1
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------------------
FORM S-1
Registration Statement Under
The Securities Act of 1933
------------------------------------
EURONET SERVICES INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 6099 APPLIED FOR
(State or Other Jurisdiction of (Primary 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)
CT CORPORATION SYSTEM
1633 Broadway
New York, New York 10019
(212) 664-7666
(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, D.C. 20036
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
------------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per share........ 6,095,000 $14 $85,330,000 $25,857.58
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Includes an additional 795,000 shares of Common Stock which the Underwriters
(as defined in the Prospectus included herein) have the option to purchase
pursuant to a 30-day over-allotment option. The amount of shares of Common
Stock registered also includes any shares initially offered or sold outside
the United States that are thereafter sold or resold in the United States.
Offers and sales of shares outside the United States are being made pursuant
to Regulation S and are not covered by this Registration Statement.
(2) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for purposes of computing the amount of the registration
fee.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
EURONET [LOGO]
5,300,000 SHARES
COMMON STOCK
------------------------
Of the shares (the "Shares") of Common Stock (the "Common Stock") being
offered in the Offering, 3,088,028 shares are being offered by Euronet Services
Inc. ("Euronet" or the "Company") and 2,211,972 Shares are being offered by
certain shareholders of the Company (the "Selling Shareholders"). See "Principal
and Selling Shareholders". The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Shareholders. A portion of the Shares
offered hereby are being offered outside the United States.
Prior to the Offering, there has been no public market for the Shares. It
is currently expected that the initial public offering price per share in the
Offering will be between $12 and $14. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH THE OFFERING.
------------------------
Application will be made to have the Common Stock listed on the Nasdaq National
Market under the symbol "EEFT".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE SELLING
OFFERING PRICE DISCOUNT(1) THE COMPANY(2) SHAREHOLDERS(2)
-------------- ----------------- ----------------- --------------
Per share...................... $ $ $ $
Total(3)....................... $ $ $ $
- ---------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters (as defined in "Underwriting") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(2) Before deducting estimated expenses of $ , of which $ and
$ are payable by the Company and the Selling Shareholders,
respectively, in connection with the Offering. See "Underwriting".
(3) The Company has granted to the Underwriters an option exercisable for 30
days from the date of this Prospectus to purchase, or procure purchasers
for, up to an additional 795,000 Shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments, if any. If such option is exercised in full, the
total initial public offering price, underwriting discount and proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting".
------------------------
The Shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the Shares offered hereby will be made at the offices of ING Baring (U.S.)
Securities, Inc., on or about , 1997.
------------------------
ING BARINGS
------------------------
The date of this Prospectus is , 1997
3
No action has been or will be taken in any jurisdiction by the Company, the
Selling Shareholders or by any Underwriter that would permit a public offering
of the Shares or possession or distribution of a prospectus in any jurisdiction
where action for that purpose is required, other than in the United States.
Persons into whose possession this Prospectus comes are advised by the Company,
the Selling Shareholders and the Underwriters to inform themselves about, and to
observe any restrictions as to, the offering of the Shares and the distribution
of this Prospectus.
Offers and sales of shares of Common Stock outside the United States are
being made pursuant to Regulation S and such shares are not being registered
under the U.S. Securities Act of 1933, as amended (the "Securities Act") for the
purpose of sales outside the United States. A registration statement under the
Securities Act is in effect for offers and sales in the United States of shares
of Common Stock that were initially offered or sold outside the United States.
------------------------
The Euronet logo is a trademark of the Company. Except as otherwise
specified, all information in this Prospectus assumes that the Underwriter's
over-allotment option is not exercised.
------------------------
Unless the context otherwise indicates, references herein to Euronet or the
Company include Euronet Services Inc. and its subsidiaries and their respective
predecessor companies. References to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") a registration statement (herein, together with all amendments,
exhibits and schedules thereto, referred to as the "Registration Statement")
under the Securities Act, with respect to the securities offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Shares, reference is
hereby made to the Registration Statement. 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, reference 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 file reports and other
information with the Commission. The Registration Statement, including the
exhibits and schedules thereto, and reports and other information filed by the
Company with the Commission can be inspected without charge and copied, upon
payment of prescribed rates, at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and the Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material and any part thereof will also be available by mail from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
------------------------
IN CONNECTION WITH THE OFFERING, ING BARING (U.S.) SECURITIES INC. AND ITS
AFFILIATES, ON BEHALF OF THE UNDERWRITERS, MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements appearing elsewhere in
this Prospectus. Except as otherwise indicated herein, all information in this
Prospectus has been adjusted to give effect to the reorganization of the
Company, which is subject to and effective upon the execution of the
underwriting agreement to be executed in connection with the Offering, pursuant
to which (i) 9,585,569 shares of Common Stock will be issued to the shareholders
of Euronet Holding N.V. in exchange for all of the Common Shares of Euronet
Holding N.V., (ii) options to acquire 3,113,355 shares of Common Stock will be
granted to the holders of options to acquire 3,113,355 Common Shares of Euronet
Holding N.V. in exchange for all of such options and (iii) awards with respect
to 800,520 shares of Common Stock will be issued to the holders of awards with
respect to 800,520 preferred shares of Euronet Holding N.V. in exchange for all
such awards (the "Reorganization"). Euronet Holding N.V. will be dissolved
following the Reorganization. See "Certain Transactions."
THE COMPANY
Euronet operates the only independent, non-bank owned automatic teller
machine ("ATM") network in Central Europe, as a service provider to banks and
other financial institutions. The Company was established in 1994 and currently
operates a network of 175 state-of-the-art ATMs, 130 of which are located in
Hungary and 35 of which are located in Poland. Through agreements and
relationships with local banks and international card issuers and ATM networks
such as American Express, VISA, Plus, Mastercard, Europay and Cirrus (together
"International Card Organizations") Euronet's ATMs are able to process ATM
transactions for holders of credit and debit cards issued by or bearing the logo
of such banks and International Card Organizations. The Company receives a fee
from the card issuing banks or International Card Organizations for all ATM
transactions processed on its ATMs. The Company also offers outsourced ATM
management services to local banks that own proprietary ATM networks for which
the Company also receives fees on a per transaction basis as well as a monthly
basis.
The Company believes that the services it provides permit it to capitalize
on the trends developing in the Central European banking market. Bank account
usage and credit and debit card issuance are increasing in Central Europe as the
demand for banking services continues to grow in the region. Connecting to the
Company's ATM network enables banks to offer their customers the convenience of
cash withdrawal and balance inquiry services in numerous off-site locations
without incurring additional branch operational costs such as personnel costs.
In addition, the Company believes that the services it offers are attractive to
domestic banks in the increasingly competitive banking market in Central Europe
because such banks can generally connect to Euronet's network with less labor
and expense than building their own networks. In addition, banks can outsource
the management of their proprietary ATM networks to the Company. These services
allow banks to provide ATM access to their customers, expanding the range of
banking services they offer. "Western" banks entering the Central European
market are already accustomed to the concept of shared ATM networks and have
begun to connect to Euronet's ATM network.
Euronet's ATMs 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.
The Company's strategy, for the short term, is to become the leading
low-cost ATM service provider in Central Europe meeting western standards of
reliability and customer service and, for the medium term, to become a leading
provider of a broader range of electronic fund transfer services in the region.
The key elements of Euronet's strategy are to expand its ATM network in Hungary,
Poland and other Central European markets; continue to form strategic
relationships with banks and International Card Organizations; expand the range
of services offered beyond the basic cash withdrawal function, such as point of
sale authorization and bill paying; and expand ATM network management services.
The Company's principal executive offices are located at Zsigmond ter 10,
H-1023 Budapest, Hungary, and its telephone number at such address is
011-361-335-1224.
3
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...... In connection with the Offering, the Company will
grant to the Underwriters an option exercisable for
30 days from the date of this Prospectus to
purchase up to 795,000 additional Shares, solely to
cover over-allotments, if any, at the initial
public offering price. See "Underwriting."
USE OF PROCEEDS............ Assuming an offering price of $13 per Share (the
midpoint of the range on the cover page of this
Prospectus) and no exercise of the over-allotment
option granted to the Underwriters, the net
proceeds to the Company and the Selling
Shareholders from the Offering, after deducting
underwriting discounts and commissions and
estimated offering expenses, are estimated to be
approximately $36.9 million and $26.8 million,
respectively. The Company will not receive any of
the proceeds from the sale of the Shares by the
Selling Shareholders. Approximately 80% to 90% of
the proceeds to the Company will be used to
implement the Company's strategy of expanding its
independent ATM network in Hungary, Poland, Germany
and other Central European markets. The remainder
of the net proceeds to be received by the Company
will be used for general corporate purposes,
including possible acquisitions and joint ventures
consistent with its strategic goals. See "Use of
Proceeds."
DIVIDENDS.................. The Company currently intends to retain all future
earnings, if any, to fund the development and
growth of its business. Consequently, the Company
does not anticipate paying dividends on the Shares
in the foreseeable future. See "Dividend Policy."
PROPOSED LISTING........... Application 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 Common Stock that may be offered
pursuant to the exercise by the Underwriters of the over-allotment option
granted by the Company to the Underwriters. See "Underwriting."
(2) Does not include 2,857,911 shares of Common Stock reserved for issuance
under the Company's stock option plans.
4
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 accordance with U.S. 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, which
in the opinion of the Company, include all adjustments, consisting solely of
normal recurring adjustments, necessary to present fairly the information
contained therein. 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, YEAR ENDED TO
--------------------- DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
---------- ---------- ------------ -------------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 638 $ 9 $ 62 $ --
Loss before income taxes................... (2,774) (1,401) (2,089) (228)
Net loss................................... (2,555) (1,300) (1,941) (228)
Pro forma net loss per share............... (0.19)
Pro forma number 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.
AS OF DECEMBER
AS OF 31,
SEPTEMBER 30, -----------------
1996 1995 1994
------------- ------ ------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 776 $ 411 $2,036
Working capital........................................... (370) 526 2,071
Total assets.............................................. 7,432 4,519 2,527
Capital lease obligations, less current portion........... 2,363 1,119 --
Total shareholders' equity................................ 2,542 2,097 2,422
5
7
RISK FACTORS
The Shares involve a high degree of risk. Accordingly, prospective
purchasers of shares of Common Stock should consider carefully all of the
information set forth in this Prospectus and, in particular, the risks described
below, prior to making any investment decision.
LIMITED OPERATING HISTORY; HISTORY OF AND ANTICIPATED FUTURE OPERATING LOSSES
AND NEGATIVE CASH FLOW
The Company has had a limited operating history. For the period from June
22, 1994 (inception) to December 31, 1994, the year ended December 31, 1995 and
the nine months ended September 30, 1996, the Company had net losses of
approximately $228,000, $1.9 million and $2.6 million, respectively, resulting
in an aggregate net loss of $4.7 million as of September 30, 1996. The Company
expects to continue to generate losses from operating activities while it
concentrates on the development and expansion of its ATM network business. As a
result of the Company's strategy of continuing expansion and increasing its
market share, the Company's net losses are expected to increase over the near
term. There can be no assurance that the Company will achieve or sustain
profitability or generate significant revenues in the future or have sufficient
resources at any time to pay cash dividends on the Shares. See "Consolidated
Financial Statements" including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
SIGNIFICANT CAPITAL REQUIREMENTS
The development and expansion of the Company's ATM network and its ATM
management services operations in Hungary, Poland, Germany and other 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 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. There can be no
assurance, however, that additional financing will not be required or will be
available to the Company or, if available, that it can be obtained on terms
acceptable to the Company. Failure to obtain such financing could result in the
delay or abandonment of some or all of the Company's acquisition, development
and expansion plans and expenditures, which could have a material adverse effect
on its business prospects and the value of the Shares and limit the Company's
ability to pay cash dividends on the Shares. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
RISKS RELATED TO RAPID EXPANSION OF BUSINESS
The continued rapid expansion and development of the Company's business
will depend on various factors including the increasing demand for ATM services
in the Company's current target markets, the ability to locate appropriate sites
and obtain necessary approvals for the installation of ATMs, the ability to
install ATMs in an efficient and timely manner, the expansion of the Company's
business into new countries as currently planned, entering into additional card
acceptance agreements with banks, the ability to obtain sufficient numbers of
ATMs on a timely basis and the availability of financing for such expansion. In
addition, such expansion may involve acquisitions which, if made, could divert
the resources and management time of the Company and require integration with
the Company's existing networks and services. The Company's ability to manage
effectively its rapid expansion will require it to continue to implement and
improve its operating, financial and accounting systems and to expand, train and
manage its employee base. The inability to manage effectively its planned
expansion could have a material adverse effect on the Company's business,
growth, financial condition and results of operations. See "Business --
Strategy."
6
8
DEPENDENCE ON RELATIONSHIPS WITH BANKS AND INTERNATIONAL CARD ORGANIZATIONS
The Company's future growth depends on its ability to sign card acceptance
agreements with banks and International Card Organizations which allow the
Company's ATMs to accept credit and debit cards issued by such banks and
International Card Organizations as well as the renewal of such card acceptance
agreements, which generally provide for a two to five year term. The Company's
card acceptance agreements with banks generally include renewal clauses, but
provide that either party may elect not to renew an agreement upon completion of
its term. Banks may elect not to renew contracts for reasons unrelated to the
Company and its performance. There can be no assurance that the Company will be
able to continue to sign or maintain such agreements on terms and conditions
acceptable to the Company or that International Card Organizations will continue
to permit Euronet's ATMs to accept their credit and debit cards. The inability
to continue to sign or maintain such agreements or to continue to accept the
credit and debit cards of local banks and International Card Organizations at
its ATMs in the future could have a material adverse effect on the Company's
business, growth, financial condition and results of operations. See "Business
- -- Agreements with Card Issuers and International Card Organizations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the services of certain of its executive
officers for the management of the Company and the implementation of its
strategy. Euronet's strategy and its implementation depend in large part on the
founders of the Company, in particular Michael Brown and Daniel Henry, and their
continued involvement in the Company in the future. The success of the Company
also depends in part upon its ability to hire and retain highly skilled and
qualified operating, marketing, financial and technical personnel. The
competition for qualified personnel in Central Europe is intense and,
accordingly, there can be no assurance that the Company will be able to continue
to hire or retain the required personnel. Although the Company's officers and
certain of its key personnel have entered into service or employment agreements
containing non-competition, non-disclosure and non-solicitation covenants and
providing for the granting of incentive stock options with long-term vesting
requirements, these contracts do not guarantee that these individuals will
continue their employment with the Company. The loss of certain key personnel
could have a material adverse effect on the Company's business, growth,
financial condition and results of operations. See "Management."
DEPENDENCE ON ATM TRANSACTION FEES
Transaction fees from banks and International Card Organizations for
transactions processed on the Company's ATMs have historically accounted for
substantially all of the Company's revenues. The Company expects that revenues
from ATM transaction fees will continue to account for a substantial majority of
its revenues for the foreseeable future. Consequently, the Company's future
operating results are almost entirely dependent on the increased issuance of
credit and debit cards, increased market acceptance of Euronet's services in its
target markets, the maintenance of the level of transaction fees received by the
Company, installation by the Company of larger numbers of ATMs and continued
usage of the Company's ATMs by credit and debit cardholders. A decline in usage
of Euronet's ATMs by ATM cardholders or in the levels of fees received by
Euronet in connection with such usage would have a material adverse impact on
the Company's business, growth financial condition and results of operations.
COMPETITION
There are currently no other independent, non-bank owned ATM networks in
Central Europe. Principal competitors of the Company include ATM networks owned
by banks and regional networks consisting of consortiums of local banks.
Competitive factors in the Company's business include network availability and
response time, price, ATM location and access to other networks. There can be no
assurance that the Company will be able to compete successfully in the future or
that competition will not have a material adverse effect on the Company's
business, growth, financial condition and results of operations. In addition,
there can be no assurance that Euronet's competitors will not introduce or
expand alternate methods of electronic funds transfer in the future which could
lead to a decline in the usage of Euronet's ATMs. See "Business -- Competition."
