SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Amendment No. 2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number 000-22167
EURONET SERVICES INC.
(Exact name of the Registrant as specified in its charter)
(State of other jurisdiction of incorporation or organization)
(I.R.S. employer identification no.)
Horvat u. 14-24
(Address and telephone number of the Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.02 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
At December 31, 1997, the Registrant had 15,133,321 shares of common stock
(the "Common Stock") outstanding, and the aggregate market value of the Common
Stock held by non-affiliates of the Registrant was approximately $73,603,000.
The aggregate market value was determined based on the average bid and ask
prices of the Common Stock on December 31, 1997.
The purpose of this Form 10-K/A is to amend the Company's Form 10-K for the
fiscal year ended December 31, 1997 filed with the U.S. Securities and Exchange
Commission (the "SEC") on March 31, 1998 so as to add items 10, 11, 12 and 13.
Such items were to have been incorporated into the Form 10-K by reference to
the Company's Proxy Statement for the Annual Meeting of Shareholders for 1998.
The annual meeting and Proxy Statement have been delayed with the result that
the Proxy Statement will not be filed on or before April 30, 1998.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The Directors, Executive Officers and key employees of the Company are as
NAME AGE POSITION
- ------------------------------- ---- ---------------------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Stock Option Committee
MICHAEL J. BROWN is one of the founders of the Company and has served as its
Chief Executive Officer since 1994. In 1979 Mr. Brown founded Innovative
Software, a computer software company that was merged with Informix in 1988.
During this period, Innovative Software conducted three public offerings of its
shares. Mr. Brown served as President
and Chief Operating Officer of Informix from February 1988 to January 1989. He
served as President of the Workstation Products Division of Informix from
January 1989 until April 1990. Annual revenues of Informix had grown to $170
million by the time Mr. Brown left Informix in 1990. In 1993 Mr. Brown was a
founding investor of Visual Tools, Inc., a company that writes and markets
component software for the growing Visual Basic and Visual C++ developer market.
Visual Tools, Inc. was acquired by Sybase Software in February 1996. Mr. Brown
received a B.S. in Electrical Engineering from the University of
Missouri-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. Mr. Brown's term will continue until
his successor is duly elected and qualified at the next annual meeting of
stockholders. Mr. Brown is married to the sister of Mr. Henry's wife.
DANIEL R. HENRY founded the predecessor of the Company with Michael Brown in
1994 and is serving as Chief Operating Officer of the Company. Mr. Henry is
based in Budapest, Hungary where he oversees the daily operations of the
Company's European subsidiaries. Mr. Henry also is responsible for the
expansion of the Company into other countries and the development of new
markets. Prior to joining the Company, Mr. Henry was a commercial real estate
broker for five years in the Kansas City metropolitan area where he specialized
in the development and leasing of premiere office properties. Mr. Henry received
a B.S. in Business Administration from the University of Missouri-Columbia in
1988. Mr. Henry has been a Director of the Company since its incorporation in
December 1996 and he previously served on the boards of Euronet's predecessor
companies. His term as Director of the Company will expire in May 2000. Mr.
Henry is married to the sister of Mr. Brown's wife.
THOMAS A. MCDONNELL has been a Director of the Company since its incorporation
in December 1996 and he previously served on the boards of Euronet's predecessor
companies. From 1973 to September 1995, he served as Treasurer of DST Systems,
Inc. Since October 1984 he has served as Chief Executive Officer and since
January 1973 (except for a 30 month period from October 1984 to April 1987) he
has served as President of such company. From February 1987 to October 1995, he
served as Executive Vice President and from 1983 to November 1995 he served as a
director of Kansas City Southern Industries. From December 1989 to October 1995,
he served as a director of The Kansas City Southern Railway Company. From
October 1994 to April 1995 he served as President and from 1992 to September
1995 as director of Berger Associates, Inc. From 1994 to January 1997, Mr.
McDonnell was a director of First of Michigan Capital Corporation. He is
currently a director of Informix, BHA Group, Inc., DST Systems Inc., Cerner
Corporation, Computer Science Corporation and Janus Capital Corporation. Mr.
McDonnell has a B.S. in Accounting from Rockhurst College and an M.B.A. from the
Wharton School of Finance. Mr. McDonnell's term as Director of the Company will
expire in May 2000.
NICHOLAS B. CALLINAN has been a Director of the Company since its
incorporation in December 1996 and he previously served on the board of Euronet
Holding N.V. From 1993 he served as Senior Vice President and Managing Director
for Central and Eastern Europe of Advent International Corporation, the ultimate
general partner of private equity funds which are a shareholder of the Company.
In 1997, he was appointed Managing Director of Emerging Markets for Advent
International Corporation. From 1983 to 1993, he was founder and Chief Executive
Officer of Western Pacific Management & Investment Company, which later became
the Advent Group of Companies. Mr. Callinan has a B.E. in Civil Engineering and
an M.B.A. from the University of Melbourne. Mr. Callinan's term as Director of
the Company will expire in May 1999.
