisted of 165166 ATMs. During
1997 the Company installed a further 527 ATMs, consisting of 469 in Hungary
and Poland and 58 in Germany and Croatia. With the expansion of operations,
the Company has increased the number of its employees in Hungary from nine36 as of
December 31, 19941996 to 2779 as of December 31, 1995 and 36 as of September 30, 1996.1997. In Poland, the Company
increased the number of its employees from three as of September 30, 1995 to four21 as of December 31, 1995 and 181996 to 73 as
of September 30, 1996.December 31, 1997. In 1997, the Company employed 9 people in Croatia, 8 in
Germany, 7 in the Czech Republic, and 2 in France. In 1997, 99% of the
Company's revenues were generated in Hungary and Poland. The Company's
expansion of its network infrastructure and administrative and marketing
capabilities has resulted in increased expenditures. Further planned expansion
will continue to result in substantial increases in general operating expenses as well as
expenses related to the acquisition and installation of ATMs.
The Company has derived substantially all of its revenues from ATM
transaction fees since inception. EuronetThe 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. AlthoughATMs and the receipts. Advertising revenue
accounted for approximately 10% of total consolidated revenues from advertising have
been insignificant to date, Euronetduring 1997.
The Company believes that advertising revenues will continue to increase as it
expands its network and continues to market this service. The Company also
intendsbegan to begin generatinggenerate revenues in Mayduring 1997 from ATM network management services
that it offers to banks that own proprietary ATM networks. It is expected thatAlthough the
revenues per transaction generated by the Company's ATM
management services contracts generally will be lower than those generated by
Acceptance Agreements. Due to lower costs resulting from not having to bear the
expense of purchasing, installing and depreciating ATMs,date have been small, the Company believes that it nonetheless should obtain margins on providing such services similar to
those obtainedrevenues
from this service will increase in operating its own ATM network where the future.
The Company bearshas had substantial increases in the costs associated with acquiringlevel of operations,
including ATMs operated and installingtotal personnel in 1995, 1996 and 1997. In
addition, the ATMs. See "Business -- Other
Services."
The Company was in its "start-up" phase, without significantthe development stage until June 1995 when it
began operations or
significant revenues, in all periods under discussion. In addition, the period
from June 22, 1994 (inception) to December 31, 1994 does not represent a full
year of operations.Hungary. As a result, a comparison of the Company's
results of operations between such periodsyears is not necessarily meaningful.
25
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 and ATM installation
costs, maintenance, telecommunications, insurance, and cash delivery and
security services to ATMs. 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 products, other operating
expenses are expected to decrease as a percentage of total revenues.
COMPARISON OF RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND YEARFOR THE YEARS ENDED DECEMBER 31, 1995,
COMPARED TO THE PERIOD
FROM JUNE 22, 1994 (INCEPTION) TO DECEMBER 31, 19941996 AND 1997
Revenues. Total revenues increased to $638,000$5,290,000 for the nine monthsyear ended September 30, 1996December
31, 1997 from $9,000$1,261,000 for the nine monthsyear ended September 30,December 31, 1996 and $62,000 for
the year ended December 31, 1995. ThisThe increase wasin 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 nine months ended September
30, 1996.end of 1995, 1996, and 1997,
respectively. Transaction fee revenue represented approximately 90%87% of total
revenues for the nine monthsyear ended September 30, 1996December 31, 1997 and increased to $577,000
from $9,00095% of total revenues for
the same periodyear ended December 31, 1996. Revenues in 1995.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 canare currently be processed on the Company's ATMs: cash
withdrawals, balance inquiries and transactions not completed because
17
19
authorization is not given by the relevant Card Issuer. Approximately 87%98% of
transaction fees in the nine months ended September 30,1997, as compared to 92% in 1996, were attributable to
cash withdrawals,withdrawals. The remaining 2% in 1997 and 13%8% in 1996 were attributable to
balance inquiries and transactions not completed because authorization is not
given by the relevant Card Issuer. Transaction fees for cash withdrawals arevary
from market to market but generally in excess of
$1.00range from $0.60 to $1.75 per transaction
while transaction fees for the other two types of transactions are generally
substantially less.
In January 1998, OTP notified the Company that it was terminating its
contract with Euronet effective as of July 27, 1998. 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. The Company will, however,
still be able to accept all OTP issued VISA and EUROPAY cards through its VISA
and EUROPAY gateways. For the year ended December 31, 1997, the Company's
contract with OTP represented approximately 51% of its consolidated revenues.
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 revenues of $61,000$663,000 and $63,000 for the first nine months ofyears ended December 31, 1997
and 1996 consisted primarily of advertising revenue. The Company generatedincrease during 1997
results from the increase in the number of ATMs operated by the Company. There
were no other revenues of $62,000 duringin 1995.
Operating expenses. Total expenses increased to $13,812,000 for the year
ended December 31, 1995 and the Company generated no revenues during the period1997 from June 22,
1994 (inception) through December 31, 1994. The Company had no ATMs installed
until June 1995 and it had 53 ATMs installed at the end of 1995. Revenues in$9,007,000 for the year ended December 31, 1995 consisted entirely of transaction fees.
Operating expenses. Total expenses increased by $1.9 million to $3.3
million1996
and from $2,170,000 for the nine monthsyear ended September 30, 1996 from $1.4 million for the
nine months ended September 30,December 31, 1995. This increase wasin
both years were due primarily to costs associated with the installation of
significant numbers of ATMs during the periodperiods and expansion of the Company's
operations during the period.
Totalperiods. 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 increased by $1.9 million to $2.2 million for the year ended
December 31, 1995 from $240,000 for the period from June 22, 1994 (inception)
through December 31, 1994. This increase was due primarily to costs associated
with the installation of significant numbers of ATMs during the period and
significant expansion of the Company's operations during the period, including
the installation of additional ATMs.in 1996.
ATM operating costs, which consist primarily of ATM site rentals,
depreciation of ATMs and costs associated with installing and maintaining, ATMs
and providing
telecommunications and cash delivery services to ATMs increased $714,000 to
$941,00026
$5,172,000 for the nine monthsyear ended September 30, 1996December 31, 1997 from $227,000$1,176,000 for the nine monthsyear
ended September 30,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 nine monthsyear ended September 30, 1996 grewDecember 31, 1997 increased to 28%37% as compared to 16%13% for the
same period inyear ended December 31, 1996, 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 period.periods. The number of ATMs installed increased from 1653 to 99166 from
September 30,December 31, 1995 to September 30, 1996.
ATM operating costsDecember 31, 1996, and from 166 to 693 from December 31,
1996 to December 31, 1997.
Professional fees increased $469,000 to $510,000$1,166,000 for the year ended December 31,
19951997 from $41,000$1,125,000 for the period from June 22, 1994 (inception)
throughyear ended December 31, 1994. The increase in ATM operating costs was primarily
attributable to the installation of 53 ATMs during 1995.
Professional fees increased $566,000 to $828,000 for nine months ended
September 30, 1996 and from $262,000$394,000
for the nine monthsyear ended September 30,December 31, 1995. This increaseThe fees in 1997, primarily legal,
related to its expansion to new markets. The level of fees in 1996 was due
primarily to legal fees incurred duringattributable to the nine months
ended September 30, 1996 attributable toinvestment by new investors in the
Company, the interim reorganization of the Company into a Netherlands Antilles
Company and the expansion of the Company's operations into Poland.
In connection with the Offering, the Company was
reorganized as a Delaware corporation.
Professional feesSalaries increased to $3,796,000 for the year ended December 31, 1995 increased to
$394,0001997 from
$64,000$989,000 for the period from June 22, 1994 (inception) throughyear ended December 31, 1994.1996 and from $452,000 for the year
ended December 31, 1995. The increase from 1995 to 1996 reflected the increase
in 1995 was due primarilyemployees from 31 to legal fees
attributable57 and the increase from 1996 to the execution of an agreement with the Company's investors
providing for additional investments by investors in the Company, the
acquisition of SatComNet Kft., a shell entity with minimal operations, and
additional card acceptance agreements.
Salaries increased $475,000 to $716,000 in the nine months ended September
30, 1996 from $241,000 in the nine months ended September 30, 1995. The increase1997 reflected the
increase in the number of employees in the Company, especially in
Poland where the number of employees increased from three57 to 18 from September
30, 1995 to September 30, 1996. In Hungary, the Company increased the number of
employees to 36 at September 30, 1996 compared to 25 employees at September 30,
1995.
Salaries178, as discussed above.
Communication, Rent and Utilities, and Travel related costs increased to
$452,000 in the year ended December 31, 1995 from
$49,000 in the period from June 22, 1994 (inception) through December 31, 1994.
The increase reflected the significant increase in the number of employees in
the Company during 1995.
18
20
The Company had foreign exchange losses of $88,000, $168,000, $158,000,$818,000, $783,000, and $2,000 during the nine months ended September 30, 1996 and 1995, the year ended
December 31, 1995, and for the period from June 22, 1994 (inception) through
December 31, 1994, respectively. Exchange gains and losses resulting from
remeasurement of assets and liabilities are recognized in income when they
occur. See Note 2(c) of the Consolidated Financial Statements. A substantial
portion of assets and liabilities of the Company are denominated in U.S.
dollars, including, for instance, shareholders' equity and capital lease
obligations. Additionally, it is the Company's policy to attempt to match local
currency receivables and payables. Hence, the amount of unmatched assets and
liabilities giving rise to foreign exchange gains and losses is relatively
limited, consisting mostly of cash and cash equivalents.
Other expenses, which includes general and administrative expenses other
than salaries, such as office rent, utilities, travel expenses and lease
restructuring costs, increased $236,000 to $775,000 in the nine months ended
September 30, 1996 from $539,000 for the same period in 1995. This increase was
due primarily to the growth of operations in both Hungary and Poland.
Other expenses increased to $656,000 in the year ended December 31, 1995
from $84,000 for the period from June 22, 1994 (inception) through December 31,
1994. This increase was due primarily to expansion of the Company's operations
during 1995.
Other expenses$701,000 respectively for the year ended December 31,
19951997 from $263,000, $290,000, and $254,000 for the nine monthsyear ended September 30,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 $76,000$207,000 and $133,000,$76,000, respectively, of
expenses which the Company has recorded as charges for penalties relating to the late payments of
customs duties and Hungarian value added taxes in connection with the
restructuring of its ATM leases in Hungary. Prior to thisany 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 scheme. The ATMs
are subject to a "re-export" requirement and this has the effect of postponing
payment of customs duties. The Company has decided to restructure such lease
arrangements as capital leases for Hungarian accounting purposes, and the
Company recorded the related penaltiescharges 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 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) of the Consolidated Financial
Statements. A substantial portion of the assets and liabilities of the Company
are denominated in U.S. dollars, including, for instance, fixed assets,
shareholders' equity and capital lease obligations. Additionally, it is the
Company's policy to attempt to match local currency receivables and payables.
Hence, the amount of unmatched assets and liabilities giving rise to foreign
exchange gains and losses is relatively limited, consisting mostly of cash and
cash equivalents. The Company has invested
27
in German mark denominated government securities as a hedge against certain
German mark denominated lease obligations.
Other operating expenses, which include marketing, depreciation, which
represents significant increase in 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 $70,000 to $177,000$1,609,000 for the nine monthsyear
ended September 30, 1996December 31, 1997 from $107,000$225,000 for the nine monthsyear ended September 30,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, during the nine months ended September 30, 1996, including restricted cash held as
security for certain of the Company's vendors, banks supplying cash to
Euronet's ATMs and certain other parties. See "-- Liquidity"--Liquidity and Capital
Resources".
Interest expense relating principally to capital leases of ATMs and
Euronet's computer systems increased $161,000 to $241,000 in$1,152,000 during the nine monthsyear ended
September 30,December 31, 1997 from $378,000 during the year ended December 31, 1996 from $80,000 inand
$107,000 during the nine monthsyear ended September 30,December 31, 1995. This increase was due
primarily to the increase of capital lease obligations outstanding during the
period.
Interest income for the year ended December 31, 1995 increased $114,000 to
$126,000 from $12,000 for the period from June 22, 1994 (inception) through
December 31, 1994. This increase reflected larger amounts held in interest
bearing accounts during the period.
Interest expense increased to $107,000 in the year ended December 31, 1995
from none in the period from June 22, 1994 (inception) through December 31,
1994. This increase was due primarily to the installation of the Company's first
ATMs during 1995 and the associated capital lease interest costs.periods.
Net loss. The Company's net loss increased $1.3 million to $2.6 million$7,965,000 during the nine monthsyear
ended September 30,December 31, 1997 from $7,576,000 during the year ended December 31,
1996 from $1.3 million forand $1,941,000 during the nine
monthsyear ended September 30,December 31, 1995 as a result of the
factors discussed.
The Company's net loss increased to $1.9 million during the year ended
December 31, 1995 from $228,000 for the period from June 22, 1994 (inception)
through December 31, 1994 as a result of the factors discussed.
19
21discussed 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 and through equipment lease
financing.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
$4.7 million$17,710,000 and investments in property, plant and equipment. The Company had
cash and cash equivalents of $776,000$7,516,000 and working capital of $(370,000)$33,496,000 at
September 30, 1996.December 31, 1997. The Company also had $783,000$847,000 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
officialsofficials. The Company expects to continue to generate losses from operating
activities, negative EBITDA and as deposits relatingnegative 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 ATM equipment leases.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 "Risk Factors--
Limited Operating History; Historical and Future Operating Losses and Negative
Cash Flow."
The Company leases the majority of its ATMs under two principal capital lease arrangements
that expire in Julybetween 1999 and January 2001, respectively.2002. The leases bear interest atbetween 11% and
15% and 11%, respectively.. As of September 30, 1996December 31, 1997 the Company owed approximately $2.9$14.5 million under such capital
lease arrangements. The amount owed byCompany anticipates using approximately $10,000,000 to
$12,000,000 of the Companyproceeds from the Offering to repay a significant portion
of the amounts outstanding under such lease agreements is expected to
increase significantly asarrangements.
At December 31, 1997, the Company continues to lease increased numbershad contractual capital commitments of
ATMs in pursuit of its business strategy.approximately $1.2 million. The Company expects that its capital requirements
will increase in the future as it pursues its strategy of
28
expanding its network and increasingincrease the number of ATMs installed.installed ATMs. The Company
anticipates that its capital expenditures for the 12 months ending December
31, 19971998 will total approximately $9$30 million, primarily in connection with
the acquisition of ATMs, pursuant to capital leases,
including initial down payments and scheduled capital lease payments on existing lease
obligations, and related installation costs. Aggregate capital expenditures
for 19971998 and 19981999 for such purposes are expected to reach approximately $30 million.$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. See "Business--Strategy". These requirements
contemplate both planned expansion in Hungary, and Poland, and
expected expansion in Germany, Croatia, the
Czech Republic and certain other Central European markets. Acquisitions of related
businesses in Central Europe and other markets in furtherance of the Company's
strategy wouldmay require additional capital expenditures.
The Company anticipates thatbelieves the estimated net proceeds offrom the Offering, and
the interest earned thereon, together with its
existing capital resourcescash flows from operations and anticipated cash flowremaining proceeds from planned operations,the 1997 equity
offering, will be adequate to satisfy its
capital requirements, capital lease payment obligations and other requirements,
including possible acquisitions, until the Company begins to generate sufficient
cash flows to fund the company's operating losses, debt
service requirements and capital expenditures associated with its operations.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.
INFLATION
SinceThe Company will have substantial indebtedness after the fallOffering. As of
Communist rule, both HungaryDecember 31, 1997, after giving pro forma effect to the Offering and Poland have experienced
high levelsthe
application of inflationthe net proceeds therefrom, the Company's total indebtedness
would be approximately $103.1 million, its stockholders' equity would be
approximately $49.2 million and the Company's total assets would be
approximately $158.5 million. The Indenture limits, but does not prohibit, the
Company and its subsidiaries from incurring additional indebtedness. See
"Description of the Notes." 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 fluctuationincrease in the
exchange ratenumber of ATM machines in any market area, the Company may require substantial
additional financing for their currencies. In particular,such purpose and to fund its working capital needs.
Such additional financing may be in the Hungarian forint has continued to
depreciate, principally by wayform of devaluation, againstadditional indebtedness which
would increase the major currenciesCompany's overall leverage. See "--Significant Capital
Requirements" and "Selected Financial Data", "Management Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Notes".
The level of the OECD in recent years and has limited abilityCompany's indebtedness could have important consequences to
convert to other currencies.
Although revenues generally are received byholders 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 local currency,
primarily Hungarian forints and Polish zlotys,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 Acceptance
Agreements and agreements relatingcash flow, if
any, must be dedicated to the provisionpayment 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".
BALANCE SHEET ITEMS
Cash and cash equivalents. 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 to
the expansion of operations in the countries where the Company
29
operated in 1996 and the new countries in which the Company has commenced
operations in 1997. For the same reasons, restricted cash increased from
$152,000 at December 31, 1996 to $847,000 at December 31, 1997. The increase
in 1997 was primarily attributable to a lease deposit. The increase in
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.
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. 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.
Property, plant and equipment. 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 management services
generally provideleases. Deposits for feesATM 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. 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 increased from $1,670,000 at
December 31, 1996 to $4,420,000 at December 31, 1997. The increase is due
primarily to the significant increase in operations in 1997, including
approximately $2,000,000 related to ATM purchases. 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.
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 U.S. dollarsPolish zloty. However the majority of these contracts are
linked either to inflation or the retail price index. While it remains the
case that are inflation
adjusted. Aa significant portion of the Company's expenditures including costs
associated with the acquisition of ATMs and executive salaries, are made in or
are denominated in U.S. dollars. Adollars 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.
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 CompanyOECD 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
30
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 also 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. dollars, including
shareholders' equitydollar. It is expected that the functional currency of the
Company's Czech subsidiary will also be the U.S. dollar.
Germany and capital lease obligations. The Company attempts to
matchFrance 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 receivables and payables. Hence,of the amount of unmatched
assets and liabilities giving rise to foreign exchange gains and lossesCroatian company is relatively limited, consisting mostly of cash and cash equivalents. Nonetheless,the U.S. dollar due to the extentsignificant
level of U.S. dollar denominated revenues and expenses. Due to the factors
mentioned above, the Company does not believe that inflation exceeds the devaluation of local currencies, the
financial condition andwill 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.
The Company may be affectedhas 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 inflationthe
fourth quarter 1998. Most of the ATMs in the countries whereEuronet 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 operations are located.
20ATMs will require upgrades for year
2000 compliance. See "Business--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." Comprehensive income can be
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company had no
significant comprehensive income during the period.
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.
31
22
BUSINESS
OVERVIEW
EuronetThe 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 currently
operatesand
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 February
28, 1998 the Company operated a network of 165754 state of the art ATMs, 130 of which arewith 348
located in Hungary, 317 in Poland, 54 in Germany, 32 in Croatia and 35 of which are located3 in Poland.the
Czech Republic. Through agreements and relationships established with local
banks, international credit and internationaldebit card issuers and ATM networksassociations of card
issuers such as American Express, Diners Club International, VISA, Plus, Mastercard
Europay and CirrusEUROPAY (together "International Card Organizations") Euronet's, the Company's ATMs
are able to process ATM transactions for holders of credit and debit cards
issued by or bearing the logologos 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 banksbank or International Card OrganizationsOrganization for allany ATM transactions
processed on itsthe 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 outsourcedout-sourced ATM management services
to local banks that own proprietary ATM networks for which the Company
also receives fees ona fixed monthly fee and a per transaction basisfee. 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 . , 1998 the Company's equity
market capitalization was approximately $ . 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 13% of the issued credit
and debit cards, and it expects to be able to accept 34% by the end of March
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 three ATMs which are currently able to accept VISA cards.
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
on a
monthly basis.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").
32
The Company believes that the level of services it provides permitand the location
of its ATMs make it an attractive service provider to capitalize
on the trends developing in the Central European banking market. Bank account
usagebanks and credit and debit card issuance are increasing in Central Europe as the
demand for banking services continues to grow in the region. ConnectingInternational
Card Organizations. By connecting to the Company's ATM network, enableslocal banks tocan
offer their customers the convenience of cash withdrawal and balance inquiry
services in numerous off-site locations without incurring additional branch
operationaloperating costs. In addition, the Company
believes that the services it offers are attractive to domestic banks in the
increasingly competitive banking market in Central Europe because such banks can
generally connect to Euronet's network with less labor and expense than building
their own networks. In addition,Alternatively, banks can outsource the management of their
proprietary ATM networks to the Company. These services allow banks to provide
ATM access toCompany, thereby reducing their customers, expandingoperating
costs and improving the rangeallocation of banking services they
offer. "Western" banks entering the Central European market are already
accustomed to the concept of shared ATM networks and have also begun to connect
to Euronet's ATM network.
Euronet's ATM machines currently accept over 90% of the domestic credit and
debit cards issued in Hungary and 25% of the credit and debit cards issued in
Poland. In addition, all major international credit and debit cards, including
those bearing the VISA, Plus, Europay, Mastercard and Cirrus logos and American
Express cards, may be used at Euronet's ATMs located in Hungary and all VISA,
Plus and American Express cards may be used at Euronet's ATMs located in Poland.
HISTORY
The predecessor of Euronet was founded in 1994 by Michael Brown and Daniel
Henry in Budapest. Mr. Brown previously founded Innovative Software and,
subsequent to its merger with Informix Software Inc. (Informix), served as
President of Informix. Mr. Brown currently serves as President and Chief
Executive Officer of the Company. In February 1995, the Company became the first
independent ATM network in Europe to be approved by VISA International to
process ATM transactions for VISA/Plus credit and debit cards. In May 1995, the
Company established its second office, in Warsaw. To date the Company has
invested approximately $6.5 million in operational and capital expenditures to
establish its independent ATM network. Euronet's first ATM was installed in
Hungary in June 1995 and its ATM network today consists of 165 ATMs. The Company
currently employs 55 employees in Hungary, Poland and Germany. Euronet's annual
revenues have grown from none for the period from June 22, 1994 (inception) to
December 31, 1994 to $62,000 in 1995 and $638,000 in the first nine months of
1996.
In March 1996, the predecessor of the Company was reorganized as a holding
company, Euronet Holding N.V., in the Netherlands Antilles. Euronet Services
Inc. was incorporated in Delaware in December 1996 and, conditional upon the
execution of the underwriting agreement to be executed in connection with the
Offering, (i) 9,585,569 shares of its Common Stock will be issued to the
shareholders of Euronet Holding N.V. in exchange for all of the Common Shares of
Euronet Holding N.V., (ii) options to acquire 3,113,355 shares of its Common
Stock will be granted to the holders of options to acquire 3,113,355 Common
Shares of Euronet Holding N.V. in exchange for all of such options and (iii)
awards with respect to 800,520 shares of its Common Stock will be issued to the
holders of awards with respect to 800,520 preferred
21
23
shares of Euronet Holding N.V. in exchange for all such awards. Euronet Holding
N.V. will be dissolved following the Reorganization.
STRATEGY
The Company's strategy, for the short term, is to become the leading
low-cost ATM service provider in Central Europe meeting western standards of
reliability and customer service and, for the medium term, to become a leading
provider of a broader range of electronic fund transfer services in the region.