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
and Poland. These and other countries in Central Europe have undergone
significant political and economic change in recent years. Changes in political,
economic, social and other developments in such countries may in the future have
a material adverse effect on the Company's business. In particular, changes in
laws or regulations (or in the interpretation of existing laws or regulations),
whether caused by change in the government of such countries or otherwise, could
materially adversely affect the Company's business, growth, financial condition
and results of operations. Currently there are no limitations on the
repatriation of profits from Poland or Hungary, but there can be no assurance
that foreign exchange control restrictions, taxes or limitations will not be
imposed or increased in the future with regard to repatriation of earnings and
investments from Poland and Hungary. If such exchange control restrictions,
taxes or limitations are imposed, the ability of the Company to receive
dividends or other payments from its subsidiaries could be reduced, which may
have a material adverse effect on the Company. See "Business -- Government
Regulation."
Annual inflation and interest rates in Hungary, Poland and other countries
in Central Europe have been much higher than those in Western Europe. Exchange
rate policies have not always allowed for the free conversion of currencies at
the market rate. Fluctuations of inflation, interest and exchange rates could
have an adverse effect on the Company's business and the market value of the
Shares.
Corporate, contract, property, insolvency, competition, securities and
other laws and regulations in Hungary, Poland and other countries in Central
Europe have been, and continue to be, substantially revised during their
transition to market economies. Therefore, the interpretation and procedural
safeguards of the new legal and regulatory systems are in the process of being
developed and defined and existing laws and regulations may be 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
10
Poland and Hungary generally are considered by international investors to
be emerging markets. There can be no assurance that political, economic, social
and other developments in other emerging markets will not have an adverse effect
on the market value and liquidity of the Shares.
INFLATION; EXCHANGE RATE AND CURRENCY RISK
Although the transaction fees charged by the Company are denominated in
U.S. dollars or inflation adjusted, the Company generally receives payment in
local currency, primarily Hungarian forints and Polish zlotys. Since the fall of
Communist rule, both Hungary and Poland have experienced high levels of
inflation and significant fluctuation in the exchange rate for their currencies.
The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 600% in 1990 to approximately 22% in 1995. In
addition, the exchange rate for the zloty has stabilized and the rate of
devaluation of the zloty has decreased since 1991. However, in Hungary in recent
years, the forint has continued to depreciate, principally by way of
devaluation, against the major currencies of the OECD and has limited
convertibility to other currencies. Significant amounts of the Company's
expenditures, including for the acquisition of ATMs and executive salaries are
made in U.S. dollars or are denominated in U.S. dollars. The Company attempts to
match any assets denominated in currencies other than U.S. dollars with
liabilities denominated in the same currencies. Nonetheless inflation and
currency exchange fluctuations have had, and may continue to have, an effect on
the financial condition and results of operations of the Company.
CONCENTRATION OF OWNERSHIP
After completion of the Offering, directors, officers and certain
significant shareholders of the Company will own beneficially in the aggregate
approximately 61% of the outstanding Shares. Such concentration of ownership may
have the effect of delaying or preventing transactions involving an actual or
potential change in control of the Company, including transactions in which
holders of Shares might receive a premium for their Shares over prevailing
market prices. See "Principal and Selling Shareholders" and "Description of
Capital Stock."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") and By-Laws (the "By-Laws") and of Delaware law
could discourage potential acquisition proposals and could delay or impede a
change in control of the Company. These provisions, among other things: (i)
classify the Company's Board of Directors into three classes serving staggered
three-year terms; (ii) permit the Board of Directors, without further
stockholder approval, to issue preferred stock; and (iii) prohibit the Company
from engaging in a business combination (as such term is defined in the Delaware
law) with interested shareholders, except under certain circumstances. Such
provisions could diminish the opportunities for a stockholder to participate in
tender offers, including tender offers at a price above the then current market
value of the Common Stock. The issuance of preferred stock could also adversely
affect the voting power of the holders of Common Stock. The Company has no
present plans to issue any preferred stock. See "Description of Capital Stock --
Certain Provisions of the Company's Certificate of Incorporation and By-Laws"
and "-- Preferred Stock."
DILUTION TO PROSPECTIVE INVESTORS
Investors subscribing for Shares in the Offering will incur immediate and
substantial dilution in net tangible book value per Share of $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, 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 existing shareholders of the Company were granted rights entitling them,
under specified circumstances, to cause the Company to register for sale all or
part of their shares of Common Stock and to include such shares in any
registered public offerings of shares of Common Stock by the Company. See
"Description of Share Capital -- Registration Rights", "Shares Eligible for
Future Sale" and "Underwriting." In addition, of the 2,857,911 options to
purchase Shares outstanding, 2,018,494 are currently exercisable. Any Shares
issued on the exercise of these options would be available for sale subject to
Rule 701 or another exemption from the registration requirements of the
Securities Act (including Regulation S under the Securities Act) following the
expiration of the 180-day lock-up period described above. Furthermore, the
Company intends to register under the Securities Act, as soon as practicable
following the Offering, approximately 3,094,511 shares of Common Stock reserved
for issuance to its employees and directors under its employee benefits plans.
See "Management."
10
12
USE OF PROCEEDS
Assuming an offering price of $13 per Share (the midpoint of the range on
the cover page of this Prospectus) and no exercise of the over-allotment option
granted to the Underwriters, the net proceeds to the Company from the sale of
the Shares being offered by the Company hereby, after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $36.9 million. The Company will not receive any proceeds from the
sale of the Shares by the Selling Shareholders.
The Company intends to use approximately 80% to 90% of the proceeds to
cover expenditures relating to the expansion and operation of its ATM network
and the provision of ATM management services in Hungary and Poland, as well as
in Germany and other central European countries. The primary costs incurred to
build and operate the Company's ATM network include installation of ATMs,
customs, duties, lease payments of ATMs, computer and network equipment,
telecommunications, salaries, ATM maintenance and service fees, insurance, and
other related items. Approximately 10% to 20% of the proceeds will be reserved
for possible acquisition and joint venture opportunities consistent with the
Company's strategy of expanding its ATM network and other businesses. The
Company regularly explores acquisition and joint venture opportunities, although
it currently has no agreements or understandings to enter into any such
transactions. Pending utilization of the net proceeds from the Offering, the
Company intends to invest such proceeds in short-term investment grade
interest-bearing securities.
11
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, 1996 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.
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 the 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 date 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 of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Description of Capital Stock."
AT SEPTEMBER 30, 1996
--------------------------------------
PRO PRO FORMA
HISTORICAL FORMA AS ADJUSTED
---------- ------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................. $ 776 $ 4,776 $41,734
Short-term borrowings (including current portion of
long-term debt)(1)...................................... 1,038 1,038 570
======== ======= =======
Capital lease obligations, excluding current portion(2)... 2,363 2,363 2,363
Other long-term liabilities............................... 60 60 60
-------- ------- -------
Total long-term liabilities............................. 2,423 2,423 2,423
Shareholders' equity
Common stock(3),
$0.01 par value; 30,000,000 shares authorized;
9,585,569 shares issued and outstanding pro forma
and 13,729,560 shares issued and outstanding as pro
forma adjusted..................................... 130 96 137
Additional paid in capital.............................. 6,612 5,699 43,084
Subscription receivable................................. (3,000) -- --
Accumulated losses(4)................................... (1,942) -- --
Restricted reserve(5)................................... 742 742 742
--------- ------- -------
Total shareholders' equity................................ 2,542 6,537 43,963
======== ======= =======
Total capitalization...................................... 4,965 8,960 43,386
======== ======= =======
- ---------------
(1) See Notes 7, 8 and 13 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
(2) See Note 8 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
(3) At September 30, 1996, the historical capital stock 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 connection with the Reorganization.
(5) See Note 4 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
14
16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's statement of operations data for the period from June 22, 1994
(inception) to December 31, 1994, 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,
prepared in accordance with U.S. 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, which in the opinion of the Company, include all
adjustments, consisting solely of normal recurring adjustments, necessary to
present fairly the information contained therein. 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, YEAR ENDED (INCEPTION) TO
----------------------- DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
--------- ----------- ------------ -------------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Transaction fees.............................. $ 577 $ 9 $ 62 $ --
Other......................................... 61 -- -- --
--------- ------- -------- -----
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, ------------------
1996 1995 1994
------------- ------ -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 776 $ 411 $ 2,036
Working capital.............................................. (370) 526 2,071
Total assets................................................. 7,432 4,519 2,527
Capital lease obligations, less current portion.............. 2,363 1,119 --
Total shareholders' equity................................... 2,542 2,097 2,422
- ---------------
(1) See Note 9 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
(2) See Note 2(k) to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus for an explanation of the pro forma number of
shares outstanding used in determining pro forma net loss per share.
16
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 in June
1994. In May 1995, the Company opened its second office, in Warsaw. 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 46 ATMs were installed during the first nine months of 1996 in
Hungary and Poland and today the Company's ATM network consists of 165 ATMs.
With the expansion of operations, the Company has increased the number of its
employees in Hungary from nine as of December 31, 1994 to 27 as of December 31,
1995 and 36 as of September 30, 1996. In Poland, the Company increased the
number of its employees from three as of September 30, 1995 to four as of
December 31, 1995 and 18 as of September 30, 1996. The Company's expansion of
its network infrastructure and administrative and marketing capabilities has
resulted in increased expenditures. Further planned expansion will continue to
result in substantial increases in general operating expenses as well as
expenses related to the acquisition and installation of ATMs.
The Company has derived substantially all of its revenues from ATM
transaction fees since inception. Euronet receives a fee from the card issuing
banks or International Card Organizations for ATM transactions processed on its
ATMs. As the Company continues to focus on expanding its network and installing
additional ATMs, the Company expects that transaction fees will continue to
account for a substantial majority of its revenues for the foreseeable future.
The Company recently began to sell advertising on its network by putting
clients' advertisements on its ATMs. Although revenues from advertising have
been insignificant to date, Euronet believes that advertising revenues will
increase as it expands its network and continues to market this service. The
Company also intends to begin generating revenues in May 1997 from ATM network
management services that it offers to banks that own proprietary ATM networks.
It is expected that revenues per transaction generated by the Company's ATM
management services contracts generally will be lower than those generated by
Acceptance Agreements. Due to lower costs resulting from not having to bear the
expense of purchasing, installing and depreciating ATMs, the Company believes
that it nonetheless should obtain margins on providing such services similar to
those obtained in operating its own ATM network where the Company bears the
costs associated with acquiring and installing the ATMs. See "Business -- Other
Services."
The Company was in its "start-up" phase, without significant 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. As a result, a comparison of the Company's results of
operations between such periods is not necessarily meaningful.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE PERIOD
FROM JUNE 22, 1994 (INCEPTION) TO DECEMBER 31, 1994
Revenues. Total revenues increased to $638,000 for the nine months ended
September 30, 1996 from $9,000 for the nine months ended September 30, 1995.
This increase was due primarily to the significant increase in transaction fees
resulting from the increase in transaction volume attributable to additional
network connections to credit and debit card issuers and an increase in the
number of ATMs operated by the Company during the nine months ended September
30, 1996. Transaction fee revenue represented approximately 90% of total
revenues for the nine months ended September 30, 1996 and increased to $577,000
from $9,000 for the same period in 1995.
Transaction fees charged by the Company vary for the three types of
transactions that can currently be processed on the Company's ATMs: cash
withdrawals, balance inquiries and transactions not completed because
17
19
authorization is not given by the relevant Card Issuer. Approximately 87% of
transaction fees in the nine months ended September 30, 1996 were attributable
to cash withdrawals, and 13% were attributable to balance inquiries and
transactions not completed because authorization is not given by the relevant
Card Issuer. Transaction fees for cash withdrawals are generally in excess of
$1.00 per transaction while transaction fees for the other two types of
transactions are generally substantially less.
Other revenues of $61,000 for the first nine months of 1996 consisted
primarily of advertising revenue.
The Company generated revenues of $62,000 during the year ended December
31, 1995 and the Company generated no revenues during the period 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 the
year ended December 31, 1995 consisted entirely of transaction fees.
Operating expenses. Total expenses increased by $1.9 million to $3.3
million for the nine months ended September 30, 1996 from $1.4 million for the
nine months ended September 30, 1995. This increase was due primarily to costs
associated with the installation of significant numbers of ATMs during the
period and expansion of the Company's operations during the period.
Total expenses increased by $1.9 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.
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 $941,000 for the nine months ended September 30, 1996 from $227,000
for the nine months ended September 30, 1995. The percentage of ATM operating
costs to total expenses for the nine months ended September 30, 1996 grew to 28%
as compared to 16% for the same period in 1995. The increase in ATM operating
costs was primarily attributable to costs associated with operating the
increased number of ATMs in the network during the period. The number of ATMs
installed increased from 16 to 99 from September 30, 1995 to September 30, 1996.
ATM operating costs increased $469,000 to $510,000 for the year ended
December 31, 1995 from $41,000 for the period from June 22, 1994 (inception)
through December 31, 1994. The increase in ATM operating costs was primarily
attributable to the installation of 53 ATMs during 1995.
Professional fees increased $566,000 to $828,000 for nine months ended
September 30, 1996 from $262,000 for the nine months ended September 30, 1995.
This increase was due primarily to legal fees incurred during the nine months
ended September 30, 1996 attributable to 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 fees for the year ended December 31, 1995 increased to
$394,000 from $64,000 for the period from June 22, 1994 (inception) through
December 31, 1994. The increase in 1995 was due primarily to legal fees
attributable to the execution of an agreement with the Company's investors
providing for additional investments by investors in the Company, the
acquisition of SatComNet Kft., a shell entity with minimal operations, and
additional card acceptance agreements.
Salaries increased $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 increase
reflected the increase in the number of employees in the Company, especially in
Poland where the number of employees increased from three 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.
Salaries increased to $452,000 in the year ended December 31, 1995 from
$49,000 in the period from June 22, 1994 (inception) through December 31, 1994.
The increase reflected the significant increase in the number of employees in
the Company during 1995.
18
20
The Company had foreign exchange losses of $88,000, $168,000, $158,000, 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 for the year ended December 31, 1995 and for the nine months
ended September 30, 1996 include $76,000 and $133,000, respectively, of expenses
which the Company has recorded as charges for penalties relating to the late
payments of customs duties and Hungarian value added taxes in connection with
the restructuring of its ATM leases in Hungary. Prior to this restructuring,
such leases were structured as operating leases for Hungarian accounting
purposes (although treated as capital leases for U.S. GAAP purposes), and its
ATMs have therefore been imported under a temporary import scheme. The ATMs are
subject to a "re-export" requirement and this has the effect of postponing
payment of customs duties. The Company has decided to restructure such lease
arrangements as capital leases for Hungarian accounting purposes, and the
Company recorded the related penalties as other expenses. Customs duties have
been capitalized as part of the cost of the ATMs under capital lease and
depreciated over the useful lives of the ATMs.
Other income/expense. Interest income increased $70,000 to $177,000 for
the nine months ended September 30, 1996 from $107,000 for the nine months ended
September 30, 1995. 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
and Capital Resources".
Interest expense relating principally to capital leases of ATMs and
Euronet's computer systems increased $161,000 to $241,000 in the nine months
ended September 30, 1996 from $80,000 in the nine months ended September 30,
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.
Net loss. The Company's net loss increased $1.3 million to $2.6 million
during the nine months ended September 30, 1996 from $1.3 million for the nine
months ended September 30, 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
21
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has sustained negative cash flows from
operations and has financed its operations and capital expenditures primarily
through private placements of equity securities and through equipment lease
financing. The net proceeds of such transactions, together with revenues from
operations and interest income have been used to fund aggregate net losses of
approximately $4.7 million and investments in property, plant and equipment. The
Company had cash and cash equivalents of $776,000 and working capital of
$(370,000) at September 30, 1996. The Company also had $783,000 of restricted
cash held as security with respect to cash provided by banks participating in
Euronet's ATM network, to cover guarantees to a customer, as deposits with
customs officials and as deposits relating to ATM equipment leases.
The Company leases the majority of its ATMs under two principal capital
lease arrangements that expire in July 1999 and January 2001, respectively. The
leases bear interest at 15% and 11%, respectively. As of September 30, 1996 the
Company owed approximately $2.9 million under such capital lease arrangements.