STEVEN J. BUCKLEY has been a Director of the Company since its incorporation
in December 1996 and he previously served on the boards of Euronet's predecessor
companies. In April 1994 he was a co-founder of Poland Partners L.P., a venture
capital fund for investment in Poland and since that time April 1994 he has
served as President and Chief Executive Officer of Poland Partners Management
Company, the advisor of such fund. From June 1990 to April 1994, he was a
founder and director of Company Assistance Ltd., a business advisory firm in
Poland. He has a B.A. in Political Science from Stanford University and an
M.B.A. from Harvard University. Mr. Buckley's term as Director of the Company
will expire in May 2000.
ERIBERTO R. SCOCIMARA has been a Director of the Company since its
incorporation in December 1996 and he previously served on the boards of
Euronet's predecessor companies. Since April 1994 Mr. Scocimara has served as
President and Chief Executive Officer of the Hungarian-American Enterprise Fund,
a private company that is funded by the U.S. government and invests in Hungary
and is also a shareholder of the Company. Since 1984 he has been the President
of Scocimara & Company, Inc., an investment management company. Mr. Scocimara
was a partner of G. L. Ohrstrom from 1969 to 1984. Mr. Scocimara is currently a
director of the Hungarian-American Enterprise Fund, Carlisle Companies, Harrow
Industries, Inc., Roper Industries, Quaker Fabrics and several privately-owned
companies. He has a Licence de Science Economique from the University of St.
Gallen, Switzerland, and an M.B.A. from Harvard University. His term as a
Director of the Company will expire in May 1999.
ANDRZEJ OLECHOWSKI has served as a Director of the Company since its
incorporation in December 1996. He has held several senior positions with the
Polish government: from 1993 to 1995, he was Minister of Foreign Affairs and in
1992 he was Minister of Finance. From 1992 to 1993, and again in 1995, he served
as economic advisor to President Walesa. From 1991 to 1992, he was Secretary of
State in the Ministry of Foreign Economic Relations and from 1989 to 1991 was
Deputy Governor of the National Bank of Poland. At present Dr. Olechowski is
Chairman of Central Europe Trust, Poland, a consulting firm. Since 1994, he has
served as Chairman of the City Council in Wilanow, a district of Warsaw. His
memberships include a number of public policy initiatives as well as
International Advisory Boards of Goldman Sach International, Creditanstalt,
Banca Nazionale del Lavoro, International Finance Corporation, Textron and
boards of various charitable and educational foundations. He received a Ph.D. in
Economics in 1979 from the Central School of Planning and Statistics in Warsaw.
Mr. Olechowski's term will continue until his successor is duly elected and
qualified at the next annual meeting of stockholders.
DENNIS H. DEPENBUSCH has been Vice President of the Company's Poland office
since its inception in May 1995. From 1992 to 1995, Mr. Depenbusch was Director
of Project Finance with RMC in Lawrence, Kansas, where he structured various
financing and acquisition strategies for housing projects. From 1990 to 1992,
Mr. Depenbusch was a Senior Financial Analyst and Market Research Analyst for
Payless ShoeSource. Mr. Depenbusch received a B.S. in Business Administration in
1985 and an M.B.A. in Finance in 1989 from the University of Kansas.
BRUCE S. COLWILL has been Chief Financial Officer and Chief Accounting Officer
of Euronet since May 1996. Mr. Colwill was employed as Assistant Controller and
Financial Controller for PepsiCo Trading Sp. z o.o. in Warsaw, Poland from 1994
to 1996. From 1989 to 1994, he was employed as a Manager and Senior Accountant
with KPMG in both Poland and Canada in the audit function. Mr. Colwill obtained
his Canadian Chartered Accountants Designation in 1992. He received a B.B.A. in
Accounting from Simon Fraser University in Canada in 1989.
JEFFREY B. NEWMAN joined the Company as Vice President and General Counsel on
January 31, 1997. Prior to this, he practiced law in Paris with the law firm of
Salans Hertzfeld & Heilbronn and then with the Washington, D.C. based law firm
of Arent Fox Kintner Plotkin & Kahn, PLLC, of which he was a partner since 1993.
He established the Budapest office of Arent Fox Kintner Plotkin & Kahn, PLLC in
1991 and has resided in Budapest since that time. He is a member of the
Virginia, District of Columbia and Paris bars. He received a B.A. in Political
Science and French from Ohio University and law degrees from Ohio State
University and the University of Paris.
ANTHONY M. FICARRA joined the company as Chief Information Officer in January
1998. Prior to this, he was with Bisys Inc. from 1983 to 1997 as Director
National Operations (Banking), Vice-President (Electronic Financial Services),
Eastern Region General Manager, and finally Senior Vice President/Chief
Information Officer. From 1971 to 1983, he worked with Tymshare Inc. with the
final post of Regional Vice President of the Dynatax Division. From 1969 to
he was with Brandon Applied Systems in the final post of Executive Vice
President/General Manager. He also previously worked with Thiokol Chemical
Corporation from 1962 to 1966. Mr. Ficarra has a B.B.A. in Management from
Florida International University.