The key elements of Euronet's strategy are as follows:
Expanding its ATM Network in Hungary, Poland and other Central European
Markets. Euronet plans to increase substantially the number of ATMs it operates
and services in Hungary, Poland and other countries in Central Europe, including
Germany, over the next five years. Toward this goal, Euronet currently has
agreements with IBM World Trade Corporation ("IBM") (the supplier of Diebold
ATMs in Europe) and NCR Corporation ("NCR") under which IBM and NCR will provide
up to 800 ATMs for installation by Euronet in the region over the next two
years.their own resources. In addition, the
Company has entered into agreements providing for 50
additional sites for Euronet ATMs in Poland and Hungary andbelieves that the Company has
identified or is currently in negotiations for approximately 100 new ATM sites
in Poland, 40 new ATM sites in Hungary and 60 new ATM sites in Germany.
The Company's current goal is to have in operation, or to provide ATM
network management services with respect to, between 2,500 to 3,000 ATMs in
Central Europe by the end of the year 2000. Thereafter, the Company currently
intends to continue to increase the number of ATMs in its network and to
increase the number of ATMs with respect to which it provides ATM network
management services forpermit it to capitalize on the
foreseeable future. The Company's ability to achieve
these goals will depend on various factors including the increased demand for
ATM servicesincrease in the Company's current target markets, the ability to locate
appropriate sites and obtain necessary approvals for the installation of ATMs,
the ability to install ATMs in an efficient and timely manner, the expansion of
the Company's business into new countries as currently planned, entering into
additional Acceptance Agreements with banks, the ability to obtain sufficient
numbers of ATMs on a timely basis and the availability of financing for such
expansion.
Forming Strategic Relationships with Banks and International Card
Organizations. It is the Company's goal to be able to accept all credit and
debit cards issued in its markets at its ATMs. The Company has entered into
agreements with most of the banks in Hungary that issue credit and debit cards
and Euronet's ATMs are able to accept over 90% of all credit and debit cards
issued by Hungarian banks. The Company is attempting to follow this pattern in
Poland. Since the establishment of operations in Poland in May 1995, Euronet has
entered into agreements to accept credit and debit cards issued by Wielkopolski
Bank Kredytowy S.A., Bank Depozytowo-Kredytowy w Lublinie S.A. and Bank
Wspoffipracy Regionalnej S.A. Krakow which, together with all domestically
issued VISA cards, allows the Company's ATMs to accept approximately 25% of all
credit and debit cards issued by Polish banks. The Company is actively pursuing
contracts to accept credit and debit cards from all other major banks in Poland,
and will do the same in each market it decides to enter.
The Company's ATMs are able to accept American Express cards and all credit
and debit cards bearing the VISA/Plus logos in Hungary and Poland and all credit
and debit cards bearing the Europay/Mastercard/Cirrus logos in Hungary. The
Company believes that, in addition to providing transaction revenues, acceptance
by such large international ATM card issuers and ATM transaction authorization
centers gives the Company credibility with local banks as it enters new markets.
Therefore, the Company will continue to pursue relationships with such entities
in each market it enters.
Expanding the Range of Services Offered. The Company plans to take
advantage of the various distribution possibilities of ATMsbank account usage and credit and debit cards beyond basic cash withdrawal and balance inquiry functions by providing
innovative services through ATMs and other methods of electronic funds transfercard issuance in Central
Europe as new technology develops and the demand for suchbanking services growscontinue to grow in the region.
THE ATM MARKET OPPORTUNITY IN EUROPE
The Company believes there are a number of trends occurring in its markets. The Company isexisting
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
unique positionaggregate. The long term sovereign credit ratings of having connections tothese 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 transaction authorization centersCzech Republic, and Croatia have recently experienced
significant growth in their economies, with 1997 real gross domestic product
growth estimates for each of banks that have issued over 90%these countries of credit3.0%, 5.5%, 4.7%, and debt cards in Hungary.7.0%,
respectively. In recent years, each of these countries has encouraged foreign
private investment. In 1995, direct foreign investment, was $2.9 billion for
Hungary, $1.2 billion for Poland, $2.5 billion for the future, these connections could allow the
Company to act as a central "switch" or connection whereby point of sale
authorization can be givenCzech Republic, and $81
million for purchases made with credit and debit cards at
retail
22
24
locations. As the Company develops its business in Poland and connects more
Polish banks to its network, this capability may also develop in Poland.
Euronet also plans to introduce payment processing capabilities on its ATMs
which will allow ATM card holders to pay bills at ATMs. The Company is currently
working to develop an ATM bill paying system that will be made available to
utilities and other service providersCroatia while for bills that have traditionally required
payment in person at a post office or other central location. Depending on
demand, the Company may also introduce other ATM services currently available in
other markets, including the ability to check stock or mutual fund account
balances and purchase items such as stamps, theatre tickets and travellers
checks at its ATM machines.
The Company's ATMs are modular and upgradeable so they can be adapted for
use with new technologies including computer chip "smart cards" and "electronic
purses". Such devices are electronic debit cards that can be used to withdraw
cash from ATMs and can be "charged up" with electronic funds at an ATM through a
connection with the cardholder's bank via Euronet's network and used to purchase
goods from retail locations.
In addition, the Company plans to continue to sell advertising on its ATMs
allowing clients to put advertisements on the ATM's videoscreens, on receipts
issued by the ATMs and on coupons dispensed with cash from the ATMs.
Expanding ATM Network Management Services. The Company also offers
full-service ATM network management services to banks that own proprietary ATM
networks. Because of the economies of scale involved, the Company can purchase
ATMs, computer equipment, maintenance, telecommunications services, and can
contract with third parties for cash delivery services, less expensively than
most banks in Central Europe. By acquiring these services and this equipment
less expensively, and by running a focused operation, the Company can provide
out-sourced ATM services in most cases less expensively than banks can perform
the same functions internally. In December 1996, the Company signed an agreement
with Budapest Bank to manage its network of over 120 ATMs in Hungary.
THE CENTRAL EUROPEAN FINANCIAL SERVICES MARKET
The economies of the Central European countries, including Hungary and
Poland, are essentially cash based because efficient electronic funds transfer,
ATM services and check cashing and clearing facilities have not yet developed.
Most employeesdirect foreign investment in these
countries have historically been paid in cashwas $2.8 billion, $2.5 billion, $1.4 billion, and most
purchases and bills have been paid for in cash. As$349 million,
respectively. In addition to a result, bank account usage
has been relatively low in Central Europe compared to Western Europesteady inflow of foreign investment, Hungary,
Poland and the United States,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 is less developed than
in Western Europe and the United States. The Central European banking industrygenerally has generally been characterized by low
levels of customer service, limited openingoperating hours, and long waitswaiting time to
complete simple transactions. Electronic
banking, including electronic funds transfer, ATM and pointWith the fall of sale services
have recently been introduced in the region, but are still in the early stages
of development.
In recent years bank account usage in Central Europe has grown
substantially as a result of several factors. Legislation recently passed in
Hungary requires that all civil servants receive their salary via direct deposit
to bank accounts or in cash by mail in order to reduce administrative costs
associated with a cash-based payroll system. Many private companies in Hungary
and Poland have also begun issuing their payroll by direct deposit to bank
accounts. As a result, many people who ordinarily would not have bank accounts
have been forced to open accounts to access their salary. Given the nature ofcommunism, the banking systemsector
in thesemost Central European countries ATMs arehas undergone a significant transformation
due to the most convenient method for
such employeesinitiation of privitasation programs and the adoption of free
market principles. These changes have allowed banks the opportunity to access their salary. The Company expects that continued
utilizationexpand
the range of the bank transfer method of administering payroll will lead to
increased bank account usageservices and increased demand for ATM services in Central
Europe.products offered. In addition, the retail banking industry inmany Central Europe has become
increasingly competitive in recent years partly becauseEuropean
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 branchesbanks or invest in local banks in the
region. Many
banksregion, 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. ElectronicThe Company believes that banks view electronic
banking is oneand the issuance of the obvious extensions of customer
service options available to increasedebit and credit cards as methods for increasing
customer service and enhanceenhancing customer loyalty.
Low ATM Density and Card Issuance in Central Europe; Significant Growth
Potential. The Company 23
25
believes that as bankstwo principal drivers of an ATM business
in Central Europe increase customera developing economy are ATM density per million people and electronic
banking services, bank account usage and credit and debit card issuance
and
usage will increase.
In Hungary,as a percentage of the population. The Company estimates that as of December 31, 1996
approximately 22%January
1997 there were 97 ATMs per million of population in Hungary, 17 ATMs per
million of population in Poland, 115 ATMs per million of population in the
Czech Republic and 15 ATMs per million of population had bank accounts which represents an
increase from an estimated 8%in Croatia. These figures
compare with 478 ATMs per million of population in Austria, 376 ATMs per
million of population in the United Kingdom, 422 ATMs per million of
population in France, 466 ATMs per million of population in Germany, and 522
ATMs per million of population in the United States as of January 1997. Based
on information compiled by the Company, as of January 1, 1997, the number of
cards issued as a percentage of population is 21% in Hungary, 3% in Poland,
14% in the Czech Republic, and 9% in Croatia as compared with
33
110% in Austria, 151% in the United Kingdom, 90% in France, 123% in Germany
and 254% in the United States at the same time in 1995. The
first ATM card was issued in Hungary in 1989 and as of December 31, 1996, the
Company estimates that there were approximately 1.1 million debit and credit
cards issued in Hungary, which reflects an increase of more than 50% over the
estimated number of credit and debit cards issued as of the same time in 1995.date. The Company believes that there were approximately 1,080the lower
ATM machines installed
in Hungary as of December 31, 1996, 130 of which were owned by the Company. The
Company estimates that, based on industry sources, the average number of ATM
transactions per machine on a nationwide basis per month in Hungary in 1996 was
approximately 1,200.
The Polish banking industry is in the very beginning stages of advanced
retail customer service, creditdensity and debit card issuance and electronic banking
services. According to industry sources, it is estimated that approximately 15%
of the population have bank accounts. The Company believes that the market for
retail banking services in Poland is developing rapidly. The Company estimates
that there are currently more than 800,000 international and domestic credit and
debit cards and approximately 450 ATMs in Poland compared to less than 200,000
total credit and debit cards issued and less than 250 ATMs operating one year
ago.
An important factor affecting the increase in bank account usage and credit
and debit card issuance in these Central Europe is the growth in the issuance of VISA
and Europay credit and debit cards tied to local bank accounts.European countries provide
potential for significant growth.
The banks in Hungary and Poland originally issued VISA and EuropayEUROPAY cards
only to their best customers at relatively unfavorable terms, which often
included a high deposit of hard currency earning little or no interest, high
percentage charges per transaction and high annual fees. Competitive pressure
has led to more favorable terms and the issuance of VISA Europay and proprietaryEUROPAY cards to
maintain and attract customers. AsThe number of VISA cards in circulation in
Hungary has increased from approximately 190,000 in June, 1996 to 715,000 in
December 1996,1997. In Poland there were approximately 125,000150,000 VISA cards issued in Poland, compared with less than 10,000 VISA cards in 1992. As of
March 31, 1996, there were approximately 110,000 VISA cards issued in Hungary,
representing an increase of 40% from 80,000 VISA cards as from December 31,
1995. The first Europay card was issued in Poland in 1995 and as
of December, 1996, there were approximately 200,000 Europay cards issued in Poland. As of
March 31, 1996, there was approximately 336,000 Europay cards issued in Hungary
which represents an increase of 12% from 300,000 Europay cardscompared to 317,000 as of December 31, 1995.
The German ATM market,1997. This is
significant in the development of the Company's next targetbusiness 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 provision
ofCompany's services including (i)
installing ATM's in high traffic, non-bank locations, (ii) providing ATM
outsourcing and management services is more developed thanto 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. The Company believes it can offer banks
convenient turn-key year 2000 compliance solutions, including purchasing an
existing ATM network and performing all the necessary upgrades.
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
34
sites, at low cost. Examples of the Company's otherhighly visible locations include
McDonald's, gas stations such as ARAL, OMV, British Petroleum, and Shell, food
stores such as Tesco, Julius Meinl, Tangelmann, 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 Provider 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 December 31,
19961997, the Company estimates that, based on industry sources,
there were approximately 38,000 ATMs and 70 million credit and debit cards
issued in Germany. The Company believes, however, that the ATM market in the
former East Germany is less developed and Euronet intends to focus its ATM
strategy in Germany on this region. Under German law, ATMs are subject to
essentially the same licensing requirements as bank branches and may only be
operated by licensed financial institutions. The Company intends to behad a service
provider tototal of 21 card acceptance agreements with banks and
International Card Organizations in four countries and it does not anticipateis 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 it will be subject to German
financial institution licensing requirements. As a result of an agreement
between certain card issuing banks in Germany, all ATMs in Germany can accept
virtually all credit and debit cards issued by German financial institutions. An
agreement to providethe banks may be
used at all ATM management services to one bankmachines operated by Euronet. Through agreements with local
sponsor banks in Germany will
therefore result in ATMs managed byHungary and Poland, Euronet beingis able to accept virtuallyall 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 German financial institutions.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 ATM market is stillCompany expects to begin accepting American Express cards in
Croatia under this agreement at the end of March. This will enable the Company
to accept approximately 34% of the cards issued in Croatia. Prior to being
permitted to accept VISA/Plus, Mastercard/EUROPAY/Cirrus and American Express
cards at its early stagesATMs, 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 developmentATMs in Central Europe. Based on examplesWith
over 754 ATMs in operation and a monthly average of growth50 ATMs purchased or
leased for the six months ended February 28, 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
marketsmanufacturers and believes that it receives favorable prices as compared to
lower volume purchasers. The Company has long term contracts with
35
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 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 shouldand 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 provider 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
36
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 rapidly. For example, Portugal, whichcooperative 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 onein 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 most recentlyCompany'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 ATM
marketsthe "Blue Diamond" service.
In connection with this service, Euronet acts as a consultant in Europe, has seen substantial growththe
installation of the hardware and software necessary to assist banks in its ATM market sinceissuing
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 were first introducedbeyond 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 1985. By 1996 there were
approximately 5 million creditits markets. The Company currently sells
advertising on its ATM video screens, on receipts issued by the ATMs and debiton
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, issuedcheck 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 Portugalthe 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 hasit 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) 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 populationlocal or international bank partner or Card Issuer in order
to enhance its ability to quickly establish a market presence.
37
The Company is evaluating new markets for long term development, including
both emerging and developed markets in Europe and elsewhere. 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
approximately 10 million people.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 addition,developing its network in other markets, the numberCompany 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
useHungary and Poland until transactions per ATM increase in Portugal has grown to over 3,000 atthose countries.
During the endfirst half of 1995. These ATMs
processed approximately 200 million ATM transactions1998, the Company will focus its efforts on
developing its network in 1995.
24
26the Czech Republic, Germany, Croatia and France.
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
GENERALGeneral. The Company currently operates ATMs in Hungary, Poland, the Czech
Republic and PolandCroatia. 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 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
Czech Republic and other countriesappropriate 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 Central Europe. Euronet's ATM network
offersthose markets. The Company's approach to
these markets will be to enter into agreements with banks an opportunity to provide state-of-the-art electronic financial
services andhaving access to
these switches as an ATM network to their customers at a considerably lower
cost than installing proprietary ATMs. Connecting to Euronet's ATM network also
augments the numberoperator of ATMs available to customersunder sponsorship of banks that already
maintain their own ATM networks. The technology utilized to build Euronet's ATM
network is designed to be readily accessible and easy to use.
Thethe bank, as a pure
service provider (as the Company currently has 130done in Germany under its contract with
Service Bank GmBh ("Service Bank")). See "--Germany."
Hungary. As of February 28, 1998 the Company had 348 ATMs installed in
Hungary as part of its independent network, primarily in the country's six
largest cities. Euronet has entered into agreements ("Acceptance
Agreements") with most major banks in
Hungary that issue ATM cards allowing all credit and debit cards issued by
such banks to be accepted at Euronet's ATMs. In addition, the Company has
entered into agreements with American Express, Diners Club International and
sponsor banks that are members of VISA International and
Europay/EUROPAY/Mastercard/Cirrus allowing cards issued by American Express and those
cards bearing the VISA, Plus, Europay, Mastercard and 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 accept over 90%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 December 31, 1997,
Euronet currently has 35was 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.
Poland. As of February 28, 1998 Euronet had 317 ATMs installed in Poland.
Euronet hashad executed Acceptance Agreements with Polish banks accounting for approximately 25% of the
credit and debit cards issued byseven Polish banks. The
Company has also entered into agreements with American Express, Diners Club
International and a sponsor bankbanks affiliated with VISA International and EUROPAY
38
allowing all cards issued by American Express and all credit and debit cards
bearing the VISA and PlusVISA/Plus/EUROPAY/ Mastercard/ Cirrus logos to be used at
Euronet's ATMs in Poland. As a result of these agreements the Company's ATMs
in Poland are currently able to accept 63% of credit and debit cards issued by
Polish banks. The Company intends to pursue a strategy similar to that
employed in Hungary in order to reachincrease 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 February 28, 1998 the Company was servicing 54 ATMs. The Company intends to
increase the number of ATMs substantially during 1998. Although Euronet
locates ATM sites under this contract for Service Bank, the site agreements
allowingare 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 PolandGermany 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 February 28,
1998, Euronet had 32 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 35% of the cards in the
Croatian market.
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 February
28, 1997, the Company had installed three 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 used at Euronet's ATMs.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.
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
39
to Euronet's central authorization and processing center (the "Processing Center").Processing Center. The Company's Processing Center computers then
identify the card issuing banks or
International Card Organizations (the "Card Issuers")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 Issuer orOrganization (or its designated processorprocessor)
for authorization. Once authorization is received, the authorization message
is routed back to the ATM and the transaction is completed. [DIAGRAM OF TYPICAL ATM TRANSACTION]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' account
informationauthorization limits on its
Processing Center computers and authorizes transactions on
25
27 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 processing the transaction, including forcertain transactions that are not
completed because authorization is not given by the relevant Card Issuer. The
fees charged by Euronet to the Card Issuers are independent of any fees
charged by the Card Issuers to cardholders in connection with the ATM
transactions. The Company does not charge the cardholders a fee for using its
ATMs. In many cases the fee charged by a Card Issuer to a cardholder in
connection with a transaction processed at Euronet's ATMs is less than the fee
charged by Euronet to the Card Issuer.
The average number of transactions processed each month at Euronet's ATMs
in Hungary in the last three months of 1996 has increased approximately 25% per
month. In the last three months of 1996, Euronet's ATMs in Hungary averaged
1,716 transactions per ATM per month (1,162 of which were cash withdrawals).
ATM LocationLOCATION
The Company believes that one of the most important factors in determining
the success of an ATM network is the location of the ATMs. While most ATMs
owned by Central European banks are located on the premises of the banks or itstheir
branches or on premises of large employers paying their employees by direct
deposit, 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, and
intersections;(ii) busy intersections, (iii) local smaller
shopping areas or intersections offering grocery stores,
and supermarkets and services where people
routinely shop;shop, (iv) mass transportation hubs such as city bus and tram/subway
stops, rail and bus stations, airports and gas stations;stations, and the(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 must beare significant problems with a
location, such as a machine frequently being out of service, to change the pattern of usage of a cardholder.service. It is the
Company's goal to be the first and the fastest 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, in Hungary, several McDonald's
restaurants, several ARAL, OMV and Shell gas stations, Tesco supermarkets,
Ikea as well as other major retail sites in Budapest, Debrecen, Kaposvar, Gyor
and Szekesfehervar. In Poland, the Company has signed contracts to place ATMs
in many key locations including McDonald's restaurants, British Petroleum,
Shell and ARAL gas stations, the Warsaw Marriott Hotels, Office Depot,Hotel, Makro Cash and Carry and Ikea
stores, Casinos Poland, and other hotel and retail outlets in Polish cities.
In Germany, the Polish
cities of Warsaw, Szczecin, Gdansk, Poznan, Lodz, Lublin, Krakow, Katowice,
WroclawCompany is installing Service Bank ATMs in Metro stores and
Czestochowa.Tangelmann group stores (which include Tangelmann, Kaiser's, Magnet/Grosso and
Plus food stores). It is part of the Company's strategy to expand its
relationships with such large multinational companies which have multi-location
businesses to obtain additional sites
for ATMs in other markets. Before expanding to Poland, Euronet had placed ATMs
at Shell, McDonald's and ARAL locations in Hungary. The Company recently
installed ATMs in the new 450,000 square foot Duna Plaza shopping mall in
Budapest and in the new 600,000 square foot Polus Centre shopping mall in
Budapest.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
40
generally provide for an indefinite term.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 fiveseven year term and are renewable for additional three
to five year terms. In somemost cases, the site providers pay the Company a rental feepays rent for the ATMsites,
although such rent is substantially lower than the average rental rate in
recognition ofWestern European countries. Generally, the benefits that an ATM can bring to a retail outlet. The
Company's fixed term leases for ATM
sites generally can only be terminated by a site provider if the Company defaults on its
obligations. To date, none of the Company's leases have been terminated by
site providers. The Company canCompany's leases in Poland generally terminate its leases for ATM sites in Polandinclude 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 and can generally terminate its leases for ATM sites in Hungarythere for any
reason. 26
28
Agreements with Card Issuers and International Card OrganizationsTo 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 threetwo 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 anya bank to its network within 30 to 90
days of signing an Acceptance Agreement.
In addition to the Acceptance Agreements with local banks, Euronet has
entered into Acceptance Agreements with American Express providing for the
acceptance of all credit and debit cards issued by American Express at all of
Euronet's ATMs in Hungary and Poland. Through agreements with local sponsor
banks in Hungary and Poland, Euronet is able to accept all credit and debit
cards bearing the VISA, Plus, Mastercard, Europay and Cirrus logos at its ATM in
Hungary and all credit and debit cards bearing the VISA and Plus logos at its
ATMs in Poland. These arrangements permit Euronet's ATMs to accept credit and
debit cards issued by domestic and foreign financial institutions bearing the
relevant logos. Euronet has a gateway to the central authorization centers for
VISA/Plus and Mastercard/Europay/Cirrus through local bank sponsors in Hungary
and Poland and has direct access to American Express authorization centers.
Prior to being permitted to accept VISA/Plus, Mastercard/Europay/Cirrus and
American Express cards at its ATMs, the Company was required to demonstrate that
it met all standards set by International Card Organizations to process
transactions for such International Card Organizations.
Banks that execute Acceptance Agreements agree to participate in Euronet's
ATM cash supply system. According toUnder 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 dailythe 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 need. Each banking day, card issuing banks connected
to the Euronet network provide cash tovolume of the Company's settlement agent based upon
the prior day's transaction reports.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.
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 executed (cash withdrawals;(which are currently cash
withdrawals, balance inquiries;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
$1.00$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
41
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. CardThe Company attempts to include a
provision in its Acceptance Agreements to the effect that card issuing banks
generally agreewill not to charge their cardholders more for using Euronet's ATMs than the
banks' own ATMs and generally charge lowerATMs. However, it is not always successful in obtaining agreement
to this provision. More recently, some banks have increased the amount of fees
or no
fees at all for cardholders that use Euronet's ATMs.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. It is expected that theThe Company's
agreement with its sponsor bankService Bank in Germany to manage and install ATMs for the sponsor bank
will provideprovides for
fees similar to those paid with respect to Acceptance Agreements. The
Company's agreements to provide ATM management services, other than in
Germany, willare expected to provide for monthly management fees plus fees payable
for each transaction. The tables below indicatetransaction 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
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
February 28, 1998, the Company was maintaining 54 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 120 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 in Hungary in July of 1997.