The amount owed by the Company under such lease agreements is expected to
increase significantly as the Company continues to lease increased numbers of
ATMs in pursuit of its business strategy.
The Company expects that its capital requirements will increase in the
future as it pursues its strategy of expanding its network and increasing the
number of ATMs installed. The Company anticipates that its capital expenditures
for the 12 months ending December 31, 1997 will total approximately $9 million,
primarily in connection with the acquisition of ATMs pursuant to capital leases,
including initial down payments and scheduled capital lease payments, and
related installation costs. Aggregate capital expenditures for 1997 and 1998 for
such purposes are expected to reach approximately $30 million. These
requirements contemplate both planned expansion in Hungary and Poland and
expected expansion in Germany and certain other Central European markets.
Acquisitions of related businesses in Central Europe in furtherance of the
Company's strategy would require additional capital expenditures.
The Company anticipates that the estimated net proceeds of the Offering and
the interest earned thereon, together with its existing capital resources and
anticipated cash flow from planned operations, will be adequate to satisfy its
capital requirements, capital lease payment obligations and other requirements,
including possible acquisitions, until the Company begins to generate sufficient
cash flows to fund its operations. There can be no assurance, however, that the
Company will achieve or sustain profitability or generate significant revenues
in the future. It is possible that the Company may seek additional equity or
debt financing in the future.
INFLATION
Since the fall of Communist rule, both Hungary and Poland have experienced
high levels of inflation and significant fluctuation in the exchange rate for
their currencies. In particular, the Hungarian forint has continued to
depreciate, principally by way of devaluation, against the major currencies of
the OECD in recent years and has limited ability to convert to other currencies.
Although revenues generally are received by the Company in local currency,
primarily Hungarian forints and Polish zlotys, the Company's Acceptance
Agreements and agreements relating to the provision of ATM management services
generally provide for fees denominated in U.S. dollars or that are inflation
adjusted. A significant portion of the Company's expenditures, including costs
associated with the acquisition of ATMs and executive salaries, are made in or
are denominated in U.S. dollars. A substantial portion of the assets and
liabilities of the Company are also denominated in U.S. dollars, including
shareholders' equity and capital lease obligations. The Company attempts to
match local currency receivables and payables. Hence, the amount of unmatched
assets and liabilities giving rise to foreign exchange gains and losses is
relatively limited, consisting mostly of cash and cash equivalents. Nonetheless,
to the extent that inflation exceeds the devaluation of local currencies, the
financial condition and results of operations of the Company may be affected by
inflation in the countries where its operations are located.
20
22
BUSINESS
OVERVIEW
Euronet operates the only independent, non-bank owned automatic teller
machine ("ATM") network in Central Europe, as a service provider to banks and
other financial institutions. The Company was established in 1994 currently
operates a network of 165 state of the art ATMs, 130 of which are located in
Hungary and 35 of which are located in Poland. Through agreements and
relationships with local banks and international card issuers and ATM networks
such as American Express, VISA, Plus, Mastercard, Europay and Cirrus (together
"International Card Organizations") Euronet's ATMs are able to process ATM
transactions for holders of credit and debit cards issued by or bearing the logo
of such banks and International Card Organizations. The Company receives a fee
from the card issuing banks or International Card Organizations for all ATM
transactions processed on its ATMs. The Company also offers outsourced ATM
management services to local banks that own proprietary ATM networks for which
the Company also receives fees on a per transaction basis as well as on a
monthly basis.
The Company believes that the services it provides permit it to capitalize
on the trends developing in the Central European banking market. Bank account
usage and credit and debit card issuance are increasing in Central Europe as the
demand for banking services continues to grow in the region. Connecting to the
Company's ATM network enables banks to offer their customers the convenience of
cash withdrawal and balance inquiry services in numerous off-site locations
without incurring additional branch operational costs. In addition, the Company
believes that the services it offers are attractive to domestic banks in the
increasingly competitive banking market in Central Europe because such banks can
generally connect to Euronet's network with less labor and expense than building
their own networks. In addition, banks can outsource the management of their
proprietary ATM networks to the Company. These services allow banks to provide
ATM access to their customers, expanding the range of banking services they
offer. "Western" banks entering the Central European market are already
accustomed to the concept of shared ATM networks and have also begun to connect
to Euronet's ATM network.
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. In addition, the Company has entered into agreements providing for 50
additional sites for Euronet ATMs in Poland and Hungary and the Company has
identified or is currently in negotiations for approximately 100 new ATM sites
in Poland, 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 for the foreseeable future. The Company's ability to achieve
these goals will depend on various factors including the increased demand for
ATM services in the Company's current target markets, the ability to locate
appropriate sites and obtain necessary approvals for the installation of ATMs,
the ability to install ATMs in an efficient and timely manner, the expansion of
the Company's business into new countries as currently planned, entering into
additional 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 ATMs and credit and debit
cards beyond basic cash withdrawal and balance inquiry functions by providing
innovative services through ATMs and other methods of electronic funds transfer
as new technology develops and the demand for such services grows in its
markets. The Company is in the unique position of having connections to the
transaction authorization centers of banks that have issued over 90% of credit
and debt cards in Hungary. In the future, these connections could allow the
Company to act as a central "switch" or connection whereby point of sale
authorization can be given for purchases made with credit and debit cards at
retail
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 providers for bills that have traditionally required
payment in person at a post office or other central location. Depending on
demand, the Company may also introduce other ATM services currently available in
other markets, including the ability to check stock or mutual fund account
balances and purchase items such as stamps, theatre tickets and travellers
checks at its ATM machines.
The Company's ATMs are modular and upgradeable so they can be adapted for
use with new technologies including computer chip "smart cards" and "electronic
purses". Such devices are electronic debit cards that can be used to withdraw
cash from ATMs and can be "charged up" with electronic funds at an ATM through a
connection with the cardholder's bank via Euronet's network and used to purchase
goods from retail locations.
In addition, the Company plans to continue to sell advertising on its ATMs
allowing clients to put advertisements on the ATM's videoscreens, on receipts
issued by the ATMs and on coupons dispensed with cash from the ATMs.
Expanding ATM Network Management Services. The Company also offers
full-service ATM network management services to banks that own proprietary ATM
networks. Because of the economies of scale involved, the Company can purchase
ATMs, computer equipment, maintenance, telecommunications services, and can
contract with third parties for cash delivery services, less expensively than
most banks in Central Europe. By acquiring these services and this equipment
less expensively, and by running a focused operation, the Company can provide
out-sourced ATM services in most cases less expensively than banks can perform
the same functions internally. In December 1996, the Company signed an agreement
with Budapest Bank to manage its network of over 120 ATMs in Hungary.
THE CENTRAL EUROPEAN FINANCIAL SERVICES MARKET
The economies of the Central European countries, including Hungary and
Poland, are essentially cash based because efficient electronic funds transfer,
ATM services and check cashing and clearing facilities have not yet developed.
Most employees in these countries have historically been paid in cash and most
purchases and bills have been paid for in cash. As a result, bank account usage
has been relatively low in Central Europe compared to Western Europe and the
United States, and the banking industry in Central Europe is less developed than
in Western Europe and the United States. The Central European banking industry
has generally been characterized by low levels of customer service, limited
opening hours and long waits to complete simple transactions. Electronic
banking, including electronic funds transfer, ATM and point of sale services
have recently been introduced in the region, but are still in the early stages
of development.
In recent years bank account usage in Central Europe has grown
substantially as a result of several factors. Legislation recently passed in
Hungary requires that all civil servants receive their salary via direct deposit
to bank accounts or in cash by mail in order to reduce administrative costs
associated with a cash-based payroll system. Many private companies in Hungary
and Poland have also begun issuing their payroll by direct deposit to bank
accounts. As a result, many people who ordinarily would not have bank accounts
have been forced to open accounts to access their salary. Given the nature of
the banking system in these countries, ATMs are the most convenient method for
such employees to access their salary. The Company expects that continued
utilization of the bank transfer method of administering payroll will lead to
increased bank account usage and increased demand for ATM services in Central
Europe.
In addition, the retail banking industry in Central Europe has become
increasingly competitive in recent years partly because foreign banks have been
permitted to establish branches or invest in local banks in the region. Many
banks in Central Europe have begun to implement strategies for serving and
attracting a larger portion of the retail market in this competitive
environment. Electronic banking is one of the obvious extensions of customer
service options available to increase customer service and enhance customer
loyalty. The Company
23
25
believes that as banks in Central Europe increase customer and electronic
banking services, bank account usage and credit and debit card issuance and
usage will increase.
In Hungary, the Company estimates that as of December 31, 1996
approximately 22% of the population had bank accounts which represents an
increase from an estimated 8% of the population at the same time in 1995. The
first ATM card was issued in Hungary in 1989 and as of December 31, 1996, the
Company estimates that there were approximately 1.1 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.
The Company believes that there were approximately 1,080 ATM machines installed
in Hungary as of December 31, 1996, 130 of which were owned by the Company. The
Company estimates that, based on industry sources, the average number of ATM
transactions per machine on a nationwide basis per month in Hungary in 1996 was
approximately 1,200.
The Polish banking industry is in the very beginning stages of advanced
retail customer service, credit and debit card issuance and electronic banking
services. According to industry sources, it is estimated that approximately 15%
of the population have bank accounts. The Company believes that the market for
retail banking services in Poland is developing rapidly. The Company estimates
that there are currently more than 800,000 international and domestic credit and
debit cards and approximately 450 ATMs in Poland compared to less than 200,000
total credit and debit cards issued and less than 250 ATMs operating one year
ago.
An important factor affecting the increase in bank account usage and credit
and debit card issuance in Central Europe is the growth in the issuance of VISA
and Europay credit and debit cards tied to local bank accounts. The banks in
Hungary and Poland originally issued VISA and Europay cards only to their best
customers at relatively unfavorable terms which often included a high deposit of
hard currency earning little or no interest, high percentage charges per
transaction and high annual fees. Competitive pressure has led to more favorable
terms and the issuance of VISA, Europay and proprietary cards to maintain and
attract customers. As of December 1996, there were approximately 125,000 VISA
cards issued in Poland, compared with less than 10,000 VISA cards in 1992. As of
March 31, 1996, there were approximately 110,000 VISA cards issued in Hungary,
representing an increase of 40% from 80,000 VISA cards as from December 31,
1995. The first Europay card was issued in Poland in 1995 and as of December
1996, there were approximately 200,000 Europay cards issued in Poland. As of
March 31, 1996, there was approximately 336,000 Europay cards issued in Hungary
which represents an increase of 12% from 300,000 Europay cards as of December
31, 1995.
The German ATM market, the Company's next target market for the provision
of ATM management services, is more developed than the Company's other markets.
As of December 31, 1996 the Company estimates that, based on industry sources,
there were approximately 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 be a service
provider to banks and it does not anticipate that it will be subject to German
financial institution licensing requirements. As a result of an agreement
between certain card issuing banks in Germany, all ATMs in Germany can accept
virtually all credit and debit cards issued by German financial institutions. An
agreement to provide ATM management services to one bank in Germany will
therefore result in ATMs managed by Euronet being able to accept virtually all
credit and debit cards issued by German financial institutions.
The ATM market is still in its early stages of development in Central
Europe. Based on examples of growth of ATM markets in other countries, the
Company believes that the Central European market should continue to develop
rapidly. For example, Portugal, which is one of the most recently developed ATM
markets in Europe, has seen substantial growth in its ATM market since ATMs and
credit and debit cards were first introduced in 1985. By 1996 there were
approximately 5 million credit and debit cards issued in Portugal which has a
population of approximately 10 million people. In addition, the number of ATMs
in use in Portugal has grown to over 3,000 at the end of 1995. These ATMs
processed approximately 200 million ATM transactions in 1995.
24
26
THE EURONET NETWORK
GENERAL
The Company currently operates ATMs in Hungary and Poland and plans to
extend its network and its ATM management services operations to Germany, the
Czech Republic and other countries in Central Europe. Euronet's ATM network
offers banks an opportunity to provide state-of-the-art electronic financial
services and access to an ATM network to their customers at a considerably lower
cost than installing proprietary ATMs. Connecting to Euronet's ATM network also
augments the number of ATMs available to customers of banks that already
maintain their own ATM networks. The technology utilized to build Euronet's ATM
network is designed to be readily accessible and easy to use.
The Company currently has 130 ATMs installed in Hungary, primarily in the
country's six largest cities. Euronet has entered into agreements ("Acceptance
Agreements") with most major banks in Hungary that issue ATM cards allowing all
credit and debit cards issued by such banks to be accepted at Euronet's ATMs. In
addition, the Company has entered into agreements with American Express and
sponsor banks that are members of VISA International and
Europay/Mastercard/Cirrus allowing cards issued by American Express and those
cards bearing the VISA, Plus, Europay, Mastercard and Cirrus logos to be used at
Euronet's ATMs in Hungary. As a result of these agreements, Euronet's ATMs in
Hungary accept over 90% of the domestic debit and credit cards issued in Hungary
and all major international credit and debit cards.
Euronet currently has 35 ATMs installed in Poland. Euronet has executed
Acceptance Agreements with Polish banks accounting for approximately 25% of the
credit and debit cards issued by Polish banks. The Company has also entered into
agreements with American Express and a sponsor bank affiliated with VISA
International allowing all cards issued by American Express and all credit and
debit cards bearing the VISA and Plus logos to be used at Euronet's ATMs in
Poland. The Company intends to pursue a strategy similar to that employed in
Hungary in order to reach agreements allowing all credit and debit cards issued
in Poland to be used at Euronet's ATMs.
In a typical ATM transaction processed by the Company, a debit or credit
cardholder inserts a credit or debit card into an ATM to withdraw funds or
obtain a balance inquiry. The transaction is routed from the ATM to Euronet's
central authorization and processing center (the "Processing Center"). The
Company's Processing Center computers then identify the card issuing banks or
International Card Organizations (the "Card Issuers") by the bank identification
number contained within the card's magnetic strip. The transaction is then
switched to the Card Issuer or its designated processor for authorization. Once
authorization is received, the authorization message is routed back to the ATM
and the transaction is completed.
[DIAGRAM OF TYPICAL ATM TRANSACTION]
For banks that do not maintain on-line account balance information for
their cardholders, the Company stores such banks' cardholders' account
information 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 from the issuer of the credit or debit card used in a
transaction for processing the transaction, including for transactions that are
not completed because authorization is not given by the relevant Card Issuer.
The fees charged by Euronet to the Card Issuers are independent of any fees
charged by the Card Issuers to cardholders in connection with the ATM
transactions. The Company does not charge the cardholders a fee for using its
ATMs. In many cases the fee charged by a Card Issuer to a cardholder in
connection with a transaction processed at Euronet's ATMs is less than the fee
charged by Euronet to the Card Issuer.
The average number of transactions processed each month at Euronet's ATMs
in Hungary in the last three months of 1996 has increased approximately 25% per
month. In the last three months of 1996, Euronet's ATMs in Hungary averaged
1,716 transactions per ATM per month (1,162 of which were cash withdrawals).
ATM Location
The Company believes that one of the most important factors in determining
the success of an ATM network is the location of the ATMs. While most ATMs owned
by Central European banks are located on the premises of the banks or its
branches or on premises of large employers paying their employees by direct
deposit, all of Euronet's ATMs are located in non-bank sites. The Company's
strategy in pursuing sites for its ATMs is to concentrate on locations that will
provide high visibility and high cardholder utilization. As part of its
strategy, the Company identifies the major high pedestrian traffic regions and
locations where people need access to cash and find it convenient to stop for
cash. Key target locations for Euronet's ATMs include major shopping malls and
intersections; smaller shopping areas or intersections offering grocery stores
and supermarkets and services where people routinely shop; transportation hubs
such as city bus and tram/subway stops, rail and bus stations, airports, and gas
stations; and the tourist and entertainment centers such as historical sections
of cities, cinemas, and recreational facilities.