MIRO I. BERGMAN joined the Company in 1997 and is currently the Managing
Director of the Company's Czech Republic operations. Prior to joining Euronet,
he established a Colorado based company involved in international trade. From
1992 to 1996, Mr. Bergman was with First Bank System as Vice President
responsible for the bank's off-premises ATM business of over 1,200 ATMs and
served as a Manager of new co-brand card initiatives. From 1988 to 1992, Mr.
Bergman worked for Citicorp-Diners Club in various card management and marketing
positions. Mr. Bergman received a B.S. in Business Administration from the
University of New York at Albany in 1984 and an M.B.A from Cornell University in
THIERRY MICHEL joined the Company as Managing Director of Euronet's French
subsidiary, EFT Services France S.A.S., in November 1997. Prior to this, he was
Vice President of Business Development at GE Capital-Sovac from 1994 to 1997.
From 1990 to 1993, he was Vice President of Marketing and Sales at Robeco and
also Chief Information Officer from 1987 to 1990. From 1985 to 1987, he was
Chief Information Officer at American Express in France. Mr. Michel received a
Masters degree in General Engineering from l'Ecole polytechnique in 1983, a
Masters degree in Systems and Telecommunications from l'Ecole National
Superieure de Telecommunication in 1985. In 1984 he received a Ph.D. in
Economics from l'Universite de Paris.
MATTHEW LANFORD was appointed Information Systems Director for Euronet in
August 1996. He is responsible for systems design and development and ensuring
that Euronet's technology is up-to-date and capable of supporting the rapid
expansion of the Company. From 1989 to 1995, he worked as a programmer, project
supervisor and lead programmer/analyst for Arksys, Inc., the supplier of the
ITM/400 software on the AS/400, where he designed the network processing
software currently being used by the Company. From February 1995 to August 1996,
he worked as lead programmer/analyst for Associates Bancorp, Inc., a division of
The Associates, an international consumer/commercial finance organization. Mr.
Lanford has a B.S. in Computer Science from the University of Arkansas at Little
WILLIAM BENKO joined Euronet in January 1997 in business development and
became the Managing Director in July 1997. From May 1990 to January 1997, Mr
Benko co-owned and operated a commercial real estate brokerage company and
published a bi-weekly real estate magazine, R.E. Source, in Budapest, Hungary.
From 1988 to 1990, Mr Benko owned and operated a computer leasing firm in
Dallas, Texas and also worked with CIS Leasing Corporation, where he was
responsible for marketing IBM mainframe equipment in an eight state area. From
1982 and 1988, he worked with StorageTek in Dallas. Mr. Benko has a B.A. in
Economics from the University of Colorado.
ROGER HEINZ joined the Company as Managing Director of the Euronet's German
subsidiary, Euronet Services GmbH, in July 1997. From 1985 to 1997, Mr. Heinz
was with NCR Germany and NCR Poland as Sales Manager and Sales and Operations
JOHN ROMNEY is Managing Director of Euronet's Croatian Subsidiary, EFT Uslege.
Mr. Romney joined Euronet in February of 1997 and in April 1997 opened the
Croatian office in Zagreb. From 1993 to 1997, Mr. Romney was a partner in and
sales manager for Escalante Imports and was responsible for accounts in 20
states in the western United States. From 1989 to 1993, Mr. Romney worked for
Peterson Consulting in Chicago where he specialized in performing financial
analysis and cost allocation calculations for multi-party litigation. Mr. Romney
received a B.S. degree in Finance from the University of Notre Dame in 1989.
TIMOTHY A. FANNING has been Managing Director of Euronet's Romanian office
since its inception in November 1997. Between August and November 1997, Mr.
Fanning worked in Euronet's European Business Development group. Mr. Fanning was
an associate with the Law Firm of McCarthy, Duffy, Neidhart & Snakard in 1997
prior to joining Euronet. From 1988 to 1993, Mr. Fanning was Manager of
Syndications and Manager of Capital Markets with The
Toronto-Dominion Bank in Chicago, Illinois, where he administered syndicated
loans as well as interest rate and currency swaps. Mr. Fanning received a B.A.
in Economics in 1988 and a law degree in 1996 from the University of Notre Dame.