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.
42
Acceptance and Management Agreements
The following table sets forth bank and card issuer agreements with the
Company.
BANKS INCompany as of December 31, 1997. It also identifies whether the agreement is
an Acceptance Agreement or an ATM Management Agreement.
ACCEPTANCE AGREEMENTS
HUNGARY
Orszagos Takarekpenztar es Kereskedelmi Bank Rt.Orszagos es Takarek Penztar Bank ("OTP")(1)
Magyar Kulkereskedelmi Bank Rt. (MKB)
(OTP)
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.
27
29
BANKS INING(2)
American Express
Diners Club International
POLAND
Wielkopolskie Bank Kreditowy S.A.
Bank Depozytowo-Kredytowy w Lublinie S.A.
Wielkopolskie Bank Kreditowy S.A.
Bank Wspoffipracy Regionalnej S.A. Krakow
Bank Polska Kasa Opieki S.A.
Bank Przemyslowo--Handlowy SAs
Cuprum Bank SA
Bank Rozwoju Eksportu SA
CROATIA
Diners Club International
Atlas American Express
Raiffeisenbank Austria
CZECH REPUBLIC
Bank Austria
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.
The banksagreements with MKB, WBK, Bank Austria and Raiffeisenbank permit Euronet
to process all VISA cards issued in Hungary, Poland and the Czech Republic,
respectively. The agreements with OTP and WBK permit Euronet to process all
EUROPAY cards in Hungary and Poland, respectively. The Company can accept all
VISA and EUROPAY cards in Germany through its agreement with Service Bank.
43
In January 1998, OTP notified the Company that it was terminating its
contract with Euronet effective as of July 27, 1998. 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. The Company will, however,
still be able to accept all OTP issued VISA and EUROPAY cards through its VISA
and EUROPAY gateways. For the year ended December 31, 1997, the Company's
contract with OTP represented approximately 51% of its consolidated revenues.
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.
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 Acceptance Agreements have issued an
aggregateits 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 approximately 800,000sale authorization for purchases made at retail
outlets with credit and debit cards. TheIf such services are implemented by the
Company, purchases made with cards issued by banks in Poland that have signedexecuted
Acceptance Agreements have issued an aggregate of 124,000
credit and debit cards. Through the Company's arrangements with sponsor banks in
Hungary and Poland, Euronet's ATMscards connected to international ATM networks that
are able to accept all VISA/Plus and
Europay/Mastercard/Cirrus cards in Hungary and all VISA/Plus cards in Poland
regardless of whether the card issuing bank is connected to the Euronet network.ATM network would be able to be authorized
through Euronet's Processing Center, generating additional transaction fees.
The Company's ATMs are ungradable 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 Technologyat 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
44
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 238,108 in
January 1997 to 892,414 in December 1997. 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
1.9% in April and 4.1% in September, but was 14% in October and 24% 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.
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 upgradeableungradable 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 of Euronet's ATMsATM 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
45
improves, the Company may rely more heavily on them because they are generally
less expensive than satellite telecommunications.
The Processing Center, which is located in Euronet's Budapest office, is
staffed 24 hours a day, seven days a week and consists of two production IBM
AS400 computers which run the ArksysARKSYS Gold Net ATM Software package. Thissoftware 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.
TheTo protect against power fluctuations or short term interruptions, the
Processing Center has full uninterruptable power supply systems with battery and diesel power
back-up to service the network in case of a power failure. The Processing
Center's data back-up systems would prevent the loss of transaction records
due to power failure. The Company's agreements with its
satellite providers provide for certain assurances with respect tofailure and permit the repair of
satellite malfunction to ensure continuous reliable communications for the
network. The satellite provider for the Processing Center guarantees
uninterrupted service for 99%orderly shutdown of the time. Before the end of the first quarter
of 1997, theswitch in an
emergency.
The Company is formulating plans to establishcreate an off-site disaster recovery
back up system in Budapest to provide protection against both natural and man-made
disasters. In 1996, Euronet's network operated uninterrupted for 99%Because such a disaster recovery site would require duplication of
all of the time
excluding scheduled system back-uptelecommunications and maintenance periods.
Euronet has entered into multi-country purchasing agreements with IBM and
NCR providing forprocessing capabilities of the supply of up to 800 ATMs to Euronet over the next two
years. The Company generally finances the acquisition of ATM machines through
capital leases.
28
30
ATM NETWORK MANAGEMENT SERVICES
The Company recently began offering complete ATM network management
services to banks that own proprietary ATM networks. These services include: ATM
terminal driving, real-time transaction authorization, advanced monitoring,
network gateway access, network switching, 24 hour customer services,
maintenance services and settlement and reporting.
These services can be offered by Euronet to banks at a
savings over
managing their own network due to the Company's economies of scale. Sincesecond location, the Company has already contracted for manyestimated the cost of these services and providessuch center at $1
million if it is required to establish the services as partsite on its own. Euronet had
intended to put such a center in place in Hungary in 1997, but the high cost
of its own operation, this allowssuch a system has led the potential for additional
revenue with lower incrementalCompany to seek methods of reducing the cost since Euronet has already invested(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 necessary infrastructure.
The ATM network management services provided byrecovery
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 will include
managementprocess its German transactions in a member state of an existing network of ATMs or a newly purchased ATM network. This
includes 24 hour monitoring of those ATMs from its Processing Center of each
individual ATM's status and cash condition, coordinating the cash delivery and
management of cash levels in the ATM and automatic dispatch for necessary
service calls. Euronet will also be able to provide these managed ATMs access to
those international cards and networks that are connected to the Euronet
network.
In December 1996, the Company signed an agreement with Budapest Bank to
manage its ATM network in Hungary. This contract is expected to be implemented
by May of 1997. Further, the Company is currently negotiating with a bank in
Germany to provide installation and management services to expand the bank's
existing ATM network in Germany in non-bank branch locations.
OTHER SERVICES
Euronet is currently working toward offering on-line point of sale
authorization for purchases made at retail outlets with credit and debit cards.
Purchases made with cards issued by banks that have executed Acceptance
Agreements and cards connected to international ATM networks that are connected
to the Euronet ATM network would be able to be authorized through Euronet's
Processing Center, generating additional transaction fees.
Euronet also plans to introduce payment processing capabilities on its ATMs
which would allow ATM card holders to pay utility bills, check stock and mutual
fund account balances and purchase stamps, theatre tickets, travellers checks
and other items at its ATM machines.European
Union. The Company is currently workingnow expects to develop
an ATM bill paying system that would be made available to utilities and other
service providers for bills that have traditionally required payment in person
at a post office or other central locations. In addition, the Company's ATMs are
upgradeable so that they can be updated to be used with new technologies
including computer chip "smart cards" which are electronic debit cards which can
be used to withdraw cash from ATMs as well as being "charged up" with electronic
funds at an ATM through a connection with the cardholder's bank and used to
purchase goods from retail locations.
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 issuedestablish such back up site by the ATMs and on coupons dispensed with
cash from the ATMs. Advertising revenues currently average approximately $200 to
$250 per month for ATM carrying advertising.late 1998.
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 regionaltheir
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 four 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
internalspecialized, repetitive functions such as ATM maintenance and repairinstallation,
cash delivery and security. As a result, the Company's labor requirements for
operation of the network are relatively low.modest and are centered on monitoring
activities to
46
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.
As of December 31, 1996, the Company and its subsidiaries had approximately 6058 full-time
employees, 3736 of which
29
31 were located in its Budapest office, 21 in its Warsaw
office and 1 in its Frankfurt office. As of December 31, 1997 the number of
employees was 178 full-time employees, with 79 located in Hungary, 73 in
Poland, 7 in the Czech Republic, 8 in Germany, 9 in Croatia 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 as described in the
Prospectus, 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 are subject to essentially the same licensing
requirements as bank branches andin Germany may only be operated only by licensed financial
institutions. The Company, intendstherefore, 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 beService
Bank. As a service providerresult, 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 banksenter 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 it doesthereafter maintain a relationship with
one or more French financial institutions. Although the Company has not anticipate that it will be subject to Germanyet
identified a French financial institution, licensing
requirements.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
47
assurance thatas to when or if the Company will not become subjectbe able to additional regulationestablish the necessary
relationship for the commencement of operations in Germany or other countriesFrance.
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 which it conductssome markets to be able to expand its business.services.
PROPERTY
The Company's executive offices and Processing Center are located in
approximately 2,800 square feet of office space in Budapest. The Company also maintains a 2,760 square foot officeoffices in Warsaw.Warsaw, Zagreb, Berlin, Paris,
Prague, Krakow and Szczecin. All of the Company's facilitiesoffices are leased. The
Company's office leases provide for initial terms of 24 to 60 months.
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" andand/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 yet been granted.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
and, to the Company's knowledge, no litigation is currently threatened against
it.
30proceedings.
48
32
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The table sets forth certain information concerning the directors,
executive officersDirectors, Executive Officers and other key employees of the Company:Company are as
follows:
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------------------
DIRECTORS
Michael J. Brown(1).............. 40..... 41 Chairman, President and Chief Executive Officer
Daniel R. Henry.................. 31Henry......... 32 Director, Chief Operating Officer
Thomas A. 52 Director
McDonnell(1)(2)........(3).....
Nicholas B. 51 Director
Nicholas B. Callinan(1)(2)....... 50 Director.........
Steven J. 42 Director
Buckley(1)(2).......... 41 Director(3).......
Eriberto R. Scocimara............ 60Scocimara... 61 Director
Andrzej Olechowski............... 49Olechowski...... 50 Director
EXECUTIVE OFFICERS
Dennis H. Depenbusch............. 33Depenbusch.... 34 Vice President -- PolandPresident--Poland
Bruce S. Colwill................. 31Colwill........ 33 Chief Financial Officer and Chief Accounting Officer
Jeffrey B. Newman(3)............. 42Newman....... 43 Vice President and General Counsel
Johannes Seeger.................. 59 Vice President -- Germany
OTHER KEY EMPLOYEES
Istvan Alpek..................... 30 Finance Manager -- Hungary
Jan Kaczmarek(3)................. 48 Operations Manager -- Poland
Peter Nagy....................... 36 Business Development Manager -- Hungary
Krzysztof Kulig.................. 25 Business Development Manager -- PolandAnthony M. Ficarra...... 55 Chief Information Officer
Miro I. Bergman......... 35 Managing Director--Czech Republic
Thierry Michel.......... 35 Managing Director--France
Matthew Lanford.................. 30Lanford......... 31 Information Systems Manager -- Hungary
Joanna Zaczek.................... 43 Systems Manager -- Poland
Gabriella Temesi................. 27 Real Estate Manager -- Hungary
Nancy Niehoff.................... 50 Real Estate Manager -- PolandDirector
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
- -----------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Effective January 1997Member of the Stock Option Committee
The 1998 annual meeting of stockholders is presently scheduled for May 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 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 -- ColumbiaMissouri--Columbia in 1979 and a
M.S. in Molecular and Cellular Biology at the University of Missouri -- KansasMissouri--Kansas
City in 1996. Mr. Brown has been a Director of the Company since its
incorporation in December 1996 and he previously served on the boards of
Euronet's predecessor companies. His term as Director of the Company will
expire in 2000.May 1998. Mr. Brown is married to the sister of Mr. Henry's wife.
49
DANIEL R. HENRY founded the Company with Michael Brown in 1994 and is
serving as Chief Operating Officer of the Company. Mr. Henry is based in
Budapest, Hungary where he operates and oversees the daily operations of the
Company's Hungary operations and the supervision of the Company's Poland
operations. Mr. Henry also is responsible for the expansion of the Company
into other countries and the development of new 31
33
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 -- ColumbiaMissouri--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 1998.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. Since October 1984 he has served as Chief
Executive Officer and since January 1973 (except for a 30 month period from
October 1984 to April 1987) he has served as President of such company. From
February 1987 to October 1995, he served as Executive Vice President and from
1983 to November 1995 he served as a director of Kansas City Southern
Industries. From December 1989 to October 1995, he served as a director of The
Kansas City Southern Railway Company. From 1985 to November 1995, he also served
as a director of Janus Capital Corporation. From October 1994 to April 1995 he
served as President and from 1992 to September 1995 as director of Berger
Associates, Inc. From 1994 to January 1997, Mr. McDonnell was a director of
First of Michigan Capital Corporation. He is currently a director of Informix,
BHA Group, Inc., Nellcor-Puritan BennettDST Systems Inc., Cerner Corporation, First of Michigan CapitalComputer Science
Corporation BFDS 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 boardsboard of
Euronet's predecessor companies. Since 1983Euronet Holding N.V. From 1993 he has served as Senior Vice President and Managing
Director for Central and Eastern Europe of Advent International Corporation,
the ultimate general partner of private equity funds which are a shareholder
of the Company. 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 1998.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 June 1990April 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 beenserved 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 1999.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 1990 he has been a
partner of The Contrarian Group, an investment and management company based in
California. Mr. Scocimara is currently a director of the Hungarian-American
Enterprise Fund, Carlisle Companies, Harrow Industries, Inc., Roper
Industries, Quaker Fabrics and several privately-owned companies. He has a
Licence de Science Econonomique from the University of St. Gallen,
Switzerland, and an M.B.A. from Harvard University. His term as a Director of
the Company will expire in 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
50
Affairs and in 1992 he was Minister of Finance. From 1992 to 1993, and again
in 1995, he served as economic advisor to President Walesa. From 1991 to 1992,
he was Secretary of State in the Ministry of Foreign Economic Relations and
from 1989 to 1991 was Deputy Governor of the National Bank of Poland. At
present Dr. Olechowski is Chairman of Central Europe Trust, Poland, a
consulting firm. Since 1994, he has served as Chairman of the City Council in
Wilanow, a district of Warsaw. His memberships include a number of public
policy initiatives: International Advisory Boards of Creditanstalt, Banca
Nazionale del Lavoro, International 32
34
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 2000.
Executive OfficersMay 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 RMC in Lawrence, Kansas, where he structured
various financing and acquisition strategies for housing projects. From 1990
to 1992, Mr. Depenbusch was a Senior Financial Analyst and Market Research
Analyst for Payless ShoeSource. Mr. Depenbusch received a B.S. in Business
Administration in 1985 and an M.B.A. in Finance in 1989 from the University of
Kansas.
BRUCE S. COLWILL has been Chief Financial Officer and Chief Accounting
Officer of Euronet since May 1996. Mr. Colwill was employed as Assistant
Controller and Financial Controller for PepsiCo Trading Sp. z o.o. in Warsaw,
Poland from 1994 to 1996. From 1989 to 1994, he was employed as a Manager and
Senior Accountant with KPMG in both Poland and Canada in the audit function.
Mr. Colwill obtained his Canadian Chartered Accountants Designation in 1992.
He received a B.B.A. in Accounting from Simon Fraser University in Canada in
1989.
JEFFREY B. NEWMAN joined the Company as Vice President and General Counsel
on January 31, 1997. Prior to this, he practiced law in Paris with the law
firm of Salans Hertzfeld & Heilbronn and then with the Washington, D.C. based
law firm of Arent Fox Kintner Plotkin & Kahn, PLLC, of which he was 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 ColombiaColumbia and Paris bars. He received a B.A. in
Political Science and French from Ohio University and law degrees from Ohio
State University and the University of Paris.
JOHANNES SEEGERKEY EMPLOYEES
ANTHONY M. FICARRA joined the company as Chief Information Officer in
January 1998. Prior to this, he was with Bisys Inc. 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. with the final post of Regional Vice President of the Dynatax
Division. From 1969 to 1971, he was with 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 Juneinternational trade. From
1992 to 1996, Mr. Bergman was with First Bank System as Vice President
-- Germany.
Mr. Seeger has almost 20 years experience as a senior engineer and manager. From
1984 to 1991, he worked as senior manager of EFT, ATM and POS systems for GZS
GmbH and was responsible for employees, cash-management, security, service, and
technology. From 1991 to 1996, he worked with PostBank GmbH, a German company,
in the development of payment systems. Mr. Seeger graduated as a technical
engineer from the Cologne Technical Polytechnic.
Other Key Employees
ISTVAN ALPEK has been Finance Manager -- Hungary since August 1995 and is
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.
51
THIERRY MICHEL joined the financial and administrative activityCompany as Managing Director of the Company's Hungarian operations. He is also temporarily serving as Operations
Manager until that position is permanently filled. From 1993Euronet's French
subsidiary, EFT Services France S.A.S., in November 1997. Prior to 1995,this, he
was Vice President of Business Finance ManagerDevelopment at Digital Equipment Corporation Ltd. in Budapest,
where his responsibilities included management of budgeting, planning,
forecasting and reporting.GE Capital-Sovac from 1994 to
1997. From 1990 to 1993, Mr. Alpek was the Finance Manager
at Du Pont Co., Hungary. He graduated in 1989 from the College for Foreign Trade
of Budapest and is currently enrolled in the M.B.A. course at Pittsburgh
University.
JAN KACZMAREK became Operations Manager -- Poland in January 1997. Mr.
Kaczmarek is responsible for maintaining the daily operations of the network in
Poland. This includes liaising with security companies and banks in relation to
cash supply and ensuring high availability of the network. From 1994 to 1996,
Mr. Kaczmarek was information technology executive for PTK Centertel in Warsaw,
Poland, where he was responsible for all aspectsVice President of information technologyMarketing and computing. PriorSales at
Robeco and also Chief Information Officer from 1987 to this Mr. Kaczmarek was employed by CSC Computer Sciences
Ltd. in Poland and Brussels where1990. From 1985 to
1987, he was responsible for the provision of
administrative and billing services as well as the supply for Polish clients and
customer service information technology functions.Chief Information Officer at American Express in France. Mr.
KaczmarekMichel received an
M.A.a Masters degree in General Engineering from l'Ecole
polytechnique in 1983, a Masters degree in Systems Managementand Telecommunications from
Lancaster Universityl'Ecole National Superieure de Telecommunication in 1972,1985. In 1984 he received
a B.S. in Chemical
Engineering from the University of Surrey in 1971, and a diploma in
Organizational Development from IOD Leuven Belgium in 1993.
PETER NAGY was appointed Business Development Manager of the Company in
February 1995. Dr. Nagy is responsible for acquiring and negotiating contracts,
managing and servicing key accounts, and participates in
33
35
marketing and public relation issues. From 1988 to 1995, Dr. Nagy worked as a
consultant in Washington, D.C. on Hungarian-American business relations for the
Bridgevest, Inc. and Merit, Inc. international consulting firms. He earned a law
degree in 1986 from Janus Pannonius University of Pecs, Hungary and attended
undergraduate studies in Sales and Marketing at the University of New York.
KRZYSZTOF KULIG was appointed Business Development Manager for the
Company's Poland operations in September 1995. His primary responsibility is
marketing Euronet's services to the Polish banking community. This includes
acquiring and negotiating contracts, managing and servicing key accounts and
participating in marketing and public retail issues. From 1994 to 1995, Mr.
Kulig was Brand and Export Manager for Pollena-Ewa S.A. in Poland. Mr. Kulig has
an M.A. in International Trade and Finance from the University of Lodz, Poland
in 1995, and a DiplomaPh.D. in Economics from the University of Kent. Mr. Kulig is
currently enrolled in the M.B.A. program at the University of Calgary, Canada.l'Universite de Paris.
MATTHEW LANFORD was appointed Information Systems ManagerDirector for Euronet in
August 1996. He is responsible for systems design and development and ensuring
that Euronet's technology is up-to-date and capable of supporting the rapid
expansion of the Company. From 1989 to 1995, he worked as a programmer,
project supervisor and lead programmer/analyst for Arksys, Inc., the supplier
of the ITM/400 software on the AS/400, where he designed the network
processing software currently being used by the Company. From February 1995 to
August 1996, he worked as lead programmer/analyst for Associates Bancorp,
Inc., a division of The Associates, an international consumer/commercial
finance organization. Mr. Lanford has a B.S. in Computer Science from the
University of Arkansas at Little Rock.
JOHANNA ZACZEK was appointed Systems Manager for the Company's Poland
operations in February 1996. Her primary task is managing the information
systems within the Polish office, maintaining the ATM network and creating and
maintaining technical connections to the Polish banks. From 1986 to 1996, Ms.
Zaczek worked at Zurich Re (UK) Ltd. where her most recent positions were
corporate analyst and information technology consultant. Ms. Zaczek holds a
Masters degree in Electronics from Warsaw Polytechnic University and a diploma
in Computer Science from the London Polytechnic.
GABRIELLA TEMESIWILLIAM BENKO joined Euronet in September 1994January 1997 in business development and
has been Real Estate
Manager forbecame the Company's Hungary operations since 1995. She is responsible for
securing ATM locations, site contract negotiationsManaging Director in July 1997. From May 1990 to January 1997, Mr
Benko co-owned and acquiring site
permissions for installation.operated a commercial real estate brokerage company and
published a bi-weekly real estate magazine, R.E. Source, in Budapest, Hungary.
From 19911988 to 1992, she1990, Mr Benko owned and operated a computer leasing firm in
Dallas, Texas and also worked for Westbrook
Associates and from 1992 to 1994 for Healy & Baker International,with CIS Leasing Corporation, where shehe was
responsible for various commercial real estate transactions such as acquiring
sites for retailersmarketing IBM mainframe equipment in an eight state area. From
1982 and offices. Ms. Temesi received her certification from the
Education Center for Foreign Trade and obtained1988, he worked with StorageTek in Dallas. Mr. Benko has a state brokerage and appraisal
licenseB.A. in
1993.
NANCY NIEHOFF was appointed Real Estate Manager for the Company's Poland
operations in August 1995. Her primary responsibility is the acquisition of
sites for new ATM locations. From 1985 to 1995, Ms. Niehoff was Real Estate
Manager for the CB Commercial Real Estate Group in both New York City and
Cincinnati, Ohio, where she managed properties and coordinated new business
development and managed properties in receivership. Ms. Niehoff holds a B.S. in
NursingEconomics from the University of CincinnatiColorado.
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.
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 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 Certified Property Manager
candidate statusbeen 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 InstituteLaw Firm of Real Estate Management.
34McCarthy, 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.
52
36
EXECUTIVE COMPENSATION
The following table shows, forsets forth certain information regarding the fiscal year ended December 31, 1996,
compensation awarded or paid by the Company to its Chief Executive Officer (the
only employeeand
to the one other executive officer of the Company whose total annual salary
and bonus forequaled or exceeded $100,000 during the fiscal year ended December 31, 1996 equaled or exceeded $100,000):1997
(the "Named Executive Officers") for the periods indicated:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------------------ LONG-TERM COMPENSATION
-------------------------------- -----------------------------------
OTHER SECURITIES
($) BONUS ANNUAL UNDERLYING RESTRICTED ALL OTHER
SALARY ----- COMPENSATION OPTIONS COMPENSATIONCOMPEN- OPTIONS/ STOCK LTP COMPEN-
NAME AND PRINCIPAL POSITION PERIOD -------SALARY ($) BONUS ($) SATION ($) SAR'S (#) AWARD(S) ($) PAYOUTS ($) SATION ($)
- --------------------------- ------ ---------- --------- ---------- ---------- ------------ ------------ ------------
- ----------------------------------- ------ ($) ($) ($) (#) ($)----------- ----------
Michael J. Brown...................Brown........ 1997 100,000 $0 $0 -- -- -- --
Chief Executive Officer 1996 100,000 0 0$0 $0 1,149,890 0
Chairman, Chief Executive Officer-- -- --
Jeffrey B. Newman....... 1997 133,333 $0 $0 17,500 -- -- --
Vice President and 1996 -- $0 $0 52,500 -- -- --
General Counsel
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning each grantOptions granted
to the Named Executive Officers of options to purchase the Company's Shares madeCompany during the fiscal year ended December
31, 1996 to its Chief Executive Officer:1997.