Research conducted in the United States indicates that once a cardholder
establishes a habitual pattern of using a particular ATM, there must be
significant problems with a location, such as a machine frequently being out of
service, to change the pattern of usage of a cardholder. It is the Company's
goal to be the first and the fastest to secure key real estate locations and
become the habitual ATM location of card users in its markets.
In Hungary, the Company has obtained agreements to install ATMs at several
outlets of Julius Meinl, a large grocery chain in Hungary, several McDonald's
restaurants, several ARAL, OMV and Shell gas stations, Tesco supermarkets, Ikea
as well as other major retail sites in Budapest, Debrecen, Kaposvar, Gyor and
Szekesfehervar. In Poland, the Company has signed contracts to place ATMs in
many key locations including McDonald's restaurants, British Petroleum, Shell
and ARAL gas stations, Marriott Hotels, Office Depot, Makro Cash and Carry and
Ikea stores, Casinos Poland, and other hotel and retail outlets in the Polish
cities of Warsaw, Szczecin, Gdansk, Poznan, Lodz, Lublin, Krakow, Katowice,
Wroclaw and Czestochowa. It is the Company's strategy to expand its
relationships with such large multinational companies to obtain additional sites
for ATMs in other markets. Before expanding to Poland, Euronet had placed ATMs
at Shell, McDonald's and ARAL locations in Hungary. The Company recently
installed ATMs in the new 450,000 square foot Duna Plaza shopping mall in
Budapest and in the new 600,000 square foot Polus Centre shopping mall in
Budapest.
The Company's agreements for the location of ATMs generally provide for the
location of one or more ATMs inside or adjacent to the premises of the site
provider at minimal rental rates. In Hungary, the agreements generally provide
for an indefinite term. In Poland, the agreements generally provide for a three
to five year term and are renewable for additional three to five year terms. In
some cases, the site providers pay the Company a rental fee for the ATM in
recognition of the benefits that an ATM can bring to a retail outlet. The
Company's leases for ATM sites generally can only be terminated by a site
provider if the Company defaults on its obligations. To date, none of the
Company's leases have been terminated by site providers. The Company can
generally terminate its leases for ATM sites in Poland if transaction volumes at
a site are unacceptable to the Company and can generally terminate its leases
for ATM sites in Hungary for any reason.
26
28
Agreements with Card Issuers and International Card Organizations
The Company's Acceptance Agreements with banks generally provide that all
credit and debit cards issued by the banks may be used at all ATM machines
operated by Euronet. The Acceptance Agreements also generally allow Euronet to
receive transaction authorization directly from the card issuing bank or
International Card Organization. Acceptance Agreements generally provide for a
term of three to five years and are generally automatically renewed unless
notice is given by either party prior to the termination date. The Company
generally is able to connect any bank to its network within 30 to 90 days of
signing an Acceptance Agreement.
In addition to the Acceptance Agreements with local banks, Euronet has
entered into Acceptance Agreements with American Express providing for the
acceptance of all credit and debit cards issued by American Express at all of
Euronet's ATMs in Hungary and Poland. Through agreements with local sponsor
banks in Hungary and Poland, Euronet is able to accept all credit and debit
cards bearing the VISA, Plus, Mastercard, Europay and Cirrus logos at its 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 to this system the banks provide all of the
cash needed to operate the network. Each bank provides its pro rata share of
cash dispensed to cardholders from Euronet's ATMs each day based upon daily
transaction reports generated by Euronet. Cash provided by the banks is
deposited by a third party security company in Euronet's ATMs generally once or
twice a week depending on need. Each banking day, card issuing banks connected
to the Euronet network provide cash to the Company's settlement agent based upon
the prior day's transaction reports. The cash remains the property of the banks
until it is dispensed to cardholders. The Company maintains insurance with
respect to the cash while it is held in its ATMs.
The ATM transaction fees charged by Euronet under the Acceptance Agreements
vary depending on the type of transaction executed (cash withdrawals; balance
inquiries; and transactions not completed because authorization is not given by
the relevant Card Issuer) and the quantity of transactions attributable to a
particular Card Issuer. The transaction fee charged to Card Issuers for cash
withdrawals is in excess of $1.00 per transaction while transaction fees for the
other two types of transactions that can currently be processed on Euronet's
ATMs are generally substantially less. Under the terms of the Acceptance
Agreements, Euronet charges ATM transaction fees to the card issuing banks. Card
issuing banks generally agree not to charge their cardholders more for using
Euronet's ATMs than the banks' own ATMs and generally charge lower fees or no
fees at all for cardholders that use Euronet's ATMs. The Acceptance Agreements
generally provide for payment in local currency but transaction fees are
denominated in U.S. dollars or inflation adjusted. Transaction fees are billed
on terms no longer than one month. It is expected that the Company's agreement
with its sponsor bank in Germany to manage and install ATMs for the sponsor bank
will provide for fees similar to those paid with respect to Acceptance
Agreements. The Company's agreements to provide ATM management services, other
than in Germany, will provide for monthly management fees plus fees payable for
each transaction.
The tables below indicate the banks that have Acceptance Agreements with
the Company.
BANKS IN HUNGARY
Orszagos Takarekpenztar es Kereskedelmi Bank Rt. Magyar Kulkereskedelmi Bank Rt. (MKB)
(OTP)
Budapest Fejlesztesi es Hitelbank Rt. (Budapest Bank) Mezobank Rt.
Citibank Budapest Rt. Postabank es Takarekpenztar Rt.
Creditanstalt Rt. Deutsche Bank Rt.
Inter-Europa Bank Rt.
27
29
BANKS IN POLAND
Bank Depozytowo-Kredytowy w Lublinie S.A.
Wielkopolskie Bank Kreditowy S.A.
Bank Wspoffipracy Regionalnej S.A. Krakow
The banks in Hungary that have signed Acceptance Agreements have issued an
aggregate of approximately 800,000 credit and debit cards. The banks in Poland
that have signed Acceptance Agreements, have issued an aggregate of 124,000
credit and debit cards. Through the Company's arrangements with sponsor banks in
Hungary and Poland, Euronet's ATMs are able to accept all VISA/Plus and
Europay/Mastercard/Cirrus cards in Hungary and all VISA/Plus cards in Poland
regardless of whether the card issuing bank is connected to the Euronet network.
ATM Network Technology
The Company uses IBM/Diebold and NCR ATMs. The wide range of advanced
technology available from IBM/Diebold and NCR provides Euronet customers with
state-of-the-art-electronics features and reliability through sophisticated
diagnostics and self-testing routines. The different machine types can perform
basic functions, such as dispensing cash and displaying account information, as
well as provide revenue opportunities for advertising and selling products
through use of color monitor graphics, receipt message printing, and coupon
dispensing. The Company's ATMs are modular and upgradeable so that they can be
adapted to provide additional services in response to changing technology and
consumer demand. In many respects, Euronet's ATMs are more technologically
advanced and more adaptable than many older ATMs in use in more developed ATM
markets. This allows the Company to modify its ATMs to provide new services
without replacing its existing network infrastructure.
Strong back office central processing support is a critical factor in the
successful operation of an ATM network. Each of Euronet's ATMs is connected to
Euronet's Processing Center through land-based and satellite telecommunications.
Because the Company strives to ensure western levels of reliability for its
network, it currently relies primarily on satellite telecommunications for ATM
connections to its Processing Center. As the reliability of land based
telecommunications improves, the Company may rely more heavily on them because
they are generally less expensive than satellite telecommunications. The
Processing Center, which is located in Euronet's Budapest office, is staffed 24
hours a day, seven days a week and consists of two IBM AS400 computers which run
the Arksys Gold Net ATM Software package. This software is a state-of-the-art
software package that conforms to all relevant industry standards and has been
installed in 64 countries worldwide. The Processing Center's computers operate
Euronet's ATMs and interface with the local bank and international transaction
authorization centers.
The Processing Center has full uninterruptable power supply systems with
battery and diesel power back-up to service the network in case of a power
failure. The Processing Center's data back-up systems would prevent the loss of
transaction records due to power failure. The Company's agreements with its
satellite providers provide for certain assurances with respect to the repair of
satellite malfunction to ensure continuous reliable communications for the
network. The satellite provider for the Processing Center guarantees
uninterrupted service for 99% of the time. Before the end of the first quarter
of 1997, the Company plans to establish an off-site disaster recovery back up
system in Budapest to provide protection against both natural and man-made
disasters. In 1996, Euronet's network operated uninterrupted for 99% of the time
excluding scheduled system back-up and maintenance periods.
Euronet has entered into multi-country purchasing agreements with IBM and
NCR providing for the supply of up to 800 ATMs to Euronet over the next two
years. The Company generally finances the acquisition of ATM machines through
capital leases.
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. Since the
Company has already contracted for many of these services and provides the
services as part of its own operation, this allows the potential for additional
revenue with lower incremental cost since Euronet has already invested in the
necessary infrastructure.
The ATM network management services provided by the Company will include
management 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. The Company is currently working to develop
an ATM bill paying system that would be made available to utilities and other
service providers for bills that have traditionally required payment in person
at a post office or other central locations. In addition, the Company's ATMs are
upgradeable so that they can be updated to be used with new technologies
including computer chip "smart cards" which are electronic debit cards which can
be used to withdraw cash from ATMs as well as being "charged up" with electronic
funds at an ATM through a connection with the cardholder's bank and used to
purchase goods from retail locations.
In May 1996, the Company began to sell advertising on its network.
Advertising clients can put their advertisements on the video screens of
Euronet's ATMs, on the receipts issued by the ATMs and on coupons dispensed with
cash from the ATMs. Advertising revenues currently average approximately $200 to
$250 per month for ATM carrying advertising.
COMPETITION
Competitive factors in the Company's business are network availability and
response time, price, ATM location and access to other networks. Principal
competitors of the Company include ATM networks owned by banks and regional
networks consisting of consortiums of banks.
EMPLOYEES
The Company's business is highly automated and it out-sources many of its
internal functions such as ATM maintenance and repair and security. As a result,
the Company's labor requirements are relatively low. As of December 31, 1996,
the Company and its subsidiaries had approximately 60 full-time employees, 37 of
which
29
31
were located in its Budapest office, 21 in its Warsaw office and 1 in its
Frankfurt office. None of the Company's or its subsidiaries' employees are
currently represented by a union. The Company has never experienced any work
stoppages or strikes.
GOVERNMENT REGULATION
The Company has received interpretative letters from the Hungarian Bank
Supervisory Board and the Polish National Bank to the effect that the business
activities of the Company in those jurisdictions, as described in the
Prospectus, do not constitute "financial activities" subject to licensing. Any
expansion of the activity of the Company into areas which are qualified as
"financial activity" under local legislation may subject the Company to
licensing, and the Company may be required to comply with various conditions in
order to obtain such licenses. Moreover, the interpretations of bank regulatory
authorities as to the activity of the Company as currently conducted might
change in the future. The Company monitors its business for compliance with
applicable laws or regulations regarding financial activities.
Under German law ATMs are subject to essentially the same licensing
requirements as bank branches and may only be operated by licensed financial
institutions. The Company intends to be a service provider to banks and it does
not anticipate that it will be subject to German financial institution licensing
requirements. There can be no assurance that the Company will not become subject
to additional regulation in Germany or other countries in which it conducts its
business.
PROPERTY
The Company's executive offices and Processing Center are located in
approximately 2,800 square feet of office space in Budapest. The Company also
maintains a 2,760 square foot office in Warsaw. All of the Company's facilities
are leased. The Company's office leases provide for initial terms of 24 to 60
months.
TRADEMARKS
The Company has filed applications for registration of certain of its
trademarks including the names "Euronet" and "Bankomat" and the blue diamond
logo in Hungary, Poland, the Czech Republic, Slovakia, Sweden, France and the
United Kingdom. Such applications have not yet been granted.
LITIGATION
The Company is not currently involved in any material legal proceedings
and, to the Company's knowledge, no litigation is currently threatened against
it.
30
32
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The table sets forth certain information concerning the directors,
executive officers and other key employees of the Company:
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
DIRECTORS
Michael J. Brown(1).............. 40 Chairman, President and Chief Executive Officer
Daniel R. Henry.................. 31 Director, Chief Operating Officer
Thomas A. McDonnell(1)(2)........ 51 Director
Nicholas B. Callinan(1)(2)....... 50 Director
Steven J. Buckley(1)(2).......... 41 Director
Eriberto R. Scocimara............ 60 Director
Andrzej Olechowski............... 49 Director
EXECUTIVE OFFICERS
Dennis H. Depenbusch............. 33 Vice President -- Poland
Bruce S. Colwill................. 31 Chief Financial Officer and Chief Accounting Officer
Jeffrey B. Newman(3)............. 42 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 -- Poland
Matthew Lanford.................. 30 Systems Manager -- Hungary
Joanna Zaczek.................... 43 Systems Manager -- Poland
Gabriella Temesi................. 27 Real Estate Manager -- Hungary
Nancy Niehoff.................... 50 Real Estate Manager -- Poland
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Effective January 1997
Directors
MICHAEL J. BROWN is one of the founders of the Company and has served as
its Chief Executive Officer since 1994. In 1979 Mr. Brown founded Innovative
Software, a computer software company that was merged with Informix in 1988.
During this period, Innovative Software conducted three public offerings of its
shares. Mr. Brown served as President of Informix from 1988 to 1990. Annual
revenues of Informix had grown to $170 million by the time Mr. Brown left
Informix in 1990. In 1993 Mr. Brown was a founding investor of Visual Tools,
Inc., a company that writes and markets component software for the growing
Visual Basic and Visual C++ developer market. Visual Tools, Inc. was acquired by
Sybase Software in February 1996. Mr. Brown received a B.S. in Electrical
Engineering from the University of Missouri -- Columbia in 1979 and a M.S. in
Molecular and Cellular Biology at the University of Missouri -- Kansas City in
1996. Mr. Brown has been a Director of the Company since its incorporation in
December 1996 and he previously served on the boards of Euronet's predecessor
companies. His term as Director of the Company will expire in 2000. Mr. Brown is
married to the sister of Mr. Henry's wife.
DANIEL R. HENRY founded the Company with Michael Brown in 1994 and is
serving as Chief Operating Officer of the Company. Mr. Henry is based in
Budapest, Hungary where he operates and oversees the daily operations of the
Company's Hungary operations and the supervision of the Company's Poland
operations. Mr. Henry also is responsible for the expansion of the Company into
other countries and the development of new
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 -- 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. 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. He is currently a director of Informix, BHA Group, Inc.,
Nellcor-Puritan Bennett Corporation, First of Michigan Capital 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 2000.
NICHOLAS B. CALLINAN 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 1983 he has served as Senior Vice
President and Managing Director for Central and Eastern Europe of Advent
International Corporation, the ultimate general partner of private equity funds
which are a shareholder of the Company. From 1983 to 1993, he was founder and
Chief Executive Officer of Western Pacific Management & Investment Company,
which later became the Advent Group of Companies. Mr. Callinan has a B.E. in
Civil Engineering and an M.B.A. from the University of Melbourne. Mr. Callinan's
term as Director of the Company will expire in 1998.
STEVEN J. BUCKLEY has been a Director of the Company since its
incorporation in December 1996 and he previously served on the boards of
Euronet's predecessor companies. In June 1990 he was a co-founder of Poland
Partners L.P., a venture capital fund for investment in Poland and since April
1994 he has been President and Chief Executive Officer of Poland Partners
Management Company, the advisor of such fund. From June 1990 to April 1994, he
was a founder and director of Company Assistance Ltd., a business advisory firm
in Poland. He has a B.A. in Political Science from Stanford University and an
M.B.A. from Harvard University. Mr. Buckley's term as Director of the Company
will expire in 1999.
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 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 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 Officers
DENNIS H. DEPENBUSCH has been Vice President of the Company's Poland office
since its inception in May 1995. From 1992 to 1995, Mr. Depenbusch was Director
of Project Finance with RMC in Lawrence, Kansas, where he structured various
financing and acquisition strategies for housing projects. From 1990 to 1992,
Mr. Depenbusch was a Senior Financial Analyst and Market Research Analyst for
Payless ShoeSource. Mr. Depenbusch received a B.S. in Business Administration in
1985 and an M.B.A. in Finance in 1989 from the University of Kansas.
