As filed with the Securities and Exchange Commission on February 2, 2004
Registration No. 333-_____ |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida | 6099 | 65-0903895 |
(State of Incorporation) | (Primary Standard Industrial | (I.R.S. Employer Identification No.) |
Classification Code Number) |
Suite 325-744 West Hastings Street |
Vancouver, British Columbia, Canada V6C 1A5 |
(604) 669-4561 |
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices) |
James Schneider, Esq. |
Schneider Weinberger LLP |
2499 Glades Road, Suite 108 |
Boca Raton, Florida 33431 |
(561) 362-9595 |
(Name, address, including zip code, and telephone number, including area code, of agent for service) |
With a copy to: |
John W. Carr, Esq. |
Simpson Thacher & Bartlett LLP |
425 Lexington Avenue |
New York, New York 10017-3954 |
(212) 455-2000 |
Approximate date of commencement of proposed exchange offer: As soon as practicable after this Registration Statement is declared effective.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
CALCULATION OF REGISTRATION FEE
Title of Class of Securities to be Registered |
Amount to be
Registered(1) |
Proposed Maximum
Offering Price per Unit (2) |
Proposed Maximum
Aggregate Offering Price(2) |
Amount of
Registration Fee |
Common Stock, $0.001 par value | 298,628,566 | $7.01 | $2,093,386,247.66 | $265,232.04(3) |
Special Convertible Preferred Stock, $0.10 par value (4) | 192,967,138 | | | $0 |
(1) |
Based on the estimated maximum number
of Registrants common shares which may be issued in connection with
the proposed acquisition of substantially all of the assets and liabilities
of Net 1 Applied Technology Holdings Limited, a South African company,
with and into a subsidiary of the Registrant. In accordance with Rule
416 under the Securities Act of 1933, as amended (Securities Act),
this Registration Statement also shall register any additional shares
of common stock of the Registrant which may become issuable to prevent
dilution resulting from stock splits, stock dividends, or similar transactions.
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(2) |
Estimated solely for the purpose of
calculating the registration fee and computed pursuant to Rule 457(c)
based on the product of (a) $7.01 (the last sale reported on the OTC Bulletin
Board on January 27, 2004) and (b) the number of shares of Common Stock
to be registered.
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(3) |
$200,000 was previously paid on December
3, 2003. The remaining $65,232 will be paid with this Registration Statement.
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(4) |
The registrant has not paid a registration
fee in respect of the shares of Special Convertible Preferred Stock because
these shares do not trade separately, convert only into shares of the
registrants Common Stock, and do not have any market value independently
of the shares of Common Stock.
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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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Neither
the United States Securities and Exchange Commission nor any state securities
commission has
approved or disapproved the shares of common stock
or the shares of special convertible preferred stock to be issued
by
Net 1 under this proxy statement/prospectus or passed upon the adequacy
or accuracy of this proxy
statement/prospectus. Any representation
to the contrary is a criminal offense.
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This proxy statement/prospectus is dated , 2004, and is being first mailed to shareholders on or about , 2004.
NET 1 UEPS TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ,
2004
Dear Net 1 Shareholder:
A special meeting of shareholders of Net 1, a Florida corporation, will be held on , 2004 at 9 a.m., local time, at the offices of Schneider Weinberger LLP, 2499 Glades Road, Suite 108, Boca Raton, Florida 33431, and any adjournments or postponements thereof.
At the meeting, you will be asked to:
1. |
consider and vote on a proposal to amend
Net 1s articles of incorporation to (a) increase Net 1s
authorized shares of common stock, par value $0.001 per share, from
100,000,000 to 500,000,000 shares, par value $0.001 per share, to allow
for additional shares of common stock of Net 1 to be issued in connection
with the proposed transactions, (b) increase Net 1s authorized
shares of preferred stock, par value $0.10 per share, from 3,000,000
to 300,000,000 shares of preferred stock, par value $0.10 per share,
to allow for a sufficient number of shares of preferred stock to be
issued in connection with the Aplitec acquisition, and (c) modify the
par value of the shares of preferred stock that may be issued by Net
1 from $0.10 per share to $0.001 per share;
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2. |
authorize the issuance and terms of 192,967,138
shares of special convertible preferred stock of Net 1 in connection
with the Aplitec acquisition;
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3. |
authorize the issuance of 105,661,428
shares of common stock of Net 1 to the Brait Consortium in exchange
for a capital contribution of $52.8 million;
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4. |
consider and vote upon a proposal to
approve the 2004 Stock Incentive Plan; and
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5. |
act upon such other business as may properly
come before the meeting or any adjournment or postponement of the meeting.
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The accompanying proxy statement/prospectus describes the proposed transactions in detail.
The board of directors has set the close of business on , 2004, as the record date for determining shareholders entitled to receive notice of the meeting and to vote at the meeting, and any adjournments or postponements thereof.
The proposed transactions cannot be completed unless they are approved by a majority of Net 1s shareholders that cast votes at the special meeting of shareholders. Net 1 Holdings, a Luxembourg company, beneficially owns 53.75% of the outstanding shares of Net 1. Net 1 Holdings is controlled by Dr. Serge Belamant, the current chairman of Net 1s board of directors and the chief executive officer of Aplitec, by virtue of a contractual right to vote those shares on behalf of Cornet Ltd. and the trusts that own Net 1 Holdings. Because of Dr. Belamants interest in the proposed transactions to be voted upon, the shares owned by Net 1 Holdings will be counted for purposes of establishing a quorum at the special meeting, but those shares will be voted in proportion to the votes cast (FOR and AGAINST) by our disinterested shareholders. Thus, the vote of a majority of Net 1s shareholders other than Net 1 Holdings will be determinative of the outcome of the proposed transactions.
We will admit to the special meeting (1) all shareholders of record at the close of business on , 2004, (2) persons holding proof of beneficial ownership as of such date, such as a letter or account statement from the persons broker, (3) persons who have been granted proxies, and (4) such other persons that we, in our sole discretion, may elect to admit. All persons wishing to be admitted must present photo identification. If you plan to attend the special meeting, please check the appropriate box on your proxy card.
By order of the board of directors, | |
David Anthony | |
Secretary | |
_______________, 2004 |
Your vote is important. Please return your proxy as soon as possible, whether or not you expect to attend the special meeting in person.
You may submit your proxy by completing, dating and signing the enclosed proxy card and returning it in the enclosed postage prepaid envelope.
Y ou may revoke your proxy at any time before the special meeting. If you attend the special meeting and vote in person, your proxy vote will not be used.
TABLE OF CONTENTS
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Q UESTIONS AND A NSWERS ABOUT THE P ROPOSED T RANSACTIONS
Q1: What are the proposed transactions for which I am being asked to vote?
A1: You are being asked to approve and adopt:
(i) amendments to Net 1s articles of incorporation to (a) increase the
number of authorized shares of common stock from the current 100,000,000 shares
to 500,000,000, (b) increase the number of authorized shares of preferred stock
from the current 3,000,000 to 300,000,000, (c) modify the par value of the shares
of preferred stock that may be issued by Net 1 from $0.10 per share to $0.001
per share, and (d) authorize the terms of the special convertible preferred
stock;
(ii) the Aplitec acquisition and the issuance of 192,967,138 shares of special
convertible preferred stock in connection with such acquisition;
(iii) the issuance of 105,661,428 shares of common stock to the Brait Consortium
in exchange for a $52.8 million capital contribution; and
(iv) the 2004 Stock Incentive Plan.
Without the above-referenced amendments to our articles of incorporation, we
will not be able to consummate any of the proposed transactions.
Q2: What are the benefits of the proposed transactions to Aplitec, Net 1 and their respective shareholders?
A2: Since its formation, Aplitec has implemented numerous UEPS smart card systems and has developed the unique skills and business models required to successfully implement these smart card systems from an operational and financial perspective. Although Aplitec owns the FTS/UEPS patents only for South Africa and its surrounding territories, it has also been successful in exploiting the technology in countries outside its designated territories through a Distribution Agreement with Net 1. The proposed transactions will consolidate the FTS/UEPS intellectual property rights under a single structure, which will allow Aplitec to fully capitalize on Net 1s global rights to the FTS/UEPS patents.
Net 1 has been unable to raise sufficient capital to implement its business
model, due partly to its failure to have successfully implemented any smart
card systems. Additionally, Net 1 is concerned that it does not have the capital
to continue as a going concern beyond 2004. The proposed transactions will provide
a much-needed capital injection into Net 1, and will give Net 1 access to the
business model, intellectual property rights and operations of Aplitec.
While the proposed transactions will result in significant dilution for the
current shareholders of both companies, they also provide substantial benefits
that are aimed to enhance the companies overall value. For example, the
proposed transactions will create:
Q3: Why is Net 1 issuing new shares of common stock to the Brait Consortium?
A3: Net 1 intends to issue to the Brait Consortium 105,661,428 shares of Net
1 common stock at a purchase price of $0.50 per share, or a total purchase price
of $52.8 million. Of this amount, approximately $33.2 million (assuming a conversion
rate of 6.92 ZAR = $1.00) will be used to fund cash payments to Aplitecs
current shareholders in connection with the Aplitec acquisition, and the remainder
will be used by Net 1 to finance its operations and implement its business plan.
Fees and expenses of approximately $5.8 million will be paid out of the resources
of Net 1, of which approximately $3.9 million will be paid to the Brait Group.
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Q4: Is Net 1 permitted to issue special convertible preferred stock?
A4: Yes. Net 1s articles of incorporation permit the issuance of up to 3,000,000 shares of preferred stock with conversion rights and other characteristics as the board of directors of Net 1 may determine. Nevertheless, Net 1 is seeking the specific approval by its shareholders to authorize issuance of the special convertible preferred stock to be issued by Net 1 in connection with the Aplitec acquisition.
Q5: What are the key features of the Net 1 special convertible preferred stock?
A5: The Net 1 special convertible preferred stock will be issued to an offshore trust for the future benefit of Aplitecs current shareholders that choose to reinvest in the combined company. Each share will be convertible (on a one-for-one basis) into a share of Net 1 common stock on the occurrence of a trigger event. A trigger event is defined as any one of the following events:
Prior to their conversion into shares of common stock, the special convertible preferred stock will have voting rights in Net 1 that correspond to Net 1 common stock and will entitle the holders to receive dividends payable from all of Net 1s business operations outside of South Africa and on the liquidation of New Aplitec.
Q6: How many shares of special convertible preferred stock will Net 1 issue?
A6: 192,967,138
Q7: Can the price at which shares of common stock of Net 1 are issued to the Brait Consortium change between now and the time the transactions are completed?
A7: No.
Q8: Can the number of shares of special convertible preferred stock that is issuable in the Aplitec acquisition change between now and when the transactions are completed?
A8: No.
Q9: Can the consideration that Net 1 will pay to acquire Net 1 Holdings change between now and when the transactions are completed?
A9: No.
Q10: What are the U.S. federal income tax consequences of the transactions to Net 1?
A10: Net 1 will not recognize any income or gain as a result of the issuance of its shares of common stock and special convertible preferred stock in the proposed transactions.
Q11: What vote is required for approval?
A11: The proposed transactions contemplated herein must be approved by holders of a majority of the shares of Net 1 common stock voting at the special shareholders meeting, provided that a quorum has been established. You are entitled to vote at the meeting if you held Net 1 common stock at the close of business on the record date, which is , 2004. On that date, 15,852,856 shares of Net 1 common stock were outstanding and entitled to vote.
Q12: Will Net 1 shareholders have dissenters or similar rights?
A12: Shareholders who vote against the proposed transactions are not entitled to dissenters or
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similar rights under Florida law and Net 1s articles of incorporation.
Q13: What regulatory approvals are required in order to close the proposed
transactions?
A13: As a condition precedent to the closing of the Aplitec acquisition,
certain approvals from South African regulatory authorities are required.
Q14: Are there any third party consents required as a condition to closing
the proposed transactions?
A14: The Aplitec acquisition is subject to approval by the holders of a
majority of the issued ordinary shares of Net 1. The Aplitec acquisition has
already been approved by the shareholders of Aplitec. However, the decision
by Aplitecs shareholders whether to reinvest in the combined company will
be made only after the Net 1 special meeting.
Q15: When do you expect the proposed transactions to be completed?
A15: We expect to complete the proposed transactions in the second quarter
of 2004.
Q16: If my shares are held in street name by my broker, will
my broker vote my shares for me?
A16: You should instruct your broker to vote your shares, following the
directions your broker provides. If you do not instruct your broker, your broker
will generally not have the discretion to vote your shares.
Q17: What do I need to do now?
A17: After carefully reading and considering the information contained in
this proxy statement/prospectus, please fill out and sign the proxy card, and
then mail your signed proxy card in the enclosed prepaid envelope as soon as
possible so that your shares may be voted at the special meeting. Your proxy
card will instruct the persons named on the card to vote your shares at the
stockholders meeting as you direct on the card. If you sign and send in your
proxy card and do not indicate how you want to vote, your proxy will be voted
FOR the proposed transactions. YOUR VOTE IS VERY IMPORTANT.
Q18: May I change my vote after I have mailed
my signed proxy card?
A18: Yes. You may change your vote at any time before your proxy is voted at
the special meeting. You can do this in one of three ways. First, you can send
a written notice stating that you want to revoke your proxy. Second, you can
complete and submit a new proxy card. If you choose either of these two methods,
you must submit your notice of revocation or your new proxy card to:
ADP Investor
Communications
5970 Chedworth
Way
Mississauga,
Ontario L5R 4G5
Canada
Third, you can attend the Net 1 special shareholder meeting and vote in person.
Simply attending the meeting, however, will not revoke your proxy; you must
vote at the meeting.
If you have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
Q19: What does the board of directors of Net 1
recommend?
A19: Net 1s board of directors has determined that the proposed transactions
are fair to, advisable and in the best interests of Net 1 and its shareholders
and recommends that you vote FOR the proposed transactions.
Q20: Will Net 1 continue as a public company?
A20: Yes. Net 1 will continue to be a public reporting company under the Securities
Exchange Act of 1934 and its shares will continue to be quoted on the OTC Bulletin
Board.
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Q21: Will I have the same ownership and
voting percentages in Net
1 after the
transactions are completed as I do now?
A21: No, your percentage equity ownership and voting interest in Net 1 will
decrease significantly. After completion of the proposed transactions, the reinvesting
Aplitec shareholders, the Brait Consortium and the current Net 1 shareholders
will own on a fully diluted basis 58.14%, 31.83% and 4.78%, respectively, of
Net 1. The remaining 5.25% will be reserved for issuance to Net 1s management
and employees pursuant to the terms of the 2004 Stock Incentive Plan. These
percentages assume that 100% of Aplitecs current shareholders elect the
reinvestment option, which is described further herein.
Q22: Who can help answer my questions?
A22: If you have any questions about the proposed transactions or if you need
additional copies of this proxy statement/prospectus you should contact:
ADP Investor
Communications
In the U.S.:
(800) 454-8683
In Canada:
(800) 474-7493
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S UMMARY
This summary highlights selected information in this proxy statement/prospectus and may not contain all of the information that is important to you. You should carefully read the entire proxy statement/prospectus, including the annexes, for a more complete understanding of the proposed transactions. For purposes of convenience, we have provided certain amounts in both South African Rand (ZAR) and U.S. dollars. Unless otherwise noted, the rate of exchange used in determining these U.S. dollar amounts was ZAR 6.92 = $1.00, which was the noon buying rate for customs purposes of the Rand as reported by the Federal Reserve Bank of New York on January 28, 2004.
The Companies
Net 1 UEPS Technologies, Inc.
Net 1 was incorporated in the State of Florida on May 8, 1997. Net 1 is a development stage company engaged in the business of commercializing the smart card technology-based Universal Electronic Payment System (version 10 and any further releases), or UEPS, and the Fund Transfer System, or FTS, through the development of strategic alliances with national and international bank and card service organizations. The patent rights for the FTS technology in the U.S. is held by Net 1 Holdings. The FTS patents in South Africa and its surrounding territories (Namibia, Botswana and Swaziland) are held by Net 1 Investment Holdings (Pty) Ltd., or Net 1 (Pty), which was acquired by Aplitec in July 2000. Net 1 has a license in respect of the U.S. FTS patent and owns the exclusive marketing right for the UEPS technology for the world excluding South Africa and its surrounding territories. Net 1 generates all of its revenues by selling technology licenses on behalf of Net 1 Holdings, for which Net 1 receives a fee equal to Net 1 Holdings audited net profit before amortization. Net 1 currently receives revenues in connection with technology licenses sold to institutions in Latvia, Burundi, Ghana, Rwanda and Malawi.
As a development stage company, Net 1s management devotes most of its activities to raising the funds required to implement its business plan. Planned principal activities have not produced significant revenues, Net 1 has suffered recurring operating losses since its incorporation and it has so far been unsuccessful at raising funds. Net 1s loss from operations for the 2002 financial year was $166,942 and the accumulated deficit was $2,241,639. These factors raise substantial doubt about Net 1s ability to continue as a going concern beyond 2004 if the proposed transactions are not completed.
Net 1s principal executive offices are located at Suite 325-744 West Hastings Street, Vancouver, British Columbia, Canada V6C 1A5, and its telephone number is (604) 669-4561.
Net 1 Applied Technology Holdings Limited
Aplitec is a holding company established and existing under the laws of South Africa. Aplitecs subsidiaries employ specialized smart card technologies to add efficiency to commercial activities requiring money transfers, payment systems and other electronic data applications.
Through its subsidiaries, Aplitec is involved in the administration, management and payment of social welfare grants and handles the payment of pensions on behalf of the government in five of the nine provinces of South Africa. Revenue is generated through registration fees, card loading fees and transaction fees in the distribution of social welfare grants, and commissions generated through the provision of automated payment collection services to third parties. Aplitec also operates micro-lending businesses, operating more than 100 branches throughout South Africa and develops, markets and licenses administrative and payment solutions for the micro-finance industry. The primary source of revenue of this business is interest income. Aplitec also provides financial services to pensioners through its proprietary smart card platform and provides technical, operational and outsourcing services to companies.
Aplitec, through its subsidiary Net 1 (Pty), owns the FTS patents for South Africa and its surrounding territories and, pursuant to a Distribution Agreement with Net 1, provides integrated software and hardware services to customers outside its designated territories, for which it charges service fees and makes a margin on software and hardware sold.
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Aplitecs principal executive offices are located at 4 th Floor, President Place, 148 Jan Smuts Avenue, Rosebank 2128 South Africa, and its telephone number is +27 11 343-2000.
Net 1 Holdings S.a.r.l.