INDIVIDUAL GRANTS
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS EXERCISE FOR
UNDERLYING GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (1)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED YEAR PER OPTION TERM(3)
OPTIONS GRANTED EMPLOYEES IN SHARE EXPIRATION -------------------
NAME (#)(1)(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------- --------------- ---------------- ---------- ---------- --------- ------------- -------- ------------------ -----------
Michael J. Brown......... 1,149,890 50.5 2.14 Oct. 14, 2006 1,549,622 3,927,048Brown................ -- -- -- -- -- --
Jeffrey B. Newman............... 17,500 5.8% $13.94 Apr. 22, 2007 153,419 388,793
- -----------------------
(1) Such options were awarded in accordance with the provisions of a
shareholder's agreement dated February 15, 1996, as amended October 14, 1996
(see "-- Stock Option Plans"). These options are subject to the provisions
of the Euronet Long-Term Incentive Stock Option Plan adopted by the Company
on August 13, 1996. Mr. Brown's options will fully vest and become
exercisable upon the occurrence of the Offering.
(2) Each share in Euronet Holding N.V. was exchanged for one share of Common
Stock in the Company pursuant to the terms of the Exchange Agreement, dated
December 17, 1996, among Euronet Services Inc., Euronet Holding N.V. and all
of the shareholders and optionholders of Euronet Holding N.V.
(3) Potential realizable value is based on the assumption that the shares
appreciate at the annual rates shown (compounded annually) from the date
of grant until the expiration of the option term. Those numbers are
calculated based upon the requirements promulgated by the Commission and
do not reflect any estimate by the Company of future Share price increases.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regardingconcerning Options
exercised by the stock
options held as ofNamed Executive Officers during the year ended December 31,
19961997 and Options held by the Chief Executive Officer.such individuals at December 31, 1997:
VALUE OF UNEXERCISED IN-
NUMBER OF SECURITIES THE-
UNDERLYING UNEXERCISED VALUE OF UNEXERCISEDMONEY OPTIONS AT
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON AT DECEMBER 31, 19961997 DECEMBER 31, 1997 ($)
AT DECEMBER 31, 1996 ($)(1)ACQUIRED ON VALUE -------------------------------- -------------------------
NAME EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED ($)$(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ------------------------- ----------- ---------------------------- ----------- -------------
Michael J. Brown............ 0 0 0 1,149,890 0 12,487,805Brown...... 224,492 2,010,979 926,323 -- 5,196,672 --
Jeffrey B. Newman....... -- -- 10,500 42,000 58,905 235,620
- -----------------------
(1) Based uponon the initial public offeringdifference between the exercise price of $13 per Share minus the applicable exercise price.
35Options 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.
53
37
COMPENSATION OF DIRECTORS
The Company doeshistorically has not currently paypaid fees to its directors for attendance
at meetings. Following completion of the Offering,Effective January 1, 1998, the Company intends to paypays each
outside director a fee
consistentof $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 that paid by similar companiesthe Company's Stock Option Plan. The Company also
reimburses directors for
attendance at meetings, together with reimbursement of out-of-pocket expenses incurred in connection with
the directors' attendance at such meetings. No
additional compensation will beAndrzej Olechowski is paid for committee meetings held on the same day
as a Board of Directors' meeting. Officers of the Company who are also directors
will receive no additional compensation$4,000 for
serving as directors.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-
competition, non-solicitation and non-disclosure covenants.
The Company has also entered into employment agreements with Mr.Messrs. Henry,
Mr.
Depenbusch, Newman and Mr. Colwill, all of which expire in December 1999. Certain other key
employees also haveThe
terms of these employment agreements.agreements are substantially similar to those
contained in Mr. Brown's employment agreement.
STOCK OPTION PLANS
Milestone Options. In accordance with the Shareholders' Agreement,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 Milestone Optionsstock 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"--The Long-Term Incentive Plan." The Milestone Options granted to Mr. Brown,
Mr. Henry and Mr. Depenbusch have an exercise price equal to $2.14 per share
and vest and become exercisable upon the earlier of October 14, 2006, or the
date on which any one or more of the three performance goals described in the
Shareholders' Agreement is attained. One-third of the Milestone Options vest
upon the occurrence of each milestone. Upon the effectiveness of the Offering,The Milestone Options granted to Mr.
Brown, Mr. Henry and Mr. Depenbusch willare fully vestvested and become exercisable.
Milestone Options allocated at Mr. Brown's discretion to other management and
key employees also have an exercise price of $2.14 per share but are conditioned
upon the completion of an initial public offering of the Company's Common Stock
on or before June 30, 1997, and will vestbecome
exercisable in three equal installments of 33% of
the grant beginning on the date of the Closing of the Offering, with the secondbetween 1997 and third portions vesting on the first and second anniversaries of the
Offering, respectively. In the event that an initial public offering of the
Company's common stock does not occur on or before June 30, 1997, the Milestone
Options allocated to management and key employees (other than Mr. Brown, Mr.
Henry and Mr. Depenbusch) will expire and again be available for reallocation at
Mr. Brown's discretion.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 August 13,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-qualifiednon-
qualified stock options ("Options"). A total of 1,299,550 shares of Common
Stock have been reserved for issuance pursuant to Options under
36
38 the Plan.
Options to purchase shares of Common Stock of the Company may
54
be granted to eligible employees and consultants, as determined by the Board
of Directors, in amounts reflecting the employee's or consultant's employment
responsibilities and level of performance. The Options vest in five equal
annual installments of 20% of the grant, and have a term of ten years. The exercise
price per share of Common Stock purchased on exercise of Options is the fair
market value of the Common Stock at the date of grant.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 Options
to acquire 440,440 sharesOptions to Mr. Henry, Options to acquire 287,000 shares to
Mr. Depenbusch as well as Options to acquireand 335,510 sharesin 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 reference totaking into consideration the per share price at which the most
recent sale of Common Stockequity securities was made by the Company to investors. With respect tonew 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 $2.14 as$4.22 per share which is the cash
price for the sale of shares in the time they were granted on
October 14, 1996 basedthird 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 per share price at which certain shareholders of
the Company concurrently committed to make the first $1 million tranche of a
total $3 million investment in the Company. See "Certain Transactions --
Formation of Euronet Holding N.V."NASDAQ
National Market.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Directors have established an Audit Committee of
independent Directors. The Audit Committee will makemakes recommendations concerning
the engagement of independent accountants, review with the independent
accountants the plans and results of the audit engagement, approve
professional services provided by the independent accountants, review the
independence of the independent accountants, consider the range of the audit
and non-audit fees and review the adequacy of the Company's internal
accounting controls. In addition, the Audit Committee will be responsible for
reviewing and overseeing transactions between the Company and related parties
or affiliated companies. Thomas A. McDonnell, Steven J. Buckley and Nicholas
B. Callinan are members of the Audit Committee.
Compensation Committee. The Directors have established a Compensation
Committee with a majority of independent Directors, which will makemakes determinations
with respect to salaries and bonuses payable to the Company's Executive
Officers and will administer the Company's Stock Option Plan.stock option plan. Michael J.
Brown, Thomas A. McDonnell, Steven J. Buckley and Nicholas B. Callinan will
beare the
current members of the Compensation Committee. 37Mr. 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.
55
39
CERTAIN TRANSACTIONS
FINANCINGS
Between June 22, 1994 and the present, the Company and its existing
shareholders have engaged in several transactions to provide the Company (including
its predecessors and operating subsidiaries) with the 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:
CAPITAL PERCENTAGE
SHAREHOLDER CONTRIBUTION OWNERSHIP
- --------------------------------------------------------------------- --------------------- ------------ ----------
Michael Brown........................................................Brown........................................ $ 990,000 42.74%(1)
DST Systems, Inc.....................................................Inc..................................... $1,000,000 34.72%
Euroventures.........................................................Euroventures......................................... $ 300,000 10.42%
Mark Callegari.......................................................Callegari....................................... $ 200,000 6.93%
Lawrence Schwartz....................................................Schwartz.................................... $ 50,000 1.74%
Larry Maddox.........................................................Maddox......................................... $ 100,000 3.74%
- ---------------
(1) Includes his original $9,000 interest as well as the $1,000 interest
transferred by Mr. Henry and the founders interest described below.
Pursuant to the Original JVA, Mr. Henry transferred his 10% interest in Bank
24 to Mr. Brown for a purchase price equal to $1,000. At the time of the
Original JVA, Mr. Brown was granted an additional 8% equity interest in Bank
24 free of charge.
38
40at 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.
56
The shareholders of SatComNet and Bank 24 exchanged their interests held in
such companies to create identical ownership of the two companies, as follows:
PERCENTAGE
SHAREHOLDER OWNERSHIP
- ------------------------------------------------------------------------------------------- ----------
Michael Brown...................................................................Brown..................................................... 30.29%
DST Systems, Inc................................................................Inc.................................................. 22.49%
HAEF............................................................................HAEF.............................................................. 23.61%
Euroventures....................................................................Euroventures...................................................... 11.24%
Hi-Care.........................................................................Hi-Care........................................................... 4.50%
Mark Callegari..................................................................Callegari.................................................... 4.50%
Larry Maddox....................................................................Maddox...................................................... 2.25%
Lawrence Schwartz...............................................................Schwartz................................................. 1.12%
----------
TOTAL........................................................................... 100%
========------
Total........................................................... 100.00%
======
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 2424/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 September 30,December 31, 1996, $262,000 was outstanding under such loans
and other loans made by Mr. Brown to the Company consisting of $67,000 in
loans at an interest rate of 10% relating to the establishment of Bankomat.
A portionSuch loans were repaid in 1997 by application of the proceeds of the Offering will be used to repay these loans.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 Common
Sharespreferred stock of Euronet Holding N.V., as follows:
NUMBER OF COMMON SHARES
CONTRIBUTION OF EURONETPREFERRED STOCK
NEW SHAREHOLDERS COMMITMENT OF EURONET HOLDING N.V.
- --------------------------------------------------------------------------------- ------------ ------------------------------------
Advent Private Equity Fund CELP.................................. $ 1,250,000 12,500CELP............ $1,250,000 875,000
Hungarian Private Equity Fund....................................Fund.............. $ 500,000 5,000350,000
Poland Investment Fund........................................... $ 1,250,000 12,500Fund..................... $1,250,000 875,000
Poland Partners L.P.............................................. $ 3,000,000 30,000L.P........................ $3,000,000 2,100,000
39
41
Concurrently with these transactions, Euroventures purchased the shares and
interests of Hi-Care in Bank 24 and SatComNet.
57
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 ($0.01)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.:
NUMBER OF SHARES
ORIGINAL INVESTOR OR MANAGEMENT MEMBER TO BE AWARDED
-------------------------------------------------------------------------------------------------------------- ----------------
Michael Brown...........................................................Brown.................................................. up to 1,117,620
DST Systems, Inc. ......................................................Inc............................................... up to 258,300
HAEF....................................................................HAEF........................................................... up to 271,110
Euroventures............................................................Euroventures................................................... up to 180,810
Mark Callegari..........................................................Callegari................................................. up to 51,597
Larry Maddox............................................................Maddox................................................... up to 25,802
Lawrence Schwartz.......................................................Schwartz.............................................. up to 12,901
Daniel Henry............................................................Henry................................................... up to 593,670
Pursuant to the Shareholders' Agreement, Euronet Holding N.V. was entitled
to call a "standby round" of investment from DST Systems, Inc., Poland
Partners L.P., Hungarian Private Equity Fund and the Advent Private Equity
Fund CELP of up to $3,000,000 in the aggregate from such shareholders at a per
share price of $2.14 for one tranche and $10.00 per share for a second tranche
subject to certain conditions. The first tranche of this standby round was
called on November 26, 1996 and 466,669 Series B convertible preferred shares
of Euronet Holding N.V. were issued in exchange for $1 million. The Company's
right to call the remainder of the standby round commitment will terminateterminated on the
termination of the Shareholders' Agreement which will occuroccurred on the execution of the
underwriting agreement to be executedMarch 7, 1997 in
connection with this Offeringthe 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 ($0.01)0.02), to all Original Investors except
Mr. Brown,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 ShareholdersShareholder'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. will be madebecame
effective as of the closing of the Offering1997 equity offering and all Milestone
Options will
becomebecame vested upon the closing of the Offering,offering, with the exception of
49,819 Options to certain key employees which will vest equally over two years
following the Offering.in March of
1998 and 1999. See "Management -- Stock"Management--Stock Option Plans."
40
42
The Reorganization. In December 1996, the Company, shareholders and
optionholders of Euronet Holding N.V. entered into an Exchange Agreement
pursuant to which (i) 9,585,56910,296,076 shares of Common Stock willwere to be
58
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 willwere 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 willwere
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. SuchThe exchange is subject to and will bebecame
effective uponas of March 6, 1997, the date of the execution of the underwriting
agreement to be executed in connection with the Offering.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. will be dissolved followingfor an aggregate
purchase price of $3 million which entitled GE Capital to receive 710,507
shares of Common Stock of the Reorganization. InCompany 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 will be terminated.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 OPTIONPurchase 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
59
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 an "indemnification amount", as defined
in such undertaking.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.
41Windham 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.
60
43
PRINCIPAL AND SELLING SHAREHOLDERSSTOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Sharesshares of Common Stock in the Company as of
January 1, 1997, and after
giving effect to the OfferingFebruary 15, 1998, by (i) each shareholder known by the Company to own
beneficially more than 5% of the Shares,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 and (iii) each Selling Shareholder.group.
SHARES SHARES
BENEFICIALLY SHARES TO BE BENEFICIALLY
OWNED PRIOR TO SOLD IN THE OWNED AFTER
THE OFFERING OFFERING THE OFFERING(1)
------------------ ------------ ------------------BENEFICIAL OWNERSHIP
---------------------------
NUMBER OF NUMBERPERCENTAGE
STOCKHOLDER SHARES(1) OF NUMBER OF
SHAREHOLDERS SHARES(2) % SHARES(1) SHARES(2) %
- ------------OUTSTANDING(1)
----------- --------- ------ ------------ --------- -----------------------
Directors and Named Executive Officers
Michael J. Brown(3)........................ 3,562,440 33.48% 354,515 3,132,347 22.81%Brown(2)............................. 3,063,202 20.2%
Daniel R. Henry(4)......................... 775,600 7.29% 77,567 698,033 5.08%Henry(3).............................. 759,619 5.0%
Jeffrey B. Newman(4)............................ 14,000 *
Bruce S. Colwill................................ 16,058 *
Dennis Depenbusch(5)....................... 283,850 2.67% 28,385 255,465 1.86%
Peter Nagy(6).............................. 21,980 * -- 21,980H. Depenbusch............................ 289,905 1.9%
Steven J. Buckley(5)............................ 1,000 *
Nicholas B. Callinan(7).................... 7,648 * 1,750Callinan(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........................... 1,414,077 13.29% --Inc.(7)............................ 1,178,797 8.59%
Euroventures............................... 935,409 8.79% 233,852 512,908 5.11%
Mark R. Callegari.......................... 267,260 2.51% 66,800 153,404 1.12%
Larry Maddox............................... 133,630 1.26% 33,400 76,702 *
Lawrence Schwartz.......................... 66,710 * 16,700 38,277 *
HAEF....................................... 1,402,975 13.18% 350,7527.8%
333 West 11th Street
Kansas City, Missouri 64105-1594
Hungarian-American Enterprise Fund(9)........... 798,702 5.82%5.3%
1 East Putman Avenue,
Greenwich, Connecticut 06830
Poland Partners L.P........................ 2,294,446 21.56% 525,000 1,769,446 12.89%Investment Fund L.P.(6)(10).............. 737,268 4.9%
Corporation Trust Center
1209 Orange St.
Wilmington, Delaware 19801
Advent Partners L.P........................ 38,241L.P.(6)(10)..................... 29,491 *
8,750 29,491 *101 Federal Street
Boston, Massachusetts 02110
Advent Private Equity Fund -- CELP......... 917,777 8.62% 210,000Fund-Central Europe L.P. 707,777 5.16%
Poland Investment Fund L.P................. 956,018 8.98% 218,750 737,268 5.37%4.7%
(6)(10).........................................
101 Federal Street
Boston, Massachusetts 02110
Hungarian Private Equity Fund.............. 382,410 3.59% 87,500Fund L.P.(6)(10)....... 294,910 2.15%
All Directors and Executive Officers as a
group (4 persons)........................ 4,628,890 43.50 460,454 4,091,095 29.80%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
- -----------------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding Shares.
(1) Assumes no exercise of the Underwriters' over-allotment option. Also
reflects transfers of existing shares of Common Stock among certain
shareholders at the time of the Offering.
(2) Based on 10,641,532 Shares outstanding prior to the Offering and 13,729,560
Shares outstanding after the Offering. Calculations of percentage of beneficial ownership assumeassumes the exercise by
only the respective named stockholder of all options for the purchase of
Sharesshares of Common Stock held by such stockholder which are exercisable
within 60 days of January 1, 1997
(3)February 15, 1998.
(2) Includes an aggregate of 1,985,340926,323 shares of Common Stock issuable pursuant
to options (including Milestone Options) exercisable within 60 days of
January 1, 1997. Shares beneficially owned by Mr. Brown prior to Offering
include 835,380 Shares that Mr. Brown has the right to acquire from existing
shareholders of the Company pursuant to an option agreement. Shares
beneficially owned by Mr. Brown after the Offering include 759,872 Shares
acquired by Mr. Brown pursuant to such option agreement.
(4)February 15, 1998.
(3) Includes an aggregate of 775,600689,619 shares of Common Stock issuable pursuant
to options (including Milestone Options) exercisable within 60 days of
January
1, 1997.
(5)February 15, 1998.
(4) Includes an aggregate of 283,85014,000 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.
61
(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
January
1, 1997.
(6) Includes anFebruary 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 21,980 shares of Common Stock issuable pursuant to
options exercisable within 60 days of January 1, 1997.
(7) Mr. Callinan's shares are held indirectly through his interest in Advent
Partners L.P.
42the outstanding shares.
62
44
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 30 million shares of
Common Stock, par value $0.01$0.02 per share and 10 million shares of Preferred
Stock, par value $0.01$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 By-Laws,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 the stockholders. Subject to the
rights of any holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy". 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 and the Common Stock offered hereby will be, fully paid and nonassessable.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 BY-LAWSBYLAWS
Certain provisions of the Certificate of Incorporation and By-LawsBylaws 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.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
By-Laws.Bylaws.
The Certificate of Incorporation provides that the Board of Directors of the
Company be divided into three classes of directors serving staggered three-yearthree-
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,"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
63
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 43
45
breaches resulting from grossly
negligent behavior), except in the situations described above. These
provisions willmay not limit the liability of directors under federal securities
laws.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined as a person who,
together with any affiliates or associates of such person, beneficially owns,
directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period
of three years after the date the interested stockholder becomes an interested
stockholder, unless (i) the business combination is approved by the
corporation's board of directors prior to the date the interested stockholder
becomes an interested stockholder, (ii) the interested stockholder acquired at
least 85% of the voting stock of the corporation (other than stock held by
directors who are also officers or by certain employee stock plans) in the
transaction in which it becomes an interested stockholder or (iii) the
business combination is approved by a majority of the board of directors and
by the affirmative vote of 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
REGISTRATION RIGHTS
Pursuant to an agreement (the "Registration Rights Agreement") dated March
13, 1996, among Euronet Holding N.V. (the predecessor to the Company) and the
following shareholders: Advent Private Equity Fund CELP, Poland Investment
Fund, the Hungarian Private Equity Fund L.P., Poland Partners L.P., Michael J.
Brown, Larry Maddox, Mark Callegari, Lawrence Schwartz, DST Systems, Inc.,
Euroventures and HAEF (each a "Holder" and collectively the "Holders"), the
Holders and all other shareholders were granted certain rights with respect to
the registration of their shares of Common Stock under the Securities Act.
Under the terms of such agreement, which apply by succession to the
Company, Holders of no less than 12% of the shares
of Common Stock of the Company can demand that the Company effect up to four
registrations of the Common Stock under the Securities Act with respect to all
or any portion of their shares provided that each demand relates to a
registration of at least $4 million worth of Common Stock. The Company can
delay such a demand for a period not in excess of 120 days, and not more than
once in any 12 month period, if at the time of such demand the Company is in
the process of preparing a registration statement for a public offering (other
than a registration statement solely to implement an employee benefit plan or
a transaction to which Rule 145 of the Securities Act is applicable) which is
filed and becomes effective within 90 days after such demand.
In addition, if the Company at any time initiates a registration under the
Securities Act (other than a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 of the Securities Act
is applicable), all shareholders are entitled to notice of such registrations
and to include their shares of Common Stock in such registration subject to
certain limitations.
After the Company has qualified for use of Form S-3, all shareholders will
have the right to request an unlimited number of registrations on Form S-3
(but the Holders as a group may not make more than two such requests in any
given 12 month period and not more than four in the aggregate), provided that
the aggregate offering price of such shareholder's shares of Common Stock
exceeds $500,000 and the Company has initiated a proposed registration. The
Company can delay such a request for a period not in excess of 120 days if at
the
64
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 shareholdersshareholders' 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
44
46 commissions. Registration rights are
assignable to any assignee of at least 50% of shares conveyed who agrees to be
bound by the terms and conditions of the Registration Rights Agreement within
ten days of such assignment.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is -- .
45
47
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF SHARES
The following is a general discussion of certain United States federal tax
considerations applicable to the ownership and disposition of Shares by
"Non-U.S. Holders." In general, a "Non-U.S. Holder" is a beneficial owner of
Shares other than: (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state or (iii) an estate or trust, the
income of which is includable in gross income for United States federal income
tax purposes regardless of its source. The term "Non-U.S. Holder" does not
include individuals who were United States citizens within the ten-year period
immediately preceding the date of this Prospectus and whose loss of United
States citizenship had as one of its principal purposes the avoidance of United
States taxes. This discussion is based on current law, which is subject to
change and is for general information only. This discussion does not address
aspects of United States federal taxation other than income and estate taxation
and does not address all aspects of income and estate taxation, nor does it
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES
INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES.
DIVIDENDS
The Company does not anticipate paying cash dividends on the Shares in the
foreseeable future. The Company may in the future consider paying cash dividends
on the Shares. However, the Board of Directors of the Company has made no
decision with respect to the payment of any such dividends, including the timing
and amount of any such dividend. See "Dividend Policy." If dividends are paid on
the Shares, these payments will be treated as a dividend for United States
federal income tax purposes to the extent of the Company's current or
accumulated earnings and profits for such tax purposes. The portion of a payment
that exceeds such earnings and profits will be treated as a return of capital to
the extent of each Non-U.S. Holder's tax basis in the Shares. The portion of a
payment that exceeds such earnings and profits and tax basis will be treated as
a gain from the sale or other disposition of the Shares to the extent of such
excess, with the tax consequences described below under "-- Sale of Common
Stock."