SECTION 16 COMPLIANCE
To the Company's knowledge, based solely on a review of the copies of such
reports funished to the Company and written representations that no other
reports were required, during1997, the Company's directors, officers and greater
than 10% beneficial owners complied with all applicable Section 16(a) filing
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding the
compensation awarded or paid by the Company to its Chief Executive Officer and
to the one other executive officer of the Company whose total annual salary and
bonus equaled or exceeded $100,000 during the year ended December 31, 1997 (the
"Named Executive Officers") for the periods indicated:
SUMMARY COMPENSATION TABLE
Michael J. Brown(1).............. 41 Chairman, President and Chief Executive Officer
Daniel R. Henry.................. 32 Director, Chief Operating Officer
Thomas A. McDonnell(1)(2)(3)..... 52 Director
Nicholas B. Callinan(1)(2)....... 51 Director
Steven J. Buckley(1)(2)(3)....... 42 Director
Eriberto R. Scocimara............ 61 Director
Andrzej Olechowski............... 50 Director
Dennis H. Depenbusch............. 34 Vice President--Poland
Bruce S. Colwill................. 33 Chief Financial Officer and Chief Accounting Officer
Jeffrey B. Newman................ 43 Vice President and General Counsel
OTHER KEY EMPLOYEES
Anthony M. Ficarra............... 55 Chief Information Officer
Miro I. Bergman.................. 35 Managing Director--Czech Republic
Thierry Michel................... 35 Managing Director--France
Matthew Lanford.................. 31 Information Systems Director
William Benko.................... 38 Managing Director--Hungary
Roger Heinz...................... 37 Managing Director--Germany
John Romney...................... 32 Managing Director--Croatia
Timothy A. Fanning............... 32 Managing Director--Romania
ANNUAL COMPENSATION LONG-TERM COMPENSATION
NAME AND PRINCIPAL ANNUAL UNDERLYING RESTRICTED ALL OTHER
------------------ COMPEN- OPTIONS/ STOCK LTP COMPEN-
POSITION PERIOD SALARY($) BONUS($) SATION($) SAR'S (#) AWARD(S)($) PAYOUTS($) SATION($)
-------- ------ -------- -------- -------- -------- ---------- --------- --------
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning Options granted
to the Named Executive Officers of the Company during the year ended December
Michael J. Brown........ 1997 100,000 $0 $0 --- --- --- ---
Chief Executive Officer 1996 100,000 $0 $0 1,149,890 --- --- ---
Jeffrey B. Newman........ 1997 133,333 $0 $0 17,500 --- --- ---
Vice President and 1996 --- $0 $0 52,500 --- --- ---
% OF TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE AT
NUMBER OF GRANTED ASSUMED ANNUAL RATES OF
SECURITIES TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM(1)
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION ------------------------
NAME GRANTED YEAR PER SHARE DATE 5%($) 10%($)
---- ------- ---- --------- ---- ---- -----
(1) Potential realizable value is based on the assumption that the shares
appreciate at the annual rates shown (compounded annually) from the date of
grant until the expiration of the option term. Those numbers are calculated
based upon the requirements promulgated by the Commission and do not reflect
any estimate by the Company of future price increases.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning Options
exercised by the Named Executive Officers during the year ended December 31,
1997 and Options held by such individuals at December 31, 1997:
Michael J. Brown..... --- --- --- --- --- ---
Jeffrey B. Newman.... 17,500 5.8% $13.94 Apr. 22, 2007 153,419 388,793
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1997($) DECEMBER 31, 1997($)
ACQUIRED ON VALUE ------------------- -------------------
NAME EXERCISE REALIZED$(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- ------------ ------------- -------------- ----------- -------------
(1) Based on the difference between the exercise price of the Options and the
fair market value of the Common Stock on March 7, 1997 and December 1, 1997,
which are the dates the Options were exercised.
COMPENSATION OF DIRECTORS
The Company historically has not paid fees to its directors for attendance
at meetings. Effective January 1, 1998, the Company pays each director a fee of
$2,000 for each board meeting attended, a fee of $1,000 for each committee
meeting attended, and a fee of $250 for participation in a telephonic meeting.
In addition, each Director will receive options to purchase 1,000 shares of
stock in accordance with the Company's Stock Option Plan. The Company also
reimburses directors for out-of-pocket expenses incurred in connection with the
directors' attendance at meetings. Andrzej Olechowski is paid $4,000 for serving
as a member of the Company's Advisory Board.
Mr. Brown serves as the Chief Executive Officer, President and Chairman of
the Board of the Company pursuant to an employment agreement dated December 17,
1996. Under the terms of his agreement, Mr. Brown is entitled to an annual
salary of $100,000, subject to annual review and adjustments by the Board of
Directors, and is reimbursed for all reasonable and proper business expenses
incurred by him in the performance of his duties under the agreement. The terms
of the agreement also provide that Mr. Brown will be entitled to fringe benefits
and perquisites comparable to those provided to any or all of the Company's
senior officers. The term of the agreement expires in December 1999. The term of
the agreement, however, will be automatically extended on the same terms and
conditions for successive periods of one year each unless declined by either
party for any reason. In the event that Mr. Brown's employment with the Company
is terminated by the Company for Cause (as defined in the agreement), or if Mr.