Net 1 Holdings, a Luxembourg company, owns the U.S. FTS patent and marketing rights to the UEPS technology for all regions other than South Africa and its surrounding territories. On May 3, 2000, Net 1 Holdings granted a license to Net 1 to use the U.S. patent and an exclusive marketing right to the UEPS technology worldwide, except for South Africa and its surrounding territories, in exchange for 4,729,612 shares of Net 1 common stock. At December 31, 2002, Net 1 Holdings owned 8,520,578 shares of Net 1 common stock, or 53.75% of the issued and outstanding shares of Net 1 common stock.
Net 1 Holdings principal executive offices are located at No. 6, Rue Jean Monnet, L-2180 Luxembourg, and its telephone number is +352 466-1111.
Newshelf 713 (Proprietary) Limited
New Aplitec is a private company incorporated in South Africa that will become a wholly-owned subsidiary of Net 1 upon the completion of the Aplitec acquisition. New Aplitec was formed solely for the purpose of effecting the Aplitec acquisition, and it has not carried on any activities other than in connection with the Aplitec acquisition.
The Brait Consortium
The Brait Consortium consists of funds under the management of the Brait Group, Southern Cross Capital Limited and FF&P Asset Management Limited. The Brait Group is an international investment group focused on private equity, alternative funds management, corporate advisory services and proprietary investing. The Brait Group has an established team and a track record that is recognized as a leader in the private equity asset class in the African region. Southern Cross Capital Limited manages a number of private equity funds that are funded by various Oppenheimer family interests. FF&P Asset Management Limited is a wholly owned subsidiary of Fleming Family and Partners Limited, an independent privately owned investment house, that manages funds and trusts on behalf of its clients.
The Proposed Transactions (page 32)
The Aplitec Acquisition
Pursuant to the terms of a Sale Agreement between Aplitec and New Aplitec, a copy of which has been filed as an exhibit to this proxy statement/prospectus, New Aplitec will acquire substantially all of the assets, and assume all of the liabilities, of Aplitec. As part of this transaction, Aplitecs current shareholders will have the option of selecting one of the following two forms of consideration for each Aplitec ordinary share:
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ZAR 5.00 in cash ($0.72) (the
cash option), or
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ZAR 1.90 in cash ($0.27), plus
an investment with a value of ZAR 2.85 ($0.41) in New Aplitec, through
a participation interest in the South African Trust that will hold:
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B class preference shares of New Aplitec
with a value of ZAR 1.84 ($0.27);
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B class loan accounts of New Aplitec with
a value of ZAR 1.01 ($0.15); and
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a right to shares of Net 1 special convertible
preferred stock issued, for no additional consideration and with no value
other than their right to convert into shares of Net 1 common stock, by
Net 1 to the Cayman Trust, and which are convertible into shares of
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Net 1 common stock upon the occurrence of a trigger event (together, the reinvestment option). |
Assuming that 100% of Aplitecs current shareholders elect the reinvestment option, they will receive cash in the amount of ZAR 450.3 million ($65.1 million) and an interest (via the South African Trust) in shares of Net 1 special convertible preferred stock that are convertible into 58.14% of the aggregate shares of common stock of Net 1. Brait S.A. and several of its affiliates, or the Brait Group, has committed to acquire all of the rights of the reinvestment option not taken up by Aplitecs current shareholders for the same consideration that would have been paid by such shareholders. The Brait Group is a member of the Brait Consortium.
In addition, as consideration for a capital contribution from Net 1 to New Aplitec, Net 1 will receive 100% of the A class shares and 100% of the A class loan accounts of New Aplitec.
Contribution by the Brait Consortium
Pursuant to the terms of a Common Stock Purchase Agreement between Net 1 and the Brait Consortium, a copy of which has been filed as an exhibit to this proxy statement/prospectus, the Brait Consortium will purchase from Net 1 105,661,428 newly issued shares of Net 1 common stock for $52.8 million. After completion of the transactions described in this proxy statement/prospectus, and assuming that 100% of Aplitecs shareholders elect the reinvestment option, the Brait Consortium will own approximately 31.83% of the voting interests of Net 1.
Net 1 Holdings Acquisition
Pursuant to the terms of an Asset Purchase Agreement between Net 1 and Net 1 Holdings, a copy of which has been filed as an exhibit to this proxy statement/prospectus, Net 1 will acquire, on behalf of a wholly-owned subsidiary to be formed or acquired in Luxembourg, selected assets of Net 1 Holdings (including the U.S. patent for the FTS and rights to the UEPS technology) for aggregate consideration of $1.00.
Structure of the Proposed Transactions
The following charts present the structure of the constituent companies before and after the proposed transactions. The post-transaction share ownership of Net 1 is presented on a fully diluted basis and assumes that 100% of Aplitecs current shareholders elect the reinvestment option. To the extent that any Aplitec shareholders elect the cash option, the Brait Group will acquire the interests in the South African Trust that are not subscribed for by such shareholders, thus increasing the Brait Groups ownership interest in Net 1. If a sufficient number of Aplitecs current shareholders elect the cash option, the Brait Group may own a majority of the voting interests of Net 1. This possibility is more fully addressed under Risk Factors Risks Relating to the Proposed Transactions.
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Before the Transactions
After the Transactions
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The Special Meeting (page 30)
When and Where . The special meeting of Net 1s shareholders will be held at 9 a.m., local time on , 2004, at the offices of Schneider Weinberger LLP, 2499 Glades Road, Suite 108, Boca Raton, Florida 33431.
Purposes of the Special Meeting . At the special meeting, you will be asked to approve (i) an amendment to the Net 1 articles of incorporation to (a) increase the number of authorized shares of common stock from 100,000,000 to 500,000,000, (b) increase the number of authorized shares of preferred stock from 3,000,000 to 300,000,000, (c) modify the par value of the shares of preferred stock that may be issued by Net 1 from $0.10 per share to $0.001 per share, and (d) authorize the terms of the special convertible preferred stock, (ii) the Aplitec acquisition and the issuance of 192,967,138 shares of special convertible preferred stock in connection with such acquisition, (iii) the issuance of shares of common stock to the Brait Consortium in exchange for a $52.8 million capital contribution, and (iv) the 2004 Stock Incentive Plan. A copy of the proposed amendment to our articles of incorporation is attached as Annex A to this proxy/statement prospectus. The material terms of the Aplitec acquisition and issuance of shares to the Brait Consortium are fully described in the section titled The Proposed Transactions. The Net 1 2004 Stock Incentive Plan is attached as Annex B to this proxy statement/prospectus, and its material terms are fully described in the section titled Management of Net 1 After the Proposed Transactions.
Record Date; Voting Power . Holders of Net 1 common stock as of the close of business on , 2004, the record date, are entitled to vote at the special meeting or any adjournment or postponement thereof. Each share of Net 1 common stock is entitled to one vote.
Vote Required . The affirmative vote of a majority of the outstanding shares of Net 1 common stock that cast votes at the special shareholders meeting is required to approve (i) the amendment to Net 1s articles of incorporation, (ii) the Aplitec acquisition and the issuance of 192,967,138 shares of special convertible preferred stock in connection with such acquisition, (iii) the issuance of shares of common stock to the Brait Consortium in exchange for a $52.8 million capital contribution, and (iv) the 2004 Stock Incentive Plan. As of the record date, 15,852,856 shares of Net 1 common stock were outstanding. Because of Dr. Belamants interest in the proposed transactions to be voted upon, the 53.75% of Net 1 common stock owned by Net 1 Holdings will be counted for purposes of establishing a quorum at the special meeting, but those shares will be voted in proportion to the votes cast (FOR and AGAINST) by our disinterested shareholders, who together own 46.25% of Net 1s common stock. Thus, the vote of a majority of Net 1s shareholders other than Net 1 Holdings will be determinative of the outcome of the proposed transactions.
Quorum; Abstentions and Broker Non-Votes . The required quorum for the special meeting is a majority of the issued and outstanding shares of Net 1 common stock as of the record date. Both abstentions and broker non-votes will be included in determining the number of votes present at the special meeting for the purpose of determining the presence of a quorum. The actions proposed in this proxy statement/prospectus are not matters that can be voted on by brokers holding shares for beneficial owners without the owners specific instructions. Brokers who hold your shares of Net 1 common stock as nominees cannot vote those shares unless you instruct them to, following the procedures they give you.
How to Vote. A shareholder may vote in person at the special meeting or by proxy without attending the special meeting. To vote by proxy, a shareholder must compete the enclosed proxy card, sign and date it and then return it in the enclosed prepaid postage envelope.
Revocation of Proxy. A shareholder may revoke a proxy at any time prior to its exercise by (a) delivering to Net 1s secretary a written notice of revocation of proxy prior to the special meeting, (b) delivering prior to the special meeting a duly executed proxy bearing a later date than the initial proxy (using a new proxy card) or (c) attending the special meeting and voting in person. The presence of a shareholder at the special meeting will not in itself automatically revoke such shareholders proxy. If not revoked, the proxy will be voted in accordance with the instructions indicated on the proxy.
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Recommendation of the Net 1 Board of Directors (page 33)
On January 30, 2004, the Net 1 board of directors determined that the proposed transactions are fair, advisable and in the best interests of Net 1 and its shareholders, and it voted to approve the proposed transactions and related agreements. Net 1s board recommends a vote FOR approval of the proposed transactions.
Opinion of Stenton Leigh Capital Corp. (page 35)
On January 30, 2004, the Net 1 board of directors received a fairness opinion from Stenton Leigh Capital Corp. with regard to the proposed issuance of shares of Net 1 common stock to the Brait Consortium. A copy of this opinion is attached as Annex C to this proxy statement/prospectus.
Interests of Certain Persons in the Proposed Transactions (page 45)
When considering the recommendation by the Net 1 board of directors to vote FOR the proposed transactions, you should be aware that certain persons have interests in the transactions that are different from, and may conflict with, your interests:
• |
Dr. Serge Belamant, a director and the chairman of Net 1s board
of directors and the chief executive officer of Aplitec, controls 53.75%
of Net 1s outstanding shares by virtue of a contractual right to vote
those shares on behalf of Cornet Ltd. and the trusts that own Net 1 Holdings.
|
|
• | Dr. Belamant, along with Herman Kotze, Brenda Stewart and Nitin Soma, will enter into employment agreements after completion of the transactions. | |
• | The Brait Consortium will have the right to designate three nominees to the slate of directors that Net 1’s management recommends to shareholders in Net 1’s annual proxy statement. These designees have not yet been selected. Additionally, affiliates of the Brait Group, which is a member of the Brait Consortium, are providing advisory services to Net 1 in connection with the proposed transactions and will receive a “capital raising fee” of $3.7 million and a further corporate finance fee of ZAR 1.15 million ($166,185). In lieu of receiving a cash payment, the Brait Group has the option of receiving all or any part of its fee in the form of shares of Net 1 common stock calculated at a price of $0.50 per share. If the Brait Group elects to receive its entire fee in the form of Net 1 common stock, the Brait Group will receive approximately 7.8 million additional shares of Net 1 common stock. Finally, to the extent that any Aplitec shareholders elect the cash option, the Brait Group will acquire those interests in New Aplitec via the South African Trust, thereby increasing its ownership interest in Net 1. |
The Net 1 board of directors was aware of these interests and considered them in approving the transactions.
Conditions to the Transactions (page 47)
Net 1s obligation to issue shares of common stock to the Brait Consortium and New Aplitecs obligation to complete the Aplitec acquisition are conditioned upon each other and neither will close unless the other transaction is approved pursuant to the terms set forth in their respective transaction documents. In addition, the closing of the Aplitec acquisition is conditioned upon the following:
• | the registration statement, of which this proxy statement/prospectus forms a part, being declared effective and no stop order having been issued by the SEC; and | ||
• | the shareholders of Net 1 approving: | ||
» | the amendment to the Net 1 articles of incorporation to: |
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° | increase the number of authorized shares of common stock to 500,000,000 from the current 100,000,000 shares authorized; | |||
° | increase the number of authorized shares of preferred stock to 300,000,000 from the current 3,000,000 shares authorized; | |||
° | modify the par value of the shares of preferred stock that Net 1 is authorized to issue from $0.10 per share to $0.001 per share; and | |||
° | authorize the terms of the special convertible preferred stock, | |||
» | the Aplitec acquisition and the issuance of 192,967,138 shares of special convertible preferred stock in connection with such acquisition; | |||
» | the issuance of shares 105,661,428 of common stock to the Brait Consortium in exchange for a $52.8 million capital contribution; and | |||
» | the 2004 Stock Incentive Plan. |
The Transaction Agreements
The principal agreements that have been entered into in connection with the proposed transactions are (i) the Sale Agreement between Aplitec and New Aplitec, (ii) the Common Stock Purchase Agreement between Net 1 and the Brait Consortium, and (iii) the Asset Purchase Agreement between Net 1 and Net 1 Holdings.
Sale Agreement (page 46)
The Sale Agreement provides that New Aplitec, which is to become a wholly-owned subsidiary of Net 1, will acquire substantially all of the assets, and assume all of the liabilities, of Aplitec. Each partys obligation to complete the transaction is subject to satisfaction or waiver of certain conditions by May 31, 2004, including the following:
• | receipt of approvals required under the Competition Act of South Africa; | |
• | receipt of approvals of the Exchange Control Department of the South African Reserve Bank; | |
• | approval of the transaction by Aplitecs current shareholders; | |
• | receipt of all required third party consents; | |
• | entering into of employment agreements between New Aplitec and senior executives and employees of Aplitec; | |
• | absence of material adverse changes with respect to Aplitec from the date of execution through to the closing date set with respect to the proposed transactions; and | |
• | approval by Net 1s shareholders of the amendment to Net 1s articles of incorporation. |
Common Stock Purchase Agreement (page 48)
The Common Stock Purchase Agreement provides that the Brait Consortium will purchase 105,661,428 newly issued shares of Net 1 common stock for $52.8 million. The closing of this transaction will occur on the twelfth business day after the last of the conditions to the agreement have been satisfied or waived, or at another time as Net 1 and the Brait Consortium will agree.
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Representations and Warranties
The Common Stock Purchase Agreement contains customary representations and warranties of Net 1 and the Brait Consortium relating to, among other things:
• | capital structure of Net 1 currently and upon completion of the issuance of shares to the Brait Consortium; | |
• | documents filed with the SEC, the accuracy of information contained in those documents and the absence of undisclosed liabilities; | |
• |
absence of material changes or events; |
|
• | compliance with applicable law; | |
• | disclosure of affiliate transactions; and | |
• | · the receipt of fairness opinions from Net 1’s advisors. |
Conditions to Closing
Each partys obligation to effect the transactions contemplated by the Common Stock Purchase Agreement is subject to the satisfaction or waiver of various conditions, including the approval by Net 1s shareholders of the amendment to Net 1s articles of incorporation and the completion of the Aplitec acquisition. Net 1 will also take all actions necessary prior to closing to increase the size of its board of directors to up to ten directors and to elect three nominees of the Brait Consortium.
Asset Purchase Agreement (page 53)
The Asset Purchase Agreement provides that Net 1 will acquire selected assets of Net 1 Holdings on behalf of a wholly-owned subsidiary to be formed or acquired in Luxembourg, including (i) the rights to the U.S. FTS patent and UEPS technology currently held by Net 1 Holdings and (ii) the assignment of Net 1 Holdings’ rights and obligations under certain agreements, including the Patent and Technology agreement with Net 1, for $1.00. This transaction is a condition to the completion of the Aplitec acquisition.
Related Agreements
In connection with the above-referenced transactions, certain parties have entered into the following agreements: (i) the Subscription Agreement between Net 1 and New Aplitec; (ii) the Subscription Agreement between the South African Trust and New Aplitec; (iii) the Umbrella Agreement among various parties, (iv) the Trust Deed for the South African Trust and (v) the Trust Deed for the Cayman Trust. The material terms of these agreements are described under the section of this prospectus titled The Proposed Transactions.
Trading of Net 1 Common Stock
Shares of Net 1 common stock are quoted on the OTC Bulletin Board. After completion of the proposed transactions, shares of Net 1 common stock will continue to be quoted on the OTC Bulletin Board.
2004 Stock Incentive Plan (page 108)
You are being asked to approve the 2004 Stock Incentive Plan, a form of which is attached to this proxy statement/prospectus as Annex B. The plan authorizes the grant of a variety of stock-based incentive awards; provided, however, that (i) no more than 8,720,936 shares of Net 1 common stock may be granted in respect of stock options, and (ii) no more than 8,720,936 shares of Net 1 common stock may be granted in the form of other stock-based awards, including grants of restricted shares.
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Share Ownership After the Proposed Transactions (page 112)
The following table presents the fully diluted ownership interests of Net 1 shares of common stock and special convertible preferred stock immediately after the completion of the proposed transactions. This table assumes that 100% of Aplitecs current shareholders elect the reinvestment option. To the extent that any Aplitec shareholders elect the cash option, the Brait Group will acquire those interests in New Aplitec via the South African Trust, thereby increasing its ownership interest in Net 1.
Percentage | |||||||||||
Percentage of | ownership of | ||||||||||
Number of | Shares of | Number of shares | Percentage of | shares of Net 1 | |||||||
Shares of | Common | of special | shares of special | common stock | |||||||
Common | Stock | convertible | convertible | on fully diluted | |||||||
Beneficial Owner | Stock | (%) | preferred stock | preferred stock | basis (%) | ||||||
(%) | |||||||||||
Net 1 Holdings | 8,520,578 | 6.13 | | | 2.57 | ||||||
Gemplus | 1,521,278 | 1.09 | | | 0.46 | ||||||
Other Net 1 | |||||||||||
shareholders | 5,811,000 | 4.18 | | | 1.75 | ||||||
Total - Net 1 | |||||||||||
shareholders | 15,852,856 | 11.41 | | | 4.78 | ||||||
Nedbank Ltd | | | 56,542,278 | 29.29 | 17.03 | ||||||
Allan Gray Inv. | |||||||||||
Mgmt | | | 42,914,210 | 22.24 | 12.93 | ||||||
Serge Belamant | |||||||||||
(direct) | | | 11,593,671 | 6.01 | 3.49 | ||||||
Other Aplitec | |||||||||||
shareholders | | | 81,934,979 | 42.46 | 24.68 | ||||||
Total Aplitec | |||||||||||
shareholders | 192,967,138 | 100.00 | 58.14 | ||||||||
Brait Consortium | 105,661,428 | 76.04 | | | 31.83 | ||||||
2004 Stock | |||||||||||
Incentive Plan | |||||||||||
-- Stock options | 8,720,936 | 6.28 | | | 2.63 | ||||||
-- Other share-based | |||||||||||
awards | 8,720,936 | 6.28 | | | 2.63 | ||||||
Total All | |||||||||||
shareholders | 138,956,156 | 100.00 | 192,967,138 | 100.00 | 100.00 |
Following completion of the transactions, the shares of Net 1 special convertible preferred stock will have voting rights on a one-to-one basis with the shares of Net 1 common stock.