In general, any dividends (i.e., distributions to the extent of current or
accumulated earnings and profits for United States federal income tax purposes)
paid to a Non-U.S. Holder of Shares will be subject to United States withholding
tax at a 30% rate (or a lower rate prescribed by an applicable tax treaty)
unless the dividends are either (i) effectively connected with a trade or
business carried on by the Non-U.S. Holder within the United States or (ii) if
certain income tax treaties apply, attributable to a permanent establishment in
the United States maintained by the Non-U.S. Holder. For purposes of determining
whether tax is to be withheld at a 30% rate or at a lower rate as prescribed by
an applicable tax treaty, the Company ordinarily will presume that dividends
paid to an address in a foreign country are paid to a resident of such country
absent knowledge that such presumption is not warranted. However, under United
States Treasury regulations proposed in 1984 that have not been finally adopted,
to claim the benefits of an applicable tax treaty, a Non-U.S. Holder of Shares
would be required to file certain information forms with the payor of the
dividends. Dividends effectively connected with such a United States trade or
business or attributable to such a United States permanent establishment
generally will not be subject to withholding tax (if the Non-U.S. Holder files
certain forms, including IRS Form 4224, with the payor of the dividend) and
generally will be subject to United States federal tax on a net income basis, in
the same manner as if the Non-U.S. Holder were resident of the United States. In
the case of a Non-U.S. Holder that is a corporation, dividend income so
connected or attributable may also be subject to the branch profits tax (which
is generally imposed on a foreign corporation on the repatriation from the
United States of its effectively connected earnings and profits subject to
certain adjustments) at a 30% rate (or lower rate prescribed by an applicable
income tax treaty).
A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the IRS.
46
48
SALE OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain recognized upon the disposition of Shares unless: (i) the
gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or, alternatively, if certain tax
treaties apply, attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder (and in either such case, the branch profits
tax may also apply if the Non-U.S. Holder is a corporation), (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual and holds Shares as a
capital asset, such individual is present in the United States for 183 days or
more in the taxable year of disposition, and either (a) such individual has a
"tax home" (as defined for United States federal income tax purposes) in the
United States or (b) the gain is attributable to an office or other fixed place
of business maintained by such individual in the United States, (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of the United
States tax law applicable to certain United States expatriates or (iv) the
Company is or has been a United States real property holding corporation (a
"USRPHC") for United States federal income tax purposes (which the Company does
not believe that it is or is likely to become) at any time within the shorter of
the five-year period preceding such disposition or such Non-U.S. Holder's
holding period. If the Company were or were to become a USRPHC, gains realized
upon a disposition of Shares by a Non-U.S. Holder that did not directly or
indirectly own more than 5% of the Shares during the shorter of the periods
described above generally would not be subject to United States federal income
tax so long as the Shares were "regularly traded" on an established securities
market.
ESTATE TAX
Shares owned or treated as owned by an individual who is not a citizen or
resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includable in the individual's gross
estate for United States federal estate tax purposes unless an applicable estate
tax treaty provides otherwise, and therefore may be subject to United States
federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of this information
also may be made available under the provisions of a specific treaty or
agreement with the tax authorities in the country in which the Non-U.S. Holder
resides or is established.
United States backup withholding (which generally is imposed at the rate of
31% on certain payments to persons that fail to furnish the information required
under the United States information reporting requirements) and information
reporting generally will not apply to dividends paid on Shares to a Non-U.S.
Holder at an address outside the United States.
The payment of proceeds from the disposition of Shares to or through a
United States office of a broker will be subject to information reporting and
United States backup withholding unless the owner, under penalties of perjury,
certifies among other things, its status as a Non-U.S. Holder, or otherwise
establishes an exemption. The payment of proceeds from the disposition of Shares
or through a non-U.S. office of a non-U.S. broker generally will not be subject
to backup withholding and information reporting, except as noted below. In the
case of proceeds from the disposition of Shares paid to or through a non-United
States office of a broker that is: (i) a United States person, (ii) a
"controlled foreign corporation" for United States federal income tax purposes
or (iii) a foreign person 50% or more of whose gross income for a specified
three-year period is effectively connected with a United States trade or
business, (a) backup withholding will not apply unless such broker has actual
knowledge that the owner is not a Non-U.S. Holder and (b) information reporting
will apply unless the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder (and the broker has no actual knowledge to the
contrary).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
47
49
SHARES ELIGIBLE FOR FUTURE SALE
Upon completionAn 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 Offering, assuming an offering price of $13 per
Share (the midpoint of the range on the cover page of this Prospectus)
13,729,560 Shares will be in issue (assuming no exercise of the Underwriters'
over-allotment option). The Shares offered hereby will be freely tradeable
(other than by an "affiliate" ofregistration rights agreement requiring the Company
as defined under the Securities
Act) in the public market without restriction under the Securities Act. The
remaining 8,429,560 outstanding Shares were issued by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
Ofto register such Shares, after giving effect to the Offering (assuming the Underwriters'
over-allotment option is not exercised), 434,217 Shares will be eligibleshares for resale under Rule 144 immediately following the expiration of the 180-day
lock-up period described under "Underwriting", 6,863,709 Shares, 466,669 Shares
and 664,965 Shares will not be eligible for resale under Rule 144 until March
27, 1998 and October 14, 1998 and February [20], 1999, respectively. Such Shares
may be resold only in compliance with the registration requirements of the
Securities Act or pursuant to an exemption therefrom.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 "Description of Capital Stock -- Registration Rights" and "Underwriting"."--Registration
Rights." In addition, of the 2,857,9112,798,206 options to purchase Shares outstanding, 2,018,4942,480,047 are
currently exercisable. Any Shares issued on the exercise of these options
would be available for sale subject to Rule 701 or another exemption from the
registration requirements of the Securities Act (including Regulation S under
the Securities Act) following the expiration of the 180-day lock-up period
described above.. Furthermore, the Company intends to registerhas registered under the
Securities Act as soon as practicable followingapproximately 2,000,000 Shares of Common Stock that may be
issued to the Offering, approximately
3,094,511 Shares reserved for issuance to itsCompany'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.
65
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an indenture to be dated as of
March , 1998 (the "Indenture") between the Issuer, and . , 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.
Principal of, premium, if any, and interest on definitive registered Notes,
if any, will be payable, and the Notes will be exchangeable and transferable,
at the office or agency of the Issuer maintained for such purposes in The City
of New York (which initially will be the corporate trust office of the Trustee
located at ), at [Luxembourg Paying Agent] and at such other offices
as may be designated from time to time. In general,addition, will act as the
Deutsche Mark Paying Agent (the "DM Paying Agent") for purposes of making
payments in Deutsche Marks on the Notes, and maintains an office therefor at
West end & Carre, Grueneburgweg 16, D-60322 Frankfurt am Main, Germany.
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 a single, permanent global note 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;
66
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 Rule 144the
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.
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 currentlyholder 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. . 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. The Issuer has been informed that Euroclear and Cedel will
elect to receive payments of principal and interest in Deutsche Marks on
behalf of holders of interests in the DBC Global Note that are held through
Euroclear and Cedel. 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 on The Global Notes."
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 December 31, 1997, 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 $103.1 million, of
which $3.1 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 Issuer 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 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 minimumcreditor of twoits subsidiaries, in which case the claims of the Issuer
may still be effectively subordinated to any
67
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 December 31, 1997, holders of the Notes
would have been effectively subordinated to $3.0 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 Issuer Structure; Reliance on Subsidiaries for Distributions
to Repay Notes."
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 has elapsed sinceindicated below
(subject to the laterright of holders of record on relevant record dates to receive
interest due on a relevant Interest Payment Date):
REDEMPTION
YEAR PRICE
---- ----------
2002........................................................... %
2003...........................................................
2004 and thereafter............................................ 100.00
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
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 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, 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
68
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.
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 acquisitionsuch Incurrence to (y) Annualized Pro Forma Consolidated Operating
Cash Flow for the latest fiscal quarter for which consolidated financial
statements of the securitiesIssuer 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 Issuer, 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);
69
(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);
(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 issuerissuance or
from an affiliatesale (other than to any Subsidiary) of shares of Qualified Capital Stock of
the issuer,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 person (or persons whose
Shares are aggregated)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), including persons who may(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 "affiliates"to have been paid on such date of declaration for purposes
of the Company, as that term is definedcalculation 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;
70
(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 Securities Act ("Affiliates"), would be
entitledevent of a Change of Control in
accordance with provisions similar to sell withinthe "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;
(v) Investments constituting Restricted Payments made as the result of
the receipt of non-cash consideration from any three-month periodAsset 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 numbersubstantially concurrent incurrence (other
than to a Subsidiary) of, Shares thatnew Subordinated Indebtedness so long as (A) the
principal amount of such new Subordinated Indebtedness does not exceed the
greaterprincipal 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 (i) 1%acceleration thereof, such lesser amount as
of the then outstanding Shares (137,296 Shares
immediately after consummationdate of determination) of the Offering,Subordinated Indebtedness being so
purchased, redeemed, defeased, acquired or 145,246 Shares ifretired, plus the over-allotment optionlesser 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 exercisedsubordinated 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 full)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 average weekly trading
volume during the four calendar weeks preceding the date on which noticeissuance and sale of all,
but not less than all, of the sale is filedissued and outstanding Capital Stock of any
Restricted Subsidiary owned by the Issuer or any Restricted Subsidiary in
compliance with the Securities"Limitation on Sale of Assets" covenant.
Limitation on Transactions with Affiliates. (a) The Issuer will not, and
Exchange Commission (the "Commission").
Sales under Rule 144will 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 also subject to certain provisions ason terms that are no less favorable to the mannerIssuer,
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 sale, notice requirementsrelated
transactions involving aggregate
71
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 availabilityDisinterested
Directors of current public information
about the Company. In addition, under Rule 144(k)Board of Directors of the Issuer, or 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 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), ifthe Issuer
shall deliver to the Trustee a periodwritten opinion from an internationally
recognized investment banking firm to the effect that such transaction or
series of at least three
years has elapsed sincerelated transactions is fair to the laterIssuer or such Restricted
Subsidiary, as the case may be, from a financial point of (i)view; provided,
however, that this provision will not restrict (1) any transaction or series
of related transactions among the date restricted securities were
acquired fromIssuer and Restricted Subsidiaries or among
Restricted Subsidiaries, (2) Investments in Qualified Capital Stock of the
Company and (ii) the date they were acquired fromIssuer by any Person, including an Affiliate of the Company,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
shareholdersupplier, 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
Company72
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).
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.
73
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.
(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, (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
74
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
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 Issuer
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 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
75
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 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 obligation's 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;
76
(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
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.
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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 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 Affiliate for at least three months priorEvent of Default occurs and is continuing and is known to
the sale would be entitledTrustee, the Trustee will mail to sell Shareseach holder of the Notes, notice of the
Default or Event of Default within 30 days after the occurrence thereof.
Except in the public market immediately without
compliancecase 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 Trustee annual and quarterly statements
as to the performance by the Issuer of their 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 and 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 foregoing requirementsTrustee, 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 Rule 144. Rule 144 doesclause (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
require the same person to have held the securities for the applicable periods.
The Company and its Directors, Officers and certain other shareholders have
agreed not to offer for sale, sell or otherwise dispose of (or enter into any
transaction which is designed to, or could be expected to, result in a breach or violation of,
or constitute a default under, any material agreement or instrument (other
than the dispositionIndenture) to which the Issuer is a party or by any person of), directlywhich 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 indirectly, any Shares, with certain
limited exceptions, forthere has
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been published by, the Internal Revenue Service a period of 180 days afterruling, 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 Trustee an Opinion of Counsel 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, 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, 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 prior written consent of ING Baringsthe 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 their rights or obligations under the Indenture; (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; or (vii) amend
or modify the provisions described under "Additional Amounts" in any manner
adverse to the Holders.
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.
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
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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:
SEMI-ANNUAL
ACCRUAL DATE ACCRETED VALUE
------------ --------------
, 1998................................................... DM
, 1999................................................... DM
, 1999................................................... DM
, 2000................................................... DM
, 2000................................................... DM
, 2001................................................... DM
, 2001................................................... DM
, 2002................................................... DM1,000
(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 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
the Underwriters.
PriorPersons 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 Offering, thereissuance 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
83
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 market"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 Sharesentire 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 the
Issuer 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 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 predictiondividends, 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, 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
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 covenant "Limitation on Additional Indebtedness"; provided
that (i) Indebtedness of the Issuer 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 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;
88
(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
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);
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(i) 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;
(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 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;
(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 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
(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 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
90
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
91
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 if any, that salesto such designation. The Board of Directors of the SharesIssuer 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 availabilityIndenture 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 SharesPerson (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 two permanent global notes without interest
coupons. One of the two 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
92
Global Note and the DTC Global Note is evidenced by a register maintained for
salethat purpose by the Registrar (as defined below). Definitive certificates
representing individual Notes and interest coupons shall not be issued.
DTC
DTC has advised the Issuer and the Underwriters that it intends to follow
the procedures as described below:
DTC will haveact 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 Issuer 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 must be made by or through Direct Participants,
which will receive a credit for such Notes on the market price prevailingDepositary'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.
SalesRedemption notices for registered Global Notes shall be sent to Cede & Co.
If less than all of the Sharesregistered Notes of a class 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
registered Notes. Under its usual procedures, DTC mails an Omnibus Proxy to
the Issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the registered Notes are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium (if any), and interest payments on registered Notes 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. Paying Agent or the Issuer,
93
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 registered
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 registered Global Note
for all purposes under the Indenture. Owners of beneficial interests in such
Global Note will not be entitled to have Notes represented by such 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 registered 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 Indentures, 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 registered 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 public marketregistered 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.
Principal, premium, if any, and interest payments on Notes registered in the
name of or held by DTC or its nominee will be made to DTC or its nominee, as
the case may be, as the registered owner or the perceptionHolder of the registered
Global Note representing such Notes.
Neither the Issuer nor 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 registered 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
94
within 60 days or if an Event of Default under the Indenture has occurred and
is continuing, the Issuer will issue Notes under such 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 registered
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 registered Global Note and, in such event, will issue Notes
in definitive registered form in exchange for the registered Global Note
representing such Notes. In any such instance, an owner of a beneficial
interest in a registered 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 registered Global
Note for Notes in definitive form, the registered 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 and . as paying agent for the Notes represented by the DBC
Global Note (the DM Paying Agent and the U.S. Paying Agent are referred to as
the "Paying Agents"). . , 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 and interest on the Notes represented by the Global
Notes will be made in Deutsche Marks through the DM Paying Agent to DBC 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.
95
In addition to acting in its capacity as U.S. Paying Agent, . 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.
96
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.
97
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 sales may occur may haveU.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 adverse impactamount 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 prices.
48discount 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
98
50expense 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.
99
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.
100
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.
101
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
102
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.
103
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreementa purchase agreement (the
"Underwriting"Purchase Agreement") betweenamong the CompanyIssuer, Merrill Lynch Capital Markets Bank
Limited Frankfurt/Main Branch, as lead manager and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (together, the Underwriters named
below (the "Underwriters"), the CompanyIssuer has
agreed to sell to each of the Underwriters, and each of the Underwriters for whom ING Barings is acting as
representative (the "Representative"), has severallyhave agreed to
purchase from the Company,Issuer, DM aggregate principal amount at maturity of the
numberNotes. Each of Shares (collectively, the "Shares")Underwriters has agreed to purchase the principal amount of
the Notes set forth opposite its name below:below, if any Notes are purchased.
NUMBER
UNDERWRITER OF SHARES
- ----------- ----------PRINCIPAL
INITIAL PURCHASERS AMOUNT
------------------ ---------
ING Barings.....................................................................
----------
Total......................................................................
=========Merrill Lynch Capital Markets Bank Limited Frankfurt/Main Branch..... DM
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
-----
Total............................................................ DM
=====
InThe Purchase Agreement provides that the Underwriting Agreement,obligation of the severalUnderwriters 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 subject to reimburse the terms and conditions set forth therein, to purchase allCompany for $250,000 of the
Shares if any such Shares are purchased. Inexpenses incurred in connection with the event of a default by any
Underwriter,Offering.
The Underwriters have advised the Underwriting Agreement providesIssuer that in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated. The Company has been advised by the
Representative that the several Underwritersthey propose initially to
offer the SharesNotes to the public at the price to public offering price set forth on the cover
page hereof,of this Prospectus, and to certain dealers at such price less a
concession not in excess of $% per Share.Note. The Underwriters may allow, and such
dealers may reallow, a concessiondiscount not in excess of $% per ShareNote to certain other
dealers. After the initial public offering,Offering, the public offering price, concession and
such concessionsdiscount may be changed.
A portionThe Issuer has agreed that it will not for a period of 180 days from the
date of this Prospectus, without the consent of the sharesUnderwriters, directly or
indirectly offer, sell, grant any option to purchase, or otherwise dispose of,
Common Stock offered herebyany debt securities of the Issuer or securities of the Issuer that are
being offered
outsideconvertible into, or exchangeable for, the United States. Offers and sales of shares of Common Stock outsideNotes or such other debt
securities.
The Issuer has agreed to indemnify the United States are being made pursuant to Regulation S and such shares are
not being registeredUnderwriters 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,
104
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 sales outsidepegging, fixing or maintaining the United States. A registration statement underprice of the
Securities Act is in
effect for offers and salesNotes.
If Underwriters create a short position in the United States of shares of Common Stock that
were initially offered or sold outsideNotes in connection with the
United States. All sales of Shares on
behalf of ING Barings in the United States will be conducted by its affiliate
ING Baring (U.S.)Offering, i.e., Inc.
The Company has granted to the Underwriters an option to purchase
collectively up to 795,000 additional Shares exercisable for 30 days after the
date hereof, solely to cover over-allotments, if any, at the public offering
pricethey sell more Notes than are set forth on the cover page
of this prospectus lessProspectus, the underwriting
commissions. ToUnderwriters 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 exercise such option, each such
Underwriter will be obligated, subjectmake any representation or
prediction as to certain conditions, to purchase
approximately the same percentagedirection or magnitude of such Sharesany effect that the
numbertransactions described above may have on the price of Shares set
forth next tothe Notes. In addition,
neither the Issuer nor the Underwriters make any representation that the
Underwriters will engage in such Underwriter's name in the preceding table in the Prospectustransaction or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters relating to the Offering bears to the total number of all such Shares to be
purchased and offered by the Underwriters.
Prior to the Offering, there has been no established market in the United
States or elsewhere for the Shares. The public offering price will be determined
by the Company in consultation with the Underwriters. It is expected that the
price determination will take several factors into account, including an
assessment of the Company's results of operations, the future prospects of the
Company and the prevailing market and economic conditions at the time of the
Offering.
49
51
Subject to certain exceptions, the Company and shareholders of the Company
holding in the aggregate 8,159,206 Shares and holders of options to purchase
2,041,830 Shares have agreed that they will not directly or indirectly offer or
sell any Shares (or securities convertible into any Shares), other than in the
Offering, for a period of 180 days after the commencement of the Offering
without the prior written consent of the Representative.
Application will be made to have the Common Stock approved for listing on
the Nasdaq National Market under the symbol "EEFT".
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act.
50
52
VALIDITY OF SECURITIES
The validity of the Shares offered herebyNotes will be passed upon for the
CompanyIssuer by Arent Fox Kintner Plotkin & Kahn, PLLC and for the Underwriters by
Shearman & Sterling.
EXPERTS
The Consolidated Financial Statements of the Company for the period from
June 22, 1994 (inception) to December 31, 1994, the year ended December 31, 1995
and for the nine months ended September 30, 1996 and as of December 31, 1994 and
1995 and September 30, 1996, included in this
Prospectus have been audited by KPMG Polska Sp. z o.o., independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said
reports.
51auditing.
105
53
ANNEX A
COUNTRY INFORMATION: HUNGARY AND POLAND
The economic political and statistical information provided in this section
is based on secondary sources available to the Company. The information included
in this section does not purport to cover all aspects of the issues and matters
discussed herein and should not be construed as doing so.
THE REPUBLIC OF HUNGARY
The following economic and exchange control information regarding the
Republic of Hungary has been extracted from official publications of the
National Bank of Hungary (the "NBH"), the Hungarian Ministry of Industry and the
Hungarian Central Statistical Office.
GENERAL
The Republic of Hungary, which lies in Central Europe, covers an area of
approximately 93,000 square kilometers. The population of Hungary, as estimated
by the Hungarian Central Statistical Office, was 10.2 million as of January 1,
1996, compared with 10.7 million in 1980. Approximately 62% of the total
population lives in urban areas, and approximately 2.0 million people live in
the capital, Budapest, which is Hungary's political, administrative, cultural
and commercial center.
In April 1996, Hungary joined the OECD. It has been an associate member of
the European Union since December 1991. It is a member, together with Poland,
the Czech Republic and Slovakia, of the Central European Free Trade Association.
GOVERNMENT
During the late 1980s, the political system in Hungary underwent dramatic
changes. In 1989 non-communist political parties were established and initial
steps were taken toward the first free elections in the country since 1947. On
October 23, 1989, the country's name was changed from "The Hungarian People's
Republic" to the "Republic of Hungary" and the constitution was substantially
amended. Under its new constitution, Hungary instituted a multiparty democratic
government. In March and April 1990, the 386 members of Hungary's unicameral
parliament were elected by popular vote for a term of four years. In 1994 the
Hungarian Socialist Party joined with the Free Democrats to defeat the
centre-right coalition government that had initiated reforms in 1989 and to form
a coalition government with a 72% majority in parliament. Gyula Horn was elected
Prime Minister. The next scheduled general election is in 1998. Parliament is
the supreme legislative body of the Hungarian government (the "Government"). The
President of Hungary, the Prime Minister, the members of the Constitutional
Court, the president and vice-presidents of the State Audit Office, the
president of the Supreme Court and the Attorney General are elected by a vote of
Parliament.
ECONOMY
Since 1989, steps have been taken to accelerate the development of a market
economy in Hungary. However, Hungary was not able to insulate itself from the
downturn in economic activity that affected all of Central and Eastern Europe
after the dissolution of the Council for Mutual Economic Assistance ("COMECON"),
an economic and trade organization sponsored by the former Soviet Union that
included many formerly communist countries. GDP declined between 1990 and 1993.
The fall in GDP during this period was mainly attributable to structural reform,
the collapse in trade with the former COMECON countries and their lack of
convertible currencies to pay for Hungarian exports, the embargo on trade with
Yugoslavia and Bosnia and the recession in Eastern Europe. In 1994, however, GDP
increased by 2.9%.
In 1995, key economic indicators reflected mixed economic performance. The
central budget deficit (excluding social security funds) stood at Hungarian
forints ("HUF") 160.6 billion for 1995 and the current account deficit for 1995
was $2.48 billion. The rate of inflation (as measured by increases in consumer
prices)
A-1
54
increased to 28.2% in 1995 although unemployment fell during that period.
Exports in 1995 were valued at HUF 1,622.0 billion. The trade deficit in 1995
was HUF 314.4 (US$ 2.56) billion and GDP increased by 1.5%.
On March 12, 1995, the Hungarian government announced important economic
and monetary policy reforms. These measures were intended to reduce government
expenditures, narrow the foreign trade deficit, stabilize inflation, lower the
rate of domestic consumption, stimulate domestic savings and promote corporate
business activity.