BRUCE S. COLWILL has been Chief Financial Officer and Chief Accounting
Officer of Euronet since May 1996. Mr. Colwill was employed as Assistant
Controller and Financial Controller for PepsiCo Trading Sp. z o.o. in Warsaw,
Poland from 1994 to 1996. From 1989 to 1994, he was employed as a Manager and
Senior Accountant with KPMG in both Poland and Canada in the audit function. Mr.
Colwill obtained his Canadian Chartered Accountants Designation in 1992. He
received a B.B.A. in Accounting from Simon Fraser University in Canada in 1989.
JEFFREY B. NEWMAN joined the Company as Vice President and General Counsel
on January 31, 1997. Prior to this he practiced law in Paris with the law firm
of Salans Hertzfeld & Heilbronn and then with the Washington, D.C. based law
firm of Arent Fox Kintner Plotkin & Kahn, of which he was a partner since 1993.
He established the Budapest office of Arent Fox Kintner Plotkin & Kahn in 1991
and has resided in Budapest since that time. He is a member of the Virginia,
District of Colombia and Paris bars. He received a B.A. in Political Science and
French from Ohio University and law degrees from Ohio State University and the
University of Paris.
JOHANNES SEEGER joined Euronet in June 1996 as Vice President -- Germany.
Mr. Seeger has almost 20 years experience as a senior engineer and manager. From
1984 to 1991, he worked as senior manager of EFT, ATM and POS systems for GZS
GmbH and was responsible for employees, cash-management, security, service, and
technology. From 1991 to 1996, he worked with PostBank GmbH, a German company,
in the development of payment systems. Mr. Seeger graduated as a technical
engineer from the Cologne Technical Polytechnic.
Other Key Employees
ISTVAN ALPEK has been Finance Manager -- Hungary since August 1995 and is
responsible for the management of the financial and administrative activity of
the Company's Hungarian operations. He is also temporarily serving as Operations
Manager until that position is permanently filled. From 1993 to 1995, he was
Business Finance Manager at Digital Equipment Corporation Ltd. in Budapest,
where his responsibilities included management of budgeting, planning,
forecasting and reporting. From 1990 to 1993, Mr. Alpek was the Finance Manager
at Du Pont Co., Hungary. He graduated in 1989 from the College for Foreign Trade
of Budapest and is currently enrolled in the M.B.A. course at Pittsburgh
University.
JAN KACZMAREK became Operations Manager -- Poland in January 1997. Mr.
Kaczmarek is responsible for maintaining the daily operations of the network in
Poland. This includes liaising with security companies and banks in relation to
cash supply and ensuring high availability of the network. From 1994 to 1996,
Mr. Kaczmarek was information technology executive for PTK Centertel in Warsaw,
Poland, where he was responsible for all aspects of information technology and
computing. Prior to this Mr. Kaczmarek was employed by CSC Computer Sciences
Ltd. in Poland and Brussels where he was responsible for the provision of
administrative and billing services as well as the supply for Polish clients and
customer service information technology functions. Mr. Kaczmarek received an
M.A. in Systems Management from Lancaster University in 1972, a B.S. in Chemical
Engineering from the University of Surrey in 1971, and a diploma in
Organizational Development from IOD Leuven Belgium in 1993.
PETER NAGY was appointed Business Development Manager of the Company in
February 1995. Dr. Nagy is responsible for acquiring and negotiating contracts,
managing and servicing key accounts, and participates in
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 Diploma in Economics from the University of Kent. Mr. Kulig is
currently enrolled in the M.B.A. program at the University of Calgary, Canada.
MATTHEW LANFORD was appointed Systems Manager for Euronet in August 1996.
He is responsible for systems design and development and ensuring that Euronet's
technology is up-to-date and capable of supporting the rapid expansion of the
Company. From 1989 to 1995, he worked as a programmer, project supervisor and
lead programmer/analyst for Arksys, Inc. the supplier of the ITM/400 software on
the AS/400 where he designed the network processing software currently being
used by the Company. From February 1995 to August 1996, he worked as lead
programmer/analyst for Associates Bancorp, Inc., a division of The Associates,
an international consumer/commercial finance organization. Mr. Lanford has a
B.S. in Computer Science from the University of Arkansas at Little Rock.
JOHANNA ZACZEK was appointed Systems Manager for the Company's Poland
operations in February 1996. Her primary task is managing the information
systems within the Polish office, maintaining the ATM network and creating and
maintaining technical connections to the Polish banks. From 1986 to 1996, Ms.
Zaczek worked at Zurich Re (UK) Ltd. where her most recent positions were
corporate analyst and information technology consultant. Ms. Zaczek holds a
Masters degree in Electronics from Warsaw Polytechnic University and a diploma
in Computer Science from the London Polytechnic.
GABRIELLA TEMESI joined Euronet in September 1994 and has been Real Estate
Manager for the Company's Hungary operations since 1995. She is responsible for
securing ATM locations, site contract negotiations and acquiring site
permissions for installation. From 1991 to 1992, she worked for Westbrook
Associates and from 1992 to 1994 for Healy & Baker International, where she was
responsible for various commercial real estate transactions such as acquiring
sites for retailers and offices. Ms. Temesi received her certification from the
Education Center for Foreign Trade and obtained a state brokerage and appraisal
license in 1993.
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
Nursing from the University of Cincinnati and has Certified Property Manager
candidate status with the Institute of Real Estate Management.
34
36
EXECUTIVE COMPENSATION
The following table shows, for the fiscal year ended December 31, 1996,
compensation awarded or paid by the Company to its Chief Executive Officer (the
only employee of the Company whose annual salary and bonus for the fiscal year
ended December 31, 1996 equaled or exceeded $100,000):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------ LONG-TERM
COMPENSATION
------------
OTHER SECURITIES
($) BONUS ANNUAL UNDERLYING ALL OTHER
SALARY ----- COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION PERIOD ------- ------------ ------------ ------------
- ----------------------------------- ------ ($) ($) ($) (#) ($)
Michael J. Brown................... 1996 100,000 0 0 1,149,890 0
Chairman, Chief Executive Officer
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning each grant of
options to purchase the Company's Shares made during the fiscal year ended
December 31, 1996 to its Chief Executive Officer:
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS EXERCISE FOR
UNDERLYING GRANTED TO PRICE PER OPTION TERM(3)
OPTIONS GRANTED EMPLOYEES IN SHARE EXPIRATION -------------------
NAME (#)(1)(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------- --------------- ------------ --------- ------------- -------- --------
Michael J. Brown......... 1,149,890 50.5 2.14 Oct. 14, 2006 1,549,622 3,927,048
- ---------------
(1) Such options were awarded in accordance with the provisions of a
shareholder's agreement dated February 15, 1996, as amended October 14, 1996
(see "-- Stock Option Plans"). These options are subject to the provisions
of the Euronet Long-Term Incentive Stock Option Plan adopted by the Company
on August 13, 1996. Mr. Brown's options will fully vest and become
exercisable upon the occurrence of the Offering.
(2) Each share in Euronet Holding N.V. was exchanged for one share of Common
Stock in the Company pursuant to the terms of the Exchange Agreement, dated
December 17, 1996, among Euronet Services Inc., Euronet Holding N.V. and all
of the shareholders and optionholders of Euronet Holding N.V.
(3) Potential realizable value is based on the assumption that the shares
appreciate at the annual rates shown (compounded annually) from the date of
grant until the expiration of the option term. Those numbers are calculated
based upon the requirements promulgated by the Commission and do not reflect
any estimate by the Company of future Share price increases.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the stock
options held as of December 31, 1996 by the Chief Executive Officer.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON AT DECEMBER 31, 1996 ($) AT DECEMBER 31, 1996 ($)(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------ ----------- ------------- ----------- -------------
Michael J. Brown............ 0 0 0 1,149,890 0 12,487,805
- ---------------
(1) Based upon the initial public offering price of $13 per Share minus the
applicable exercise price.
35
37
COMPENSATION OF DIRECTORS
The Company does not currently pay fees to its directors for attendance at
meetings. Following completion of the Offering, the Company intends to pay each
outside director a fee consistent with that paid by similar companies for
attendance at meetings, together with reimbursement of out-of-pocket expenses
incurred in connection with the directors' attendance at such meetings. No
additional compensation will be paid for committee meetings held on the same day
as a Board of Directors' meeting. Officers of the Company who are also directors
will receive no additional compensation for serving as directors.
EMPLOYMENT AGREEMENTS
Mr. Brown serves as the Chief Executive Officer, President and Chairman of
the Board of the Company pursuant to an employment agreement dated December 17,
1996. Under the terms of his agreement, Mr. Brown is entitled to an annual
salary of $100,000, subject to annual review and adjustments by the Board of
Directors, and is reimbursed for all reasonable and proper business expenses
incurred by him in the performance of his duties under the agreement. The terms
of the agreement also provide that Mr. Brown will be entitled to fringe benefits
and perquisites comparable to those provided to any or all of the Company's
senior officers. The term of the agreement expires in December 1999. The term of
the agreement, however, will be automatically extended on the same terms and
conditions for successive periods of one year each unless declined by either
party for any reason. In the event that Mr. Brown's employment with the Company
is terminated by the Company for Cause (as defined in the agreement), or if Mr.
Brown voluntarily terminates employment with the Company, he will be entitled to
receive all compensation, benefits and reimbursable expenses accrued as of the
date of such termination. In the event that Mr. Brown's employment with the
Company is terminated by reason of death or Disability (as defined in the
agreement), he (or his designated beneficiary) will be paid his annual salary at
the rate then in effect for an additional one-year period. The agreement also
contains certain non-competition, non-solicitation and non-disclosure covenants.
The Company has also entered into employment agreements with Mr. Henry, Mr.
Depenbusch and Mr. Colwill which expire in December 1999. Certain other key
employees also have employment agreements.
STOCK OPTION PLANS
Milestone Options. In accordance with the Shareholders' Agreement, dated
February 15, 1996, as amended October 14, 1996 (the "Shareholders' Agreement"),
the Company has reserved a total of 2,050,405 shares of Common Stock for
issuance pursuant to Milestone Options granted under the Shareholders' Agreement
to Mr. Brown and Mr. Henry, as well as certain other key employees of the
Company. The Milestone Options are subject to the provisions of the Euronet
Long-Term Incentive Stock Option Plan. See "-- The Long-Term Incentive Plan."
The Milestone Options granted to Mr. Brown, Mr. Henry and Mr. Depenbusch have an
exercise price equal to $2.14 per share and vest and become exercisable upon the
earlier of October 14, 2006, or the date on which any one or more of the three
performance goals described in the Shareholders' Agreement is attained.
One-third of the Milestone Options vest upon the occurrence of each milestone.
Upon the effectiveness of the Offering, Milestone Options granted to Mr. Brown,
Mr. Henry and Mr. Depenbusch will fully vest and become exercisable. Milestone
Options allocated at Mr. Brown's discretion to other management and key
employees also have an exercise price of $2.14 per share, but are conditioned
upon the completion of an initial public offering of the Company's Common Stock
on or before June 30, 1997, and will vest in three equal installments of 33% of
the grant beginning on the date of the Closing of the Offering, with the second
and third portions vesting on the first and second anniversaries of the
Offering, respectively. In the event that an initial public offering of the
Company's common stock does not occur on or before June 30, 1997, the Milestone
Options allocated to management and key employees (other than Mr. Brown, Mr.
Henry and Mr. Depenbusch) will expire and again be available for reallocation at
Mr. Brown's discretion. See "Certain Transactions."
The Long-Term Incentive Plan. The Euronet Long-Term Incentive Stock Option
Plan (the "Plan") was adopted by the Company on August 13, 1996. Pursuant to the
provisions of the Plan, employees and consultants of the Company may be offered
the opportunity to acquire shares of Common Stock by the grant of non-qualified
stock options ("Options"). A total of 1,299,550 shares of Common Stock have been
reserved for Options under
36
38
the Plan. Options to purchase shares of Common Stock of the Company may be
granted to eligible employees and consultants, as determined by the Board of
Directors, in amounts reflecting the employee's or consultant's employment
responsibilities and level of performance. The Options vest in five equal annual
installments of 20% of the grant, and have a term of ten years. The exercise
price per share of Common Stock purchased on exercise of Options is the fair
market value of the Common Stock at the date of grant. Once vested, the Options
may be exercised in whole or part. The Plan also incorporates various prior
grants of Milestone Options under Shareholders' Agreement. In addition to
Milestone Options, as of the date of this Prospectus, non-qualified stock
options have been granted to certain employees of the Company, including Options
to acquire 440,440 shares to Mr. Henry, Options to acquire 287,000 shares to Mr.
Depenbusch as well as Options to acquire 335,510 shares to other key employees.
Determination of Option Exercise Price. The Company has granted the
options described above at an exercise price based on the fair market value of
the underlying shares of Common Stock. Fair market value has been determined by
reference to the per share price at which the most recent sale of Common Stock
was made by the Company to investors. With respect to the Milestone Options,
fair market value was determined to be $2.14 as of the time they were granted on
October 14, 1996 based on the per share price at which certain shareholders of
the Company concurrently committed to make the first $1 million tranche of a
total $3 million investment in the Company. See "Certain Transactions --
Formation of Euronet Holding N.V."
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Directors have established an Audit Committee of
independent Directors. The Audit Committee will make recommendations concerning
the engagement of independent accountants, review with the independent
accountants the plans and results of the audit engagement, approve professional
services provided by the independent accountants, review the independence of the
independent accountants, consider the range of the audit and non-audit fees and
review the adequacy of the Company's internal accounting controls. In addition,
the Audit Committee will be responsible for reviewing and overseeing
transactions between the Company and related parties or affiliated companies.
Thomas A. McDonnell, Steven J. Buckley and Nicholas B. Callinan are members of
the Audit Committee.
Compensation Committee. The Directors have established a Compensation
Committee with a majority of independent Directors, which will make
determinations with respect to salaries and bonuses payable to the Company's
Executive Officers and will administer the Company's Stock Option Plan. Michael
J. Brown, Thomas A. McDonnell, Steven J. Buckley and Nicholas B. Callinan will
be members of the Compensation Committee.
37
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........................................................ $ 990,000 42.74%(1)
DST Systems, Inc..................................................... $1,000,000 34.72%
Euroventures......................................................... $ 300,000 10.42%
Mark Callegari....................................................... $ 200,000 6.93%
Lawrence Schwartz.................................................... $ 50,000 1.74%
Larry Maddox......................................................... $ 100,000 3.74%
- ---------------
(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
40
Capital Increase and Amendment of Original JVA. On February 20, 1995, the
Original JVA was amended by an Amended and Restated Joint Venture Agreement (the
"Amended JVA") under which a new shareholder, the Hungarian-American Enterprise
Fund ("HAEF"), and Euroventures agreed to purchase from a third party 100% of
the equity interests in SatComNet Kft., which is now a subsidiary of the Company
("SatComNet"). HAEF acquired an 89% interest in SatComNet for a purchase price
of $439,000 and Euroventures purchased an 11% interest in SatComNet for $52,000.
Under the Amended JVA, HAEF also agreed to contribute $611,000 to Bank 24,
Euroventures agreed to contribute $148,000 and a new shareholder, Hi-Care Trade
and Development Company ("Hi-Care") agreed to contribute $197,000. The
shareholders of SatComNet and Bank 24 exchanged their interests held in such
companies to create identical ownership of the two companies, as follows:
PERCENTAGE
SHAREHOLDER OWNERSHIP
- -------------------------------------------------------------------------------- ----------
Michael Brown................................................................... 30.29%
DST Systems, Inc................................................................ 22.49%
HAEF............................................................................ 23.61%
Euroventures.................................................................... 11.24%
Hi-Care......................................................................... 4.50%
Mark Callegari.................................................................. 4.50%
Larry Maddox.................................................................... 2.25%
Lawrence Schwartz............................................................... 1.12%
----------
TOTAL........................................................................... 100%
========
Bank 24 was then transformed into an "Rt.", a different form of Hungarian
corporate entity.
Under the Amended JVA, Mr. Henry was granted an option to purchase up to 6%
of the shares of each of Bank 24 and SatComNet for a total purchase price of
$246,000.