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S ELECTED H ISTORICAL F INANCIAL D ATA OF N ET 1 AND A PLITEC
The following tables present selected financial data of Net 1 and Aplitec, which have been derived from the audited financial statements of Net 1 and Aplitec. The selected historical financial data should be read in conjunction with Business, Operating and Financial Review and Prospects and the historical and pro forma financial statements included in this proxy statement/prospectus.
Selected Historical Financial Data of Net 1
Year Ended December 31, | |||||||||||
1998 | 1999 | 2000 | 2001 | 2002 | |||||||
(in US$ except number of shares) | |||||||||||
Income Statement | |||||||||||
Revenue | | | | | 157,565 | ||||||
Administrative expenses | 659,002 | 267,161 | 336,685 | 677,879 | 324,615 | ||||||
Financing costs | | | (475 | ) | (284 | ) | (108 | ) | |||
(Loss)/Profit from operations | (659,002 | ) | (267,161 | ) | (336,210 | ) | (677,595 | ) | (166,942 | ) | |
Basic EPS | (0.08 | ) | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.01 | ) | |
Diluted EPS | (0.08 | ) | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.01 | ) | |
Cash dividends paid | | | | | | ||||||
Balance Sheet | |||||||||||
Total assets | 446,756 | 87,470 | 795,623 | 90,902 | 114,039 | ||||||
Total liabilities | 237,845 | 145,720 | 185,353 | 158,227 | 348,306 | ||||||
Shareholders equity | 208,911 | (58,250 | ) | 610,270 | (67,325 | ) | (234,267 | ) | |||
Shares in issue at year-end | 10,873,244 | 10,873,244 | 15,852,856 | 15,852,856 | 15,852,856 |
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Selected Historical Financial Data of Aplitec
Year Ended June 30, | |||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | |||||||
(in thousands of ZAR except share and per share data) | |||||||||||
Income Statement | |||||||||||
Amounts in accordance with | |||||||||||
South African GAAP | |||||||||||
Revenue | ZAR 241,665 | ZAR 436,860 | ZAR 557,445 | ZAR 525,585 | ZAR 691,484 | ||||||
Profit from operations | 32,703 | 79,243 | 125,756 | 135,000 | 175,868 | ||||||
Net profit for the year | 29,774 | 59,558 | 93,187 | 104,033 | 126,187 | ||||||
Basic earnings per share | 0.16 | 0.30 | 0.41 | 0.45 | 0.53 | ||||||
Diluted earnings per share | 0.16 | 0.30 | 0.41 | 0.45 | 0.53 | ||||||
Cash dividend per common share | 0.02 | | | | 0.11 | ||||||
Amounts in accordance with | |||||||||||
United States GAAP | |||||||||||
Profit from continuing operations | 61,405 | 86,443 | 108,160 | ||||||||
Net profit for the year | ZAR 61,404 | ZAR 86,444 | ZAR 118,803 | ||||||||
Basic earnings per share before | |||||||||||
extraordinary item and cumulative effect | |||||||||||
of a change in accounting principle | 0.27 | 0.38 | 0.46 | ||||||||
Diluted earnings per share before | |||||||||||
extraordinary item and cumulative effect | |||||||||||
of a change in accounting principle | 0.27 | 0.37 | 0.46 | ||||||||
Basic earnings per share after | |||||||||||
extraordinary item and cumulative effect | |||||||||||
of a change in accounting principle | 0.27 | 0.38 | 0.50 | ||||||||
Diluted earnings per share after | |||||||||||
extraordinary item and cumulative effect | |||||||||||
of a change in accounting principle | 0.27 | 0.37 | 0.50 | ||||||||
Balance Sheet | |||||||||||
Amounts in accordance with | |||||||||||
South African GAAP | |||||||||||
Total assets | 224,476 | 266,453 | 392,255 | 510,717 | 682,528 | ||||||
Total liabilities | 110,754 | 110,910 | 83,180 | 92,262 | 158,408 | ||||||
Capital and reserves | 113,722 | 155,543 | 309,075 | 418,455 | 524,120 | ||||||
Shares in issue (000s) | 178,565 | 198,599 | 229,814 | 233,464 | 236,977 | ||||||
Amounts in accordance with | |||||||||||
United States GAAP | |||||||||||
Total assets | ZAR 479,790 | ZAR 587,853 | ZAR 767,473 | ||||||||
Total liabilities | 117,111 | 155,161 | 215,132 | ||||||||
Shareholders equity | 362,679 | 432,692 | 552,341 |
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C OMPARATIVE S TOCK P RICES AND D IVIDENDS
Comparison
Net 1s common stock is quoted on the OTC Bulletin Board under the symbol NUEP.OB and ordinary shares of Aplitec are listed and traded on the JSE under the share code APL. The following table sets forth, for the respective fiscal periods of Net 1 and Aplitec indicated, the high and low bid information per share of Net 1 common stock, and the high and low sales prices per share of Aplitec ordinary shares, as reported on Bloomberg Financial Markets. Note that the quotations for Net 1s common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Net 1 | ||||||||||||||
Common Stock | Aplitec Ordinary Shares | |||||||||||||
High | Low | High | Low | Dividends | ||||||||||
US$ | US$ | ZAR | US$(1) | ZAR | US$(1) | ZAR | ||||||||
2000 | ||||||||||||||
First Quarter | 8.25 | 0.25 | 3.40 | 0.49 | 1.80 | 0.26 | | |||||||
Second Quarter | 6.58 | 3.00 | 2.45 | 0.35 | 1.40 | 0.20 | | |||||||
Third Quarter | 5.50 | 3.50 | 3.70 | 0.53 | 2.23 | 0.32 | | |||||||
Fourth Quarter | 4.88 | 2.00 | 3.25 | 0.47 | 2.30 | 0.33 | | |||||||
2001 | ||||||||||||||
First Quarter | 3.50 | 1.50 | 3.40 | 0.49 | 2.51 | 0.36 | | |||||||
Second Quarter | 1.69 | 1.15 | 3.30 | 0.48 | 2.70 | 0.39 | | |||||||
Third Quarter | 2.00 | 0.90 | 4.00 | 0.58 | 3.10 | 0.45 | | |||||||
Fourth Quarter | 1.10 | 0.70 | 3.70 | 0.53 | 3.25 | 0.47 | | |||||||
2002 | ||||||||||||||
First Quarter | 1.45 | 0.75 | 3.90 | 0.56 | 2.80 | 0.40 | | |||||||
Second Quarter | 1.35 | 0.95 | 3.50 | 0.51 | 2.90 | 0.42 | | |||||||
Third Quarter | 1.20 | 0.90 | 3.20 | 0.46 | 2.60 | 0.38 | 0.11(2) | |||||||
Fourth Quarter | 1.30 | 0.90 | 3.60 | 0.52 | 2.75 | 0.40 | | |||||||
2003 | ||||||||||||||
First Quarter | 1.30 | 0.95 | 3.60 | 0.52 | 3.00 | 0.43 | | |||||||
Second Quarter | 2.12 | 1.06 | 4.15 | 0.60 | 3.50 | 0.51 | | |||||||
Third Quarter | 2.40 | 1.90 | 6.00 | 0.87 | 4.00 | 0.58 | 0.15(3) | |||||||
Fourth Quarter | 6.80 | 2.22 | 7.00 | 1.01 | 4.85 | 0.70 | | |||||||
2004 | ||||||||||||||
First Quarter (through | ||||||||||||||
January 28, 2004) | 7.50 | 5.22 | 7.90 | 1.14 | 5.36 | 0.77 | |
(1) | Converted at the rate of ZAR 6.92 = $1.00, which was the noon buying rate for customs purposes of the Rand as reported by the Federal Reserve Bank of New York on January 28, 2004. |
(2) | $0.02. |
(3) | $0.02. |
On October 23, 2003, the last trading day prior to public reports regarding a possible transaction, the price per share of Net 1 common stock quoted on the OTC Bulletin Board was $3.53 per share and the sale price of Aplitec ordinary shares quoted on the JSE was ZAR 4.20 per share, each as reported on Bloomberg Financial Markets. On January 28, 2004, the most recent practicable trading day prior to the printing of this proxy statement/prospectus, the sale price of Net 1 common stock was $7.30 per share and the sale price of Aplitec ordinary shares was ZAR 7.30 per share, each as reported on Bloomberg Financial Markets. The market prices of shares of Net 1 common stock and Aplitec ordinary shares are subject to fluctuation. As a result, Net 1 and Aplitec shareholders are urged to obtain current market quotations. On January 30, 2004 there were approximately 15,852,856 shares of Net 1 common stock outstanding and approximately 236,977,187 shares of Aplitec ordinary shares outstanding.
16
Net 1 Dividend History
Net 1 has not paid any dividends on its shares of common stock since its incorporation.
17
E XCHANGE C ONTROLS
The following is a summary of the material South African exchange control measures, which has been derived from publicly available documents. South African exchange controls may be of material relevance to Net 1 as New Aplitec will be a significant subsidiary of Net 1 after the transactions described in this proxy statement/prospectus are consummated. The following summary has been prepared by South African counsel, is not a comprehensive description of all of the exchange control regulations and does not cover exchange control consequences that depend upon your particular circumstances. We recommend that you consult your own advisor about the exchange control consequences in your particular situation. The discussion in this section is based on current South African law and regulations. Changes in law may alter the exchange control provisions that apply to a non-South African company that has investments in South Africa or in South African companies.
Introduction
Dealing in foreign currency, the export of capital and/or revenue, incurring of liabilities by South African residents to non-residents and various other exchange control matters in South Africa are regulated by South African exchange control regulations. These exchange control regulations form part of the general monetary policy of South Africa. The regulations are issued pursuant to section 9 of the South African Currency and Exchanges Act, 9 of 1933. Pursuant to the regulations, the control over South African capital and/or revenue reserves, as well as their accruals and spending, is vested in the Minister of Finance. The Minister of Finance has delegated the administration of exchange controls to the Exchange Control Department of the South African Reserve Bank, or Excon, which is responsible for the day to day administration and functioning of exchange controls. Excon has wide discretion but exercises its powers within certain policy guidelines. Within prescribed limits, authorized dealers in foreign exchange are permitted to deal in foreign exchange. Such dealings in foreign exchange by authorized dealers are undertaken in accordance with the provisions and requirements of the exchange control rulings, which rulings are issued by Excon, as the delegate of the Minister of Finance, and contain certain administrative measures, as well as conditions and limits applicable to transactions in foreign exchange, which may be undertaken by authorized dealers. Non-residents have been granted general approval, pursuant to the rulings, to deal in South African assets and to invest and disinvest in South Africa.
South Africas exchange control regulations provide for restrictions on exporting capital from the Common Monetary Area, consisting of the Republic of South Africa, the Republic of Namibia, and the Kingdoms of Lesotho and Swaziland. Transactions between residents of the Common Monetary Area, on the one hand, including companies, and non-residents of the Common Monetary Area, on the other hand, are subject to these exchange control regulations.
There are many inherent disadvantages of exchange controls including the distortion of the price mechanism, the problems encountered in the application of monetary policy, the detrimental effects on inward foreign investment and the administrative costs associated therewith. The South African Minister of Finance has indicated that all remaining exchange controls are likely to be dismantled as soon as circumstances permit. There has, since 1996, been a gradual relaxation of exchange controls. The gradual approach to the abolition of exchange controls adopted by the Government of South Africa is designed to allow the economy to adjust more smoothly to the removal of controls that have been in place for a considerable period of time. The stated objective of the authorities is equality of treatment between residents and nonresidents with respect to inflows and outflows of capital. The focus of regulation, subsequent to the abolition of exchange controls, is expected to favor the positive aspects of prudential financial supervision. The present exchange control system in South Africa is used principally to control capital movements. South African companies are not permitted to maintain foreign bank accounts and, without the approval of Excon, are generally not permitted to export capital from South Africa or hold foreign currency. In addition, South African companies are required to obtain the approval of Excon prior to raising foreign funding on the strength of their South African balance sheets, which would permit recourse to South Africa in the event of defaults. Repayment of principal and interest on funding is usually approved where the repayment is limited to the amount borrowed and a market-related role of interest subject to a maximum of South African prime plus two percent. New Aplitec has obtained Excons approval for the loan funding from Net 1 for the Aplitec acquisition. Where 75% or more of a South African companys capital, voting power, power of control or earnings is directly or indirectly controlled by non-residents, such a company is designated an affected person by the South African Reserve Bank, and certain restrictions are placed on its ability to obtain local financial assistance. Upon
18
completion of the Aplitec acquisition, New Aplitec will be designated as an affected person by the South African Reserve Bank.
Foreign investment and loans by South African companies to companies outside South Africa are also restricted. In addition, without the approval of Excon, South African companies are generally required to repatriate to South Africa profits of foreign operations and are limited in their ability to utilize profits of one foreign business to finance operations of a different foreign business. South African companies establishing subsidiaries, branches, offices or joint ventures abroad are generally required to submit financial statements on these operations to Excon on an annual basis. As a result, a South African companys ability to raise and deploy capital outside the Common Monetary Area is restricted.
Although exchange controls have been gradually relaxed since 1996, unlimited outward transfers of capital currently are not permitted.
Investment in South African Companies
A foreign investor may invest freely in shares in a South African company. Foreign investors may also sell shares in a South African company and transfer the proceeds out of South Africa without restrictions upon production of a certificate from an auditor in South Africa confirming that the purchase price paid was fair. Acquisitions of shares or assets of South African companies by non-South African purchasers are not generally subject to review by the South African Reserve Bank when the consideration is in cash, but will require a review by the South African Reserve Bank in certain circumstances, including when the consideration is equity in a non-South African company or when the acquisition is financed by a loan from a South African lender.
Dividends
There are no Excon restrictions on the remittance in full of dividends declared out of trading profits to nonresidents of the Common Monetary Area upon production of a certificate from a South African auditor confirming that the dividends are payable out of the profits of the company. Cash dividends paid by New Aplitec are not subject to South African taxes in the hands of its shareholders, regardless of the nationality or residency of such shareholders. For a description of certain material U.S. federal tax consequences to Non-U.S. Holders, please see the section titled The Proposed TransactionsMaterial United States Federal Tax Consequences to Non-U.S. Holders.
19
R ISK F ACTORS
In addition to the other information in this proxy statement/prospectus, you should carefully consider the following risk factors in deciding whether to vote to approve the proposed transactions.
R ISKS R ELATING TO THE P ROPOSED T RANSACTIONS
Investors and financial analysts may have difficulty in evaluating Net 1, which may adversely affect the market price of the Net 1 shares of common stock.
If the proposed transactions are completed, Net 1 believes that it will be the only company with a principal focus on branded UEPS technology globally. Net 1 will have four principal sources of revenue: manufacture licensing, usage licensing, joint ventures and hardware sales. Analysts may apply different valuation methodologies to these revenue streams and to Net 1. Investors and analysts may also have difficulty in evaluating the transaction structure, which may impact on their valuation of Net 1. Net 1s business does not have an operating history and is not proven, and investors and analysts may need an extended period of time to fully understand this business. Although Net 1 expects to devote time and effort in explaining its business to investors, analysts and other market participants, it is possible that they will have difficulty evaluating Net 1, which may have an adverse effect on the market price of Net 1s shares of common stock.
Net 1 may fail to realize the anticipated benefits of the proposed transactions, which may negatively affect Net 1s ability to develop its business plan.
Net 1 will need to implement promptly and effectively a post-transaction action plan in order to realize the benefits or synergies from the proposed transactions, including:
• | increasing revenues from licensing and other sources; and | |
• | developing new businesses and providing additional services that benefit from the combined assets and resources of Net 1s constituent companies. |
Net 1s management has been involved for some time in attempting to develop Net 1s business plan with only limited success. If Net 1s management team fails to execute this action plan, Net 1 may not realize anticipated growth in revenue, cash flow and earnings, which would have an adverse effect on the market price of Net 1s shares of common stock.
The proposed transactions may not be completed if certain conditions are not met.
The proposed transactions are subject to a number of conditions, the outcome of which cannot be influenced by Net 1, including the approval of regulatory bodies in South Africa. If these conditions are not fulfilled or waived before May 31, 2004, the proposed transactions will not be completed. If the proposed transactions are not completed, Net 1 may not be able to continue as a going concern beyond 2004.
Any failure to complete the proposed transactions or delay in the completion of the proposed transactions could cause Net 1 to incur substantial costs and negatively affect Net 1s results of operations.
If the transactions are not completed on a timely basis or at all, Net 1 may suffer negative consequences to its business, results of operations, financial condition and prospects, including, among others, the following:
• | substantial fees and expenses related to the transactions in the range of $2.1 million to $5.8 million, such as legal and accounting fees and disbursements, which must be paid even if the transactions are not completed; and | |
• | if the transactions are terminated and Net 1s board of directors determines to pursue another transaction, it may not be able to find a partner at all or on terms as attractive as those provided for by the transactions described herein. |
In addition, as a development stage company that has not been able to raise adequate financing to fund its business plan and operations since its incorporation in 1997, the failure to consummate the transactions and obtain
20
the proposed financing from the Brait Consortium raises concerns about Net 1s ability to continue as a going concern beyond 2004.
Any of these effects or the failure to complete the transactions on a timely basis or at all could adversely affect the market price of Net 1s shares of common stock.
The shares of Net 1 common stock and special convertible preferred stock to be issued in connection with the proposed transactions may dilute the voting power and value of Net 1s common stock currently outstanding.
Net 1 will issue to the Brait Consortium 105,661,428 shares of common stock at a purchase price of $0.50 per share and in addition, the Brait Group has the option of receiving some or all of its financial advisory and capital raising fees in the form of shares of Net 1 common stock. Net 1 will also issue to the South African Trust 192,967,138 shares of special convertible preferred stock in connection with the Aplitec acquisition, which are convertible on a one-for-one basis into shares of Net 1 common stock. The shares of special convertible preferred stock will be convertible into shares of common stock that will be issued to holders of special convertible preferred stock upon exercise of their conversion option. Together, these issuances (assuming (1) immediate conversion of the shares of special convertible preferred stock into common stock and (2) the Brait Group receives 100% of its fee in the form of Net 1 common stock) will account for 90.20% of the voting power of Net 1 after the closing of the proposed transactions. These issuances will limit the voting power of shares of Net 1 common stock currently outstanding, and they could diminish the market price of Net 1’s common stock.
Net 1s shareholders who vote against the proposed transactions will not have dissenters or similar rights.
Neither Florida law nor Net 1s articles of incorporation provide for any dissenters or appraisal rights to shareholders who vote against the proposed transactions. The absence of such rights may limit the ability of Net 1 shareholders to challenge the proposed transactions after they are approved.