Brown voluntarily terminates employment with the Company, he will be entitled to
receive all compensation, benefits and reimbursable expenses accrued as of the
date of such termination. In the event that Mr. Brown's employment with the
Company is terminated by reason of death or Disability (as defined in the
agreement), he (or his designated beneficiary) will be paid his annual salary at
the rate then in effect for an additional one-year period. The agreement also
contains certain non-competition, non-solicitation and non-disclosure covenants.
The Company has also entered into employment agreements with Messrs. Henry,
Depenbusch, Newman and Colwill, all of which expire in December 1999. The terms
of these employment agreements are substantially similar to those contained in
Mr. Brown's employment agreement.
The Company provides insurance benefits to its officers and other
employees, including health, dental, and life insurance, subject to certain
deductibles and copayments by employees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, to the Company's knowledge, the beneficial
ownership of Common Stock as of February 15, 1998 by (i) each person or entity
beneficially owning more than 5% of the shares of the Company's Common Stock,
(ii) each director and executive officer, and (iii) all directors and executive
officers as a group.
Michael J. Brown.... 224,492 2,010,979 926,323 --- 5,196,672 ---
Jeffrey B. Newman... --- --- 10,500 42,000 58,905 235,620
NUMBER OF PERCENTAGE OF
STOCKHOLDER SHARES(1) OUTSTANDING(1)
- ----------- --------- -------------
Directors and Named Executive Officers
Michael J. Brown(2)................................ 3,063,202 20.2%
Daniel R. Henry(3)................................. 759,619 5.0%
Jeffrey B. Newman(4)............................... 14,000 *
Bruce S. Colwill................................... 16,058 *
Dennis H. Depenbusch............................... 289,905 1.9%
Steven J. Buckley(5)............................... 1,000 *
Nicholas B. Callinan(6)............................ 5,898 *
Thomas A. McDonnell(7)............................. --- *
Andrzej Olechowski(8).............................. 1,400 *
Eriberto R. Scocimara(9)........................... --- *
All directors and executive officers as a group (8
persons)............................................. 4,151,082 27.5%
Five Percent Holders
DST Systems, Inc.(7)............................... 1,178,797 7.8%
333 West 11th Street
Kansas City, Missouri 64105-1594
Hungarian-American Enterprise Fund(9).............. 798,702 5.3%
1 East Putman Avenue
Greenwich, Connecticut 06830
Poland Investment Fund L.P.(6)(10)................. 737,268 4.9%
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
Advent Partners L.P.(6)(10)........................ 29,491 *
101 Federal Street
Boston, Massachusetts 02110
Advent Private Equity Fund - Central Europe L.P. (6)(10) 707,777 4.7%
123 Buckingham Palace Road
London SW1 9SL UK
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding Shares.
(1) Calculations of percentage of beneficial ownership assumes the exercise by
only the respective named stockholder of all options for the purchase of
shares of Common Stock held by such stockholder which are exercisable within
60 days of February 15, 1998.
(2) Includes an aggregate of 926,323 shares of Common Stock issuable pursuant to
options exercisable within 60 days of February 15, 1998.
(3) Includes an aggregate of 689,619 shares of Common Stock issuable pursuant to
options exercisable within 60 days of February 15, 1998.
(4) Includes an aggregate of 14,000 shares of Common Stock issuable pursuant to
options exercisable within 60 days of February 15, 1998.
(5) Steven Buckley is also the President of Poland Partners L.P.
(6) Mr. Callinan's shares are held indirectly through his interest in Advent
Partners L.P. Mr. Callinan is also Senior Vice President and Managing
Director for Central and Eastern Europe of Advent International Corporation.
(7) Thomas A. McDonnell is also the President of DST Systems, Inc.
(8) Includes an aggregate of 1,400 shares of Common Stock issuable pursuant to
options exercisable within 60 days of February 15, 1998.
(9) Eriberto R. Scocimara is also the President and Chief Executive Officer of
the Hungarian-American Enterprise Fund.
(10) These entities are affiliated through Advent International Corporation of
which Mr. Callinan is Senior Vice President and Managing Director for
Central and Eastern Europe. Such entities own in the aggregate 1,769,446
shares, which constitute approximately 11.7% of the outstanding shares.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Between June 22, 1994 and the present, the Company and its existing
shareholders engaged in several transactions to provide the Company (including
its predecessors and operating subsidiaries) with necessary financing. These
transactions are summarized below. For the convenience of the reader all amounts
of capital contributions made in Hungarian forints have been translated into
U.S. dollars at the official middle rate established by the National Bank of
Hungary on the date such capital contributions were made and all amounts of
capital contributions made in Polish zlotys have been translated into U.S.
dollars at the exchange rate quoted by the National Bank of Poland at noon on
the date such capital contributions were made.