The measures included a 9% devaluation of the forint and the introduction
of a "crawling peg" devaluation scheme, leading to an aggregate devaluation of
approximately 29% in 1995. A temporary 8% supplementary duty was imposed on
imports, excluding primary energy imports, investment goods and components for
export products. The mandatory conversion of export revenues of businesses into
forints was abolished. The measures also included reductions in certain social
welfare benefits and salary ceilings in public sector jobs.
The transition to a market-oriented economy in Hungary has had a
significant impact on prices, wages and employment. By the end of 1990, the
prices of over 90% of goods and services were free from regulation. Prices rose
rapidly during late 1990 and early 1991 and consumer prices increased by 35% in
1991. The rate of inflation began to moderate during the latter half of 1991 and
continued to subside in 1992 with the increase in consumer prices averaging 23%
for the year. The rate of inflation, as measured by increases in consumer
prices, remained fairly constant in 1993 at 22.5% and then declined to 18.8% in
1994. During 1995, the annual rate of inflation increased with consumer prices
increasing by 28.2%. In 1995, price increases included a 50% rise in energy
prices and a 31.1% rise in food prices.
From 1990 to 1993, nominal wages increased, although at a slower rate than
the increase in consumer prices over the same period. As a result, real wages in
each year declined. In 1994, however, the increase in nominal wages exceeded the
increase in consumer prices, causing real wages to grow. The monthly average
nominal wage (before taxes) in Hungary in 1995 was HUF 38,900, 16.9% higher than
in 1994.
The unemployment rate in Hungary at December 31, 1992, was 13.2% with over
663,000 registered as unemployed. The number of registered unemployed at
December 31, 1993 was 632,000, which represented an unemployment rate of 12.6%.
Since 1993, unemployment has continued to decline. At December 31, 1994 the
number of registered unemployed was 520,000, which represented an unemployment
rate of 10.9%. At the end of 1995, the number of registered unemployed was
496,000 which represented an unemployment rate of 10.4%.
EXCHANGE CONTROL
Legislation was enacted in late 1995 by the Hungarian parliament to further
liberalize foreign exchange for commercial transactions (Foreign Exchange Act,
Law XCV 1995). This came into effect on January 1, 1996 and meets the
requirements of both the International Monetary Fund (Section VIII) and the
Organization for Economic Cooperation and Development on convertibility of
current items.
Pursuant to the Foreign Exchange Act, the forint is freely convertible
except for capital movements and related transactions, which are controlled by
the Hungarian Government through the NBH.
Certain currency-related bank activities, other than those which involve
foreign trade transactions, require the permission of the NBH. These include,
without limitation:
- transfer of credit abroad;
- monetary exchange, whether into convertible currency or into HUF where
payment is by convertible currency, or any other possession of
convertible currency;
- purchase, gift or other contracts related to domestic properties between
Hungarian and foreign parties or by Hungarian parties for the benefit of
foreign parties; and
- the write-off of debt in convertible-currency.
However, an important area exempt by statute from the general requirement
of exchange control licensing is investment, including investment by an
investment company in shares in Hungary by foreign parties.
A-2
55
Currently, companies not established in duty-free zones may only maintain
local currency books. However, a Hungarian company, which is either partly or
wholly foreign-owned, may keep the cash portion of the foreign partners' capital
contribution in a separate convertible-currency bank account. The
convertible-currency account may also be used pay expenses abroad.
Pursuant to this legislation, a Hungarian business may purchase convertible
foreign currency to effect payments in connection with its business activities.
Prior consent need not be obtained and there is no limit to the amount of
foreign currency which may be purchased or received by that business in
connection with those business activities. Any convertible foreign currency must
either be remitted to a beneficiary abroad or back to Hungary to be deposited in
a convertible foreign currency account with an authorized Hungarian financial
institution. This account may be used both for payments out in the relevant
foreign currency or for conversion into forints.
Since April 1995, Hungarian companies have been able to deposit income from
foreign trace contracts and foreign exchange loans in their hard currency
account and to make payments from these accounts (similarly in hard currency) in
respect of foreign trade contracts, interest or principal on foreign exchange
loans or, with permission from the NBH, for other purposes. Hungarian companies
may not conduct trade amongst themselves in a foreign currency. Money in a
convertible currency may be converted into forints or other convertible
currencies.
POLAND
GENERAL
Poland is the largest economy in Central Europe. The country has a
population of 38.5 million people. Poland occupies 313,000 square kilometers and
is strategically located just south of the Baltic Sea with Germany to the West,
the Czech and Slovak Republics to the South and Ukraine, Belarus, Russia and
Lithuania to the East. The country is divided into 99 counties and Warsaw, the
capital, is the country's commercial and political center.
In November 1996, Poland joined the OECD. It is an associate member of the
European Union and hopes to be a full member by the year 2000. It is a member,
together with Hungary, the Czech Republic and Slovakia, of the Central European
Free Trade Area.
GOVERNMENT
In 1952 Poland adopted a constitution that institutionalized a system of de
facto one-party rule by the Polish United Workers' Party (the "Polish Communist
Party"). Government policy during this period was guided by a program of
nationalization of industry, expropriation of large land holdings, central
planning of the economy and the suppression of political dissent. Frequent
political and economic crises occurred in the 1960s and 1970s.
Solidarity, the first independent trade union in the Soviet bloc, was
formed in 1980 and soon consolidated a growing popular discontent with the
communist government. In April 1989, the communist government and the democratic
opposition led by Solidarity agreed to a power-sharing arrangement and in June
1989 competitive elections to a bicameral Parliament were held. The overwhelming
victory of Solidarity candidates in these elections for available seats in the
Parliament signaled the end of the political monopoly of the Polish Communist
Party. In May 1990, local elections were held in which Solidarity achieved a
similar victory. In November 1990, Lech Walesa, who had played an historic role
in the information and leadership of Solidarity, was elected President. In the
first completely free parliamentary elections in 1991, 23 parties were elected
to parliament with the largest party not having more than 14% of the seats.
There were five governments between 1989 and 1993 and, following a change in the
electoral procedure prior to the second general election in 1993, the national
reform parties centered around the Union Democrats, a Solidarity-splinter group,
were defeated. The three governments since then, including the current one under
Prime Minister Cimoszewicz, have been based on the ex-communist Social Democrats
(SLD) and the Polish Peasant Party (PSL).
After Walesa's defeat in the presidential elections in November 1995,
Aleksander Kwasniewski from the SLD became the new President. The next
parliamentary election is scheduled to be held late in 1997.
A-3
56
The present constitutional framework (the "Constitution") establishes
Poland as a democratic republic with a bicameral Parliament, a President as
head-of-state, a Council of Ministers and an independent judicial system. Under
the Constitution, a bicameral Parliament comprised of upper chamber (the
"Senate") and a lower chamber (the "Sejm") is elected by general election for a
four-year term. All legislation must be approved by the Sejm and the Senate and
signed by the President. Rejection of a bill by the Senate or by the President,
however, can be overruled by a two-thirds majority in the Sejm. The President
(with the approval of the Senate) or the Sejm may call a referendum on matters
of extreme importance to the country. Judicial authority is vested in the
Supreme Court, appellate, regional and lower courts. A separate Constitutional
Tribunal has jurisdiction over all matters relating to the interpretation of the
provisions of the Constitution.
Since 1992, a special commission of the Parliament has been empowered by
law to draft a new constitution. This commission is currently considering a
number of proposals that vary widely in their approach to the separation of
governmental powers and social and economic rights. No date has been set for
adoption of a new constitution.
ECONOMY
Since the fall of the Communist government in 1989, Poland has embarked on
a program of economic reform based on the transition to a market economy and
private ownership. Existing privileges and subsidies were taken away from state
owned enterprises, creating competitive opportunities for other economic
entities. The tax system was reformed to provide equal tax treatment of all
economic entities.
Poland's transition to an open market, with reduced subsidies, devaluation
of the Polish zloty ("PLN") to encourage exports and moderation of trade
barriers, initially resulted in very high rates of inflation, which have since
moderated somewhat. In a period of just over two years, the annual inflation
rate, which exceeded 300% in 1989 and approached 600% in 1990, was reduced to
approximately 70% in 1991, primarily through the introduction of a tight
monetary policy with the cooperation of the International Monetary Fund.
According to the Polish Central Office for Statistics, the rate of annual
inflation as at March 1996, was 20.4%. In addition, Poland continues to have
significant foreign debt. Efforts to curb inflation have had a recessionary
effect during the early 1990s, which was compounded by the introduction of a
large quantity of imported products with which domestic industry had difficulty
competing. However, GDP growth for 1994 was 5.2% and was 7% for 1995.
Unemployment stood at 14.3% in June 1996.
FOREIGN EXCHANGE
Poland was the first country in Central Europe to introduce the internal
convertibility of its currency. Under an amendment to the Foreign Exchange Law
introduced in December 1995, businesses are entitled to hold cash in both a PLN
account and a foreign currency in a Polish bank. Transactions with foreign
entities must be made in a foreign convertible currency. The average rate of
exchange is set by the National Bank of Poland ("NBP") on the basis of a basket
of hard currencies. Commercial banks set their own rates of exchange.
Residents of Poland are free to keep, buy and sell foreign currency. There
are many private exchange counters all over the country. The rate of exchange
offered by private exchange counters varies but remains close to the NBP rate.
Businesses are obliged to obtain a foreign exchange permit from the NBP in
order to open an account abroad unless amounts deposited in such accounts are to
be used for the payment of services rendered pursuant to contracts concluded
with foreign entities. Hard currency loans for the purchase of goods or services
abroad from foreign banks do not require foreign exchange permits from the NBP
any longer, unless the term of such loan is longer than one year or its
conditions are less favorable than those commonly applied in international
financial markets. Also, hard currency credits from the World Bank, the European
Bank for Reconstruction and Development, and the European Investment Bank
secured by Polish government guarantees and destined for financial or domestic
investments are permitted.
From February 1, 1996 companies with foreign participation are free to
contract hard currency loans from their shareholders. The above activities,
however, should be reported to the NBP.
A-4
57
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----------
Independent Auditors' Report...........................................................Report............................................. F-2
Consolidated Balance Sheets as of September 30,December 31, 1996 and December 31, 1995 and 1994...1997............. F-3
Consolidated Statements of Operations for the nine months ended September 30, 1996,
yearyears ended December 31,
1995, 1996 and for the period from June 22, 1994 through December
31, 1994.............................................................................1997..................................................... F-4
Consolidated Statements of Changes in Shareholders'Stockholders' Equity for the nine months ended
September 30, 1996, yearyears
ended December 31, 1995, 1996 and for the period from June 22,
1994 through December 31, 1994.......................................................1997.................................. F-5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1996,
yearyears ended December 31,
1995, 1996 and for the period from June 22, 1994 through December
31, 1994.............................................................................1997..................................................... F-6
Notes to Consolidated Financial Statements.............................................Statements............................... F-7
F-1
58
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
EURONET HOLDING N.V. AND SUBSIDIARIES:Stockholders
Euronet Services Inc.:
We have audited the accompanying consolidated balance sheets of Euronet
Holding N.V.Services Inc. and Subsidiaries (Euronet N.V.)subsidiaries as of September 30, 1996, and
December 31, 19951997 and 1994,1996 and the
related consolidated statements of operations, changes in shareholders'stockholders'
equity, and cash flows for each of the nine months
ended September 30, 1996, yearyears in the three-year period ended
December 31, 1995 and for the period from
June 22, 1994 through December 31, 1994.1997. These consolidated financial statements are the
responsibility of Euronet N.V.'sthe 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
Holding N.V.Services Inc. and Subsidiariessubsidiaries at September 30, 1996, and December 31, 19951997 and 1994,1996, and the results
of their operations and their cash flows for each of the nine
months ended September 30, 1996,years in the three-
year period ended December 31, 1995 and for the period
from June 22, 1994 through December 31, 19941997 in conformity with generally accepted
accounting principles in the United States of America.
KPMG Polska Sp. z o.o.
Warsaw, Poland
DecemberMarch 17, 19961998
F-2
59
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
SEPTEMBER 30, -----------------------------------
1996 1995 1994
-------------1997
------- ---------------
(IN THOUSANDS)
ASSETS
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents...................................equivalents................................. $ 7762,541 $ 411 $ 2,0367,516
Restricted cash (note 5).................................... 783 952 --4).................................. 152 847
Trade accounts receivable, net of allowance for doubtful
accounts of $nil in 1996, 1995 and 1994.................. 90 33 --receivable................................. 172 647
Investment securities (market value of $175,100) (note 7)... 206 -- --(notes 5 and 6)..................... 194 31,944
Prepaid expenses and other current assets................... 242assets................. 433 1401,857
------- ------- ---------------
Total current assets................................... 2,097 1,829 2,176assets.................................... 3,492 42,811
Property, plant, and equipment, at cost (note 6):
Equipment -- Automaticcost:
Equipment--Automatic teller machines...................... 4,511 2,385 262
Office equipment............................................ 391 168 91
Computers................................................... 260 -- --
Software.................................................... 321 103 36,773 23,581
Vehicles and office equipment............................. 471 1,808
Computers and software.................................... 662 1,050
------- ------- -------
5,483 2,656 356--------
7,906 26,439
Less accumulated depreciation and amortization.............. (531) (138) (5)amortization............ (622) (2,351)
------- ------- ---------------
Net property, plant and equipment..................... 4,952 2,518 351
Loanequipment......................... 7,284 24,088
Loans receivable, excluding current portion (note 13).......... 16 24 --portion................. 21 21
Deposits for ATM leases..................................... 666 2,542
Deferred income taxes (note 9)................................ 367 148 --8).............................. 471 571
------- ------- ---------------
Total assets...........................................assets............................................ $11,934 $ 7,432 $ 4,519 $ 2,52770,033
======= ======= ===============
LIABILITIES AND SHAREHOLDERS'STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable......................................payable.................................... $ 514 364 761,670 4,420
Short term borrowings (note 7).............................. 206 -- --6)............................ 194 158
Current installments of obligations under capital leases
(note 8)7)................................................. 570 264 --637 3,140
Note payable -- shareholder (note 13).......................payable--shareholder................................. 262 161 --
Accrued expenses............................................ 915 514 29expenses.......................................... 98 1,597
------- ------- ---------------
Total current liabilities.............................. 2,467 1,303 105liabilities............................... 2,861 9,315
Obligations under capital leases, excluding current
installments (note 8)....................................... 2,363 1,119 --7)...................................... 3,834 11,330
Other long-term liabilities................................... 60liabilities................................. 103 169
------- --------
Total liabilities....................................... 6,798 20,814
------- --------
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
Preferred stock, $0.02 par value. Authorized 10,000,000
shares in 1997, none issued and outstanding.............. -- --
------- ------- -------
Total liabilities...................................... $ 4,890 $ 2,422 $ 105
------- ------- -------
Shareholders' equity:
Series A convertible preferred shares, $0.01stock, $0.02 par value.
Authorized 5,600,000 shares;7,700,000 shares in 1996, issued and
outstanding 4,419,800 shares (note 3)................................ 63 --in 1996............................ 88 --
Series B convertible preferred shares, $0.01stock, $0.02 par value.
Authorized 6,300,000 shares;7,700,000 shares in 1996, issued and
outstanding 4,200,000 shares (note 3)................................ 604,666,669 in 1996............................ 93 -- --
Common shares of Euronet N.V., $0.01 par value. Authorized
5,600,000 shares; issued and outstanding 499,100 shares
(note 3)................................................. 7 -- --
Common shares of operating companies (note 3)............... -- 3,716 2,650
Additional paid in capital.................................. 6,612 550capital................................ 11,666 63,358
Treasury stock............................................ -- (4)
Subscription receivable..................................... (3,000) -- --receivable................................... (500) (253)
Accumulated losses.......................................... (1,942) (2,819) (457)losses........................................ (7,005) (14,970)
Restricted reserve (note 4)................................. 742 650 2293)............................... 784 784
------- --------
Total stockholders' equity.............................. 5,136 49,219
------- -------
Total shareholders' equity............................. 2,542 2,097 2,422
------- ------- ---------------
Total liabilities and shareholders' equity.............stockholders' equity.............. $11,934 $ 7,432 $ 4,519 $ 2,52770,033
======= ======= ===============
See accompanying notes to consolidated financial statements.
F-3
60
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
NINE MONTHS FROM JUNE 22,YEARS ENDED YEAR ENDED 1994 THROUGH
SEPTEMBER 30, DECEMBER 31,
DECEMBER 31,-----------------------------------------
1995 1996 1995 19941997
------------- ------------ --------------
------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Transaction fees.................................... $ 577fees................. $ 62 $ 1,198 $ 4,627
Other............................ -- Other............................................... 61 -- --
---------- ------ ------63 663
------------- ------------ ------------
Total revenues................................. 638revenues................. 62 --1,261 5,290
Operating expenses:
ATM operating costs................................. 941costs.............. 510 411,176 5,172
Professional fees................................... 828fees................ 394 64
Salaries............................................ 7161,125 1,166
Salaries......................... 452 49989 3,796
Communication.................... 20 263 818
Rent and utilities............... 112 290 783
Travel and related costs......... 71 254 701
Fees and charges................. 112 427 458
Share compensation expense (note
9).............................. -- 4,172 108
Foreign exchange loss............................... 88loss/(gain)..... 158 2
Other............................................... 775 656 84
---------- ------ ------79 (8)
Other............................ 341 232 818
------------- ------------ ------------
Total operating expenses....................... 3,348expenses........... 2,170 240
---------- ------ ------9,007 13,812
------------- ------------ ------------
Operating loss................................. (2,710)loss................. (2,108) (240)(7,746) (8,522)
Other income/expense:
Interest income..................................... 177income.................. 126 12225 1,609
Interest expense.................................... (241)expense................. (107) --
---------- ------ ------
(64)(378) (1,152)
------------- ------------ ------------
19 12
---------- ------ ------(153) 457
------------- ------------ ------------
Loss before income taxes....................... (2,774)tax
benefit....................... (2,089) (228)
Deferred(7,899) (8,065)
Income tax benefit (note 9)....................... 2198)........ 148 --
---------- ------ ------323 100
------------- ------------ ------------
Net loss....................................... $ (2,555)loss....................... $ (1,941) $ (228)
========== ====== ======
Pro-forma loss(7,576) (7,965)
============= ============ ============
Loss per common share.......................share--basic and diluted
(note 2(k))....................... $ (0.19) ==========
Pro-forma number of common shares..................... 13,109,320
==========(0.73) (0.56)
============= ============ ============
See accompanying notes to consolidated financial statements.
F-4
61
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'STOCKHOLDERS' EQUITY
PREFERRED PREFERRED ADDITIONAL
COMMON SHARES SHARESSTOCK STOCK PAID IN TREASURY SUBSCRIPTION ACCUMULATED RESTRICTED
ACCUMULATED
SHARESSTOCK SERIES A SERIES B CAPITAL STOCK RECEIVABLE LOSSES RESERVE LOSSES TOTAL
------ --------- --------- ---------- -------- ------------ ----------- ---------- ----------- ------
(IN THOUSANDS)-------
Capital
contributions....... 2,650
BALANCE JANUARY 1, 1995.... $2,650 -- -- -- -- -- -- 2,650
Current period loss... -- -- -- -- -- -- (228) (228)
Transfer to restricted
reserve............. -- -- -- -- --(457) 229 (229) --
----- ----- ----- ----- ------ ----- ------ ------
Balance December 31,
1994................ 2,650 -- -- -- -- 229 (457)$ 2,422
Capital contributions....... 1,066contributions (note
1)...........................1,066 -- -- 550 -- -- -- -- 1,616
Current year loss.....Net loss for 1995.......... -- -- -- -- -- -- (1,941) -- (1,941)
Transfer to restricted
reserve.............reserve................... -- -- -- -- -- -- (421) 421 (421) --
------ --- ---- ------ --- ----- ----- ----- ----- ------ ----- ------ ------
Balance December------- --- -------
BALANCE DECEMBER 31, 1995................1995.. 3,716 -- -- 550 -- -- (2,819) 650 (2,819) 2,097
Net loss up to March 27,
1996............1996...................... -- -- -- -- -- -- (657) -- (657)
Transfer to restricted
reserve.............reserve................... -- -- -- -- -- -- (48) 48 (48) --
Formation of holding
company.............Euronet
Services N.V. (note 1).... (3,709) 63 -- 122 -- -- 3,524 -- --
Capital contribution........contribution (note
1)........................ -- -- 60 5,940 (3,000)67 6,933 -- ( 500) -- -- 3,0006,500
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 September 30,
1996................December 31,
1996...................... -- -- -- -- -- -- (1,898) (1,898)(6,919) -- (6,919)
Transfer to restricted
reserve.............reserve................... -- -- -- -- -- 44 (44) -- (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 September 30,
1996................ 7 63 60 6,612 (3,000) 742 (1,942) 2,542------- --- -------
BALANCE DECEMBER 31, 1997.. $ 304 -- -- 63,358 (4) (253) (14,970) 784 $49,219
====== === ==== ====== === ===== ===== ===== ===== ====== ===== ====== ============= === =======
See accompanying notes to consolidated financial statements.
F-5
62
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD
NINE MONTHS FROM JUNE 22,
ENDED YEAR ENDED 1994 THROUGH
SEPTEMBER 30, DECEMBER 31,
DECEMBER 31,---------------------------
1995 1996 1995 1994
------------- ------------ --------------1997
-------- ------- --------
(IN THOUSANDS)
(IN THOUSANDS)Cash flows from operating activities:
Net loss.............................................. $(2,555)loss.......................................... $( 1,941) $(7,576) $ (1,941) $ (228)(7,965)
Adjustments to reconcile net incomeloss to net cash used
in operating activities:
Share compensation expense....................... -- 4,172 108
Depreciation and amortization of property, plant
and equipment....... 393equipment................................... 133 5484 1,761
Loss on disposal of fixed assets................. -- -- 11
Deferred income taxes............................... (219)taxes............................ (148) --
Decrease/(increase)(323) (100)
(Increase)/decrease in restricted cash.............. 169 (952) --cash........... (180) 28 (695)
Increase in trade accounts receivable............... (57)receivable............ (33) --(139) (475)
(Increase)/decrease in deposits for leases....... (772) 106 (1,876)
Increase in trade accounts payable.................. 150payable............... 288 76
Decrease/(increase)1,306 2,750
Increase in prepaid expenses and other current
assets................................... 191assets.......................................... (293) (140)
Increase-- (1,424)
Increase/(decrease) in accrued expenses and other
long-term liabilities...................................... 461liabilities........................... 485 29(313) 1,565
-------- ------- ------- ---------------
Net cash used in operating activities.......... (1,467)activities............ (2,461) (258)(2,255) (6,340)
-------- ------- --------
Cash flows from investing activities:
Fixed asset purchases............................... (320)purchases............................ (394) (356)(1,061) (7,612)
Proceeds from sale of fixed assets............... -- -- 42
Purchase of investment securities................... (206)securities................ -- (194) (75,692)
Proceeds from maturity of investment securities.. -- -- 43,942
Net (increase)/decrease (increase) in loan receivable.......... 8receivable....... (24) 3 --
-------- ------- ------- ---------------
Net cash used in investing activities.......... (518)activities............ (418) (356)(1,252) (39,320)
-------- ------- --------
Cash flows from financing activities:
Capital contributions............................... 3,000Proceeds from issuance of shares and other
capital contributions........................... 1,616 2,6506,500 51,944
Reimbursement of capital......................... -- (57) --
Repayment of obligations under capital leases....... (957)leases.... (523) --
Proceeds from bank borrowings....................... 206(1,101) (1,007)
Repurchase of treasury stock..................... -- -- (4)
Decrease/(increase) in bank borrowings........... -- 194 (36)
Proceeds fromfrom/(repayment of) loan from
shareholder.................shareholder..................................... 161 101 161 --(262)
-------- ------- ------- ---------------
Net cash provided by financing activities...... 2,350activities........ 1,254 2,6505,637 50,635
-------- ------- ------- ---------------
Net (decrease)/increase (decrease) in cash and cash
equivalents......................................... 365equivalents...................................... (1,625) 2,0362,130 4,975
Cash and cash equivalents at beginning of period......period.. 2,036 411 2,036 --
======= ======= =======2,541
-------- ------- --------
Cash and cash equivalents at end of period............ $ 776period........ $ 411 $ 2,0362,541 $ 7,516
======== ======= ======= ===============
Supplemental disclosures of cash flow information:
Interest paid during year........................... $ 227year........................ $ 107 $ --325 $ 877
======== ======= ======= ===============
- --------
Supplemental schedule of noncash investing and financing activities:activities (in
thousands):
Capital lease obligations of $1,984$1,906, $4,189 and $1,906$11,006 during the nine-month period
ended September 30, 1996 and the yearyears ended
December 31, 1995, 1996 and 1997, respectively, were incurred when Euronet N.V.the Company
entered into leases primarily for new automatic teller machines.