If a sufficient number of Aplitecs current shareholders do not elect the reinvestment option, the Brait Group may control Net 1, which could inhibit or cause potential changes of control of Net 1 and may give rise to conflicts of interest with Net 1s other shareholders.
To the extent Aplitec shareholders decline the reinvestment option, the Brait Group, an affiliate of which is a member of the Brait Consortium, will acquire those interests via the South African Trust. The Brait Group would therefore participate in the ownership of New Aplitec in lieu of the non-participating Aplitec shareholders and exercise voting and other rights in Net 1 indirectly through the South African Trust. The effect of this scenario would be to increase the Brait Group’s ownership of Net 1’s voting shares. If a sufficient number of Aplitec’s shareholders decline the reinvestment option, the Brait Group may effectively control a majority of the voting interest of Net 1 when added to the shares of common stock that will be issued directly to the Brait Consortium (of which the Brait Group is a member) in connection with its capital contribution. This would enable the Brait Group to determine all matters requiring shareholder approval, including a sale of Net 1 or of substantially all of its assets, or a material acquisition by Net 1. The Brait Consortium also has the right to designate three nominees to the slate of directors that Net 1’s management recommends to shareholders in its annual proxy statement. This control could discourage other parties from initiating potential merger or other change of control transactions that might otherwise be beneficial to Net 1’s shareholders. In addition, in the event that the Brait Group were to become the controlling shareholder of Net 1, its interests may conflict with those of Net 1’s other shareholders with respect to, among other things, Net 1’s strategic direction, significant corporate transactions, or other corporate opportunities that could be pursued by Net 1 or by the Brait Group.
There is a risk we may become subject to a United States tax liability for failing to withhold on certain distributions.
As discussed more fully under The Proposed TransactionsMaterial United States Federal Tax Consequences to Non-U.S. HoldersConsequences to Non-U.S. HoldersReclassification of Special Convertible Preferred Stock Interest, there is no statutory, judicial or administrative authority that directly addresses the tax treatment of Non-U.S. holders that elect to receive units in a trust representing beneficial interests in B class preference shares and B class loan accounts issued by New Aplitec pursuant to the reinvestment option. We believe these interests should be treated as, and intend to treat them as, separate and distinct interests in New Aplitec. As such, we and our affiliates do not intend to withhold any amounts for United States federal taxes in respect of such interests. There is a risk, however, that these interests, together with the special convertible preferred stock, will be treated as representing a single direct equity interest in Net 1 for United States federal income tax purposes. In such
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case, distributions received with respect to the B class preference shares and B class loan accounts would be subject to United States federal withholding tax as described under The Proposed TransactionsMaterial United States Federal Tax Consequences to Non-U.S. HoldersConsequences to Non-U.S. HoldersDividends. Should Non-U.S. Holders fail to pay the United States federal tax associated with such distributions, we may be liable for such taxes in our capacity as withholding agent. In addition, our failure to collect and remit United States federal withholding tax may also subject us to penalties.
R ISKS R ELATING TO N ET 1
Net 1s business has incurred losses and might not attain profitability in the future.
Net 1s business has a history of losses and Net 1 is expected to continue to incur losses as it has to fund operating and capital expenditures in the future including marketing, personnel and integration costs. Net 1 incurred total net losses of $166,942 for the year ended December 31, 2002 and $129,802 for the nine months ended September 30, 2003. The aggregate shareholders accumulated deficit for Net 1 at September 30, 2003 was $364,069.
Net 1 anticipates that its financial performance in 2003, on a stand-alone basis without giving effect to the transactions, will be negatively affected by historical trends affecting its business, including lack of liquidity and lack of access to capital. The extent of future losses will depend, in part, on the magnitude of growth in Net 1s revenues. Net 1s business plan contemplates achieving profitability through revenue growth, operating efficiencies and the reduction of corporate expenses as a result of the integration of its business with the business of Aplitec. Failure to significantly increase revenues or decrease expenses will have a material adverse effect on Net 1s ability to achieve profitability.
Net 1 may fail to retain or recruit qualified managers with the requisite multi-national and industry expertise, which could impede the implementation of Net 1s business strategy.
Net 1s future financial and operational performance depends, in large part, on the continued service of Dr. Belamant, who is the current chairman of Net 1s board of directors and who will also serve as Net 1s chief executive officer after the completion of the proposed transactions. The loss of the services of Dr. Belamant could have a material adverse effect on Net 1s businesses and financial performance.
Net 1s multi-country strategy also requires the hiring and retention of highly qualified personnel in each market. Net 1 may not be able to retain key personnel or attract and retain additional highly qualified technical and managerial personnel in the future. Any failure to attract and retain the necessary personnel could result in Net 1 failing to successfully implement its business plan and prevent Net 1 from attaining profitability.
Net 1 may be required to raise additional financing by issuing new securities with terms or rights superior to those of the shares of common stock, which could adversely affect the market price of the shares of common stock.
Net 1 may require additional financing to fund future operations, including expansion in current and new markets, the granting of new licenses, programming development and acquisition, capital costs and the costs of any necessary implementation of technological innovations or alternative technologies. Because of the early stage of development of Net 1s operations, its negative earnings and exposure to market risks associated with economies in emerging markets, Net 1 may not be able to obtain financing on favorable terms or at all. If Net 1 raises additional funds by issuing equity securities, the percentage ownership of its then current shareholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of its shares of common stock, which could adversely affect the market price and voting power of shares of common stock. If Net 1 raises additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of its shares of common stock, and the terms of these debt securities could impose restrictions on its operations and create a significant interest expense for Net 1.
Net 1 may have difficulty raising necessary capital to fund operations as a result of market price volatility for its shares of common stock.
In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly small-capitalization companies such as Net 1, have experienced wide fluctuations that have not necessarily been related to the operations,
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performances, underlying asset values, or prospects of such companies. For these reasons, Net 1s shares of common stock can also be expected to be subject to volatility resulting from purely market forces over which Net 1 will have no control. If its business development plans are successful, additional financing may be required to continue to develop and exploit existing and new technologies and to expand into new markets. The exploitation of Net 1s technologies may, therefore, be dependent upon Net 1s ability to obtain financing through debt and equity or other means.
Patent competition may adversely affect our products or processes, and the lack of proprietary protection could be harmful to our operations.
Our products and technology have unique characteristics and structures and, as a result, are subject to patent protection, the extent of which varies from country to country. During the life of a patent, a product is only subject to competition by alternative products. However, aggressive patenting by our competitors and potentially patent piracy may threaten protected products and processes and may result in an increased patent infringement risk, especially in emerging economies such as those where we currently operate. The expiration of a patent also results in increased competition in the market for the previously patented products and processes. In addition, Net 1s patent filings in Europe have been revoked and consequently it does not have any patent protections in the member countries of the European Union. Each of these factors could have a material adverse effect on our business, operating results, cash flows and financial condition.
We may not be able to exploit technological advances quickly and successfully, which could impair our competitive position and operations.
Most of our operations depend on the use of advanced technological methods. The use of the appropriate advanced technological procedures can affect, among other things, the competitiveness of our products, the safety of transactions performed using our products, the continuity of our operations and the capacity and efficiency of our production.
We believe that new technologies may emerge and that existing technologies may be further developed in the fields in which we operate. Unexpected rapid changes in employed technologies that affect our operations and product range could render the technologies we utilize obsolete or less competitive in the future. Difficulties in accessing new technologies may impede us from implementing them and competitive pressures may force us to implement these new technologies at a substantial cost. In addition, limited access to sources of new capital to acquire new technologies may adversely affect our results of operations and financial condition.
We cannot predict the effect of technological changes on our business or on our ability to provide competitive products. Our ability to meet the competition will depend on our timely and cost-effective implementation of new technological advances. It will also depend on our success in commercializing these advances in spite of competition we face by patents registered by our competitors. If we are unable to implement new technologies in a timely or cost-efficient basis or penetrate new markets in a timely manner in response to changing market conditions or customer requirements, we could experience a material adverse effect on our business, operating results, cash flows and financial condition.
Volatility in the South African Rand to U.S. dollar exchange rate may adversely affect our business, operating results, cash flows and financial condition.
The Rand is a substantial operating currency for Aplitec and will be a substantial operating currency for Net 1 upon completion of the Aplitec acquisition. Because a large part of Net 1s sales will be denominated in Rand, a decline in the value of the Rand against the U.S. dollar may have a significant adverse effect on the results of operations of Net 1. In recent years, the Rand has steadily depreciated against the U.S. dollar, moving at an average rate per U.S. dollar from ZAR 6.33 in 2000 to ZAR 7.64 in 2001 to ZAR 10.20 in 2002. However, since June 2002, the Rand has appreciated against the U.S. dollar, mainly due to a general depreciation of the U.S. dollar, reaching ZAR 6.92 on January 28, 2004. Over this period, the exchange rate has been particularly volatile and we expect this volatility to continue in the foreseeable future.
In addition, although the Rand exchange rate is primarily market-determined, its value at any time may not be an accurate reflection of underlying value, due to the potential effect of exchange controls. Trends in sales and profits may experience significant fluctuations as the rate of exchange between the Rand and the U.S. dollar fluctuates. We cannot assure you what effect, if any, a decline in the exchange rate of the Rand against the U.S. dollar will have on our results of operations and financial condition after consummation of the transactions.
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Our ability to engage in a reorganization subsequent to the proposed transactions may be limited.
Immediately following the proposed transactions, substantially all of our business activities will be conducted outside of the United States. We intend to analyze the possibility of engaging in a subsequent reorganization in which Net 1 would become organized outside of the United States. However, legislation recently proposed by the United States Congress could affect the economic feasibility of such a reorganization.
There are risks relating to other countries in which we intend to operate that could adversely affect our business, operating results, cash flows and financial condition.
In the future, we intend to expand operations into countries and regions (such as Africa, South America, Southeast Asia and Central Europe) that are subject to significantly differing political, economic and market conditions. Specific country risks that may have a material impact on our business, operating results, cash flows and financial condition, include:
• | political and economic instability; | |
• | external acts of warfare and civil clashes; | |
• | government interventions, including protectionism and subsidies; | |
• | regulatory, taxation and legal structure changes; | |
• | cancellation of contractual rights; and | |
• | expropriation of assets. |
Many of these countries are in various stages of developing institutions and legal and regulatory systems that are characteristic of parliamentary democracies. However, institutions in these countries may not yet be as firmly established as they are in parliamentary democracies in the developed world. Many of these countries are also in the process of transitioning to a market economy and, as a result, experience changes in their economies and their government policies that can affect our investments in these countries. Moreover, the procedural safeguards of the new legal and regulatory regimes in these countries are still being developed and, therefore, existing laws and regulations may be applied inconsistently. In some circumstances, it may not be possible to obtain the legal remedies provided under those laws and regulations in a timely manner.
As the political, economic and legal environments remain subject to continuous development, investors in these countries face uncertainty as to the security of their investments. Any unexpected changes in the political or economic conditions in these or neighboring countries may have a material adverse effect on the international investments that Net 1 has made or may make in the future, which may in turn have a material adverse effect on its business, operating results, cash flows and financial condition.
Net 1 may incur significant costs to ensure compliance with United States corporate governance and accounting requirements subsequent to the proposed transactions.
Aplitec is currently subject to all laws applicable to South African companies, as well as the listing requirements of the JSE. Following the completion of the proposed transactions, Net 1 may need to modify its corporate governance standards to comply with U.S. requirements, including the Sarbanes-Oxley Act. Additionally, the accounting standards currently used by Aplitec may require modifications to ensure compliance with U.S. GAAP. These adjustments may require Net 1 to incur significant third-party advisory costs.
R ISKS R ELATING TO A PLITEC AND N EW A PLITEC
There are risks relating to South Africa that could adversely affect New Aplitecs business, operating results, cash flows and financial condition.
New Aplitec, which will be Net 1s primary operating subsidiary after the proposed transactions, is a South African company. All of New Aplitecs operations will be located and all of its sales will be generated in South
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Africa. As a result, New Aplitec will be subject to the uncertainties of the political, economic and regulatory environment of South Africa.
The changing political and social environment . South Africa has faced a rapidly changing political environment since the democratic elections of 1994, when over forty years of National Party rule came to an end. South Africa now faces social, political and economic challenges, which may adversely affect New Aplitecs business, operating results, cash flows and financial condition. The country is experiencing high levels of unemployment and crime. There are significant differences in the level of economic and social development among its people, with large parts of the population not having access to education, healthcare, housing and other basic services. Furthermore, South Africa faces challenges related to lack of adequate infrastructure. These problems have hampered foreign direct investment into South Africa, prompted emigration of skilled workers and may in the future have an adverse impact on productivity.
High inflation and interest rates . The economy of South Africa has been, and may in the future be, characterized by high rates of inflation and high interest rates. High rates of inflation could increase Net 1s South African-based costs and decrease its operating margins. High interest rates could adversely affect Net 1s ability to obtain cost-effective debt financing in South Africa.
Black economic empowerment. The South African government has recently taken a number of steps to increase ownership of South African business assets by Black Empowerment Entities, or BEEs. The government and the information technology industry in South Africa are currently drafting an Information Technology charter, which is expected to result in a requirement that South African information technology companies accommodate a BEE ownership component, which will probably be a set percentage ownership that has to be achieved over a predetermined period. While the potential dilatory effect and the cost of accommodating BEE shareholders is a risk to the shareholders of New Aplitec, the inclusion of the appropriate BEE shareholders could present significant opportunities for New Aplitec, specifically in obtaining new government business.
Exchange control regulation . South Africas exchange control regulations restricts the export of capital from South Africa, the Republic of Namibia, and the Kingdoms of Lesotho and Swaziland, known collectively as the Common Monetary Area. Transactions between South African residents (including companies) and nonresidents of the Common Monetary Area are subject to exchange controls enforced by the South African Reserve Bank. As a result, Net 1s ability to raise and deploy capital outside the Common Monetary Area is restricted. In particular, New Aplitec will:
• | generally not be permitted to export capital from South Africa or to hold foreign currency without the approval of the South African Reserve Bank; and | |
• | generally be required to repatriate to South Africa profits of its foreign operations. |
These restrictions could prevent New Aplitec and ultimately Net 1 from obtaining adequate funding on acceptable terms for its acquisitions and other business opportunities outside South Africa.
In addition, potential acquisitions of non-South African shares or assets, or South African shares or assets, from a non-South African by South African residents, are subject to prior approval by the South African Reserve Bank, pursuant to South African exchange control regulations. The South African Reserve Bank may refuse to approve such proposed acquisitions in its discretion. As a result, New Aplitecs management may be limited in its ability to consider strategic options and Net 1s shareholders may not be able to realize the premium over the current trading price of Net 1s shares that they might otherwise receive upon an acquisition of New Aplitecs ordinary shares if Net 1 sought to dispose of New Aplitec.
Unionized labor force . Most of South Africas major industries are unionized, and the majority of employees belong to trade unions. In the past, trade unions have had a significant impact on the collective bargaining process as well as on social and political reform in South Africa in general. Aplitec currently has 141 unionized employees. Although in recent years Aplitec has not experienced significant labor disruptions, we cannot assure you that such labor disruptions could not occur in the future.
R egional instability . Historically, there has been regional, political, and economic instability in the countries surrounding South Africa. Such political or economic instability in neighboring countries could affect the social, political and economic conditions in South Africa, and this could have a negative impact on Net 1s ability to manage its operations in the country.
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HIV/AIDS. HIV/AIDS and tuberculosis, which is exacerbated in the presence of HIV/AIDS, are major healthcare challenges in South Africa and other sub-Saharan countries. HIV infection among women in antenatal clinics throughout South Africa has risen from 1% in 1990 to nearly 25% in 2000. Under South African law, Aplitec cannot run tests to determine if its employees are infected with, or die from, AIDS. Aplitec may incur costs relating to the loss of personnel and the related loss of productivity as well as the costs relating to recruiting and training of new personnel. New Aplitec is not in a position to accurately quantify these costs and cannot assure you that the costs that will be incurred in connection with this epidemic will not have a material adverse effect on New Aplitec and its financial condition.
The provincial governments of South Africa will be New Aplitecs largest customers, and any payment defaults by these governments will adversely affect our operations.
Cash Paymaster Services (Proprietary) Limited, or CPS, Aplitecs principal operating subsidiary, is responsible for the distribution of social welfare grants on behalf of five of the provincial governments of South Africa. CPS uses internal cash resources and facilities to fund the payment of these grants in the KwaZulu-Natal and Eastern Cape provinces of South Africa. These funds are subsequently recovered from the provincial government at the end of the payment cycle. New Aplitecs ongoing revenues, operating results and cash flows will be dependent on this concentrated group of customers. Also, Aplitecs pre-funding obligations with respect these grants expose it to the risk of default by the applicable provisional government. Although no provisional government has ever defaulted on a repayment of funds at the end of the payment cycle, we cannot guarantee that such a default will not occur in the future. Any such default could have a material adverse effect on New Aplitec and its financial position.
New Aplitec may not be successful in renewing its existing contracts to distribute social welfare payments through its CPS subsidiary.
CPS generates the majority of the revenue and profits of Aplitec. Most of the contracts are in extension periods and contracts in the five provinces will expire at different times between December 2004 and November 2006. New Aplitecs failure to win tenders for the award of these contracts once they expire or to obtain further extensions will have a material adverse effect on New Aplitec and its financial position.
New Aplitec may not recover outstanding amounts owed to its micro-finance businesses.
Aplitec operates a traditional micro-finance business, with more than 100 branches throughout South Africa. These branches extend short-term loans for periods ranging from 30 days to 3 months. Despite credit granting procedures, the rate of default on loans has been high due to the high credit risk of these borrowers and the difficulty of collecting outstanding repayments. New Aplitec may therefore not recover the principal and interest amounts currently owed by its borrowers, which at June 30, 2003 totaled ZAR 81.9 million ($11.8 million). New Aplitecs inability to recover these amounts may have a material adverse effect on its financial position.
New Aplitec may be exposed to credit risk through its investment in hedging arrangements.
New Aplitec intends to use financial instruments in order to reduce its exposure to exchange rate and interest rate fluctuations arising from its operations.
Foreign exchange risk. New Aplitec intends to use forward cover contracts in order to limit its exposure to the ZAR/USD and ZAR/EUR exchange rate fluctuations from foreign currency transactions. We could enter into such contracts at rates which may result in financial losses, should the South African Rand strengthen against the currency being hedged against.
Interest rate risk. As a result of normal borrowing and leasing activities, New Aplitecs operating results will be exposed to fluctuations in South African interest rates, which will be managed primarily through Aplitecs regular financing activities. Any adverse movements in South African interest rates which have not been hedged against may result in financial losses.
New Aplitec may face competition from the incumbent retail banks in South Africa in the un-banked market segment.