Hi-Care entered into a lease with Bank 24 effective as of September 10,
1994 for the Company's current offices in Budapest. The entire amount
contributed to the capital of Bank 24 by Hi-Care under the Amended JVA was
immediately paid out to Hi-Care as a payment under such lease.
Loans from Mr. Michael J. Brown. Mr. Brown established the Company's
Polish operating subsidiary, Bankomat 24 Sp. z o.o. ("Bankomat"), on August 8,
1995. Upon its formation, Mr. Brown contributed $2,000 to Bankomat and was the
sole interest holder of Bankomat. A capital increase in the amount of $61,000
was made on December 7, 1995. On August 31, 1995, Mr. Brown agreed to make
revolving loans in the amount $125,000 to Bankomat at a rate of interest of 10%
per year. The amount of such loans was increased to $195,000 as of May 21, 1996.
As of September 30, 1996 $262,000 was outstanding under such loans and other
loans made by Mr. Brown to the Company consisting of $67,000 in loans at an
interest rate of 10% relating to the establishment of Bankomat. A portion of the
proceeds of the Offering will be used to repay these loans.
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
Shares of Euronet Holding N.V., as follows:
NUMBER OF
COMMON SHARES
CONTRIBUTION OF EURONET
NEW SHAREHOLDERS COMMITMENT HOLDING N.V.
- ----------------------------------------------------------------- ------------ -------------
Advent Private Equity Fund CELP.................................. $ 1,250,000 12,500
Hungarian Private Equity Fund.................................... $ 500,000 5,000
Poland Investment Fund........................................... $ 1,250,000 12,500
Poland Partners L.P.............................................. $ 3,000,000 30,000
39
41
Concurrently with these transactions, Euroventures purchased the shares and
interests of Hi-Care in Bank 24 and SatComNet.
The Shareholders' Agreement provided that the Original Investors and
management of Euronet Holding N.V. would be granted certain awards of preferred
shares, and in the case of Mr. Brown, Common Shares, of Euronet Holding N.V. in
consideration of the payment of the par value ($0.01) 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........................................................... up to 1,117,620
DST Systems, Inc. ...................................................... up to 258,300
HAEF.................................................................... up to 271,110
Euroventures............................................................ up to 180,810
Mark Callegari.......................................................... up to 51,597
Larry Maddox............................................................ up to 25,802
Lawrence Schwartz....................................................... up to 12,901
Daniel Henry............................................................ up to 593,670
Pursuant to the Shareholders' Agreement Euronet Holding N.V. was entitled
to call a "standby round" of investment from DST Systems, Inc., Poland Partners
L.P., Hungarian Private Equity Fund and the Advent Private Equity Fund CELP of
up to $3,000,000 in the aggregate from such shareholders at a per share price of
$2.14 for one tranche and $10.00 per share for a second tranche subject to
certain conditions. The first tranche of this standby round was called on
November 26, 1996 and 466,669 Series B convertible preferred shares of Euronet
Holding N.V. were issued in exchange for $1 million. The Company's right to call
the remainder of the standby round commitment will terminate on the termination
of the Shareholders' Agreement which will occur on the execution of the
underwriting agreement to be executed in connection with this Offering
In addition, the Shareholders' Agreement provided that Mr. Brown would be
reimbursed by the shareholders for up to $100,000 for expenses incurred from
December 1994 to May 1995, and by the Company for expenses incurred from June 1,
1995 to March 27, 1996 relating to the establishment of Bankomat. On October 11,
1996, Euronet Holding N.V. adopted a revision to its Articles of Association
effecting a ten for one stock split.
On October 14, 1996, the Shareholders' Agreement was amended (the "First
Amendment") and the Milestone Award arrangements were modified to provide for
two different types of grants:
(i) Milestone Awards of preferred shares of Euronet Holding N.V. in
exchange for payment of par value ($0.01), to all Original Investors
except Mr. Brown,
(ii) Options to purchase Common Shares of Euronet Holding N.V. to Mr.
Brown, and options to purchase preferred shares of Euronet Holding N.V.
to Mr. Henry, Mr. Depenbusch and certain other employees of the group at
a purchase price of $2.14 per share ("Milestone Options"). The number of
shares of Euronet Holding N.V. subject to these option arrangements was
increased as compared with the amounts that were to be awarded under the
Shareholders Agreement to take into account the fact that consideration
was now to be paid for such shares. The following numbers of Milestone
Options were granted to directors and officers of the Company: Michael
Brown (1,149,890 Common Shares of Euronet Holding N.V.); Daniel Henry
(599,340 preferred shares of Euronet Holding N.V.); and Dennis
Depenbusch (226,450 preferred shares of Euronet Holding N.V.).
All Milestone Awards of Common Shares of Euronet Holding N.V. will be made
effective as of the closing of the Offering and all Milestone Options will
become vested upon the closing of the Offering, with the exception of 49,819
Options to certain key employees which will vest equally over two years
following the Offering. See "Management -- Stock Option Plans."
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) 9,585,569 shares of Common Stock will be issued to the
shareholders of Euronet Holding N.V. in exchange for all of the Common Shares of
Euronet Holding N.V., (ii) options to acquire 3,113,355 shares of Common Stock
will be granted to the holders of options to acquire 3,113,355 Common Shares of
Euronet Holding N.V. in exchange for all of such options and (iii) awards with
respect to 800,520 shares of Common Stock will be issued to the holders of
awards with respect to 800,520 preferred shares of Euronet Holding N.V. in
exchange for all such awards. Such exchange is subject to and will be effective
upon the execution of the underwriting agreement to be executed in connection
with the Offering. Euronet Holding N.V. will be dissolved following the
Reorganization. In connection with the Reorganization, the Shareholders'
Agreement will be terminated.
ATM PURCHASE OPTION
On March 10, 1995 Bank 24 entered into a Master Rental Agreement with HFT
Corporation ("HFT") pursuant to which HFT agreed to lease ATM machines to Bank
24 pursuant to operating leases which are treated, for U.S. GAAP purposes only,
as capital leases. On the same date, HFT granted an option to purchase the ATM
machines which were the subject of this Master Rental Agreement to Windham
Technologies, a company controlled by Michael Brown and Mark Callegari. On March
25, 1995, Windham Technologies executed a unilateral undertaking (the
"Undertaking") to sell such machines to Bank 24 for a purchase price which was
equal to the price paid by Windham, plus an "indemnification amount", as defined
in such undertaking. 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.
41
43
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Shares as of January 1, 1997, and after
giving effect to the Offering by (i) each shareholder known by the Company to
own beneficially more than 5% of the Shares, (ii) all Directors and Executive
Officers of the Company as a group and (iii) each Selling Shareholder.
SHARES SHARES
BENEFICIALLY SHARES TO BE BENEFICIALLY
OWNED PRIOR TO SOLD IN THE OWNED AFTER
THE OFFERING OFFERING THE OFFERING(1)
------------------ ------------ ------------------
NUMBER OF NUMBER OF NUMBER OF
SHAREHOLDERS SHARES(2) % SHARES(1) SHARES(2) %
- ------------ --------- ------ ------------ --------- ------
Michael J. Brown(3)........................ 3,562,440 33.48% 354,515 3,132,347 22.81%
Daniel R. Henry(4)......................... 775,600 7.29% 77,567 698,033 5.08%
Dennis Depenbusch(5)....................... 283,850 2.67% 28,385 255,465 1.86%
Peter Nagy(6).............................. 21,980 * -- 21,980 *
Nicholas B. Callinan(7).................... 7,648 * 1,750 5,898 *
DST Systems, Inc........................... 1,414,077 13.29% -- 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% 350,752 798,702 5.82%
Poland Partners L.P........................ 2,294,446 21.56% 525,000 1,769,446 12.89%
Advent Partners L.P........................ 38,241 * 8,750 29,491 *
Advent Private Equity Fund -- CELP......... 917,777 8.62% 210,000 707,777 5.16%
Poland Investment Fund L.P................. 956,018 8.98% 218,750 737,268 5.37%
Hungarian Private Equity Fund.............. 382,410 3.59% 87,500 294,910 2.15%
All Directors and Executive Officers as a
group (4 persons)........................ 4,628,890 43.50 460,454 4,091,095 29.80%
- ---------------
* 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 assume the exercise by only the respective named
stockholder of all options for the purchase of Shares held by such
stockholder which are exercisable within 60 days of January 1, 1997
(3) Includes an aggregate of 1,985,340 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) Includes an aggregate of 775,600 shares of Common Stock issuable pursuant to
options (including Milestone Options) exercisable within 60 days of January
1, 1997.
(5) Includes an aggregate of 283,850 shares of Common Stock issuable pursuant to
options (including Milestone Options) exercisable within 60 days of January
1, 1997.
(6) Includes an aggregate of 21,980 shares of Common Stock issuable pursuant to
options exercisable within 60 days of January 1, 1997.
(7) Mr. Callinan's shares are held indirectly through his interest in Advent
Partners L.P.
42
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 per share and 10 million shares of Preferred
Stock, par value $0.01 per share. The following summary description of the
capital stock of the Company does not purport to be complete and is subject to
the detailed provisions of, and qualified in its entirety by reference to, the
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part, and
to the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL").
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to the
rights of any holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy". In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in the distribution of all assets remaining
after payment of liabilities, subject to the rights of any holders of Preferred
Stock. The holders of Common Stock have no preemptive rights to subscribe for
additional shares of the Company and no right to convert their Common Stock into
any other securities. In addition, there are no redemption or sinking fund
provisions applicable to the Common Stock. All the outstanding shares of Common
Stock are, and the Common Stock offered hereby will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to issue any or all shares of authorized Preferred Stock as a
class without series or in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and
could have the effect of delaying, deferring or impeding a change in control of
the Company. As of the date of this Prospectus, the Company has not authorized
the issuance of any Preferred Stock and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Certificate of Incorporation and By-Laws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or make more difficult a takeover attempt that a stockholder might
consider in its best interest. See "Risk Factors -- Anti-takeover Provisions."
Set forth below is a description of certain provisions of the Company's
Certificate of Incorporation and By-Laws.
The Certificate of Incorporation provides that the Board of Directors of
the Company be divided into three classes of directors serving staggered
three-year terms. The classes of directors will be as nearly equal in number as
possible. Accordingly, approximately one-third of the company's Board of
Directors will be elected each year. See "Management -- Directors, Executive
Officers and Other Key Employees." The Certificate of Incorporation provides
that the number of directors will be determined by the Board of Directors.
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of laws, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases pursuant to Section 174 of
the DGCL or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of these provisions is to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for breach
of fiduciary duty as a director (including
43
45
breaches resulting from grossly negligent behavior), except in the situations
described above. These provisions will not limit the liability of directors
under federal securities laws.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined as a person who,
together with any affiliates or associates of such person, beneficially owns,
directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value in excess of 10% of the consolidated assets
of the corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder becomes an interested stockholder, unless (i)
the business combination is approved by the corporation's board of directors
prior to the date the interested stockholder becomes an interested stockholder,
(ii) the interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it becomes an
interested stockholder or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
REGISTRATION RIGHTS
Pursuant to an agreement (the "Registration Rights Agreement") dated March
13, 1996, among Euronet Holding N.V. (the predecessor to the Company) and the
following shareholders: Advent Private Equity Fund CELP, Poland Investment Fund,
the Hungarian Private Equity Fund L.P., Poland Partners L.P., Michael J. Brown,
Larry Maddox, Mark Callegari, Lawrence Schwartz, DST Systems, Inc., Euroventures
and HAEF (each a "Holder" and collectively the "Holders"), the Holders and all
other shareholders were granted certain rights with respect to the registration
of their shares of Common Stock under the Securities Act.
Under the terms of such agreement, which apply by succession to the
Company, Holders of no less than 12% of the shares of Common Stock of the
Company can demand that the Company effect up to four registrations of the
Common Stock under the Securities Act with respect to all or any portion of
their shares provided that each demand relates to a registration of at least $4
million worth of Common Stock. The Company can delay such a demand for a period
not in excess of 120 days, and not more than once in any 12 month period, if at
the time of such demand the Company is in the process of preparing a
registration statement for a public offering (other than a registration
statement solely to implement an employee benefit plan or a transaction to which
Rule 145 of the Securities Act is applicable) which is filed and becomes
effective within 90 days after such demand.
In addition, if the Company at any time initiates a registration under the
Securities Act (other than a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 of the Securities Act
is applicable), all shareholders are entitled to notice of such registrations
and to include their shares of Common Stock in such registration subject to
certain limitations.
After the Company has qualified for use of Form S-3, all shareholders will
have the right to request an unlimited number of registrations on Form S-3 (but
the Holders as a group may not make more than two such requests in any given 12
month period and not more than four in the aggregate), provided that the
aggregate offering price of such shareholder's shares of Common Stock exceeds
$500,000 and the Company has initiated a proposed registration. The Company can
delay such a request for a period not in excess of 120 days if at the time of
such request the Company is in the process of preparing a registration statement
for a public offering (other than a registration statement solely to implement
an employee benefit plan or a transaction to which Rule 145 of the Securities
Act is applicable) which is filed and becomes effective within 90 days after
such request.
In all cases the registration rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shareholders shares to be included in such registration. The Company
is required to bear the expenses of all such registrations, except for
underwriters' fees, discounts and
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 completion of 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" of 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.
Of such Shares, after giving effect to the Offering (assuming the Underwriters'
over-allotment option is not exercised), 434,217 Shares will be eligible for
resale under Rule 144 immediately following the expiration of the 180-day
lock-up period described under "Underwriting", 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. In addition, Michael Brown
and the other existing shareholders of the Company were granted rights entitling
them, under specified circumstances, to cause the Company to register for sale
all or part of their shares of Common Stock and to include such shares in any
registered public offerings of shares of Common Stock by the Company. See
"Description of Capital Stock -- Registration Rights" and "Underwriting". In
addition, of the 2,857,911 options to purchase Shares outstanding, 2,018,494 are
currently exercisable. Any Shares issued on the exercise of these options would
be available for sale subject to Rule 701 or another exemption from the
registration requirements of the Securities Act (including Regulation S under
the Securities Act) following the expiration of the 180-day lock-up period
described above. Furthermore, the Company intends to register under the
Securities Act, as soon as practicable following the Offering, approximately
3,094,511 Shares reserved for issuance to its employees and directors under its
employee benefits plans. See "Management."
In general, under Rule 144 as currently in effect, if a minimum of two
years has elapsed since the later of the date of acquisition of the securities
from the issuer or from an affiliate of the issuer, a person (or persons whose
Shares are aggregated), including persons who may be deemed "affiliates" of the
Company, as that term is defined in the Securities Act ("Affiliates"), would be
entitled to sell within any three-month period a number of Shares that does not
exceed the greater of (i) 1% of the then outstanding Shares (137,296 Shares
immediately after consummation of the Offering, or 145,246 Shares if the
over-allotment option is exercised in full) and (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission (the "Commission").
Sales under Rule 144 are also subject to certain provisions as to the manner of
sale, notice requirements and the availability of current public information
about the Company. In addition, under Rule 144(k), if a period of at least three
years has elapsed since the later of (i) the date restricted securities were
acquired from the Company and (ii) the date they were acquired from an Affiliate
of the Company, a shareholder who is not an Affiliate of the Company at the time
of sale and has not been an Affiliate for at least three months prior to the
sale would be entitled to sell Shares in the public market immediately without
compliance with the foregoing requirements under Rule 144. Rule 144 does not
require the same person to have held the securities for the applicable periods.
The Company and its Directors, Officers and certain other shareholders have
agreed not to offer for sale, sell or otherwise dispose of (or enter into any
transaction which is designed to, or could be expected to, result in the
disposition by any person of), directly or indirectly, any Shares, with certain
limited exceptions, for a period of 180 days after the date of this Prospectus
without the prior written consent of ING Barings on behalf of the Underwriters.
Prior to the Offering, there has been no market for the Shares and no
prediction can be made as to the effect, if any, that sales of the Shares or the
availability of such Shares for sale will have on the market price prevailing
from time to time. Sales of the Shares in the public market or the perception
that such sales may occur may have an adverse impact on such market prices.