Formation of the Company. Bank Access 24 Kft. ("Bank 24"), the predecessor
of the Hungarian operating subsidiary of the Company, was established on June
22, 1994 by Michael Brown and Daniel Henry, both of whom are Directors of the
Company. Mr. Brown received a 90% equity interest in Bank 24 in consideration
for a contribution of $9,000 and Mr. Henry received a 10% interest in
consideration of a contribution of $1,000.
Original Joint Venture Agreement. On July 19, 1994 a Joint Venture Agreement
(the "Original JVA") was entered into by Mr. Brown and DST Systems, Inc.,
Euroventures (Hungary) B.V. ("Euroventures"), Mark Callegari, Larry Maddox and
Lawrence Schwartz. The Original JVA provided that the parties to the Original
JVA would contribute capital to Bank 24 in exchange for ownership interests in
Bank 24 in the following amounts:
Hungarian Private Equity Fund L.P. (6)(10)........ 294,910 1.9%
101 Federal Street
Boston, Massachusetts 02110
Poland Partners L.P.(5)............................ 1,769,446 11.7%
c/o Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
SHAREHOLDER CONTRIBUTION OWNERSHIP
- ------------------------ ------------ ----------
Pursuant to the Original JVA, Mr. Henry transferred his 10% interest in Bank
24 to Mr. Brown for a purchase price equal to $1,000. At the time of the
Original JVA, Mr. Brown was granted an additional 8% equity interest in Bank 24
at no cost.
Capital Increase and Amendment of Original JVA. On February 20, 1995, the
Original JVA was amended by an Amended and Restated Joint Venture Agreement (the
"Amended JVA") under which a new shareholder, the Hungarian-American Enterprise
Fund ("HAEF"), and Euroventures agreed to purchase from a third party 100% of
the equity interests in SatComNet Kft., which is now a subsidiary of the Company
("SatComNet"). HAEF acquired an 89% interest in SatComNet for a purchase price
of $439,000 and Euroventures purchased an 11% interest in SatComNet for $52,000.
Under the Amended JVA, HAEF also agreed to contribute $611,000 to Bank 24,
Euroventures agreed to contribute $148,000 and a new shareholder, Hi-Care Trade
and Development Company ("Hi-Care") agreed to contribute $197,000.
The shareholders of SatComNet and Bank 24 exchanged their interests held in
such companies to create identical ownership of the two companies, as follows:
Michael Brown......... $ 990,000 42.74%
DST Systems, Inc...... $1,000,000 34.72%
Euroventures.......... $ 300,000 10.42%
Mark Callegari........ $ 200,000 6.93%
Lawrence Schwartz..... $ 50,000 1.74%
Larry Maddox.......... $ 100,000 3.74%
- ---------------------- ----------
Bank 24 was then transformed into an "Rt.", a different form of Hungarian
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
Hi-Care entered into a lease with Bank 24 effective as of September 10, 1994
for the Company's current offices in Budapest. The entire amount contributed to
the capital of Bank 24 by Hi-Care under the Amended JVA was immediately paid out
to Hi-Care as a payment under such lease.
Loans from Mr. Michael J. Brown. Mr. Brown established the Company's Polish
operating subsidiary, Bankomat 24/Euronet Sp. z o.o. ("Bankomat"), on August
8, 1995. Upon its formation, Mr. Brown contributed $2,000 to Bankomat and was
the sole interest holder of Bankomat. A capital increase in the amount of
$61,000 was made on December 7, 1995. On August 31, 1995, Mr. Brown agreed to
make revolving loans in the amount $125,000 to Bankomat at a rate of interest of
10% per year. The amount of such loans was increased to $195,000 as of May 21,
1996. As of December 31, 1996, $262,000 was outstanding under such loans and
other loans made by Mr. Brown to the Company consisting of $67,000 in loans at
an interest rate of 10% relating to the establishment of Bankomat. Such loans
were repaid in 1997 by application of the proceeds of the Company's 1997 equity
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 a shareholders' agreement dated February 15, 1996,
as amended October 14, 1996 (the "Shareholders' Agreement") reorganizing the
ownership of Bank 24, SatComNet and Bankomat. Under the Shareholders' Agreement,
the Original Investors contributed all of their shares and interests in Bank 24,
SatComNet and Bankomat to Euronet Holding N.V., which was established on March
27, 1996 as a holding company. In addition, four new shareholders made cash
contributions to the capital of Euronet Holding N.V in exchange for preferred
stock of Euronet Holding N.V., as follows:
Michael Brown....... 30.29%
DST Systems, Inc.... 22.49%
Mark Callegari...... 4.50%
Larry Maddox........ 2.25%
Lawrence Schwartz... 1.12%
NUMBER OF SHARES
CONTRIBUTION OF PREFERRED STOCK
NEW SHAREHOLDERS COMMITMENT OF EURONET HOLDING N.V.
- -------------------------------- ------------ -----------------------
Concurrently with these transactions, Euroventures purchased the shares and
interests of Hi-Care in Bank 24 and SatComNet.