The incumbent South African retail banks recently announced a joint initiative to create a common banking product to offer to the significant portion of South Africas population that does not have access to traditional
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banking services, or the un-banked. This national bank account is scheduled to be introduced in the middle of 2004 and will offer limited transactional capabilities with minimal charges. While the initiative is still under development, the use of these accounts to deliver social welfare grants will have a material adverse effect on New Aplitec and its financial position.
New Aplitec may fail to retain or recruit qualified managers with needed industry expertise, which could impede the implementation of New Aplitecs business strategy.
New Aplitecs future financial and operational performance depends, in large part, on the continued service of its senior management. New Aplitec will rely, in particular, on the strategic guidance of Dr. Belamant, the current chief executive officer and chairman of the board of directors of Aplitec, and on the services of Aplitecs current executive managers including Herman Kotze, Brenda Stewart and Nitin Soma. The loss of the services of these individuals, and Dr. Belamant in particular, could have a material adverse effect on New Aplitecs businesses and financial performance.
New Aplitecs and Net 1s future growth also requires the hiring and retention of highly qualified personnel. They may not be able to retain key personnel or attract and retain additional highly qualified technical and managerial personnel in the future. Any failure to attract and retain the necessary personnel could delay or lead to the cancellation of new projects or the overall implementation of New Aplitecs business plan, which could impact the growth in revenue and profitability of New Aplitec.
New Aplitec may not be successful in attracting and retaining sufficient skilled employees in South Africa.
New Aplitec is highly dependent on the continuous development and successful application of new technologies. In order to achieve this, it needs to maintain a focus on recruiting and retaining qualified personnel. In the past, Aplitec has been successful in recruiting such personnel. However, demand for personnel with the range of capabilities and experience required in its industry in South Africa is high and success in attracting and retaining such employees is not guaranteed. The risk exists that its scientific skills base may be depleted over time because of natural attrition. Furthermore, social and economic factors in South Africa have led and continue to lead numerous qualified individuals to leave the country, thus depleting the availability of qualified personnel in South Africa. Failure to attract and retain people with the right capabilities and experience could negatively affect Net 1s ability to introduce the appropriate technological improvements to New Aplitecs business and may have a material adverse effect on operating results.
Patent competition may adversely affect New Aplitecs products or processes.
New Aplitecs various products and technology have unique characteristics and structures and, as a result, are subject to patent protection, the extent of which varies from country to country. During the life of its patent, a product is only subject to competition by alternative products. While Aplitecs patents in South Africa, Botswana, Namibia and Swaziland remain in full force and effect, aggressive patenting by our competitors and future patent piracy may threaten protected products and processes and may result in increased patent infringement risk. In addition, the expiration of a patent results in increased competition in the market for the previously patented products and processes.
New Aplitec may not be able to exploit technological advances quickly and successfully.
Most of Aplitecs operations are highly dependent on the use of advanced technological methods. The use of the appropriate advanced technological procedures can affect, among other things, the competitiveness of its products, the safety of transactions performed using these products and the continuity of operations.
New technologies may emerge and existing technologies may be further developed in the fields in which Aplitec currently operates. Unexpected rapid changes in employed technologies that affect these fields could render Aplitecs current products obsolete or less competitive in the future. Difficulties in accessing new technologies may impede New Aplitec in the future from implementing them, and competitive pressures may force New Aplitec to implement these new technologies at a substantial cost.
The effect of technological changes on New Aplitecs business or its ability to provide competitive products cannot be predicted. New Aplitecs ability to meet the competition will depend on the timely and cost-effective implementation of new technological advances. It will also depend on their success in commercializing these advances in spite of competition faced by patents registered by its competitors. If New Aplitec is unable to
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implement new technologies in a timely or cost-efficient basis or penetrate new markets in a timely manner in response to changing market conditions or customer requirements, it could experience a material adverse effect on its business, operating results, cash flows and financial condition.
R ISKS R ELATING TO N ET 1 S S HARES O F C OMMON S TOCK
The market for the shares of Net 1 common stock may be highly volatile.
The market for the shares of Net 1 common stock may be highly volatile for reasons both related to the performance of Net 1 or events pertaining to the industry as well as factors related to the regions where Net 1 and its subsidiaries conduct their business. Instability in the prices for the products and services that Net 1 and its subsidiaries will provide may adversely affect Net 1s ability to raise capital. Net 1s shares of common stock can be expected to be subject to volatility in both price and volume arising from market expectations. Shareholders of Net 1 may be unable to sell significant quantities of shares in the public trading markets without a significant reduction in the price of its common shares.
In addition, the trading prices of Net 1s shares of common stock have been volatile and may continue to be volatile in the future. Factors including the depth and liquidity of the market for Net 1s shares of common stock, investor perceptions of Net 1 and general economic conditions worldwide may cause the trading prices of Net 1s shares of common stock to fluctuate significantly. Due to these factors, the shares of common stock obtained upon the conversion of special convertible preferred stock may not trade at a price higher than or equal to the price at which the shares of common stock were trading prior to conversion.
Broker-dealers may be discouraged from effecting transactions in Net 1 common stock because it is considered a penny stock and is subject to the penny stock rules.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on NASD broker-dealers who make a market in a penny stock. A penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share. Net 1 is a non-NASDAQ traded equity security and, while its stock price has recently traded above $5.00 per share, its historical trading prices are below $5.00. See Comparative Stock Prices and Dividends. During the period from January 1, 2003 to December 31, 2003, Net 1s price per share ranged from $0.90 (low) to $6.55 (high). The closing price per share on January 28, 2004 was $7.30 per share. The additional sales practice and disclosure requirements imposed upon broker-dealers, to the extent they apply to Net 1 after the transactions, may discourage broker-dealers from effecting transactions in Net 1 shares, which could severely limit the market liquidity of the shares and impede the sale of its shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or accredited investor (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchasers written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customers account and information with respect to the limited market in penny stocks.
R ISKS R ELATING TO H OLDERS OF N ET 1 S S PECIAL C ONVERTIBLE P REFERRED S TOCK
Payments to Non-U.S. Holders in respect of the B Class Preference Shares and B Class Loan Accounts may be subject to United States withholding tax.
As discussed more fully under The Proposed TransactionsMaterial United States Federal Tax Consequences to Non-U.S. HoldersConsequences to Non-U.S. HoldersReclassification of Special Convertible Preferred Stock Interest, there is no statutory, judicial or administrative authority that directly addresses the tax treatment of Non-U.S. holders that elect to receive units in a trust representing beneficial interests in B class preference shares and B class loan accounts issued by New Aplitec pursuant to the reinvestment option. We believe
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these interests should be treated as, and intend to treat them as, separate and distinct interests in New Aplitec. As such, we and our affiliates do not intend to withhold any amounts for United States federal taxes in respect of such interests. There is a risk, however, that these interests, together with the special convertible preferred stock, will be treated as representing a single direct equity interest in Net 1 for United States federal income tax purposes. In such case, distributions received with respect to the B class preference shares and B class loan accounts would be treated as United States-source dividends received in respect of an equity interest in Net 1 and would be subject to United States federal withholding tax as described under The Proposed TransactionsMaterial United States Federal Tax Consequences to Non-U.S. HoldersConsequences to Non-U.S. HoldersDividends.
S PECIAL N OTE C ONCERNING F ORWARD -L OOKING S TATEMENTS
Some of the statements contained or incorporated by reference in this proxy statement/prospectus, including those relating to Net 1s strategies and other statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates and similar expressions, are forward-looking statements. Forward looking statements include the information concerning possible or assumed future results of operations of Net 1. These statements are not historical facts but instead represent only Net 1s expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include the risk factors set forth above and other market, credit or counterparty, liquidity, legal and operational risks discussed elsewhere in this document and the documents which are incorporated herein by reference. Those risks and uncertainties include, but are not limited to:
• | Market Fluctuations and Volatility . Changes in interest and foreign exchange rates, securities valuations and increases in volatility can increase risk, and may also impact customer flow related revenues in Net 1s businesses, particularly those outside the U.S. | |
• | Industry Competition and Changes in Competitive Environment. Increased competition from both banking institutions and non-traditional financial services providers, including issuers of credit cards, and from industry consolidation could impact fees earned from Net 1s businesses. | |
• | Investor Sentiment. Last year saw a record number of accounting and corporate governance scandals, which have had a significant impact on investor confidence in the marketplace. In addition, geopolitical concerns about possible military action and terrorist activities can have an effect on the global financial markets. | |
• | Liquidity. Liquidity risk management is of critical importance to Net 1. Liquidity could be impacted by the inability to access the long-term or short-term debt markets or the repurchase and securities lending markets necessary to expand Net 1s business. |
Net 1s actual results and financial condition may differ, perhaps materially, from the anticipated results and financial condition in any forward-looking statements, and, accordingly, readers are cautioned not to place undue reliance on such statements. In addition, there can be no assurance that (a) Net 1 has correctly identified and assessed all of the factors affecting its businesses; (b) the publicly available and other information with respect to these factors on which Net 1 has based its decisions is complete or correct; (c) Net 1s analyses are correct; or (d) Net 1s strategies, which are based in part on these analyses, will be successful. Net 1 undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
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T HE S PECIAL M EETING
General; Date; Time and Place
This proxy statement/prospectus is being provided by, and the enclosed proxy is solicited by and on behalf of, Net 1s board of directors for use at a special meeting of Net 1 shareholders. This proxy statement/prospectus is also furnished by Net 1 to holders of Aplitecs ordinary shares along with an election circular and a prospectus in connection with the election of the reinvestment option by Aplitecs current shareholders.
The special meeting is scheduled to be held at on , 2004 at 9 a.m. at the offices of Schneider Weinberger LLP, 2499 Glades Road, Suite 108, Boca Raton, Florida 33431.
Purpose of the Special Meeting
The purpose of the special meeting of Net 1s shareholders is to consider the approval and adoption of (i) an amendment to Net 1s articles of incorporation to (a) increase the number of authorized shares of common stock from 100,000,000 to 500,000,000, (b) increase the number of authorized shares of preferred stock from 3,000,000 to 300,000,000, (c) modify the par value of the shares of preferred stock that may be issued by Net 1 from $0.10 per share to $0.001 per share, and (d) authorize the terms of the special convertible preferred stock, (ii) the Aplitec acquisition and the issuance of 192,967,138 shares of special convertible preferred stock in connection with such acquisition, (iii) the issuance of shares of common stock to the Brait Consortium in exchange for a $52.8 million capital contribution, (iv) the 2004 Stock Incentive Plan and (v) to transact such other business as may properly come before the special meeting or any adjournment or postponement thereof, and to transact any other business that is properly brought before the special meeting. A copy of the proposed amendment to our articles of incorporation is attached as Annex A to this proxy/statement prospectus. The material terms of the Aplitec acquisition and issuance of shares to the Brait Consortium are fully described in the section titled The Proposed Transactions. Finally, the 2004 Stock Incentive Plan is attached as Annex B to this proxy statement/prospectus, and its material terms are fully described in the section titled Management of Net 1 After the Proposed Transactions.
Record Date; Voting Power
Only holders of shares of Net 1 common stock as of the close of business on , 2004, which is the record date for the special meeting, will be entitled to receive notice of and to vote at the special meeting and any adjournments or postponements thereof. Each share of Net 1 common stock is entitled to one vote at the special meeting.
Required Vote; Quorum
The affirmative vote of a majority of the outstanding shares of Net 1 common stock as of the record date that cast votes at the special shareholders meeting is required to approve the amendment to Net 1s articles of incorporation and the other proposed transactions. As of the record date, 15,852,856 shares of Net 1 common stock were outstanding and held by approximately holders of record.
The proposed transactions cannot be completed unless they are approved by a majority of Net 1s shareholders that cast votes at the special meeting of shareholders. Net 1 Holdings, which beneficially owns 53.75% of the outstanding shares of Net 1, is controlled by Dr. Serge Belamant, the current chairman of Net 1s board of directors and the chief executive officer of Aplitec, by virtue of a contractual right to vote Net 1 Holdings shares on behalf of Cornet Ltd. and the trusts that own Net 1 Holdings. Additionally, Dr. Belamant will serve as the chief executive officer of Net 1 and New Aplitec upon completion of the proposed transactions. Because of Dr. Belamants interests in the proposed transactions to be voted upon, the shares owned by Net 1 Holdings will be counted for purposes of establishing a quorum at the special meeting, but those shares will be voted in proportion to the votes cast (FOR and AGAINST) by our disinterested shareholders. Thus, the vote of a majority of Net 1s shareholders other than Net 1 Holdings will be determinative of the outcome of the proposed transactions.
Brokers holding shares of Net 1 common stock as nominees will not have discretionary authority to vote such shares in the absence of instructions from the beneficial owners thereof.
The holders of a majority of the shares of the Net 1 common stock outstanding on the record date must be present, either in person or by proxy, at the special meeting to constitute a quorum. In general, abstentions and
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broker non-votes are counted as present or represented at the special meeting for the purpose of determining a quorum for the special meeting.
How to Vote . A shareholder may vote in person at the special meeting or by proxy without attending the special meeting. To vote by proxy, a stockholder must complete the enclosed proxy card, sign and date it and return it in the enclosed prepaid postage envelope. The enclosed proxy card sets forth instructions for voting.
Revocation of Proxy
A proxy card is enclosed for use by Net 1s shareholders. The board of directors of Net 1 requests that shareholders sign and return the proxy card in the accompanying envelope . No postage is required if mailed within the United States. If you have questions or requests for assistance in completing and submitting proxy cards, please contact ADP Investor Communications a firm that provides professional proxy soliciting services that Net 1 has retained, at (905) 507-5266.
All properly executed proxies that are not revoked will be voted at the special meeting as instructed on those proxies. Proxies containing no instructions will be voted in favor of the proposed transactions. A shareholder who executes and returns a proxy may revoke it at any time before it is voted, but only by executing and returning a proxy bearing a later date (using a new proxy card), by giving written notice of revocation to the secretary of Net 1, or by attending the special meeting and voting in person.
No Dissenters or Similar Rights
Net 1 shareholders who vote against the proposed transactions will not be entitled to dissenters or similar rights. Neither Florida law nor Net 1s articles of incorporation and bylaws provide for dissenters rights or appraisal rights.
Expenses of Solicitation
Net 1 will bear the costs of soliciting proxies from its shareholders. Net 1 will also bear the costs of filing, printing and mailing the registration statement on Form S-4 and this proxy statements/prospectus. In addition to soliciting proxies by mail, directors, officers and employees of Net 1, without receiving additional compensation therefore, may solicit proxies by telephone, by facsimile or in person. Arrangements may also be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of shares held of record by such persons, and Net 1 will reimburse such brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection therewith. In addition, ADP Investor Communications has been retained by Net 1 to assist in the solicitation of proxies. This firm may contact holders of shares of Net 1 common stock by mail, telephone, facsimile, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials to beneficial owners of shares of Net 1 common stock. ADP Investor Communications will receive reasonable and customary compensation for its services (estimated at $12,200) and will be reimbursed for certain reasonable out-of-pocket expenses.
Miscellaneous
It is not expected that any matter not referred to herein will be presented for action at the special meeting. If any other matters are properly brought before the special meeting, the persons named in the proxies will have discretion to vote on such matters in accordance with their best judgment. The grant of a proxy will also confer discretionary authority on the persons named in the proxy as proxy appointees to vote in accordance with their best judgment on matters incident to the conduct of the special meeting, including (except as stated in the following sentence) postponement or adjournment for the purpose of soliciting votes. However, shares represented by proxies that have been voted AGAINST the proposed transactions contemplated herein will not be used to vote FOR postponement or adjournment of the special meeting to allow additional time to solicit additional votes FOR the proposed transactions.
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T HE P ROPOSED T RANSACTIONS
General
On October 31, 2003, New Aplitecs board of directors and the representatives of the board of directors of Aplitec, each approved the sale agreement pursuant to which Net 1, through New Aplitec, would acquire substantially all of the assets and liabilities of Aplitec. After the Aplitec acquisition, New Aplitec will become a subsidiary of Net 1. On January 30, 2004, the Brait Consortium executed the Common Stock Purchase Agreement with Net 1 providing for, among other things, a contribution of $52,830,714 to Net 1 in exchange for the issuance by Net 1 of 105,661,428 shares of its common stock. The proceeds of that issuance are to be used, in part, to enable New Aplitec to complete the Aplitec acquisition. The Net 1 board of directors approved the Common Stock Purchase Agreement on January 30, 2004.
Background of the Proposed Transactions
Net 1 owns the exclusive rights to market and sell the UEPS technology throughout the world, excluding South Africa and its surrounding territories and to license the U.S. FTS patent. Aplitec holds similar rights in South Africa and its surrounding territories.
Over the last five years, Aplitec has successfully launched numerous UEPS systems in South Africa and its surrounding territories. This is attributable to Aplitecs ability to develop business models that are responsive to its customers specific needs and then effectively implement the system. Aplitec continues to develop the UEPS technology and its derivative applications to meet the requirements of both its customers and its own business ventures. By contrast, Net 1 has not been able to successfully implement its business plan. This has resulted primarily from its inability to raise the necessary capital to develop and market the UEPS technology. Additionally, its lack of operating history makes it increasingly difficult to attract investors and potential customers. In 2002, representatives of Net 1 met with Jones Gable Securities, Gruntal Securities and Thompson Kernaghan to discuss possible funding opportunities, each time without success. During the last quarter of 2002, Net 1 retained Investec Limited, an international merchant banking group, to provide corporate finance services and assistance in order to raise equity and/or debt funding. These efforts were unsuccessful and, in February 2003, the parties mutually agreed to terminate the relationship.
Throughout this process to secure funding, Net 1 has sought to generate revenue through license arrangements. In October 2002, Net 1 entered into a Distribution Agreement with Net 1 (Pty), a subsidiary of Aplitec, pursuant to which Net 1 appointed Net 1 (Pty) as a UEPS integrator for all territories excluding South Africa and its surrounding territories. These relationships allowed Aplitec to market and sell UEPS systems on behalf of Net 1, and generated license fees for Net 1. However, these arrangements have not provided Net 1 sufficient revenue to successfully develop and implement its own business plan.