48
50
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and the Underwriters named
below (the "Underwriters") the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom ING Barings is acting as
representative (the "Representative"), has severally agreed to purchase from the
Company, the number of Shares (collectively, the "Shares") set forth opposite
its name below:
NUMBER
UNDERWRITER OF SHARES
- ----------- ----------
ING Barings.....................................................................
----------
Total......................................................................
=========
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Shares if any such Shares are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated. The Company has been advised by the
Representative that the several Underwriters propose initially to offer the
Shares to the public at the public offering price set forth on the cover page
hereof, and to certain dealers at such price less a concession not in excess of
$ per Share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per Share to other dealers. After the
initial public offering, the public offering price and such concessions may be
changed.
A portion of the shares of Common Stock offered hereby are being offered
outside the United States. Offers and sales of shares of Common Stock outside
the United States are being made pursuant to Regulation S and such shares are
not being registered under the Securities Act for the purpose of sales outside
the United States. A registration statement under the Securities Act is in
effect for offers and sales in the United States of shares of Common Stock that
were initially offered or sold outside the United States. All sales of Shares on
behalf of ING Barings in the United States will be conducted by its affiliate
ING Baring (U.S.), Inc.
The Company has granted to the Underwriters an option to purchase
collectively up to 795,000 additional Shares exercisable for 30 days after the
date hereof, solely to cover over-allotments, if any, at the public offering
price set forth on the cover page of this prospectus less the underwriting
commissions. To the extent that the Underwriters exercise such option, each such
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such Shares that the number of Shares set
forth next to such Underwriter's name in the preceding table in the Prospectus
relating to the Offering bears to the total number of all such Shares to be
purchased and offered by the Underwriters.
Prior to the Offering, there has been no established market in the United
States or elsewhere for the Shares. The public offering price will be determined
by the Company in consultation with the Underwriters. It is expected that the
price determination will take several factors into account, including an
assessment of the Company's results of operations, the future prospects of the
Company and the prevailing market and economic conditions at the time of the
Offering.
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 hereby will be passed upon for the
Company by Arent Fox Kintner Plotkin & Kahn and for the Underwriters by Shearman
& Sterling.
EXPERTS
The Consolidated Financial Statements of the Company for the period from
June 22, 1994 (inception) to December 31, 1994, the 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.
51
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. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
------
Independent Auditors' Report........................................................... F-2
Consolidated Balance Sheets as of September 30, 1996, and December 31, 1995 and 1994... F-3
Consolidated Statements of Operations for the nine months ended September 30, 1996,
year ended December 31, 1995 and for the period from June 22, 1994 through December
31, 1994............................................................................. F-4
Consolidated Statements of Changes in Shareholders' Equity for the nine months ended
September 30, 1996, year ended December 31, 1995 and for the period from June 22,
1994 through December 31, 1994....................................................... F-5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1996,
year ended December 31, 1995 and for the period from June 22, 1994 through December
31, 1994............................................................................. F-6
Notes to Consolidated Financial Statements............................................. F-7
F-1
58
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
EURONET HOLDING N.V. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Euronet
Holding N.V. and Subsidiaries (Euronet N.V.) as of September 30, 1996, and
December 31, 1995 and 1994, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for the nine months
ended September 30, 1996, year ended December 31, 1995 and for the period from
June 22, 1994 through December 31, 1994. These consolidated financial statements
are the responsibility of Euronet N.V.'s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Euronet
Holding N.V. and Subsidiaries at September 30, 1996, and December 31, 1995 and
1994, and the results of their operations and their cash flows for the nine
months ended September 30, 1996, year ended December 31, 1995 and for the period
from June 22, 1994 through December 31, 1994 in conformity with generally
accepted accounting principles in the United States of America.
KPMG Polska Sp. z o.o.
Warsaw, Poland
December 17, 1996
F-2
59
EURONET HOLDING N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- ------- -------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................... $ 776 $ 411 $ 2,036
Restricted cash (note 5).................................... 783 952 --
Trade accounts receivable, net of allowance for doubtful
accounts of $nil in 1996, 1995 and 1994.................. 90 33 --
Investment securities (market value of $175,100) (note 7)... 206 -- --
Prepaid expenses and other current assets................... 242 433 140
------- ------- -------
Total current assets................................... 2,097 1,829 2,176
Property, plant, and equipment, at cost (note 6):
Equipment -- Automatic teller machines...................... 4,511 2,385 262
Office equipment............................................ 391 168 91
Computers................................................... 260 -- --
Software.................................................... 321 103 3
------- ------- -------
5,483 2,656 356
Less accumulated depreciation and amortization.............. (531) (138) (5)
------- ------- -------
Net property, plant, and equipment..................... 4,952 2,518 351
Loan receivable, excluding current portion (note 13).......... 16 24 --
Deferred income taxes (note 9)................................ 367 148 --
------- ------- -------
Total assets........................................... $ 7,432 $ 4,519 $ 2,527
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable...................................... $ 514 364 76
Short term borrowings (note 7).............................. 206 -- --
Current installments of obligations under capital leases
(note 8)................................................. 570 264 --
Note payable -- shareholder (note 13)....................... 262 161 --
Accrued expenses............................................ 915 514 29
------- ------- -------
Total current liabilities.............................. 2,467 1,303 105
Obligations under capital leases, excluding current
installments (note 8)....................................... 2,363 1,119 --
Other long-term liabilities................................... 60 -- --
------- ------- -------
Total liabilities...................................... $ 4,890 $ 2,422 $ 105
------- ------- -------
Shareholders' equity:
Series A convertible preferred shares, $0.01 par value.
Authorized 5,600,000 shares; issued and outstanding
4,419,800 shares (note 3)................................ 63 -- --
Series B convertible preferred shares, $0.01 par value.
Authorized 6,300,000 shares; issued and outstanding
4,200,000 shares (note 3)................................ 60 -- --
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.................................. 6,612 550 --
Subscription receivable..................................... (3,000) -- --
Accumulated losses.......................................... (1,942) (2,819) (457)
Restricted reserve (note 4)................................. 742 650 229
------- ------- -------
Total shareholders' equity............................. 2,542 2,097 2,422
------- ------- -------
Total liabilities and shareholders' equity............. $ 7,432 $ 4,519 $ 2,527
======= ======= =======
See accompanying notes to consolidated financial statements.
F-3
60
EURONET HOLDING N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
NINE MONTHS FROM JUNE 22,
ENDED YEAR ENDED 1994 THROUGH
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Transaction fees.................................... $ 577 $ 62 $ --
Other............................................... 61 -- --
---------- ------ ------
Total revenues................................. 638 62 --
Operating expenses:
ATM operating costs................................. 941 510 41
Professional fees................................... 828 394 64
Salaries............................................ 716 452 49
Foreign exchange loss............................... 88 158 2
Other............................................... 775 656 84
---------- ------ ------
Total operating expenses....................... 3,348 2,170 240
---------- ------ ------
Operating loss................................. (2,710) (2,108) (240)
Other income/expense:
Interest income..................................... 177 126 12
Interest expense.................................... (241) (107) --
---------- ------ ------
(64) 19 12
---------- ------ ------
Loss before income taxes....................... (2,774) (2,089) (228)
Deferred tax benefit (note 9)....................... 219 148 --
---------- ------ ------
Net loss....................................... $ (2,555) $ (1,941) $ (228)
========== ====== ======
Pro-forma loss per common share....................... $ (0.19)
==========
Pro-forma number of common shares..................... 13,109,320
==========
See accompanying notes to consolidated financial statements.
F-4
61
EURONET HOLDING N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
PREFERRED PREFERRED ADDITIONAL
COMMON SHARES SHARES PAID IN SUBSCRIPTION RESTRICTED ACCUMULATED
SHARES SERIES A SERIES B CAPITAL RECEIVABLE RESERVE LOSSES TOTAL
------ --------- --------- ---------- ------------ ---------- ----------- ------
(IN THOUSANDS)
Capital
contributions....... 2,650 -- -- -- -- -- -- 2,650
Current period loss... -- -- -- -- -- -- (228) (228)
Transfer to restricted
reserve............. -- -- -- -- -- 229 (229) --
----- ----- ----- ----- ------ ----- ------ ------
Balance December 31,
1994................ 2,650 -- -- -- -- 229 (457) 2,422
Capital
contributions....... 1,066 -- -- 550 -- -- -- 1,616
Current year loss..... -- -- -- -- -- -- (1,941) (1,941)
Transfer to restricted
reserve............. -- -- -- -- -- 421 (421) --
----- ----- ----- ----- ------ ----- ------ ------
Balance December 31,
1995................ 3,716 -- -- 550 -- 650 (2,819) 2,097
Net loss up to March
27, 1996............ -- -- -- -- -- -- (657) (657)
Transfer to restricted
reserve............. -- -- -- -- -- 48 (48) --
Formation of holding
company............. (3,709) 63 -- 122 -- -- 3,524 --
Capital
contribution........ -- -- 60 5,940 (3,000) -- -- 3,000
Net loss from March
28, 1996 through
September 30,
1996................ -- -- -- -- -- -- (1,898) (1,898)
Transfer to restricted
reserve............. -- -- -- -- -- 44 (44) --
----- ----- ----- ----- ------ ----- ------ ------
Balance September 30,
1996................ 7 63 60 6,612 (3,000) 742 (1,942) 2,542
===== ===== ===== ===== ====== ===== ====== ======
See accompanying notes to consolidated financial statements.
F-5
62
EURONET HOLDING N.V. 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,
1996 1995 1994
------------- ------------ --------------
(IN THOUSANDS)
Net loss.............................................. $(2,555) $ (1,941) $ (228)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation of property, plant and equipment....... 393 133 5
Deferred income taxes............................... (219) (148) --
Decrease/(increase) in restricted cash.............. 169 (952) --
Increase in trade accounts receivable............... (57) (33) --
Increase in trade accounts payable.................. 150 288 76
Decrease/(increase) in prepaid expenses and other
current assets................................... 191 (293) (140)
Increase in accrued expenses and other long-term
liabilities...................................... 461 485 29
------- ------- -------
Net cash used in operating activities.......... (1,467) (2,461) (258)
Cash flows from investing activities:
Fixed asset purchases............................... (320) (394) (356)
Purchase of investment securities................... (206) -- --
Net decrease (increase) in loan receivable.......... 8 (24) --
------- ------- -------
Net cash used in investing activities.......... (518) (418) (356)
Cash flows from financing activities:
Capital contributions............................... 3,000 1,616 2,650
Repayment of obligations under capital leases....... (957) (523) --
Proceeds from bank borrowings....................... 206 -- --
Proceeds from loan from shareholder................. 101 161 --
------- ------- -------
Net cash provided by financing activities...... 2,350 1,254 2,650
------- ------- -------
Net increase (decrease) in cash and cash
equivalents......................................... 365 (1,625) 2,036
Cash and cash equivalents at beginning of period...... 411 2,036 --
======= ======= =======
Cash and cash equivalents at end of period............ $ 776 $ 411 $ 2,036
======= ======= =======
Supplemental disclosures of cash flow information:
Interest paid during year........................... $ 227 $ 107 $ --
======= ======= =======
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations of $1,984 and $1,906 during the nine-month period
ended September 30, 1996 and the year ended December 31, 1995, respectively,
were incurred when Euronet N.V. entered into leases for new automatic teller
machines.
See accompanying notes to consolidated financial statements.
F-6
63
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND FORMATION OF HOLDING COMPANY
Euronet Holding N.V. and Subsidiaries (Euronet N.V.) 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.
Euronet Holding N.V. is a limited liability company registered in the
Netherlands Antilles, 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), SatComNet Kft,
(SatComNet), both incorporated in Hungary and Bankomat 24/Euronet Sp. z o.o.
(Bankomat), incorporated in Poland. The acquisition of these shares by the
Euronet N.V. took place on March 27, 1996.
Bank 24 and Bankomat were legally established on June 22, 1994 and August
8, 1995 respectively; SatComNet 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., owned by Michael Brown, Chairman of Euronet N.V. and a major
shareholder of Bank24 and SatComNet. The acquisition of the three operating
entities has been accounted for as a combination of entities under common
control using an accounting method similar to the pooling of interests method
for the following periods: June 22, 1994 through December 31, 1994; the year
ended December 31, 1995 and the nine month period ended September 30, 1996.
Euronet Services Inc. was established as a Delaware corporation on December
13, 1996 which will succeed Euronet N.V. as the holding company. It is intended
that (i) the holders of all of the preferred shares of Euronet N.V. will convert
all of such preferred shares into Common Shares of Euronet N.V. and (ii) Euronet
N.V. will effect a seven-for-one stock split of all outstanding common shares of
Euronet N.V.
On December 17, 1996, Euronet Services Inc. and the shareholders and
optionholders of Euronet N.V. entered into an Exchange Agreement pursuant to
which (i) 9,585,569 shares of Common Stock will be issued to the shareholders of
Euronet N.V. in exchange for all the common shares of Euronet N.V. (ii) options
to acquire 3,113,355 shares of Common Stock will be granted to the holders of
options to acquire 3,113,355 Common Shares of Euronet N.V. in exchange for all
of such options and (iii) awards with respect to 800,520 shares of Common Stock
of Euronet Services Inc. will be issued to the holders of awards with respect to
800,520 preferred shares of Euronet N.V. in exchange for all such awards (the
"Reorganization"). Euronet N.V. will be dissolved following the Reorganization.
The Reorganization is subject to and will be effective upon the execution of an
underwriting agreement in connection with an initial public offering of the
Common Stock of Euronet Services Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Basis of presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America.
The financial statements for 1994, 1995 and for the period from January 1,
1996 through March 27, 1996 have been presented as if the operating entities had
been combined from their respective dates of incorporation/acquisition.
Subsequent to March 27, 1996, the consolidated financial statements include the
accounts of Euronet N.V. and its subsidiaries.
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
F-7
64
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Transfer of non monetary assets
The transfer of the share holdings held by the shareholders in Bank 24,
SatComNet and Bankomat in exchange for shares in Euronet Holding N.V. have been
recorded at the underlying net equity of the operating entities. The transfer of
assets by shareholders have been recorded at the transferors' historical cost
basis.
(c) 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' equity are recorded at historical exchange rates. Exchange gains
and losses resulting from remeasurement of assets and liabilities are recognized
in income when they occur.
Gains and losses resulting from the translation of foreign currency
transactions are included in the income statement when they occur.
(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 rates are as follows:
Automatic teller machines.................................. 7 years
Computers.................................................. 3 years
Software................................................... 3 years
Vehicles & Equipment....................................... 5 years
(e) Impairment of long-lived assets
Euronet N.V. assesses the recoverability of long-lived assets (mainly
property, plant and equipment) by determining whether the carrying value of the
fixed assets can be recovered over the remaining lives through projected
undiscounted future operating cash flows. If an impairment in value is estimated
to have occurred, the assets carrying value is reduced to its estimated fair
value. The assessment of the recoverability of long-lived assets will be
impacted if estimated future operating cash flows are not achieved.
(f) Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the income in the period that includes the enactment date.
F-8
65
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Valuation allowances for deferred tax assets have been established on the
basis of Euronet N.V.'s estimate of taxable income for future periods.
(g) Risks and uncertainties
Euronet N.V. operates in one business segment through operations in Hungary
and Poland. Euronet N.V., at this time, is dependent on a limited group of
customers and network services are limited to those areas where ATMs have been
installed.
Management of Euronet N.V. has made a number of estimates and assumptions
related to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) Revenue recognition
Euronet N.V. recognizes revenue at the point at which the service is
performed.
(i) Cash equivalents
For the purposes of the statement of cash flows, Euronet N.V. considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
(j) Investment securities
Investment securities at September 30, 1996 consist of Hungarian government
bonds which Euronet N.V. has classified as held-to-maturity (gross unrealised
losses are approximately $31,000). Held-to-maturity securities are those
securities in which Euronet N.V. has the ability and intent to hold the security
to maturity. The held-to-maturity investment securities are recorded at
amortized cost, adjusted for the amortization or accretion of premium and
discounts. A decline in the market value of any held-to-maturity security below
cost that is deemed other than temporary results in a reduction in the carrying
amount to fair value. The impairment is charged to earnings and a new cost basis
for the security is established. Premium and discounts are amortized or accreted
over the life of term of the related held-to-maturity security as an adjustment
to yield using the effective interest method.