The Shareholders' Agreement provided that the Original Investors and
management of Euronet Holding N.V. would be granted certain awards of preferred
shares, and in the case of Mr. Brown, Common Shares, of Euronet Holding N.V. in
consideration of the payment of the par value ($0.02) of such shares if certain
goals ("Milestones") were attained by the Company (the "Milestone Awards").
Specifically, the following Original Investors were to receive the following
amounts of preferred shares or Common Shares of Euronet Holding N.V.:
Advent Private Equity Fund CELP.. $1,250,000 875,000
Hungarian Private Equity Fund.... $ 500,000 350,000
Poland Investment Fund........... $1,250,000 875,000
Poland Partners L.P.............. $3,000,000 2,100,000
ORIGINAL INVESTOR OR NUMBER OF SHARES
MANAGEMENT MEMBER TO BE AWARDED
Pursuant to the Shareholders' Agreement, Euronet Holding N.V. was entitled to
call a "standby round" of investment from DST Systems, Inc., Poland Partners
L.P., Hungarian Private Equity Fund and the Advent Private Equity Fund CELP of
up to $3,000,000 in the aggregate from such shareholders at a per share price of
$2.14 for one tranche and $10.00 per share for a second tranche subject to
certain conditions. The first tranche of this standby round was called on
November 26, 1996 and 466,669 Series B convertible preferred shares of Euronet
Holding N.V. were issued in exchange for $1 million. The Company's right to call
the remainder of the standby round commitment terminated on the termination of
the Shareholders' Agreement which occurred on March 7, 1997 in connection with
the equity offering.
In addition, the Shareholders' Agreement provided that Mr. Brown would be
reimbursed by the shareholders for up to $100,000 for expenses incurred from
December 1994 to May 1995, and by the Company for expenses incurred from June 1,
1995 to March 27, 1996 relating to the establishment of Bankomat. On October 11,
1996, Euronet Holding N.V. adopted a revision to its Articles of Association
effecting a ten for one stock split.
On October 14, 1996, the Shareholders' Agreement was amended (the "First
Amendment") and the Milestone Award arrangements were modified to provide for
two different types of grants:
(i) Milestone Awards of preferred shares of Euronet Holding N.V. in
exchange for payment of par value ($0.02), to all Original Investors except
(ii) Options to purchase Common Shares and preferred stock of Euronet
Holding N.V. to Mr. Brown, and options to purchase preferred shares of
Euronet Holding N.V. to Mr. Henry, Mr. Depenbusch and certain other
employees of the group at a purchase price of $2.14 per share ("Milestone
Options"). The number of shares of Euronet Holding N.V. subject to these
option arrangements was increased as compared with the amounts that were to
be awarded under the Shareholder's Agreement to take into account the fact
that consideration was now to be paid for such shares. The following numbers
of Milestone Options were granted to directors and officers of the Company:
Michael Brown (1,149,890 of Common Shares and preferred stock of Euronet
Holding N.V.); Daniel Henry (599,340 preferred shares of Euronet Holding
N.V.); and Dennis Depenbusch (226,450 preferred shares of Euronet Holding
All Milestone Awards of Common Shares of Euronet Holding N.V. became effective
as of the closing of the 1997 equity offering and all Milestone Options became
vested upon the closing of the offering, with the exception of 49,819 Options to
certain key employees which will vest equally in March of 1998 and 1999. Such
options have an exercise price of $2.14 per share.
The Reorganization. In December 1996, the Company, shareholders and
optionholders of Euronet Holding N.V. entered into an Exchange Agreement
pursuant to which (i) 10,296,076 shares of Common Stock were to be issued to the
shareholders of Euronet Holding N.V. in exchange for all of the Common Shares of
Euronet Holding N.V., (ii) options to acquire 3,113,355 shares of Common Stock
were to be granted to the holders of options to acquire 3,113,355 Common Shares
of Euronet Holding N.V. in exchange for all of such options and (iii) awards
with respect to 800,520 shares of Common Stock were to be issued to the holders
of awards with respect to 800,520 preferred shares of Euronet Holding N.V. in
exchange for all such awards. The exchange became effective as of March 6, 1997,
the date of the execution of the underwriting agreement in connection with the
Company's 1997 equity offering.
GE Capital Investment. On January 31, 1997, the Company signed a
subscription agreement (the "Subscription Agreement") with General Electric
Capital Corporation ("GE Capital") pursuant to which GE Capital agreed to
subscribe for preferred stock of Euronet Holding N.V. for an aggregate purchase
price of $3 million which entitled GE Capital to receive 710,507 shares of
Common Stock of the Company in connection with the Reorganization, resulting in
a per share purchase price of $4.22. Under a "claw back" option, the Company
retained the right to
repurchase up to 292,607 of such shares for nominal consideration in the event
of a public or private offering of the Company's Common Stock, if the Company
was attributed a valuation that is higher than that used for purposes of the
Subscription Agreement, including the 1997 equity offering. The conditions for
the exercise of this option were met and the Company exercised this option on
June 16, 1997. The Company repurchased all 292,607 shares from GE Capital for a
price of approximately $4,000. These shares are currently held in treasury.