On March 6, 2003, Dr. Serge Belamant, the chairman of Net 1s board of directors and the chief executive officer of Aplitec, met with representatives of the Brait Group to discuss possible business transactions involving Net 1 and Aplitec. At this meeting, Dr. Belamant expressed an interest in the Brait Group investigating mechanisms and sources of funding for Net 1s acquisition of Aplitec. These transactions would further Net 1s goals of:
» | maturing from a development stage business into a profitable company with global reach; | ||
» | combining the rights to the UEPS and FTS technologies into a single group, which will unlock value for both companies and their shareholders; and | ||
» | giving Net 1 the required access to the international capital markets to raise further capital to implement its business plan. |
On April 30, 2003, Net 1 formally retained an affiliate of the Brait Group as its financial advisor to develop the structure and implementation of a possible acquisition of Aplitec, including the raising of funds necessary to finance such acquisition and obtaining the necessary approvals of South African regulatory authorities. In exchange for its services, the Brait Group would receive a fee based on a percentage of the capital and debt raised to finance the Aplitec acquisition, in addition to a fee of ZAR 1.15 million ($166,185) in connection with its advisory services. If the proposed transactions are consummated, the Brait Group will be paid a fee of approximately $3.9 million. In lieu of receiving a cash payment, the Brait Group has the option of receiving all or any part of its fee in the form of shares of Net 1 common stock calculated at a price of $0.50 per share. If the Brait
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Group elects to receive its entire fee in the form of Net 1 common stock, the Brait Group will receive approximately 7.8 million additional shares of Net 1 common stock.
Over the next several months, the Brait Group met with Dr. Belamant and Claude Guerard, Net 1s chief executive officer, to develop the broad outlines of a potential transaction with Aplitec. On July 21, 2003, the Brait Group submitted a letter on behalf of Net 1 to Aplitecs board of directors expressing its interest in pursuing a business combination with Aplitec. In August 2003, Brait initiated a detailed due diligence review of Aplitec, and it commenced structuring a transaction that would allow the South African shareholders of Aplitec to participate in the combined entity. In September 2003, Brait received approval in principle from Excon to pursue the proposed transaction. To protect the interests of Aplitecs minority shareholders and mitigate any potential conflicts of interests, Aplitecs board of directors appointed a special committee comprised of two independent non-executive directors (Derek Geoffrey Sidney Muller and Jeffrey Livingstone) to evaluate the proposed transactions with Net 1.
In October, Brait and Net 1 agreed in principle to an arrangement whereby a group of investors assembled by Brait would make a capital contribution to Net 1 of $52.8 million in exchange for shares of Net 1 common stock. The parties heavily negotiated the per share consideration to be paid by the Brait Consortium, and they finally settled on a purchase price of $0.50 per share. Separately, the Brait Group agreed to acquire any rights of the reinvestment option not taken up by Aplitecs current shareholders for the same consideration that would have been paid by such holders. Brait and Simpson Thacher & Bartlett LLP, Braits outside legal counsel, commenced a due diligence review of Net 1, and Simpson Thacher began discussions with Schneider Weinberger LLP, Net 1s outside legal counsel, about the transaction structure and documentation. On October 24, 2003, Net 1 filed a current report on Form 8-K disclosing the negotiations with Brait and the proposed Aplitec acquisition. To protect the interests of Net 1s disinterested shareholders, Net 1 retained Stenton Leigh Capital Corp., an independent financial consultant, to evaluate the fairness of any consideration to be paid by the Brait Consortium in exchange for shares of Net 1 common stock.
On October 28, 2003, the Aplitec special committee met to consider the proposed transactions with Net 1. It evaluated the terms and conditions of the proposed transaction and received the advice of the independent advisors to the minority shareholders of Aplitec. Following this evaluation, the special committee approved the combination with Net 1 and it further delegated Dr. Belamant and Mr. Herman Kotze the authority to sign the agreements giving effect to the transactions. The Sale Agreement, the New Aplitec Subscription Agreement and the South African Trust Deed were executed on October 31, 2003.
On January 30, 2004, after the close of the market, the Net 1 board of directors held a special meeting with Net 1s advisors to consider the Aplitec acquisition and the issuance of shares to the Brait Consortium. At that meeting, Stenton Leigh reviewed with the board its financial analyses of the transactions and delivered the fairness opinion described below under the section Opinion of Stenton Leigh Capital Corp. The board took note of the fact that, while the $0.50 per share to be paid by the Brait Consortium was less than the current market price of Net 1s common stock, it was also significantly higher than the value assigned to such shares by Stenton Leigh. Moreover, the Net 1 board agreed with the analysis of Stenton Leigh to disregard the market price of Net 1 common stock due to its thin trading volume. Schneider Weinberger then reviewed with the board the final terms of the agreements governing the proposed transactions.
After hearing these presentations and further discussions, the Net 1 board of directors voted to approve the agreements and the proposed transactions contemplated by those agreements, including the amendment to Net 1s articles of incorporation and the terms of the special convertible preferred stock to be issued in connection with the Aplitec acquisition. The Net 1 board of directors further voted to approve the 2004 Stock Incentive Plan. After the close of the markets on January 30, 2004, the parties executed the Common Stock Purchase Agreement between Net 1 and the Brait Consortium and the Asset Purchase Agreement with Net 1 Holdings.
Because of Dr. Belamants interest in the proposed transactions to be voted upon, the shares owned by Net 1 Holdings will be voted in proportion to the votes cast (FOR or AGAINST) by Net 1s minority shareholders. Thus the vote of minority shareholders will be determinative of the outcome of the proposed transactions.
Recommendation of the Net 1 Board; Reasons for the Proposed Transactions
The Net 1 board of directors has approved the transactions, has determined that the proposed transactions are fair to, advisable and in the best interests of, Net 1 and the holders of Net 1 common stock, and recommends that Net 1 shareholders vote FOR approval and adoption of the amendment to Net 1s articles of incorporation and the proposed transactions.
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In reaching this determination, the Net 1 board of directors consulted with its outside legal counsel and its advisor, and considered various material factors, which are listed below. In view of the wide variety of factors considered in connection with the transactions, the board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific material factors it considered in reaching its decision.
Factors Considered by the Net 1 Board of Directors
Net 1s board of directors believes that the Aplitec acquisition, combined with the capital contribution by the Brait Consortium, will help Net 1 to achieve its goal of becoming a global leader in the area of electronic payment systems with customers throughout the world. Taking advantage of the complementary nature and the geographic scope of the combined assets and the experience of the combined management team, Net 1s board of directors believes that the proposed transactions will create revenue growth and product and market diversification for Net 1, which will result in stronger financial and operating performance than either Net 1 or Aplitec could achieve on its own.
As part of its review and determination that the proposed transactions are fair to and in the best interest of Net 1’s shareholders, Net 1’s board of directors consulted with its legal advisors regarding the duties of the members of the board of directors. The Net 1 board of directors also considered the following factors and material information in reaching its determination that the proposed transactions are fair to, and in the best interests of, Net 1’s shareholders:
• | the strategic benefits of combining the businesses, including the following: | ||
» | consolidating the global UEPS technology rights into a single group, creating a single access point through which value could be unlocked; | ||
» | establishing first-mover advantage in developing economies for the commercialization of the UEPS technology. First-mover advantage refers to the benefits that would accrue to the first company that establishes a primary transacting platform in a particular developing country. Since the UEPS platform can be used to support a wide range of functions and transactions, the first-mover in these new markets can have enhanced revenue and profitability prospects; | ||
» | exploiting market opportunities for growth through strategic alliances and acquisitions; and | ||
» | improving the financial performance of Net 1s business by developing additional revenue streams and achieving cost savings by combining general and administrative functions of multiple operations; | ||
• | the ability of Net 1s shareholders to participate in the financial success of Aplitec and the combined company; | ||
• | presentations regarding the above-mentioned strategic benefits of combining the assets of Net 1 and Aplitec, and positive operational and financial aspects of the transactions from Net 1s perspective, including, among other things, the ability to transform, through these transactions, from a development stage company into a global company with diversified international operations; | ||
• | historical information concerning the business, results of operations and financial condition, operations, technology, management and competitive position of Net 1, including, among other factors, the history of losses incurred by Net 1, the expectation that it will continue to incur losses and estimates that the Aplitec acquisition will help Net 1 to achieve profitability quicker than if it remained a stand-alone company; | ||
• | the review of Net 1s financial condition, results of operations and prospects of the business of Net 1 before and after giving effect to the transactions based on available estimates as to earnings and losses, including, among other things, ongoing liquidity and capital resource requirements in the context of financial market conditions limiting the ability of Net 1 to raise other financing and |
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an expectation that the combined companys larger scale and improved operational performance would enhance access to financing in the capital markets; | ||
• | the opportunities and options available to Net 1 if the transactions were not undertaken, including remaining a stand-alone company that has so far been unable to raise capital to implement its business plan and achieve profitability, and the conclusion that the contemplated transactions would result in greater benefits than other options; | |
• | the financial presentations and written opinion of Stenton Leigh Capital Corp. dated as of January 30, 2004, as to the fairness from a financial point of view of the issuance of shares of Net 1 common stock to the Brait Consortium under the terms of the Common Stock Purchase Agreement between Net 1 and the Brait Consortium; and | |
• | the interests of the directors and executive officers of Net 1 in the transactions, as described in the section titled The Proposed TransactionsInterests of Certain Persons in the Proposed Transactions. |
The Net 1 board of directors also considered the potential adverse factors relating to the proposed transactions, including the following:
• | the challenges of combining the businesses and assets of separate companies across vast geographic distances and the risks of not achieving the expected operating efficiencies or growth; | |
• | any failure to complete the proposed transactions will cause Net 1 to incur substantial costs, which could result in Net 1s bankruptcy; | |
• | the possibility that the financial markets might react negatively to the combined company, as well as the need to educate the market about the benefits of a multi-national company that offers UEPS technology and services; | |
• | the risk of diverting management focus and resources from other strategic opportunities while working to implement the combination and the risk that key management, sales and transaction personnel might choose not to remain employed by the combined company; | |
• | the risk that the transactions may not be completed, even if approved by Net 1s shareholders, especially given the need to obtain approval of a majority of the holders of Aplitecs ordinary shares before any of the transactions become effective, and the potential impact on Net 1; | |
• |
the possible negative effect on Net 1 and on the price for Net 1s shares of capital stock due to the fact that the Brait Group may exercise effective control of Net 1 if a sufficient number of Aplitecs current shareholders do not elect the reinvestment option by virtue of an agreement with New Aplitec to take up the rights to the reinvestment option not taken up by Aplitecs shareholders; |
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• | the risks that the benefits sought to be achieved by the proposed transactions will not be realized; and | |
• | the other risks described under Risk Factors. |
The discussion of the information and factors considered by the Net 1 board of directors is not intended to be exhaustive, but includes the material factors considered. The Net 1 board of directors did not assign particular weight or rank to the factors it considered in approving the transactions. In considering the above-mentioned factors, individual directors may have given different weight to various factors. Net 1s board of directors considered all of these factors as a whole, and concluded that, on balance, the potential benefits of the proposed transactions to Net 1 and its shareholders outweigh the risks.
Opinion of Stenton Leigh Capital Corp.
Stenton Leigh Capital Corp., or Stenton Leigh, founded in 1989, specializes in performing valuation and
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other consulting services to public and privately held companies. In addition to valuation and fairness opinions, Stenton Leigh provides dispute and litigation support, impairment and intangible asset valuations, assists clients with merger and acquisition transactions and other corporate finance matters.
On October 16, 2003, Net 1 engaged Stenton Leigh to undertake an independent valuation of and issue a fairness opinion as to the fairness of the issuance of approximately 105.6 million shares of common stock to the Brait Consortium at a price of $0.50 per share. The board of directors of Net 1 retained Stenton Leigh based upon its qualifications and its capabilities with respect to undertaking a valuation of companies of Net 1s size and financial condition. The fee paid to Stenton Leigh was in no way influenced by the results of the valuation conclusion.
Between October 16, 2003 and January 30, 2004, the date on which the final report was delivered to the board of directors, representatives of Stenton Leigh conducted a number of telephonic meetings with management to gather information relevant to the valuation analysis. During such meetings and discussions, members of management, including the chairman and chief executive officer, discussed information contained in Net 1s financial statements and other information requested by and delivered to Stenton Leigh. On January 30, 2004, Stenton Leigh advised the board of directors of Net 1 that, based upon and subject to limitations of its analyses, as of such date, the consideration to be received by Net 1 was fair, from a financial point of view, to the Net 1 shareholders.
The full text of Stenton Leighs opinion, which contains many of the assumptions Stenton Leigh made, the matters it considered and the limitations on the review it undertook in connection with its delivery of its opinion, is included as Annex C and is incorporated by reference into this proxy statement/prospectus. Stenton Leighs opinion is directed to the Net 1 board of directors and addresses only the fairness of the consideration from a financial point of view. It does not address the underlying business decision of Net 1 to proceed with the acquisition of substantially all of the assets and the assumption of all the liabilities of Aplitec nor any other aspect of the transaction and does not constitute a recommendation to any Net 1 shareholder as to how that shareholder should vote at the Net 1 special meeting. The following summary of Stenton Leighs opinion set forth below is qualified in its entirety by reference to the full text of such opinion. Net 1 shareholders are urged to read the Stenton Leigh opinion carefully and in its entirety, a copy of which is attached as Annex C to this proxy statement/prospectus.
In connection with rendering its opinion regarding the issuance of shares of common stock of Net 1 to the Brait Consortium, Stenton Leigh, among other things, included discussions, meetings, reliance and review of the following:
(1) | Review of Net 1s Form 10-QSB for the quarter ended September 30, 2003 and Form 10-KSB for the year ended December 31, 2002; | |
(2) | Discussions with management and directors of Net 1 | |
(3) | (3) Assumptions on Net 1’s market, competitive position and outlook as relayed by Net 1 management at January 30, 2004; | |
(4) | Relevant external and internal public information including economic, investment, industry, public market and transaction data as a background against which to assess findings specific to the business were considered; | |
(5) | Major contracts both existing and anticipated in the very near future for Net 1, if any, were discussed with management, including any features or factors that may have an influence on value; and | |
(6) | Managements forecast financial statements for the four years ended December 31, 2006. |
In preparing its opinion, Stenton Leigh relied upon and assumed the accuracy and completeness of all of the financial and other information that was used, without assuming any responsibility for independent verification of any such information, and further relied upon the assurances of Net 1s management that they were not aware of any facts or circumstances that would make any such information inaccurate or misleading. Stenton Leigh did not audit this information as part of its analysis and therefore, did not express an opinion or other form of assurance regarding the information.
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Stenton Leigh assumed that the issuance of shares of common stock to the Brait Consortium will comply, in all respects, with the securities laws, trade regulations and other applicable statutes and regulations of the various foreign jurisdictions under which the issuance may be governed. Stenton Leighs opinion was based upon market, economic and other conditions as they existed on, and could be evaluated as of, January 30, 2004. Accordingly, although subsequent developments may affect Stenton Leighs opinion, Stenton Leigh did not assume any obligation to update, review or reaffirm their opinion.
The presentation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial or summary description. No company, business or transaction used in those analyses as a comparison is identical to Net 1 nor is an evaluation of the results of those analyses entirely mathematical; rather, it involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the issuance to the Brait Consortium, public trading or other values of the companies, business segments or transactions being analyzed. The estimates contained in those analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual or predictive of future results or values, which may be significantly more or less favorable than those suggested by those analyses. In addition, analyses relating to the value of businesses or securities are not appraisals and may not reflect the prices at which businesses, companies or securities actually may be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.
In arriving at its opinion, Stenton Leigh made qualitative judgments as to the significance and relevance of each analysis and factor considered by it. Accordingly, Stenton Leighs analyses must be considered as a whole and that selecting portions of its analyses and factors, without considering all analyses and factors, could create an incomplete view of the processes underlying such analyses and its opinion. In its analyses, Stenton Leigh made numerous assumptions with respect to Net 1, industry performance and regulatory environment, general business, economic, market and financial conditions, as well as other matters, many of which are beyond the control of Net 1 and involve the application of complex methodologies and educated judgment.
Following is a summary of each of the material financial analyses performed by Stenton Leigh in connection with its opinion dated January 30, 2004.
Analysis of Net 1
It is widely recognized that there is no one correct method of valuation, and that any valuation depends upon an analysis of the relevant facts, common sense, and the informed judgment of the valuator. A full and complete appraisal requires the analyst to implement all relevant valuation methods that are appropriate to the particular valuation assignment. For this valuation, Stenton Leigh has considered at least one method under each approach.
Due to Net 1s history of losses combined with its uncertain future outlook as presented to Stenton Leigh by Net 1s management at the valuation date, Stenton Leigh used the market approach as the appropriate approach to value determination. Stenton Leigh selected the market approach because in Net 1s case, it reflects the fair market value that would be realized taking into consideration Net 1s negative book value, shortage of working capital and forecasted losses. Given Net 1s history of losses, managements negative future outlook, and negative book value, an income approach or an asset approach would not provide meaningful results.
Below is a brief description of each of the market approach, the income approach and the asset approach, as well as the reasons for the selected approach:
Market Approach
The market approach suggests that the value of the entity can be determined by examining the market that has been established by historical experience. This approach is a general way of determining a value indication for a business interest by using one or more methods that compare the subject to similar businesses, or partial
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interests in similar businesses, that have been sold. Examples of market approach methods include the publicly traded guideline company method, the mergers and acquisitions guideline company method and the analysis of prior transactions in the ownership of the subject business. The business used for comparison must serve as a reasonable basis for such comparison. In searching for guideline companies, factors to be considered in judging whether a reasonable basis for comparison exists include:
• | a sufficient similarity of qualitative and quantitative investment characteristics; | |
• | the amount and verifiability of data known about the similar investment; | |
• | whether or not the price of the similar investment was obtained in an arms length transaction or was instead purchased in a forced or distressed sale. |
Should comparable market transaction data be located that are deemed to be reasonably similar, comparisons are normally made through the use of valuation ratios. The computation and use of these ratios should provide meaningful insight and guidance about the subject, considering all relevant factors. Therefore, care should be exercised with respect to issues such as:
• | the selection of the underlying data used to compute the valuation ratios; | |
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the selection of the time periods and/or the averaging methods used for the underlying data; |
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the computation of the valuation ratios; |
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• | the timing of the price data used in the valuation ratios; and | |
• | how the valuation ratios were selected and applied to the subject entitys underlying data. |
Finally, comparisons are made by using comparable definitions of the components of the valuation ratios, such as earnings and cash flow.
Publicly Traded Guideline Companies. One method within the market approach is to search for transaction data for similar and relevant guideline corporations. The valuator must locate publicly traded companies that are similar in nature and operations to the company being valued. When guideline companies can be identified and are deemed to be applicable, the valuator may form comparisons between the performance of the group of guideline companies and the subject business. These comparisons are known as indicators of value or price multiples and may include Tangible Book Value Multiple, Price/Earnings, Total Invested Capital (TIC)/Cash Flow, and TIC/Sales. Stenton Leigh conducted a search of public companies operating in the computer services industry.
Stenton Leigh selected a number of companies that it viewed as comparable to Net 1. Although none of the selected companies were exact, they represented companies in similar businesses. To apply the market approach, Stenton Leigh performed a computerized database search for guideline companies that could be considered comparable. In selecting valuation multiples, Stenton Leigh compared the results of the search to Net 1s historical results and to those of the industry and S&P 500. Stenton Leigh then adjusted the multiples to account for the guideline companies size, revenue, profitability, trading volume and other characteristics.