See accompanying notes to consolidated financial statements.
F-6
63
EURONET HOLDING N.V.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 Subsidiaries (Euronet N.V.its subsidiaries (collectively "Euronet") is an
independent shared automatic teller machine (ATM) network and service provider
to banks and financial institutions. Euronet N.V. serves a number of banks in Poland and
Hungary by providing ATMs
that accept cards with international logos such as VISA, American Express and
Mastercard and proprietary bank cards issued by member banks. The subsidiaries
of Euronet, all of which are wholly owned, are:
--Euronet Holding N.V. is a limited liability company registered, incorporated in the Netherlands Antilles
--Euronet-Bank Tech Rt. (Bank Tech), incorporated on March 11, 1996. It was formed as a holding
company for the purpose of acquiring 100% ownership interest in the following
three operating entities: Euronet-Bank 24 Rt, (Bank24), SatComNetHungary
--SatComNet Kft (SatComNet), both incorporated in Hungary
and Bankomat--Bankomat 24/Euronet Sp. z o.o. (Bankomat), incorporated in Poland.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 acquisitionfollowing is a description of these shares by the Euronet N.V. took place on March 27, 1996.events leading up to the formation of
the Company. Bank 24 and Bankomat were legallyTech 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 respectively; SatComNetwith $2,000 in capital. A further
capital increase of $61,000 was acquired by an investor group on February
20, 1995. Bank 24 and SatComNet were, before the formation of Euronet N.V.,
owned by the same shareholder group. Bankomat was, before the formation of
Euronet N.V., ownedmade by Michael Brown Chairmanon 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. and a major
shareholder of Bank24 and SatComNet. The acquisition of the three operating
entitiestransaction has been accounted
for as a combination of entities under common control using an accounting methodat historical cost in a
manner similar to the pooling of interestsinterest 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 following periods: June 22, 1994 through December 31, 1994;par value
F-7
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the year
ended December 31, 1995shares issued, accumulated losses were eliminated ($3,524,000) and the
nine month period ended September 30, 1996.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 ServicesHolding 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.
NUMBER OF SHARES
-------------------------------------------------
BANK EURONET
DATE TYPE OF SHARES TECH(/1/) SATCOMNET BANKOMAT HOLDING N.V. VALUE
- ---- ------------------ --------- --------- -------- ------------ --------------
(IN THOUSANDS)
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
- --------
(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 establishedrecorded 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
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 Delaware corporationseven-for-one stock split which became effective
on December
13, 1996 which will succeed Euronet N.V. asMarch 5, 1997, thus reducing the holding company. It is intended
that (i)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. will convertconverted all
of such preferred shares into Common Shares of Euronet N.V. and (ii) Euronet
N.V. will effect a seven-for-one stock split of all outstanding common shares of Euronet Holding N.V.
On December 17, 1996,Pursuant to an Exchange Agreement which became effective on March 6, 1997,
entered into between Euronet Services Inc. and the shareholders and optionholdersoption
holders of Euronet Holding N.V. entered into an Exchange Agreement pursuant to
which (i) 9,585,569, 10,296,076 shares of Common Stock will becommon 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. (ii)In addition, options to
acquire 3,113,355 shares of Common Stock will be grantedcommon stock of the Company were issued to the
holders of options to acquire 3,113,355 Common Sharescommon shares of Euronet Holding N.V.
in exchange for all
of such options and (iii) awards with respect to 800,520 shares of Common Stockcommon stock of Euronet Services Inc. will bethe 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 (the
"Reorganization"). Euronet N.V. will be dissolved followingawards.
On March 7, 1997, the Reorganization.
The Reorganization is subject to and will be effective upon the execution of an
underwriting agreement in connection withCompany consummated an initial public offering of
6,095,000 shares of common stock at a price of $13.50 per share. Of the
Common Stock6,095,000 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:
NUMBER
DATE OF SHARES
-------------- ----------
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
==========
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Basis of presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America.
The financial statements for 1994, 1995 and for the period from January 1, 19961995 through March
27, 1996 have been presented as if the operating entities had been combined
from their respective dates of incorporation/acquisition. SubsequentFor the period from
March 27, 1996 to March 27, 1996,6, 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
in the consolidated financial statements.
F-7eliminated.
F-9
64
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- 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.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 translation
The accounts of Euronet N.V. are recorded using U.S. dollars as the
functional currency which represents the currency of the primary economic
environments in which Euronet N.V. operates. Euronet N.V. applies Statement of
Financial Accounting Standards No. 52 relative to the translation of foreign
currency financial statements into U.S. dollars and accounting for foreign
currency transactions. Under this statement, monetary assets and liabilities are
translated at current exchange rates and non monetary assets, liabilities and
shareholders' equitytransactions are recorded at historicalthe exchange rates. Exchange gains
and losses resulting from remeasurementrate prevailing
at the date of assetsthe transactions. Assets and liabilities denominated in foreign
currencies are recognized
in income when they occur.remeasured at rates of exchange at balance sheet date. Gains
and losses resulting from the translation ofon foreign currency transactions are included in the income statement when they occur.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 ratesand amortization periods are as follows:
Automatic teller machines..................................machines................................ 7 years
Computers.................................................. 3 years
Software...................................................Computers and software................................... 3 years
Vehicles & Equipment.......................................office equipment.............................. 5 years
Cassettes................................................ 1 year
Leasehold improvements................................... Over the lease term
(e) Impairment of long-lived assets
Euronet N.V. assesses the recoverability of long-lived assets (mainly property,
plant and equipment) by determining whether the carrying value of the fixed
assets can be recovered over the remaining lives through projected
undiscounted future operating cash flows.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
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.
F-8
65
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Valuation allowancesA valuation allowance for deferred tax assets havehas been established on the
basis of Euronet N.V.'sthe Company's estimate of taxable income for future periods.
(g) Risks and uncertainties
Euronet N.V. operates in one business segment through operations in Hungary
and Poland. Euronet N.V., at this time, isremains dependent on a limited group of customers and
network services are limited to those areas where ATMs have been installed.
Management of Euronet N.V.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 N.V. recognizes revenue at the point at which the service is performed.
(i) Cash equivalents
For the purposes of the statementstatements of cash flows, Euronet N.V.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
Investment securities at September 30, 1996 consist of Hungarian government
bonds which Euronet N.V.The Company has classified all of its investment securities as held-to-maturity (gross unrealised
losses are approximately $31,000).held-to-
maturity. Held-to-maturity securities are those securities in which Euronet N.V.the
Company has the ability and intent to hold the security to maturity. The held-to-maturity investmentHeld-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 ofor
term of the related held-to-maturity security as an adjustment to yield using
the effective interest method.
(k) Pro-formaLoss 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 Ashas
been computed by dividing net loss attributable to common shareholders by the
historicalweighted 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
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides a reconciliation of the numerator and
denominator in the loss per share calculation:
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
Net loss attributable to common
shareholders (in thousands)....... (1,941) (7,576) (7,965)
Weighted average number of common
shares outstanding................ 10,386,089 10,386,089 14,284,917
Loss per share--basic and diluted.. $ (0.19) $ (0.73) $ (0.56)
The capital structure of Euronet N.V.the Company before March 7, 1997 (consummation of
the initial public offering) is not indicative of the continuing capital
structure, the historicalstructure. The loss per share hasamounts for prior years have been replaced by a pro-forma loss per share computation.restated to
conform with the provisions of SFAS No. 128. The pro-forma loss per share
has been calculated by dividing the net loss by the pro-formaweighted average number of
shares amounting to 13,109,320. The pro-forma number of shares reflectsoutstanding for the years ended December 31, 1996 and 1995 represents
the sum of (1)
10,641,532(i) 9,585,569 shares of common shares issued andstock outstanding at December 31,
1996 (adjusted to reflect the conversion of the new holding company,
Euronet Services Inc.preferred shares to common
stock, reduction in par value and the seven-to-one stock split resulting from
the initial public offering) and, (ii) 800,520 shares of common stock awarded
to shareholders in connection with the initial public offering, which pursuant
to the Securities and Exchange Commission's Staff Accounting Bulletin No. 98
are deemed to be nominal issuances for all periods presented.
(l) Stock-based compensation
SFAS No. 123 "Accounting for Stock-Based Compensation", (2) 1,519,002 shares issuable (usingencourages 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 treasury stock
method) under Euronet N.V.'s milestone stock option program,intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
and (3) 948,786
shares issuable (usingrelated Interpretations. Accordingly, compensation cost for share options
is measured as the treasury stock method) under Euronet N.V.'s stock
compensation plan.
(3) CAPITAL STOCK
Euronet Holding N.V. was established on the basisexcess, if any, of the Articlesfair market value of Incorporation dated March 11, 1996.
Euronet N.V. registeredthe Company's
shares at the date of the grant over the exercise price. Such compensation
cost is charged to expense on a ten for one stock split on October 11, 1996. The
par value changed from $1.00 to $0.10 for all preferred and common shares
authorized and issuedstraight-line basis over the vesting period of
the respective options. If vesting is accelerated as a result of certain
milestones, the stock split. Upon formationunrecognized 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 Euronet
Inc., Euronet N.V.'s preferred and common shares authorized and issued will
reflect a further stock split of seven for one and the par value will change
from $0.10SFAS No. 123 (refer to
$0.01. All referencesnote (9)).
(m) Reclassifications
Certain amounts have been reclassified in the prior year financial
statements to the number of
shares and per share amounts have been retroactively restated to reflect the
increased number of preferred and common shares outstanding.
F-9
66
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 26, 1996, Euronet N.V. called $2 million of the subscription
receivable which was received subsequent to September 30, 1996. On December 11,
1996, the remaining $1 million of subscription receivable was called.
In accordance with the Articles of Association of Euronet Holding N.V.,
holders of series B convertible preferred shares are entitled to priority
earnings' distribution,conform to the extent possible, as determined by a fixed
formula. Profits available for distribution after this deduction are then
allocated to both holders of series A and B convertible preferred shares, to the
extent possible, as determined by a fixed formula. Common shareholders are
entitled to a fixed dividend of $0.80 per common shares, to the extent possible,
after the second priority earnings' distribution. The remaining profits
available for distribution, to the extent possible, shall be allocated to all
shareholders on a pro rata basis.
In the event of liquidation of Euronet N.V., holders of series B
convertible preferred shares shall be entitled to receive, to the extent
possible, in priority to any distribution to the holders of series A and common
shares, a distribution determined in accordance with a fixed formula. From the
net assets that remain after this payment the holders of series A and B
convertible preferred shares shall be entitled to receive, to the extent
possible, in priority to any distribution to the holders of common shares, a
distribution determined in accordance with a fixed formula. The balance that
remains shall be distributed among the holders of common shares pro rata based
on their respective ownership of common shares.
Holders of convertible preferred shares may have their shares converted
into common shares at the rate of one to one. Holders of series B convertible
preferred shares may have their shares converted into series A convertible
preferred shares at the rate of one to one. Euronet N.V. has the option to
convert all preferred series A and B shares to common shares upon the
undertaking of an initial public offering.
Prior to Euronet N.V. being established on March 11, 1996, the common
shares of the entities forming part of the combination were Bank 24, SatComNet
and Bankomat. The share capital (and quota capital with respect to SatComNet) of
the combined entities is composed fully of common shares. Details of shares
authorized and issued are as follows:
QUOTA AUTHORIZED ISSUED TOTAL
CAPITAL SHARES SHARES VALUE
------- ---------- ------- ------
Bank 24................................................ -- 330,000 330,000 $3,162
SatComNet.............................................. 1 -- -- $ 491
Bankomat............................................... -- 3,140 3,140 $ 63
During 1995, Bank 24 changed its legal structure from a company limited by
quotas ("Kft") to a company limited by shares ("Rt").
(4)1997 financial statements presentation.
(3) RESTRICTED RESERVE
The restricted reserve arisesarose from the provisions of Hungarian accounting law
in relation to share capital contributed in foreign currency to Bank 24Tech and
SatComNet. Under these rules, a foreign currency capital contribution is
recorded in the local accounting records of the companies using the rate when
the capital was contributed. The foreign currency gain (or loss) which arises
upon usage of the foreign currency is booked directly torecorded as a separate non distributable
reserve.
ForThe reserve has remained frozen during the purposes of these consolidated financial statements,year as the exchange
gainslaws in Hungary have
now changed and losses booked tono longer require this reserve under Hungarian accounting law, together
withaccounting. However, the gain on revaluing the remaining foreign currency received for capital
at each period end in accordance with generally accepted accounting principles,
have been includedchange in the
income statement forlaw is not retroactive and the year with an equivalent
transfer for the accumulated losshistorical reserve to the restricted reserve.
F-10remains undistributable.
F-12
67
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- STATEMENTS--(CONTINUED)
(5)(4) RESTRICTED CASH
Euronet N.V. has two primary types ofThe restricted cash balances at September
30,balance as of December 31, 1996 and December 31, 1995.
Bankomat and Bank 24 have deposits with banks1997 were as
security with respect to
their supplying cash to the ATMs,follows:
DECEMBER 31,
-------------
1996 1997
------ ------
ATM deposits................................................... $ 152 $ 347
Other.......................................................... -- 500
------ ------
$ 152 $ 847
====== ======
The ATM deposit balances held are equivalent to the amountvalue of certain banks'
cash held in machines
at the balance sheet dates. These deposits have been classified as restricted
cash.
Bank 24Euronet's ATM network. The Company also has deposits with
a commercial bankbanks to cover guarantees and deposits with customs officials to
cover potential charges,charges.
(5) INVESTMENT SECURITIES
The amortized cost for short-term held-to-maturity securities by class
security type at December 31, 1996 and with their
leasing company1997, were as a minimum deposit related to the lease of ATMs (see note 8).
Following is a detail of restricted cash balances at each balance sheet
date:follows:
SEPTEMBER 30, DECEMBER 31,
--------------
1996 1995
------------- ------------
(IN THOUSANDS)
Restricted cash for ATM deposits -- Poland...................... $ 48 $ --
Restricted cash for ATM deposits -- Hungary..................... 127 180
Restricted cash for deposits -- Hungary......................... 608 772
---- ----
Total restricted cash........................................... $ 783 $952
==== ====
(6) PROPERTY, PLANT, AND EQUIPMENT
VEHICLES &
SOFTWARE ATMS COMPUTERS EQUIPMENT TOTAL
-------- ----- --------- ---------- -----1997
--------------
(IN THOUSANDS)
Cost:
Balance at June 22, 1994......................U.S. State and Municipal obligations......................... $ -- $ 12,448
Corporate debentures......................................... -- 8,298
U.S. Federal Agency obligations.............................. -- -- --
Additions..................................... 3 262 -- 91 356
---7,967
Foreign government obligations............................... 194 3,231
----- --- --- -----
Balance at December 31, 1994.................. 3 262 -- 91 356
Additions..................................... 100 2,123 77 2,300
--- ----- --- --- -----
Balance at December 31, 1995.................. 103 2,385 -- 168 2,656
Additions..................................... 218 2,126 260 230 2,834
Disposals..................................... -- -- -- (7) (7)
--- ----- --- --- -----
Balance at September 30, 1996................. 321 4,511 260 391 5,483
====== ===== ======== ========--------
Total...................................................... $ 194 $ 31,944
===== Accumulated Depreciation:
Balance at June 22, 1994...................... -- -- -- -- --
Additions..................................... -- -- -- 5 5
--- ----- --- --- -----
Balance at December 31, 1994.................. -- -- -- 5 5
Additions..................................... 7 110 -- 16 133
--- ----- --- --- -----
Balance at December 31, 1995.................. 7 110 -- 21 138
Additions..................................... 27 302 14 50 393
--- ----- --- --- -----
Balance at September 30, 1996................. 34 412 14 71 531
====== ===== ======== ======== =====
(7)The carrying value of these investment securities at December 31, 1996 and
1997 approximates fair market value.
(6) SHORT TERM BORROWINGS
Short term borrowings represents arepresent Hungarian forint denominated loan of
$206,000loans granted
by a commercial bank in Hungary to permit such bank to supply cash to the ATM
network. ThisThe loan originated April 4, 1996 andoutstanding at December 31, 1997 is due on March
18, 1997June 16, 1998
together with interest accrued at 27%. F-11Euronet 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
68
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- STATEMENTS--(CONTINUED)
Euronet N.V.also has collateralised this loan by the pledge of investment
securities amounting to $206,000, bearing interest at 29% maturing on March 18,
1997.
(8) LEASES
(a) Capital leases
Euronet N.V. leases the majority of its ATMs in Poland and Hungary under
two principal capital lease agreements that expire in July 1999 and January
2001, respectively. The leases bear interest at 15% and 11%, respectively and
are payable in monthly and semi-annual installments.
Euronet N.V. also leases an IBM AS400 computerfor computers for use as its central
processing and authorization center for ATM transactions. This three yearOne lease withhas a term
of July 1, 1996 through September 30,expiring in 1999 bearsand the other in 2000 and they bear interest at a rate of 15%
and is12%, respectively, and are payable in quarterly installments of $24,000.quarterly.
The gross amount of the ATMs and IBM computer and related accumulated
amortization recorded under capital leases were as follows:
SEPTEMBER 30, DECEMBER 31,
---------------
1996 1995
------------- ------------1997
------ -------
(IN THOUSANDS)
(IN THOUSANDS)
ATMs............................................................ $ 3,666 $1,906
IBM computer.................................................... 224 --
----- -----
3,890 1,906ATMs........................................................ $5,870 $15,940
Other....................................................... 225 1,161
------ -------
6,095 17,101
Less accumulated amortization................................... (331) (96)
----- -----amortization............................... (410) (1,811)
------ -------
Net book value.................................................. $ 3,559 $1,810
===== =====value.............................................. $5,685 $15,290
====== =======
Amortization of assets held under capital leases, isamounted 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
Euronet N.V.The Company also has noncancelablenon-cancellable operating rental leases for office
space which expire over the next 2 to 45 years. Rent expense under these leases
amounted to $234,000, $158,000, $270,000 and $66,000,$433,000 for the nine months ended September 30, 1996,
yearyears ended December 31,
1995, 1996 and for the period from June 22, 1994 through
December 31, 1994,1997, respectively.
F-12
69
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Future minimum lease payments
Future minimum lease payments under the capital leases and the noncancelablenon-
cancellable operating leaseslease (with initial or remaining lease terms in excess
of one year) as of September 30, 1996December 31, 1997 are:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
(IN THOUSANDS)
Year ending September 30,
1997.................................................................December 31,
1998.................................................. $ 8785,031 $ 292
1998................................................................. 955 150
1999................................................................. 1,023 140
2000................................................................. 601 147
2001................................................................. 301 --
------ ------962
1999.................................................. 5,536 1,007
2000.................................................. 5,256 1,007
2001.................................................. 1,103 1,007
2002.................................................. 959 1,007
-------
Total minimum lease payments...................................... 3,758 $ 729
======payments............................ 17,885
Less amounts representing interest..................................... (825)
------interest...................... (3,415)
-------
Present value of net minimum capital lease payments.................... 2,933payments..... 14,470
Less current installments of obligations under capital
leases.......... 570
------leases................................................. (3,140)
-------
Long term capital lease obligations.................................... $ 2,363
======obligations..................... $11,330
=======
(9)F-14
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
The income tax benefit consisted of the following:
FOR THE PERIOD
NINE MONTHS FROM JUNE 22,
ENDED YEAR ENDED 1994 THROUGH
SEPTEMBER 30, DECEMBER 31,
DECEMBER 31,-------------------------
1995 1996 1995 1994
------------- ------------ --------------1997
------- ------- -------
(IN THOUSANDS)
(IN THOUSANDS)
Current tax expense
Netherlands Antilles...............................expense:
U.S. Federal.................................. -- -- --
Europe.............................................Netherlands Antilles.......................... -- -- --
----- ----- -----Europe........................................ -- -- --
------- ------- -------
Total current......................................current............................... -- -- --
Deferred tax expense
Netherlands Antilles...............................benefit:
U.S. Federal.................................. -- -- --
Europe............................................. (219) (148)Netherlands Antilles.......................... -- ----- ----- ------- --
Europe........................................ $ 148 $ 323 $ 100
------- ------- -------
Total deferred..................................... (219) (148) --
===== ===== =====
F-13
70
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The sources of lossdeferred.............................. 148 323 100
======= ======= =======
Total income taxes.......................... $ 148 $ 323 $ 100
======= ======= =======
The sources of income/(loss) before income taxes
are presented as follows:
FOR THE PERIOD
NINE MONTHS FROM JUNE 22,
ENDED YEAR ENDED 1994 THROUGH
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ --------------
(IN THOUSANDS)
Netherlands Antilles............................... 287United States................................. -- -- Europe............................................. 2,354 1,967 163
----- ----- -----(353)
Netherlands Antilles.......................... (2,089) (4,416) 425
Europe........................................ (2,089) (3,483) (8,137)
------- ------- -------
Loss before income taxes........................... 2,641 1,967 163
===== ===== =====
The difference between the actual income tax benefit and the tax benefit
computed by applying the statutory income tax rate to losses before taxes is
attributable to the following:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ ------------
(IN THOUSANDS)
Income tax benefit at statutory rates............. 156 427 82
Non-deductible expenses........................... (18) (153) (23)
Tax holiday....................................... (6) (8) --
Foreign tax benefit............................... 497 -- --
Valuation allowance............................... (410) (118) (59)
----- ----- -----
Actual income tax benefit......................... 219 148 --
===== ===== =====taxes.................... $(2,089) $(7,899) $(8,065)
======= ======= =======
The income tax benefit has been calculated on the basis of the taxable
losses of the combined entities for the period June 22, 1994 through December
31, 1994, 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:
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- ---------
(IN THOUSANDS)
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
======= ======= =========
F-15
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:
SEPTEMBER 30, DECEMBER 31,
DECEMBER 31,---------------
1996 1995 1994
------------- ------------ ------------1997
------- -------
(IN THOUSANDS)
Tax loss carryforwards............................ 754 233 59
Leasing........................................... 4 12carryforwards...................................... 989 4,808
Leasing..................................................... 5 167
Leasehold improvements...................................... 48 82
Stock compensation costs.................................... -- Leasehold improvements............................ 32 211,402
Unrealised exchange rate differences........................ -- Interest accrual.................................. 5934
Accrued expenses............................................ 84 321
Other....................................................... -- --
Other accruals.................................... 46 -- --
----- ----- ----84
------ -------
Deferred tax asset................................ 895 266 59asset.......................................... 1,126 6,898
Valuation allowance............................... (528) (118) (59)
----- ----- ----allowance......................................... (655) (6,327)
------ -------
Net deferred tax assets........................... 367 148 --
===== ===== ====assets..................................... 471 571
====== =======
The valuation allowance relates to deferred tax assets established under
SFAS No. 109 for loss carryforwards at December 31, 1996 and 1997 of
$3,687,000.$8,686,000 and $19,989,000, respectively. The tax operating loss carryforwards
will expire through 19992000 for Bankomat and through 20012002 for Bank 24,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 Euronet N.V.'sthe Company's forecast of sufficient taxable income for future
periods in which the tax losses are expected to be absorbed, Euronet N.V.the Company
believes that it will realise the benefit of the deferred tax assets, net of
the existing valuation allowance.