(k) Pro-forma loss per share
As the historical capital structure of Euronet N.V. is not indicative of
the continuing capital structure, the historical loss per share has been
replaced by a pro-forma loss per share computation. The pro-forma loss per share
has been calculated by dividing the net loss by the pro-forma number of shares
amounting to 13,109,320. The pro-forma number of shares reflects the sum of (1)
10,641,532 common shares issued and outstanding of the new holding company,
Euronet Services Inc., (2) 1,519,002 shares issuable (using the treasury stock
method) under Euronet N.V.'s milestone stock option program, and (3) 948,786
shares issuable (using the treasury stock method) under Euronet N.V.'s stock
compensation plan.
(3) CAPITAL STOCK
Euronet Holding N.V. was established on the basis of the Articles of
Incorporation dated March 11, 1996.
Euronet N.V. registered a ten for one stock split on October 11, 1996. The
par value changed from $1.00 to $0.10 for all preferred and common shares
authorized and issued as a result of the stock split. Upon formation 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 $0.10 to $0.01. All references in the financial statements to the number of
shares and per share amounts have been retroactively restated to reflect the
increased number of preferred and common shares outstanding.
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, 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) RESTRICTED RESERVE
The restricted reserve arises from the provisions of Hungarian accounting
law in relation to share capital contributed in foreign currency to Bank 24 and
SatComNet. Under these rules, a foreign currency capital contribution is
recorded in the local accounting records of the companies using the rate when
the capital was contributed. The foreign currency gain (or loss) which arises
upon usage of the foreign currency is booked directly to a separate non
distributable reserve.
For the purposes of these consolidated financial statements, the exchange
gains and losses booked to this reserve under Hungarian accounting law, together
with the gain on revaluing the remaining foreign currency received for capital
at each period end in accordance with generally accepted accounting principles,
have been included in the income statement for the year with an equivalent
transfer for the accumulated loss reserve to the restricted reserve.
F-10
67
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) RESTRICTED CASH
Euronet N.V. has two primary types of restricted cash balances at September
30, 1996 and December 31, 1995.
Bankomat and Bank 24 have deposits with banks as security with respect to
their supplying cash to the ATMs, equivalent to the amount of cash in machines
at the balance sheet dates. These deposits have been classified as restricted
cash.
Bank 24 also has deposits with a commercial bank to cover guarantees,
deposits with customs officials to cover potential charges, and with their
leasing company as a minimum deposit related to the lease of ATMs (see note 8).
Following is a detail of restricted cash balances at each balance sheet
date:
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
-------- ----- --------- ---------- -----
(IN THOUSANDS)
Cost:
Balance at June 22, 1994...................... -- -- -- -- --
Additions..................................... 3 262 -- 91 356
--- ----- --- --- -----
Balance at December 31, 1994.................. 3 262 -- 91 356
Additions..................................... 100 2,123 77 2,300
--- ----- --- --- -----
Balance at December 31, 1995.................. 103 2,385 -- 168 2,656
Additions..................................... 218 2,126 260 230 2,834
Disposals..................................... -- -- -- (7) (7)
--- ----- --- --- -----
Balance at September 30, 1996................. 321 4,511 260 391 5,483
====== ===== ======== ======== =====
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) SHORT TERM BORROWINGS
Short term borrowings represents a Hungarian forint denominated loan of
$206,000 granted by a commercial bank in Hungary to permit such bank to supply
cash to the ATM network. This loan originated April 4, 1996 and is due on March
18, 1997 together with interest accrued at 27%.
F-11
68
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Euronet N.V. 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 computer for use as its central
processing and authorization center for ATM transactions. This three year lease
with a term of July 1, 1996 through September 30, 1999 bears interest at a rate
of 15% and is payable in quarterly installments of $24,000.
The gross amount of the ATMs and IBM computer and related accumulated
amortization recorded under capital leases were as follows:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS)
ATMs............................................................ $ 3,666 $1,906
IBM computer.................................................... 224 --
----- -----
3,890 1,906
Less accumulated amortization................................... (331) (96)
----- -----
Net book value.................................................. $ 3,559 $1,810
===== =====
Amortization of assets held under capital leases is included with
depreciation expense.
(b) Operating leases
Euronet N.V. also has noncancelable operating rental leases which expire
over the next 2 to 4 years. Rent expense under these leases amounted to
$234,000, $158,000 and $66,000, for the nine months ended September 30, 1996,
year ended December 31, 1995 and for the period from June 22, 1994 through
December 31, 1994, 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
noncancelable operating leases (with initial or remaining lease terms in excess
of one year) as of September 30, 1996 are:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
Year ending September 30,
1997................................................................. $ 878 $ 292
1998................................................................. 955 150
1999................................................................. 1,023 140
2000................................................................. 601 147
2001................................................................. 301 --
------ ------
Total minimum lease payments...................................... 3,758 $ 729
======
Less amounts representing interest..................................... (825)
------
Present value of net minimum capital lease payments.................... 2,933
Less current installments of obligations under capital leases.......... 570
------
Long term capital lease obligations.................................... $ 2,363
======
(9) 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,
1996 1995 1994
------------- ------------ --------------
(IN THOUSANDS)
Current tax expense
Netherlands Antilles............................... -- -- --
Europe............................................. -- -- --
----- ----- -----
Total current...................................... -- -- --
Deferred tax expense
Netherlands Antilles............................... -- -- --
Europe............................................. (219) (148) --
----- ----- -----
Total deferred..................................... (219) (148) --
===== ===== =====
F-13
70
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The sources of 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............................... 287 -- --
Europe............................................. 2,354 1,967 163
----- ----- -----
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 --
===== ===== =====
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 N.V. on March 27, 1996, the
income tax benefit was calculated solely on the basis of the taxable loss of
Euronet Holding N.V.
The tax effect of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities are as follows:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------ ------------
(IN THOUSANDS)
Tax loss carryforwards............................ 754 233 59
Leasing........................................... 4 12 --
Leasehold improvements............................ 32 21 --
Interest accrual.................................. 59 -- --
Other accruals.................................... 46 -- --
----- ----- ----
Deferred tax asset................................ 895 266 59
Valuation allowance............................... (528) (118) (59)
----- ----- ----
Net deferred tax assets........................... 367 148 --
===== ===== ====
The valuation allowance relates to deferred tax assets established under
SFAS No. 109 for loss carryforwards of $3,687,000. The tax operating loss
carryforwards will expire through 1999 for Bankomat and through 2001 for Bank
24, SatComNet and Euronet Holding N.V. Based on Euronet N.V.'s forecast of
sufficient taxable income for future periods in which the tax losses are
expected to be absorbed, Euronet N.V. believes that it will 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 PLANS AND CAPITAL COMMITMENTS
(a) Share Compensation Plan
Euronet N.V. has established a share compensation plan which provides
certain employees options to purchase shares of Euronet N.V.'s common stock. The
exercise price is established based on the estimated fair value of the shares at
grant date. Such value is determined by management taking into consideration
recent equity or convertible security transactions as well as changes in Euronet
N.V.'s business. The options vest over a period of five years from the date of
grant. Options are exercisable during the term of employment or consulting
arrangements with Euronet N.V. and its subsidiaries. Euronet N.V. has the right
to repurchase shares within 180 days from an employee who has exercised his
options but has ceased to be employed by Euronet N.V.
At September 30, 1996, Euronet N.V. has authorized options for the purchase
of 921,550 shares of common shares, of which 886,550 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 $0.71 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 Options
In accordance with the first amendment to the shareholders agreement dated
October 14, 1996, Euronet N.V. has reserved 2,850,925 shares of series A
convertible preferred shares which shall be authorized but unissued for the
purpose of awarding preferred shares ("milestone awards") to certain investors
(800,520 shares at par value of $0.01) and options to acquire preferred shares
("milestone options") to the founders, management and key employees (2,050,405
shares at $2.14 per share).
The milestone awards vest and become exercisable on the date on which any
one or more of the three performance goals described in the Shareholders
Agreement 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.
The exercise price of the milestone options is established based on the
estimated fair value of the shares at grant date. Such value is determined by
management taking into consideration recent equity or convertible security
transactions as well as changes in Euronet N.V.'s business. In the event of an
initial public offering all milestones awards and milestone options granted
under the milestone arrangement (with the exception of 49,819 options to certain
key employees which will vest equally over two years following the initial
public offering) shall be considered to have been met and all preferred shares
shall become immediately issuable to beneficiaries of milestone awards and
options.
(c) Standby Commitment and Contribution
Certain investors (Poland Partners, LP Advent Partners LP, Advent Private
Equity Fund, Poland Investment Fund LP, Hungarian Private Equity Fund and DST
Systems Inc.) agreed to make an aggregate of three million dollars available to
Euronet N.V. in two tranches of one million ("tranche 1") and two million
dollars ("tranche 2"), respectively.
Euronet N.V. made a call on tranche 1 of the standby commitment on November
26, 1996. The conversion terms of tranche 1 were that one share of series B
convertible preferred shares of Euronet N.V. was issued for each $2.14 of
standby contribution (466,669 series B convertible preferred shares were issued
in exchange for
F-15
72
EURONET HOLDING N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
one million dollars). The terms of tranche 2 are that one share of series B
convertible preferred shares will be issued for each $10 of standby contribution
made. Upon formation of the new holding company, Euronet Services Inc., the
option to call the second tranche will be cancelled.
(11) BUSINESS SEGMENT INFORMATION
Euronet N.V. and its subsidiaries operate in one business segment, the
service of providing an independent shared ATM network to banks and financial
institutions that it serves.
Net revenue, operating assets and identifiable assets, as of and for the
periods ending September 30, 1996 as well as December 31, 1995 and 1994,
excluding intercompany amounts, of Euronet N.V. and it subsidiaries according to
their geographic location are:
TOTAL REVENUES OPERATING LOSS IDENTIFIABLE ASSETS
-------------------------- -------------------------- --------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
Europe.............. 638 62 -- (2,423) (2,108) (240) 7,298 4,519 2,527
Netherlands Antilles -- -- -- (287) -- -- 134 -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total............... 638 62 -- (2,710) (2,108) (240) 7,432 4,519 2,527
====== ====== ====== ====== ====== ====== ====== ====== ======
(12) COMMITMENTS AND CONTINGENCIES
Euronet N.V. is committed to purchase ATMs from certain suppliers for a
total minimum amount of $13,277,000 over an indefinite period of time.
(13) 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 ATMs at
the end of the lease term. Windham is jointly owned by two shareholders of
Euronet Holding N.V. Windham has signed an undertaking to contribute these
assets to Euronet N.V. at the end of the lease at a bargain purchase price of $1
plus incidental expenses.
In addition, payments of $415,000, $320,000 and $66,000 have been made for
the nine months ended September 30, 1996, the year ended December 31, 1995 and
the period from June 22, 1994 through December 31, 1994 to Windham. These
payments cover the services and related expenses of consultants provided by
Windham to Euronet N.V.
(14) CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Euronet N.V. is subject to concentrations of business and credit risk
through trade receivables, cash and short-term investments. Euronet N.V.'s
customer base, even though limited, includes the most significant international
card organizations and certain banks in Hungary and Poland. Therefore, Euronet
N.V.'s operations are directly affected by the financial condition of those
entities. Cash and short-term investments are placed with high-credit quality
financial institutions or in short-term duration, high-quality debt securities.
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-17
74
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
PAGE
------
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 11
Dilution............................... 12
Dividend Policy........................ 13
Capitalization......................... 14
Selected Consolidated Financial Data... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 21
Management............................. 31
Certain Transactions................... 38
Principal and Selling Shareholders..... 42
Description of Capital Stock........... 43
Certain United States Federal 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-1
Consolidated Financial 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
---------------------
---------------------
PROSPECTUS
, 1997
---------------------
---------------------
ING BARINGS
REPRESENTATIVE OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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..................... $ 25,858
Nasdaq National Market quotation fee.................................... 30,750
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................................ 15,000
Transfer agent fees and expenses........................................ 8,000
Miscellaneous........................................................... *
----------
Total.............................................................. $ *
==========
- ---------------
*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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 17, 1996, the Company and the shareholders and optionholders of
Euronet Holding N.V. entered into an Exchange Agreement pursuant to which (i)
9,585,569 shares of Common Stock of the Company will be issued to the
Shareholders of Euronet Holding N.V. in exchange for all of Common Shares of
Euronet Holding N.V. (ii) options to acquire 3,113,355 shares of Common Stock
will be granted to the holders of options to acquire 3,113,355 Common Shares of
Euronet Holding N.V. in exchange for all of such options and (iii) awards with
respect to 800,520 shares of Common Stock will be issued to the holders of
awards with respect to 800,520 preferred shares of Euronet Holding N.V. in
exchange for all such awards. Euronet Holding N.V. will be dissolved following
the consummation of the Offering. Such exchange is subject to and will be
effective upon the execution of the underwriting agreement to be executed in
connection with the Offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 By-Laws of the Company.
*4.2 Specimen of certificate for Shares, par value $0.01, of the Company.
*5.1 Opinion of Arent Fox Kintner Plotkin & Kahn as to legality of the Shares.
10.1 Amended Agreement for Solution Delivery dated April 17, 1996 between Bank
Access 24 Rt. and IBM World Trade Corporation.
10.2 Frame Contract dated February 20, 1996 between Bankomat 24 Sp. z o.o. and
AT&T Global Information Solutions Polska, Sp. z o.o.
10.3 Exchange Agreement dated as of December 17, 1996 among the Company and the
stockholders and optionholders of Euronet Holding N.V.
10.4 The Euronet Long-Term Incentive Plan.
*10.5 Form of Employment Agreement for Executive Officers.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of KPMG Polska Sp. z o.o.
23.2 Consent of Arent Fox Kintner Plotkin & Kahn (included in Exhibit 5.1).
24.1 Power of Attorney (included in signatures).
- ---------------
*To be filed by amendment.
II-2
77
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14, Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment to the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) It will provide to the U.S. Underwriters at the closing specified
in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the U.S. Underwriters to permit
prompt delivery to each purchaser.
II-3
78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Warsaw on the 18th day of December, 1996
EURONET SERVICES INC.
By: /s/ MICHAEL J.
BROWN
Michael J. Brown
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints MICHAEL J. BROWN and DANIEL R. HENRY, and
each of them severally, his true and lawful attorney or attorneys with power of
substitution and resubstitution to sign in his name, place and stead in any and
all such capacities the Registration Statement and any and all amendments
thereto (including post-effective amendments) and any documents in connection
therewith, and to file the same with the Securities and Exchange Commission,
each of said attorneys to have power to act with or without the other, and to
have full power and authority to do and perform, in the name 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, or any one of
them, may deem necessary or desirable to be done in connection therewith as
fully and to all intents and purposes as such officer or director of the
Registrant might or could do in person.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 18, 1996 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
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
- ------ ---------------------------------------------------------------------------
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 By-Laws of the Company.
*4.2 Specimen of certificate for Shares, par value $0.01, of the Company.
*5.1 Opinion of Arent Fox Kintner Plotkin & Kahn as to legality of the Shares.
10.1 Amended Agreement for Solution Delivery dated April 17, 1996 between Bank
Access 24 Rt. and IBM World Trade Corporation.
10.2 Frame Contract dated February 20, 1996 between Bankomat 24 Sp. z o.o. and
AT&T Global Information Solutions Polska, Sp. z o.o.
10.3 Exchange Agreement dated as of December 17, 1996 among the Company and the
stockholders and optionholders of Euronet Holding N.V.
10.4 The Euronet Long-Term Incentive Plan.
*10.5 Form of Employment Agreement for Executive Officers.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of KPMG Polska Sp. z o.o.
23.2 Consent of Arent Fox Kintner Plotkin & Kahn (included in Exhibit 5.1).
24.1 Power of Attorney (included in signatures).
- ---------------
*To be filed by amendment.