Mergers and Acquisitions Guideline Company Data. This market approach obtains and analyzes information from mergers and acquisitions of entire guideline companies, both public and privately held. The sales and pricing information is then applied to the subject company to determine its value. Stenton Leigh performed a search of various transaction databases.
The majority of the transactions identified through this process were eliminated because their lines of business were materially different from Net 1s. Stenton Leigh used the mean and median results to determine Net 1s value under this method.
Income Approach
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The income approach develops a value that arises from the presumed ability of the entity to produce a profit or return on investment (ROI) for its owner. This approach is a general way of determining a value indication of a business by using one or more methods through which anticipated benefits are converted into value as of the valuation date. Anticipated benefits are expressed in monetary terms and may be reasonably represented by such items as dividends or various forms of earnings cash flow.
Both capitalization of benefits method and discounted future benefits methods are acceptable. In capitalization of benefits methods, a representative benefit level is divided or multiplied by an appropriate capitalization factor to convert the benefit of value. In discounted future benefits methods, benefits are estimated for each of several future periods. These benefits are converted to value by applying an appropriate discount rate and using present value procedures.
Anticipated benefits are converted to value by using procedures that consider the expected growth and timing of benefits, the risk profile of the benefits stream, and the time value of money.
The conversion of anticipated benefits to value normally requires the determination of a capitalization factor or discount rate. In that determination, the appraiser should consider such factors as the level of interest rates, the rates of return expected by investors on alternative investments, and the specific risk characteristics of the anticipated benefits. Therefore, the two basic components of the income approach are the measure of income and the required rate of return.
In capitalization of benefits methods, expected growth is incorporated in the capitalization factor. In discounted future benefits methods, expected growth is considered in estimated in the future stream of benefits.
Asset Approach
The asset approach, sometimes referred to as the cost approach, is conceptually the least complex of all approaches to consider and use as an appraisal guideline. The asset-based approach is a general way of determining a value indication of a business interest using one or more methods based directly on the value of the assets owned by the business less the businesss liabilities. In theory, a buyer would not pay more than it would cost to create an entity of equivalent economic utility. Therefore, the concept is to adjust all assets and liabilities, whether or not recorded on the entitys balance sheet, to market value. Generally, the entity is presumed to be a going concern and the adjustments will reflect that premise. The asset approach typically does not take into consideration the intangible value of the enterprise, unless these assets are specifically identified and valued. The asset-based approach should be considered in valuations conducted at the total entity level or involving a business appraised on a basis other than a going concern. Valuations of particular ownership interests in an entity may or may not require the use of the asset-based approach.
Results and Conclusions
Below is a description of the results and conclusions reached by Stenton Leigh under each of the above-referenced approaches:
Market Approach
Publicly Traded Guideline Companies. One method within the market approach is to search for transaction data for similar and relevant guideline corporations. The appraiser must locate publicly traded companies that are similar in nature and operations to the company being valued. When guideline companies can be identified and are deemed to be applicable, the appraiser may form comparisons between the performance of the group of guideline companies and the subject business. These comparisons are known as indicators of value or price multiples and may include Tangible Book Value Multiple, Price/Earnings, TIC/Cash Flow, and TIC/Sales.
We conducted a search of public companies operating in the same industries as Net 1. In order to select the appropriate multiples to be applied in this Valuation Report, we analyzed four principal approaches:
1. | Reviewed companies in the technology sector; | |
2. | Reviewed companies in the computer services industry; | |
3. | Compared the results of numbers 1 and 2 above to Net 1s historical results and to the S&P 500; |
4. | Selected a short list of guideline companies being the closest in comparability to Net 1. |
The results of the findings for numbers 1, 2, and 3 above are set out in the ratio comparison table set forth below.
The first step in applying the market approach to valuing a company is to identify publicly traded companies that are comparable. Analysts who regularly value companies in different industries have well-defined methods for determining which companies are comparable to the subject company. The procedure used to develop the group of public companies includes the following steps, which may vary depending on the situation:
• | The industry or industries in which the company operates are identified; | |
• |
Various databases are searched for a group of companies in a line of business similar to that of Net 1; |
|
• |
Detailed descriptions and business segment data for the potential guideline companies are reviewed to eliminate those with products or services that differ from the subject company; |
|
• | Companies whose stock is thinly traded are typically eliminated, as such companies transactions data is less meaningful; and, | |
• | The remaining companies are further analyzed in terms of operating, financial, geographical, industry, and/or market characteristics to insure that they are reasonable for inclusion in the guideline company group. |
The last step in this process is the most subjective. A thorough understanding of the financial standing and the operating performance of the subject company is essential to establishing the parameters by which to screen guideline data. Screens should include revenue mix, market, products, size of company, revenue, margins, capital structure, and growth both historical and estimated. While an optimal guideline group will contain numerous companies, the number of companies included will depend on the similarity to the company, trading activity, and the financial information available.
A perfect guideline company is identical to the company with regard to business type, capital structure, size, and primary market. It has similar management dynamics, has a stock that is widely traded, encounters the same risks and opportunities, and, importantly, has the same prospects for growth in the near term, immediate term, and long term. Because it is in essence a mirror image of the subject company, a perfect market comparable provides a whole range of meaningful valuation multiples which can be applied to reported and/or prospective operating results and provide a meaningful and defensible valuation. Of course, perfect guideline companies rarely exist, and finding an entire group of, say, five to eight perfect guideline companies is almost unheard of. As a result, it is often necessary to make some adjustment to the multiples derived from the group.
Once the group of guideline companies is identified, critical valuation data about each company is assembled into a table. This table includes critical balance sheet and income statement data, trading information about the guideline companies, and an array of valuation multiples implied by public market pricing.
We have selected a number of companies we see comparable to Net 1. Although none of the selected companies are exact, they represent companies in similar businesses.
To apply the market approach, we performed a computerized database search for guideline companies that could be considered comparable. This search revealed the following companies:
ADS = Alliance
Data Systems
FISV = Fiserv, Inc. FDC = First Data Corporation |
The following is a summary of the analysis we have undertaken involving these selected companies and Net 1:
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* Total Invested Capital
Comparable Analysis Summary
Valuation Indicators. Market Capitalization: NET is a publicly traded company with a market capitalization of approximately $115.7 million at January 28, 2004 based on a closing share price of $7.30 and 15,852,856 shares outstanding. The market capitalization of the companies used in our valuation analysis was in the range of $2.3 billion to $27.0 billion.
RATIO COMPARISON | |||||||||||
Guideline | |||||||||||
Valuation Ratios | Company | Industry(1) | Sector(2) | S&P 500 | Companies | ||||||
P/E Ratio (TTM) | N/A | 31.01 | 39.72 | 26.50 | 28.99 | ||||||
P/E High - Last 5 Yrs. | N/A | 58.18 | 65.66 | 48.10 | 31.34 | ||||||
P/E Low - Last 5 Yrs. | N/A | 14.14 | 19.72 | 16.25 | 11.63 | ||||||
Beta | N/A | 1.79 | 1.99 | 1.00 | 0.96 | ||||||
TIC to Sales (TTM) | 858.02 | 4.97 | 6.32 | 3.72 | 3.09 | ||||||
Price to Book (MRQ) | N/A | 5.25 | 5.78 | 4.58 | 4.55 | ||||||
Price to Tangible Book (MRQ) | N/A | 12.67 | 7.41 | 7.78 | 6.75 | ||||||
TIC to Cash Flow (TTM) | N/A | 29.85 | 32.13 | 19.51 | 27.08 | ||||||
% Owned Institutions | N/A | 49.67 | 47.38 | 63.78 | N/A |
_________________________
(1) Computer service industry |
(2) Technology sector |
Source: Multex.com, Inc. |
Price Earnings Multiple Analysis. Net 1 had losses in 2002 and through September 30, 2003, the date with the most current available financial information, and therefore this valuation approach would not provide meaningful results. According to Net 1 management, there were no material changes to Net 1s results of operations through the date of this Report.
TIC to Sales Multiple Analysis. We reviewed the selected company, industry, sector and S&P 500 results and concluded a multiple of 2.00 as appropriate for Net 1 at January 30, 2004 based on historical losses and Net 1s smaller size. The following sets forth the application of this sales multiple to Net 1s 2003 annual revenue results:
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Annualized 2003 Revenue | $ | 54,689 | |
Multiple | 2.00 | ||
Total Value | $ | 109,378 |
TIC to Cash Flow. Net 1 had negative cash flow in 2002, and through September 30, 2003, the date with the most current available financial information, and therefore this valuation approach would not provide meaningful results. According to Net 1 management, there were no material changes to Net 1s results of operations through January 30, 2004.
Net Book Value Multiple Analysis . As of September 30, 2003, the date with the most current available financial information, Net 1 had a negative book value, and therefore this valuation approach would not provide meaningful results. According to Net 1 management, there were no material changes to Net 1s financial position through January 30, 2004.
Prior Transaction Analysis
The market approach suggests that the value of the entity can be determined by examining the market that has been established by historical experience. One method, usually applicable to larger, publicly held corporations, is to refer to the value set by the most recent trading of the stock by private and public investors who have made their own determination as to value. Net 1 did not have any private common stock transactions during the past twelve months.
Mergers and Acquisitions Guideline Company Data
The market approach obtains and analyzes information from mergers and acquisitions of entire guideline companies, both public and privately held. The sales and pricing information is then applied to the subject company to determine its value. We performed a search of the Pratts Stats, Mergerstat, Public Company, Bizcomps and Institute of Business Appraisers (IBA) transaction databases.
The following details the results of the search:
SIC
Code |
Pratts Stats | Mergerstat | Bizcomps |
Public
Company |
IBA | |||||||
Total | Selected | Total | Selected | Total | Selected | Total | Selected | Total | Selected | Total | Selected | |
7374 | 37 | 4 | 10 | 1 | 7 | 0 | 5 | 0 | 17 | 0 | 76 | 5 |
The majority of these transactions were eliminated because their lines of business were materially different from that of Net 1. The remaining transactions selected took place between 1998 and 2002. Due to the limited number selected, we will use the mean and median results.
Net
Sales |
Net
Earnings |
Sale
Price $000 |
TIC/
Sales |
Price/
Earnings |
|
Mean | $18,380,197 | $58,523 | $16,398 | 0.948 | 2.888 |
Median | $14,216,888 | $35,216 | $10,852 | 0.919 | 2.888 |
Date |
NET
Annualized Sales |
TIC/Sales
Multiple |
Value
Indication (000s) |
Mean Value
(000s) |
||
Mean | Median | Mean | Median | Total | ||
9/30/03 | $54,689 | 0.948 | 0.919 | $51,845 | $50,259 | $51,052 |
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In estimating a value using the direct market data method, we would normally eliminate the high and the low values and consider the remaining value indications reflected in the above table to be the most appropriate. However, since we did not use the Price/Earnings multiples due to NETs losses, we will use the average of the mean and median TIC/Sales multiples calculated above.
Market Capitalization
The market capitalization for Net 1 as of January 28, 2004 is approximately $115,725,849 based on a total of 15,852,856 common shares outstanding at $7.30 per share, which was the closing price per share as reported on Bloomberg Financial Markets.
Asset Approach
Net Book Value Methodology
The net book value (NBV) of a business is the historical value of that entitys assets less the value of its liabilities. To calculate net book value, we referred to Net 1s financial statements as of September 30, 2003, the date with the most recent available financial information. According to Net 1 management, there were no material changes to Net 1s financial position through January 30, 2004.
Net 1s assets consist primarily of cash and accounts receivable. Management has indicated that all liabilities are supported by adequate documentation to reflect evidence of an obligation of the Company. At September 30, 2003 Net 1 had a negative book value.
Net Tangible Book Value
The net tangible assets of a business is the historical value of that entitys assets less the value of its intangibles and liabilities. To calculate the net tangible assets of Net 1, we referred to Net 1s financial statements as of June 30, 2003, the date with the most recent available financial information. According to Net 1 management, there were no material changes to Net 1s financial position through January 30, 2004.
Net 1s assets consist primarily of cash, accounts receivable, inventory and property and equipment. As of September 30, 2003, Net 1 had intangible assets of $1,563. At September 30, 2003 Net 1 had a negative tangible book value.
Income Approach
As described above, the Income Approach may rely on either a capitalization of benefits method, or a disclunted cash flow method. For either method to be used, there must be an expectation of expected profits. The capitalization relies upon historical profits to which a growth rate is applied to determine value. Since Net 1 has both historical and forecasted losses, the Income Approach cannot be used.
Determination of Value
In determining the final Business Enterprise Value (BEV) of Net 1, we analyzed the results of the various approaches to value. To arrive at the final BEV we add to our value conclusion any preferred equity and long-term and short-term debt at the valuation date and subtract cash and cash equivalents. The rationale is that, in buying a business, its current owners, the shareholders, and its creditors must be repaid. These costs become obligations of a prospective purchaser. Net 1s cash, on the other hand, is a liquid asset than can be used at the prospective purchasers discretion.
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Set out below is a summary of the findings of the various approaches to value which we have examined to determine the value of Net 1 at January 30, 2004:
Value | |||
I. MARKET | |||
Publicly Traded Guideline Companies: | |||
Net Book Value | N/A | ||
Price/Earnings | N/A | ||
TIC/Cash Flow | N/A | ||
TIC/Sales | $ | 109,378 | |
Prior Transactions | N/A | ||
Mergers & Acquisitions | $ | 51,052 | |
Market Capitalization | $ | 115,725,849 | |
Average of Market approach (excluding Market Capitalization) 1 | $ | 80,215 | |
II. ASSET | |||
Net Book Value | N/A | ||
Net Tangible Book Value | N/A | ||
Average of Asset approach | $ | N/A | |
III. INCOME | |||
Capitalized Returns | N/A | ||
Discounted Cash Flow | N/A | ||
Average of Income approach | N/A | ||
Value Conclusion (average of Market approach) | $ | 80,215 | |
Add: Short-term and long-term debt | 0 | ||
Less: Cash and cash equivalents | 11,457 | ||
Total Value | $ | 68,758 |
1 The market capitalization is not a good indication of value since Net 1 has a limited number of outstanding shares in the public float (approximately 1%) and has very limited trading volume.
To arrive at our value conclusion, the Income Approach was not selected since Net 1 has historical and forecasted losses. The Asset Approach was not selected since it resulted in a negative value. We selected the Market Approach because in this instance, the Market Approach reflects the fair market value that would be realized taking into consideration Net 1s negative book value, shortage of working capital and forecasted losses.
Based upon the foregoing, and the various factors and assumptions considered necessary to the development of our valuation conclusion, in our opinion the fair market value of the common stock of Net 1 at January 30, 2004 is as set out below:
Total Value | |||
Value of Net 1 | $ | 68,758 | |
Common Shares Outstanding | 15,852,856 | ||
Value per Common Share | $ | 0.004 |
Therefore, we conclude that the Net 1 common stock should be valued at approximately $0.01 per share or a total of $68,758 at Jnauary 30, 2004.
To further determine the fairness of the proposed transaction with the Brait Consortium to Net 1s shareholders, we performed a separate analysis to determine the value of Net 1 subsequent to the Aplitec acquisition. From this analysis, we determined that based upon the value of Aplitec and the additional funding to be provided by the Brait Consortium, Net 1 shareholders would receive greater value subsequent to the Aplitec
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acquisition than the proposed transaction price of $0.50 per share, and therefore the proposed Aplitec acquisition is anti-dilutive to the existing Net 1 shareholders.
We also reviewed the public market capitalization of Net 1 and its trading volume. In our opinion, the market capitalization does not reflect a true value for Net 1 at January 30, 2004 as its public shares are very thinly traded. Further, from our discussions with Net 1 management, they believe that if a small block of stock were to be sold into the public market (i.e. 100,000 shares) their stock price would most likely drop to pennies. This, combined with our analysis of the underlying value of Net 1, which is virtually insolvent as described above, and the fact that the existing Net 1 shareholders will benefit from an infusion of a capital by keeping Net 1 in existence and creating significant upside potential for Net 1 and therefore its shareholders, in our opinion, the issuance of common shares of Net 1 at January 30, 2004 is fair to the shareholders of Net 1, subject to the assumptions and qualifications set forth in our fairness opinion, a copy of which is attached as Annex C to this proxy statement/prospectus.
Miscellaneous
Net 1 has agreed to pay Stenton Leigh for its advisory services customary fees totaling $70,000. Stenton Leigh has received $35,000 as a retainer and the remainder will be paid upon completion of the engagement. Net 1 has agreed to reimburse Stenton Leigh for its reasonable out-of-pocket expenses, including reasonable fees and expenses and to indemnify Stenton Leigh and affiliated parties against liabilities, including liabilities under the U.S. federal securities laws, arising out of its engagement, unless such expenses arise out of the gross negligence of Stenton Leigh.
Interests of Certain Persons in the Proposed Transactions
When considering the recommendation by the Net 1 board of directors to vote FOR the transactions, you should be aware that certain persons have interests in the transactions that are different from, and may conflict with, your interests:
• | Dr. Serge Belamant, a director and the chairman of Net 1s board of directors and the chief executive officer of Aplitec, controls 53.75% of Net 1s outstanding shares by virtue of a contractual right to vote those shares on behalf of Cornet Ltd. and the trusts that own Net 1 Holdings. Dr. Belamant will benefit as a result of his interest in Aplitec, any compensatory or option grants received pursuant to the 2004 Stock Incentive Plan and the employment agreement described below. | ||
• | The following individuals will execute employment agreements and will hold the following positions of each of New Aplitec and Net 1: | ||
» | Dr. Belamant, Chief Executive Officer and Chairman of the Board of New Aplitec and Net 1. | ||
» | Herman Kotze, Chief Financial Officer of New Aplitec and Net 1. | ||
» | Brenda Stewart, Director of Marketing and New Business Development of New Aplitec and Senior Vice President - Marketing and Sales of Net 1. | ||
» | Nitin Soma, Director of Software Development of New Aplitec and Senior Vice President -Information Technology of Net 1. | ||
• | The Brait Consortium will have the right to designate three nominees to the slate of directors that Net 1’s management recommends to shareholders in Net 1’s annual proxy statement. Affiliates of the Brait Group, which is a member of the Brait Consortium, is providing advisory services to Net 1 in connection with the proposed transactions and will receive a “capital raising fee” of $3.7 million and a further corporate finance fee of ZAR 1.15 million ($166,185). In lieu of receiving a cash payment, the Brait Group has the option of receiving all or any part of its fee in the form of shares of Net 1 common stock calculated at a price of $0.50 per share. If the Brait Group elects to receive its entire fee in the form of Net 1 common stock, the Brait Group will receive approximately 7.8 million additional shares of Net 1 common stock. Finally, to the extent that any Aplitec shareholders elect the cash option, the Brait Group will acquire those interests in New Aplitec via the South African Trust, thereby increasing its ownership interest in Net 1. |
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The Net 1 board of directors was aware of these interests and considered them in approving the transactions.