The Subscription Agreement also included certain reciprocal rights of the
parties to act as preferred providers of services to each other in Poland,
Hungary, the Czech Republic, Germany and Austria. In particular, the Company is
a preferred provider of outsourced ATM services to certain banks affiliated with
GE Capital and GE Capital is a preferred provider of equipment financing and
satellite telecommunications to the Company.
Initial Public Offering. On March 7, 1997, the Company completed an initial
public offering of its Common Shares. The following transactions occurred in
connection with the offering:
(i) the Reorganization became effective;
(ii) the Shareholders' Agreement was terminated;
(iii) Michael Brown exercised Milestone Options to purchase 149,492 shares
and sold them in the offering together with 205,023 shares which he held
directly prior to the offering, resulting in total net proceeds to him of
(iv) Daniel Henry exercised Milestone and certain incentive options to
purchase 103,985 shares of the Company's stock and sold them in the offering,
resulting in net proceeds to him of approximately $1,174,000.
(v) Dennis Depenbusch exercised Milestone and certain incentive options
to purchase 51,345 shares of the Company's stock and sold them in the
offering, resulting in net proceeds to him of approximately $569,000.
(vi) all of the shareholders of the Company as of March 6, 1997 except DST
Systems, Inc. sold 25% of the shares held as of that time, including the
following shareholders who held over 10% of the shares prior to the offering:
Michael J. Brown; HAEF, which sold 350,753 shares for total net proceeds of
approximately $4,493,000; and Poland Partners which sold 525,000 shares for
total net proceeds of approximately $6,733,000.
(vii) the Company issued and sold in the offering a total of 3,833,650
shares, including 795,000 shares which were purchased by the underwriters
pursuant to their over-allotment option. Total net proceeds to the Company in
the offering were approximately $47,857,000.
ATM Purchase Option. On March 10, 1995, Bank 24 entered into a Master Rental
Agreement with HFT Corporation (''HFT'') pursuant to which HFT agreed to lease
ATM machines to Bank 24 pursuant to operating leases which are treated, for U.S.
GAAP purposes only, as capital leases. On the same date, HFT granted an option
to purchase the ATM machines which were the subject of this Master Rental
Agreement to Windham Technologies, a company controlled by Michael Brown and
Mark Callegari. On March 25, 1995, Windham Technologies executed a unilateral
undertaking (the ''Undertaking'') to sell such machines to Bank 24 for a
purchase price which was equal to the price paid by Windham, plus incidental
expenses. All ATMs operated by the Company are subject to this arrangement. The
Company intends to restructure these arrangements as capital leases under
Hungarian law and has recorded an accrual in its financial statements in this
Windham Technologies Inc. Windham Technologies Inc. (''Windham'') holds the
option to purchase certain ATMs at the end of the lease term. Windham is jointly
owned by two shareholders of Euronet Holding N.V. Windham
has signed an undertaking to contribute these assets to Euronet Holding N.V. at
the end of the lease at a bargain purchase price of $1 plus incidental expenses.
In addition, payments of $94,000, $425,000, $320,000 and $66,000 have been
made for the years ended December 31, 1997, 1996 and 1995, for the period from
June 22, 1994 (inception) through December 31, 1994, respectively, to Windham.
These payments cover the services and related expenses of consultants seconded
by Windham to Euronet Holding N.V. These services include AS400 computer
expertise, bank marketing and management support.
Certain directors or officers and their affiliates have rights to require the
Company to file a registration statement covering the public sale by such
persons of the shares of Common Stock owned by them, and to pay all of the costs
and expenses associated therewith, other than underwriting discounts and fees.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EURONET SERVICES INC.
Date: April 29, 1998 /s/ Daniel R. Henry
Daniel R. Henry
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
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
Signature Title Date
/s/ Michael J. Brown Chairman of the Board of Directors, April 29, 1998
- ------------------------- Chief Executive Officer and President
Michael J. Brown (principal executive officer)
/s/ Daniel R. Henry Director and Chief Operating Officer April 29, 1998
Daniel R. Henry
/s/ Steven J. Buckley Director April 29, 1998
Steven J. Buckley
/s/ Eriberto R. Scocimara Director April 29, 1998
Eriberto R. Scocimara
/s/ Andrzej Olechowski Director April 29, 1998
/s/ Thomas A. McDonnell Director April 29, 1998
Thomas A. McDonnell
Signature Title Date
/s/ Nicholas B. Callinan Director April 29, 1998
Nicholas B. Callinan
/s/ Bruce Colwill Chief Financial Officer and Chief April 29, 1998
- ------------------------- Accounting Officer (principal financial
Bruce Colwill officer and principal accounting