F-14
71
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) SHARE(9) STOCK PLANS
AND CAPITAL COMMITMENTS
(a) Share Compensation Plan
Euronet N.V.The Company has established a share compensation plan which provides certain
employees options to purchase shares of Euronet N.V.'sits common stock. The
exercise price is established based on the estimated fair value of the shares at
grant date. Such value is determined by management taking into consideration
recent equity or convertible security transactions as well as changes in Euronet
N.V.'s business. The options vest
over a period of five years from the date of grant. Options are exercisable
during the term of employment or consulting arrangements with Euronet N.V.the Company and
its subsidiaries. Euronet N.V.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 N.V.Euronet. At September 30, 1996, Euronet N.V.December 31, 1997, the Company has authorized options
for the purchase of 921,5501,299,550 shares of common shares,stock, of which 886,5501,289,447 have
been awarded to employees. Of that amount, options for 255,640 shares have vested as of
September 30, 1996. The option exercise price varies between $0.71employees and $1.43. No
compensation has been recorded for such share options. The exercise price of the
employee share options has been modified to reflect the stock split registered
on October 11, 1996 and the proposed capital structure of the new holding
company, Euronet Services Inc.
Subsequent to September 30, 1996, Euronet N.V. has authorized further
options for the purchase of 378,000 shares of which 176,400 were awarded at
option exercise prices between $1.43 and $2.14.
(b) Milestone Share Awards and Options1,061,316 remain unexercised.
In accordance with the first amendment to the shareholdersshareholders' agreement dated February 15, 1996 and
amended on October 14, 1996, Euronet N.V.the Company has reserved 2,850,925 shares of
series A
convertible preferred shares which shall be authorized but unissuedcommon stock for the purpose of awarding preferred sharescommon stock ("milestone awards") to
certain investors (800,520 shares at par value of $0.01) and options to acquire preferred shares of common stock ("milestone
options") to the founders, management and key employees (2,050,405
shares at $2.14 per share).employees. The Company granted
800,520 milestone awards vest and become exercisable on the date on which any
one or more of the three performance goals described in the Shareholders
Agreement is attained. One third of the milestone awards vest upon the
occurrence of each milestone. The milestone options vest and become exercisable
upon the earlier of October 14, 2006, or the date on which any one or more of
the three performance goals described in the Shareholders Agreement is attained.
One third of the milestone options vest upon the occurrence of each milestone.
Theat an exercise price of the$0.02 per share and 2,050,405
milestone options is established based onat an exercise price of $2.14 per share.
F-16
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Upon the
estimated fair value of the shares at grant date. Such value is determined by
management taking into consideration recent equity or convertible security
transactions as well as changes in Euronet N.V.'s business. In the event of an initial public offering, all milestonesmilestone awards and milestone options
granted under the milestone arrangement (with the exception of 49,819 options
to certain key employees which will vest equally over two years following the
initial public offering) shall be considered to have been metvested and all preferred shares shall becomebecame immediately issuable to
beneficiaries of milestone awards and options. (c) Standby CommitmentUpon the initial public
offering, 800,520 milestone awards and Contribution
Certain investors (Poland Partners, LP Advent Partners LP, Advent Private
Equity Fund, Poland Investment Fund LP, Hungarian Private Equity Fund232,078 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:
WEIGHTED-
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
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
=========
At December 31, 1997, the range of exercise prices, weighted-average
remaining contractual life and DST
Systems Inc.) agreed to make an aggregatenumber exercisable of three million dollars available to
Euronet N.V.outstanding options was
as follows:
WEIGHTED-
NUMBER OF AVERAGE CONTRACTUAL NUMBER
EXERCISE PRICE SHARES REMAINING LIFE (YEARS) EXERCISABLE
-------------- --------- ---------------------- -----------
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
========= =========
The Company applies APB Opinion No. 25 in two tranches of one million ("tranche 1") and two million
dollars ("tranche 2"), respectively.
Euronet N.V. made a call on tranche 1accounting for its share option
plans. The exercise price of the standby commitmentoptions is established based on November
26,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. The conversion termsSuch
compensation expense was calculated as the excess of tranche 1 were that onethe fair market value of
the underlying shares (determined as $4.22, which is the cash price per share
of series B
convertibleat which GE Capital subscribed for preferred shares of Euronet Holding N.V. was issued for eachin
February 1997) over the exercise price of $2.14 per share. Compensation
expense of standby contribution (466,669 series B convertible preferred shares were issued$4,172,000 has been recorded in exchange for
F-15the 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
72
EURONET HOLDING N.V.SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- STATEMENTS--(CONTINUED)
one million dollars). The termsfollowing table provides the fair value of tranche 2 are that one share of series B
convertible preferred shares will be issued for each $10 of standby contribution
made. Upon formationoptions granted during 1997,
1996 and 1995 together with a description of the new holding company, Euronet Services Inc.,assumptions used to calculate
the optionfair value:
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
------------ ------------ -------------
MINIMUM MINIMUM BLACK-SCHOLES
PRICING MODEL/METHOD USED VALUE METHOD VALUE METHOD PRICING MODEL
------------------------- ------------ ------------ -------------
Expected volatility................. 0% 0% 54%
Average risk-free rate.............. 7.17% 7.17% 6.86%
Average expected lives.............. 3 years 3 years 2.5 years
Expected dividend yield............. 0% 0% 0%
Weighted-average fair value (per
share)............................. $ 0.71 $ 1.14 $ 4.90
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 call the second tranche will be cancelled.
(11)pro forma amounts
indicated below:
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
Net loss-as reported............................. $(1,914) $(7,576) $(7,965)
Net loss-pro forma............................... $(1,914) $(7,576) $(8,240)
Loss per share-as reported....................... $ (0.19) $ (0.73) $ (0.56)
Loss per share-pro forma......................... $ (0.19) $ (0.73) $ (0.58)
Pro forma impact reflects 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 pro forma 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
EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) BUSINESS SEGMENT INFORMATION
Euronet N.V. 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.
Net revenue, operating assets and identifiable assets, as of andTotal revenues for the periods ending September 30, 1996 as well asyears ended December 31, 1995, 1996 and 1994,
excluding intercompany amounts, of Euronet N.V.1997 and it subsidiaries according to
their geographiclong
lived assets at December 31, 1996 and 1997 for the Company analyzed by
geographical location are:is as follows:
LONG-
TOTAL REVENUES OPERATING LOSS IDENTIFIABLELIVED ASSETS
-------------------------- -------------------------- -------------------------------------------- --------------
1995 1996 1995 19941997 1996 1995 1994 1996 1995 19941997
---- ------ ------ ------ ------ ------ ------ ------ ------ -------------
(IN THOUSANDS)
(IN THOUSANDS)
Europe.............. 638 62Hungary.................................... $62 $1,246 $4,562 $4,709 $10,212
Poland..................................... -- (2,423) (2,108) (240) 7,298 4,519 2,527
Netherlands Antilles15 663 2,575 9,204
Other...................................... -- -- 65 -- (287) -- -- 134 -- --4,672
--- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total............... 638 62 -- (2,710) (2,108) (240) 7,432 4,519 2,527-------
Total...................................... $62 $1,261 $5,290 $7,284 $24,088
=== ====== ====== ====== ====== ====== ====== ====== ====== =============
(12) COMMITMENTS AND CONTINGENCIES
Euronet N.V. is committedTotal revenues are attributed to purchase ATMs from certain suppliers for a
total minimum amountcountries based on location of $13,277,000 over an indefinite periodcustomer.
Long-lived assets consist of time.
(13)property, plant, and equipment.
(11) RELATED PARTIES
Hi-Care
Hi-Care, the lessor from whom Bank24 rents its Budapest office, was an
investor in Euronet Holding N.V. from March 24, 1995 through March 27, 1996.
Hi-Care invested $197,000 in Bank 24 until the formation of Euronet Holding
N.V., at which time its shares were purchased by a new investor.
Employee loan (LT Loans Receivable)
Euronet N.V. provided an interest bearing loan to an employee on June 9,
1995 with a maturity date of October 1, 1999. The outstanding balance at
September 30, 1996 and December 31, 1995 is $24,000 and $32,000, respectively.
The loan is repayable over 4 years in equal monthly instalments. The current
portion of the loan has been recorded in other current assets and the long term
portion is separately disclosed on the face of the balance sheet.
Michael Brown
Michael Brown, one of Euronet N.V.'s shareholders loaned Euronet N.V. a
total of $195,000 as at September 30, 1996 which was received during 1995 and
1996, bearing interest at 10% annually.
In addition, he paid $173,000 relating to start up and formation expenses
on behalf of Euronet N.V. in 1995. This has been recorded as a capital
contribution of $106,000 and the remaining balance of $67,000 as notes
payable-shareholder. Interest accrued of $14,000 is included in accrued
expenses.
F-16
73
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.the Company. Windham has signed an undertaking to contribute
these assets to Euronet N.V. at the end of the lease at a bargain purchase price of
$1 plus incidental expenses.
In addition, payments of $415,000, $320,000, $425,000 and $66,000$94,000 have been made for
the nine months ended September 30, 1996, the yearyears ended December 31, 1995, 1996 and the period from June 22, 1994 through December 31, 19941997, respectively, to Windham.
These payments cover the services and related expenses of consultants providedseconded
by Windham to Euronet N.V.
(14)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 N.V. is subject to concentrations of business and credit risk
throughrisk. Euronet's
financial instruments mainly include trade receivables, cash and short-term
investments. Euronet N.V.'sEuronet's customer base, even though limited, includes the most
significant international card organizations and certain banks in Hungarythe markets
in which it operates. Therefore, the Company is dependent on these entities
and Poland. Therefore, Euronet
N.V.'sits 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.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-17F-19
74EURONET 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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSONDEALER, 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELLAUTHORIZED BY THE ISSUER OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,CIRCUMSTANCE, CREATE
ANYAN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANYISSUER
SINCE THE DATE HEREOFHEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR THATSOLICI-
TATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AU-
THORIZED OR IN WHICH THE INFORMATION CONTAINED
HEREINPERSON MAKING SUCH OFFER OR SOLICITATION IS CORRECT AS OF ANY TIME SUBSEQUENTNOT QUAL-
IFIED TO ITS DATE.
---------------------DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION.
---------------
TABLE OF CONTENTS
PAGE
----------
Available Information...................................................... 1
Forward-Looking Statements................................................. 1
Prospectus Summary..................... 3Summary......................................................... 2
Risk Factors........................... 6Factors............................................................... 13
Use of Proceeds........................ 11
Dilution............................... 12
Dividend Policy........................ 13
Capitalization......................... 14Proceeds............................................................ 21
Capitalization............................................................. 22
Selected Consolidated Financial Data... 15Data....................................... 23
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........................... 17
Business............................... 21
Management............................. 31Operations................................................. 25
Business................................................................... 32
Management................................................................. 49
Certain Transactions................... 38Transactions....................................................... 56
Principal and Selling Shareholders..... 42Stockholders..................................................... 61
Description of Capital Stock........... 43Stock............................................... 63
Description of the Notes................................................... 66
Certain United States Federal Income Tax Considerations for Non-U.S. Holders
of Shares............................ 46
Shares Eligible For Future Sale........ 48
Underwriting........................... 49
Validity of Securities................. 51
Experts................................ 51
Annex A -- Country Information: Hungary
and Poland........................... A-1Considerations.................... 97
Underwriting............................................................... 104
Legal Matters.............................................................. 105
Experts.................................................................... 105
Index to Consolidated Financial Statements......Statements................................. F-1
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,300,000 SHARES
LOGO
COMMON STOCK
---------------------
---------------------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.
, 1997
---------------------
---------------------
ING BARINGS
REPRESENTATIVE OF THE UNDERWRITERS1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
75
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.
Securities and Exchange Commission registration fee.....................fee................... $ 25,858
Nasdaq National Market quotation fee.................................... 30,75029,500
National Association of Securities Dealers, Inc. filing fee............. 9,033
Reimbursement of Underwiters Expenses................................... *
Legal fees and expenses................................................. 100,000
Accounting fees and expenses............................................ *
Blue sky qualification fees and expenses................................ 15,000fee........... 10,500
Transfer agent fees and expenses........................................ 8,000
Miscellaneous........................................................... *
----------
Total.............................................................. $ *
==========other expenses................................ 60,000
--------
Total............................................................... $100,000
========
- ---------------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Articles Eighth and Ninth of the Company's Certificate of Incorporation
provide as follows:
"EIGHTH: The Corporation shall indemnify each of the individuals who may
be indemnified to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as it may be amended from
time to time ("Section 145"), (i) in each and every situation where the
Corporation is obligated to make such indemnification pursuant to Section
145, and (ii) in each and every situation where, under Section 145, the
Corporation is not obligated, but is permitted or empowered, to make such
indemnification. The Corporation shall promptly make or cause to be made
any determination which Section 145 requires.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. This provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law of
the State of Delaware is subsequently amended to further eliminate or limit
the liability of the director, then a director of the Corporation, in
addition to the circumstances in which a director is not personally liable
as set forth in the preceding sentence, shall not be liable to the fullest
extent permitted by the amended General Corporation Law of the State of
Delaware."
Article VII of the Company's By-laws provides as follows:
"Section 1 INDEMNIFICATION AND EXCULPATION. Reference is hereby made to
Section 145 of the General Corporation Law of the State of Delaware (or any
successor provision thereto). The Corporation shall indemnify each person
who may be indemnified (the "Indemnitees") pursuant to such section to the
full extent permitted thereby. In each and every situation where the
Corporation may do so under such section, the Corporation hereby obligates
itself to so indemnify the Indemnitees, and in each case, if any, where the
Corporation must make certain investigations on a case-by-case basis prior
to indemnification, the Corporation hereby obligates itself to pursue such
investigation diligently, it being the specific intention of these II-1
76
Bylaws
to obligate the Corporation to indemnify each person whom it may indemnify
to the fullest extent permitted by law at any time and from time to time.
To the extent not prohibited by Section 145 of the General Corporation Law
of the State of Delaware (or any other provision of the General Corporation
Law of the State of Delaware), the Indemnitees shall not be liable to the
Corporation except for their own individual willful misconduct or actions
taken in bad faith. Expenses incurred by an officer or director in
defending any action, suit or proceeding shall be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding to
the fullest extent permitted by subsection (e) of Section 145."
Reference is also made to Section 5 of the Underwriting Agreement filed as
Exhibit 1.1 hereto.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 17, 1996,For information regarding the issuance by the Company andof shares of its
Common Stock during the shareholders and optionholdersthree years ended on the date of Euronet Holding N.V. entered into an Exchange Agreement pursuant to which (i)
9,585,569this Registration
Statement, see "Management--Certain Transactions" in the Prospectus. Except
for the shares of Common Stock ofoffered and sold by the Company will be issued to the
Shareholders of Euronet Holding N.V. in exchange forits March
1997 public offering, all of Common Shares of
Euronet Holding N.V. (ii) options to acquire 3,113,355the shares of Common Stock
will be granted toSock were issued by the
holdersCompany in reliance on the exemption from the registration requirements of
options to acquire 3,113,355 Common SharesSection 5 of Euronet Holding N.V. in exchange for allthe Securities Act of 1933 provided by Section 4(2) of such options and (iii) awards with
respect to 800,520 shares of Common Stock will be issued to the holders of
awards with respect to 800,520 preferred shares of Euronet Holding N.V. in
exchange for all such awards. Euronet Holding N.V. will be dissolved following
the consummation of the Offering. Such exchange is subject to and will be
effective upon the execution of the underwriting agreement to be executed in
connection with the Offering.Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------- -----------
*1.11.1*** Form of Underwriting Agreement.
3.13.1* Certificate of Incorporation.
3.23.2(a)* By-Laws of the Company.
*4.2 Specimen3.2(b)** Amended By-Law provision.
4.2 Form of certificate for Shares, par value $0.01,Notes is attached as an exhibit to the form of Indenture
(included as Exhibit 4.3)
4.3*** Form of Indenture between the Company.
*5.1Company and , as Trustee
5.1*** Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC as to the
legality of the Shares.
10.1Notes.
10.1* Amended Agreement for Solution Delivery dated April 17, 1996
between Bank Access 24 Rt. and IBM World Trade Corporation.
10.210.2* Frame Contract dated February 20, 1996 between Bankomat 24 Sp. z
o.o. and AT&T Global Information Solutions Polska, Sp. z o.o.
10.310.3* Exchange Agreement dated as of December 17, 1996 among the Company
and the
stockholders and optionholders of Euronet Holding N.V.
10.410.4* The Euronet Long-Term Incentive Plan.
*10.510.5* Employment Agreement of Mr. Brown.
10.6* Form of Employment Agreement for Executive Officers.
21.110.7**** 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 Registrant.
23.1the Prospectus).
23.1**** Consent of KPMG Polska Sp. z o.o.
23.223.2**** Consent of Arent Fox Kintner Plotkin & Kahn, (included in Exhibit 5.1).PLLC.
24.1 Power of Attorney (included in signatures)on signature page).
25*** Statement of Eligibility of Trustee.
II-2
- ---------------
*To--------
* 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.
II-2
77**** Filed herewith.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14,
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment to the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:undertakes:
(1) ForThat 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) ForThat for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) It will provide to the U.S. Underwriters at the closing specified
in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the U.S. Underwriters to permit
prompt delivery to each purchaser.
II-3
78
SIGNATURES
Pursuant to the requirements of the Securities Act ofPURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on FormTHE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Warsaw on the 18th day of December, 1996
EURONET SERVICES INC.AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN BUDAPEST, HUNGARY ON THE DAY OF MARCH, 1998.
Euronet Services Inc.
By:
/s/ MICHAEL J.
BROWN
Michael J. Brown---------------------------------
DANIEL R. HENRY
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that eachEach person whose signature appears below constitutes and appoints MICHAEL J. BROWN and DANIELDaniel R.
HENRY, and
each of them severally,Henry his or her true and lawful attorney or attorneysattorney-in-fact and agent, each acting
alone, with full power of substitution and resubstitution, to signfor him or her in
his or her name, place and stead, in any and all such capacities, theto sign any or
all Amendments (including post-effective Amendments) to this Registration
Statement, and any and all amendments
thereto (including post-effective amendments) and any documents in connection
therewith, 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 of said attorneys to have power to act with or without the other, and to
haveacting
alone, full power and authority to do and perform in the nameeach and on behalf of
each such officer and director of the Registrant who shall have executed such a
power of attorney, every act whatsoever which such attorneys,and thing
appropriate or any one of
them, may deem necessary or desirable to be done in connection therewithand about the premises, as fully and to all
intents and purposes as such officerhe or director of the
Registrantshe might or could do in person.
Pursuantperson, 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 the requirementsbe done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Securities ActMarch , 1998
- ------------------------------------- Board of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 18, 1996Directors,
MICHAEL J. BROWN Chief Executive
Officer and
such signatures may be in
counterparts:
SIGNATURE TITLE
- ------------------------------------------------- ------------------------------------------
/s/ MICHAEL J. BROWN Chairman of the Board of Directors, Chief
- ------------------------------------------------- Executive Officer and President
Michael J. Brown
/s/ DANIEL R. HENRY Director and Chief Operating Officer
- -------------------------------------------------
Daniel R. Henry
/s/ STEVEN J. BUCKLEY Director
- -------------------------------------------------
Steven J. Buckley
/s/ ERIBERTO R. SCOCIMARA Director
- -------------------------------------------------
Eriberto R. Scocimara
/s/ ANDRZEJ OLECHOWSKI Director
- -------------------------------------------------
Andrzej Olechowski
/s/ THOMAS A. MCDONNELL Director
- -------------------------------------------------
Thomas A. McDonnell
President
(principal
executive officer)
Director and Chief March , 1998
- ------------------------------------- Operating Officer
DANIEL R. HENRY
Director March , 1998
- -------------------------------------
STEVEN J. BUCKLEY
Director March , 1998
- -------------------------------------
ERIBERTO R. SCOCIMARA
Director March , 1998
- -------------------------------------
ANDRZEJ OLECHOWSKI
Director March , 1998
- -------------------------------------
THOMAS A. MCDONNELL
Director March , 1998
- -------------------------------------
NICHOLAS B. CALLINAN
Chief Financial March , 1998
- ------------------------------------- Officer and Chief
BRUCE S. COLWILL Accounting Officer
(principal financial
officer and principal
accounting officer)
II-4
79
SIGNATURE TITLE
- ------------------------------------------------- ------------------------------------------
/s/ NICHOLAS B. CALLINAN Director
- -------------------------------------------------
Nicholas B. Callinan
/s/ BRUCE COLWILL Chief Financial Officer and Chief
- ------------------------------------------------- Accounting Officer
Bruce Colwill
II-5
80
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------- -----------
*1.11.1*** Form of Underwriting Agreement.
3.13.1* Certificate of Incorporation.
3.23.2(a)* By-Laws of the Company.
*4.2 Specimen3.2(b)** Amended By-Law provision.
4.2 Form of certificate for Shares, par value $0.01,Notes is attached as an exhibit to the form of Indenture
(included as Exhibit 4.3)
4.3*** Form of Indenture between the Company.
*5.1Company and , as Trustee
5.1*** Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC as to the
legality of the Shares.
10.1Notes.
10.1* Amended Agreement for Solution Delivery dated April 17, 1996
between Bank Access 24 Rt. and IBM World Trade Corporation.
10.210.2* Frame Contract dated February 20, 1996 between Bankomat 24 Sp. z
o.o. and AT&T Global Information Solutions Polska, Sp. z o.o.
10.310.3* Exchange Agreement dated as of December 17, 1996 among the Company
and the
stockholders and optionholders of Euronet Holding N.V.
10.410.4* The Euronet Long-Term Incentive Plan.
*10.510.5* Employment Agreement of Mr. Brown.
10.6* Form of Employment Agreement for Executive Officers.
21.110.7**** 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 Registrant.
23.1the Prospectus).
23.1**** Consent of KPMG Polska Sp. z o.o.
23.223.2**** Consent of Arent Fox Kintner Plotkin & Kahn, (included in Exhibit 5.1).PLLC.
24.1 Power of Attorney (included in signatures)on signature page).
25*** Statement of Eligibility of Trustee.
- ---------------
*To--------
* 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.