Employment Agreements
In connection with the proposed transactions, Net 1 and New Aplitec will enter into employment agreements with each of Dr. Belamant, Herman Kotze, Brenda Stewart and Nitin Soma. These agreements have not yet been executed, although Net 1 intends to finalize them prior to the completion of the proposed transactions.
Sale Agreement
The sale agreement between Aplitec, certain of its subsidiaries and New Aplitec provides that New Aplitec, a newly incorporated South African company, will acquire substantially all of the assets and all of the liabilities of Aplitec. We urge you to carefully read the sale agreement in its entirety, a copy of which has been filed as an exhibit to this proxy statement/prospectus.
If Aplitecs shareholders approve the Aplitec acquisition and if all the conditions relating to the disposal are fulfilled or waived, then New Aplitec will acquire substantially all of the assets and liabilities of Aplitec, excluding:
• |
cash in the sum of ZAR 300 million ($43.4 million) plus enough cash as
is necessary to pay holders of Aplitec shares an additional amount equal
to ZAR 0.25 ($0.04) for each Aplitec ordinary share for which such Aplitec
shareholder elects the cash option, as described below; and
|
|
• |
the shares held indirectly by Aplitec in three subsidiaries (Country on a Card (Pty) Limited, Net 1 Loyalty (Pty) Limited and Net 1 Payroll (Pty) Limited) that are dormant and therefore contain no assets or business operations. |
Aplitec is making no representations or warranties with respect to the assets being sold to New Aplitec.
The Purchase Price and the Reinvestment Option
The net purchase price payable by New Aplitec for the assets of Aplitec will be ZAR 825.64 million ($119.3 million). This will result in a distribution to Aplitecs shareholders of either ZAR 5.00 in cash ($0.72) per Aplitec ordinary share, in the case of the cash option, or ZAR 4.75 ($0.69) per Aplitec ordinary share, in the case of the reinvestment option. As part of the purchase price, New Aplitec will also assume all of the liabilities of Aplitec.
Each Aplitec shareholder who elects the reinvestment option will receive the following:
• | ZAR 1.90 ($0.27) in cash (equivalent to 40% of the purchase price of ZAR 4.75 ($0.69) attributable to each Aplitec ordinary share); and | |
• | An investment of ZAR 2.85 ($0.41) in the South African Trust which will subscribe for a proportionate number of New Aplitec B class preference shares and B class loans. The foregoing consideration is in addition to the special convertible preferred stock of Net 1 that will be held in the Cayman Trust for the future benefit of each holder of Aplitec ordinary shares who elects the reinvestment option. These shares of special convertible preferred stock are convertible on a one-for-one basis into shares of Net 1 common stock, as described under the section titled, Umbrella Agreement Conversion into Net 1 common stock. |
Pursuant to an Underwriting Agreement with New Aplitec, a copy of which is filed as an exhibit to this proxy statement/prospectus, the Brait Group has committed to acquire all the rights of the reinvestment option not taken up by the current Aplitec shareholders for the same consideration that would have been paid by such shareholders.
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The above consideration has been structured in order to achieve compliance with South African exchange control requirements. Without this structure, Aplitecs current shareholders would not have the opportunity to invest in the combined company.
If Aplitecs shareholders elect the reinvestment option, the following transactions will occur for each Aplitec ordinary share held by such shareholders:
• | the aggregate sum reinvested by the Aplitec shareholders will be retained by New Aplitec; | |
• | New Aplitec will issue to the South African Trust a B class preference share, ZAR 0.001 par value plus a premium of ZAR 1.83896 cents ($0.27); | |
• | New Aplitec will credit to the South African Trust a B class loan account of New Aplitec of ZAR 1.01004 cents ($0.15); and | |
• | the South African Trust in its books will issue to the shareholder one unit in the trust representing a capital contribution of ZAR 1.83996 ($0.27) and a loan account of ZAR 1.01004 ($0.15). |
If any Aplitec shareholder fails to make the election between the cash option and the reinvestment option, such Aplitec shareholder will be deemed to have elected the cash option.
Upon completion of the proposed transactions, Aplitecs reinvesting shareholders and/or the Brait Group will hold, as the direct beneficiaries of the South African Trust and indirect beneficiaries through the Cayman Trust, 100% of Net 1 special convertible preferred stock. The reinvestment option has been fixed at an exchange rate of ZAR 7.00 = $1.00, which is the exchange rate used for determining the number of shares of Net 1 special convertible preferred stock issued to the Cayman Trust. Each share of special convertible preferred stock is convertible to one share of common stock of Net 1. On a converted and fully diluted basis the reinvestment option will be convertible into 58.14% of the outstanding common stock of Net 1.
Conditions to Completion of the Aplitec Acquisition
Each partys obligation to effect the Aplitec acquisition is subject to the satisfaction or waiver of the following material conditions:
• | receiving all required regulatory approvals; | |
• | receiving all approvals of the Exchange Control Department of the South African Reserve Bank; | |
• | receiving the approval of the Aplitec acquisition by a majority of Aplitecs shareholders; | |
• | receiving all third party consents to the assignment of Aplitecs contracts to New Aplitec; | |
• | · New Aplitec registering a prospectus to be issued and registered with the Registrar of Companies in South Africa and the circulation of this proxy statement/prospectus to the Aplitec shareholders (note that New Aplitec will not be publicly traded); | |
• | the completion of a due diligence investigation to the satisfaction of the Brait Consortium; | |
• | Aplitec assigning all of its intellectual property to New Aplitec; | |
• | the waiver by all third parties of pre-emptive or similar rights relating to Aplitec or its assets rights; | |
• | New Aplitec and certain key executives of Aplitec (to be identified by New Aplitec) entering into employment agreements and undertakings in restraint of trade to the satisfaction of New Aplitec; | |
• | the approval by Net 1s stockholders of the increase in authorized share capital, the issue of shares of Net 1 common stock to the Brait Consortium and the issuance of Net 1s shares of special |
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convertible preferred stock in connection with the Aplitec acquisition and the registration with the SEC of Net 1 common shares issuable upon conversion of such shares; and | ||
• | the acquisition by Net 1 of selected assets of Net 1 Holdings and the assignment of Net 1 Holdings rights and obligations under certain existing contracts. |
The closing of the Aplitec acquisition will occur on the sixteenth business day after the last of the conditions to the acquisition have been satisfied or waived. Although no assurances can be given, we currently expect that the Aplitec acquisition will close in the second calendar quarter of 2004. However, because the Aplitec acquisition is subject to regulatory approvals and other customary conditions, we cannot predict the exact timing of closing.
Common Stock Purchase Agreement
The following description summarizes the material provisions of the Common Stock Purchase Agreement between Net 1 and the Brait Consortium. We urge you to carefully read the Common Stock Purchase Agreement in its entirety, a copy of which has been filed as an exhibit to this proxy statement/prospectus.
General
The Common Stock Purchase Agreement provides that Net 1 will issue 105,661,428 shares of common stock at $0.50 per share to the Brait Consortium for a total purchase price of $52.8 million and procurement of the assignment of shares of New Aplitec.
The closing of the Common Stock Purchase Agreement will occur on the twelfth business day after the last of the conditions to the agreement have been satisfied or waived, or at another time as Net 1 and the Brait Consortium will agree. Although we can give no assurances, we currently expect that the closing of the Common Stock Purchase Agreement will occur in the second quarter of 2004. However, because the closing is subject to customary conditions and other agreements, we cannot predict the exact timing.
Representations and Warranties
The Common Stock Purchase Agreement contains customary representations and warranties of Net 1 relating to, among other things:
• | corporate organization and power and similar corporate matters; | |
• | capital structure at the time of signing and upon completion of the issuance of shares to the Brait Consortium; | |
• | authorization, execution, delivery, performance and enforceability of, and required consents, approvals, orders and authorizations of governmental authorities or third parties relating to the Common Stock Purchase Agreement; | |
• | the accuracy of information supplied in connection with this proxy statement/prospectus and the registration statement of which it is a part; | |
• |
the accuracy of information contained in documents filed with the SEC, as well as the absence of undisclosed liabilities; |
|
• | approval of the Common Stock Purchase Agreement and all related actions and transactions by Net 1s board of directors and shareholders; | |
• | absence of significant litigation, material changes or events; | |
• | compliance with applicable law; | |
• | filing of tax returns and payment of taxes; |
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• | environmental matters; | |
• | ownership of intellectual property; | |
• | · engagement and payment of fees of brokers, investment bankers, finders and advisors; | |
• | the disclosure of and validity of material contracts to which Net 1 is a party; | |
• | maintenance of insurance; | |
• | · receipt of an opinion of Stenton Leigh, Net 1’s advisor; | |
• | affiliate transactions; and | |
• | labor matters and employee benefit plans. |
Except for the representations and warranties regarding authorization, taxes, capital structure, government approvals, environmental matters and brokers and finders, the representations and warranties made by the parties to the Common Stock Purchase Agreement will survive for 24 months after the closing of the agreement, and their accuracy forms the basis of one of the conditions to the obligations of Net 1 and the Brait Consortium to complete the transaction.
Conditions to the Closing
Each partys obligation to effect this transaction is subject to the satisfaction or waiver of various conditions, which include the following:
• | each of the representations and warranties contained in the Common Stock Purchase Agreement qualified as to materiality being true and correct, and all other representations and warranties contained in the Common Stock Purchase Agreement being true and correct in all material respects; | |
• |
the parties to the Common Stock Purchase Agreement having performed or complied in all material respects with all agreements, obligations, covenants and conditions required to be performed or complied with by it on or before the date on which the transaction is to be completed, and Net 1 having provided a certificate of a senior executive officer and the chairman of the board of directors to that effect; |
|
• | no laws having been adopted or promulgated and no temporary restraining order, preliminary or permanent injunction or other order issued by any court or other governmental entity of competent jurisdiction being in effect that makes the stock purchase illegal or otherwise prohibiting the consummation of the Common Stock Purchase Agreement; | |
• | no action or litigation proceeding having been commenced by any governmental authority against any party to the Common Stock Purchase Agreement seeking to restrain or delay the purchase and sale of the shares of common stock or the other transactions contemplated by the Common Stock Purchase Agreement; | |
• | all approvals, consents, permits and waivers of governmental authorities necessary or appropriate for the consummation of the transactions contemplated by the Common Stock Purchase Agreement will have been obtained; | |
• | the Brait Consortium having received from Schneider Weinberger, outside legal counsel to Net 1, on the date on which the transaction is to be completed, a written opinion as to the shares of common stock of Net 1 being issued to the Brait Consortium; and | |
• | the required stockholder approval will have been obtained. |
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In addition, each partys obligation to effect the Common Stock Purchase Agreement is further subject to the satisfaction or waiver of the following additional conditions:
• | the amendment to Net 1s articles of incorporation authorizing the increase of authorized shares of common stock and preferred stock and the designation of the shares of convertible preferred stock will have been filed with and certified by the Florida Department of State; | |
• | Net 1 and the Brait Consortium will have entered into a registration rights agreement, the terms of which will be mutually agreed upon by the parties; | |
• | Net 1s board of directors will have approved the Common Stock Purchase Agreement and the transactions contemplated thereby; | |
• | the Asset Purchase Agreement will have been executed and delivered; and | |
• | the Aplitec acquisition agreement will have been executed and delivered and the suspensive conditions referred to in that agreement will have been substantially fulfilled or waived to the satisfaction of the Brait Consortium. |
The Common Stock Purchase Agreement provides for indemnification for any breach of representations and warranties or covenants that causes any loss to the indemnified party. Net 1 will take all actions necessary to increase the size of its board of directors to up to ten directors and to elect three nominees of the Brait Consortium. Net 1 also agrees to deliver financial statements, accountants reports and financial plans to the Brait Consortium, and it will provide notification of any event of default or any material adverse development against itself.
Subscription Agreement
In connection with the Aplitec acquisition, Net 1 will subscribe for 170,647,911 A class shares of New Aplitec pursuant to the terms of a Subscription Agreement between Net 1 and New Aplitec. Net 1 will pay to New Aplitec approximately ZAR $229.8 million ($33.2 million) to subscribe for all of the A class shares of New Aplitec at par value of ZAR 0.001 and a premium of ZAR 0.33568 ($0.05) per share and to advance a loan account in the sum of ZAR 1.01004 ($0.15) per A class share. This subscription and advance by Net 1 will be funded out of the consideration received from the Brait Consortium in connection with its purchase of Net 1 common stock. New Aplitec will issue the A class shares to Net 1 and credit Net 1 with the loan accounts in its books.
A copy of the Subscription Agreement has been filed as an exhibit to this proxy statement/prospectus.
Umbrella Agreement
In order to regulate relations between Net 1, the South African Trust, the Cayman Trust, the Brait Consortium and New Aplitec, the parties have entered into an Umbrella Agreement.
Voting of New Aplitec shareholders
When New Aplitec convenes a meeting of its shareholders, it will notify the South African Trust in its capacity as the holder of the New Aplitecs B class preference shares. The South African Trust will then inform the unit holders of the South African Trust of the meeting and the reasons thereof and will distribute to them forms of proxy. Those unit holders who wish to vote the B class preference shares attributable to their units will complete the proxy forms and forward them to the trustees of the South African Trust. The trustees of the South African Trust will, in turn, lodge proxies at the New Aplitec meeting to vote its B class preference shares in the manner instructed by its unit holders.
Voting of Net 1 Shareholders
When Net 1 convenes a meeting of its shareholders, it will notify the enforcer of the Cayman Trust in its capacity as the holder of Net 1s special convertible preferred stock. The enforcer of the Cayman Trust will then notify the South African Trust of the meeting and provide it with sufficient copies of the materials relating to such meeting to distribute to its unit holders. Those unit holders who wish to direct the Cayman Trust to vote the shares of special convertible preferred stock of Net 1 attributable to their units will complete forms of proxy, indicating the
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manner in which they wish to vote them. These proxies will be forwarded back to the enforcer of the Cayman Trust, who will, in turn, lodge proxies at the Net 1 meeting to vote its shares of special convertible preferred stock in the manner instructed by the unit holders of the South African Trust.
Dividends on the special convertible preferred stock
The Umbrella Agreement provides that when dividends are declared by Net 1 out of profits from any source other than dividends received from New Aplitec in respect of the special convertible preferred stock, Net 1 will declare and pay the dividend accruing on such stock to the Cayman Trust, which in turn will pay such dividends to the South African Trust. The trustees of the South African Trust will then distribute the dividends to its unit holders in proportion to their unit holdings. The dividends will be distributed by the trustees of the South African Trust to the last known address of each unit holder or will be made by way of a direct transfer into the banking account of each unit holder.
Conversion into Net 1 common stock
Upon the occurrence of a trigger event, the trustees of the South African Trust will notify the Cayman Trust of such event. The Cayman Trust will then distribute to the South African Trust a certain number of shares of Net 1 special convertible preferred stock in accordance with a fixed “distribution ratio”, which is 0.814286 shares of special convertible preferred stock for each New Aplitec B class preference share (subject to stock splits or reverse splits). The distribution ratio has been calculated to ensure that, following the trigger event, the equity holdings in Net 1 of each of the Brait Consortium and Aplitec’s reinvesting shareholders are relative to their capital contributions to Net 1 at the time of the proposed transactions. The South African Trust will then transfer the shares of special convertible preferred stock received from the Cayman Trust along with a proportionate number of New Aplitec B class preference shares and B class loan accounts to Net 1 in exchange for shares of Net 1 common stock. The conversion ratio for this exchange is one share of Net 1 common stock for each share of special convertible preferred stock surrendered by the South African Trust. A “trigger event” is defined as any one of the following events: (i) notification by the reinvesting Aplitec shareholder of the intention to convert some or all of the B class preference shares, B class loan accounts and Net 1 special convertible preferred stock attributable to him or her into shares of Net 1 common stock; (ii) the abolition or relaxation of Excon regulations such that South African residents would be permitted to directly hold shares of non-South African companies; or (iii) the liquidation, insolvency or other winding-up of either New Aplitec or Net 1.
Following this conversion, the South African Trust will hold these shares of Net 1 common stock pending instructions from the beneficiary of those shares (i.e. the reinvesting Aplitec shareholder). This sale must occur within 12 months after conversion, pursuant to the Excon approval received. Upon receipt of the proceeds in South Africa, against surrender of the unit certificates, the trustees of the South African Trust will distribute the proceeds, net of all costs, to the unit holder. Thereafter, the trustees of the South African Trust will cancel the units and make appropriate entries in the register of unit holders.
You should carefully read the umbrella agreement in its entirety, a copy of which has been filed as an exhibit to this proxy statement/prospectus.
New Aplitec Subscription Agreement
The trustees of the South African Trust and New Aplitec have entered into a Subscription Agreement. Under this agreement, the South African Trust will subscribe for all of the B class preference shares of New Aplitec at a price of ZAR 1.83996 ($0.27) per share. New Aplitec will issue the B class preference shares to the South African Trust and will credit the trust with loan accounts in the sum of ZAR 1.01004 ($0.15) per share, in New Aplitecs books. The South African Trust will receive one B class preference share and one B class loan account for every Aplitec ordinary share reinvested by Aplitecs current shareholders.
The New Aplitec B class preference shares and B class loans held by the South African Trust in New Aplitec are linked together and may not be transferred, except in connection with the conversion of Net 1 special convertible preferred stock into Net 1 common stock as detailed above.
On the date of the issuance of the B class preference shares and the B class loan accounts, New Aplitec will warrant that:
• | it has no assets or liabilities; |
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• | it has no other class of shares, other than its A class ordinary shares; | |
• | no third party has the right to purchase any preference shares in New Aplitec except in connection with the Aplitec acquisition; | |
• | it has no employees; and | |
• | it has not conducted any business prior to the date of issuance. |
You should carefully read the New Aplitec Subscription Agreement in its entirety, a copy of which has been filed as an exhibit to this proxy statement/prospectus.
New Aplitec Participation Trust Deed
In connection with the Aplitec acquisition, New Aplitec and Brait Capital Partners Trustees (Proprietary) Limited, the initial trustees, have entered into a trust deed for the establishment of the South African Trust. It is currently anticipated that First National Asset Management & Trust Company (Proprietary) Limited will replace Brait Capital Partners as the trustee of the South African Trust prior to the closing of the proposed transactions. The trustee will have the power generally to acquire and manage the trusts assets for the benefit of the trusts unit holders. The South African Trust has no termination date.
Disposal of special convertible preferred stock
On the occurrence of a trigger event, the trustees will give written notice to the Cayman Trust, requesting the distribution of the special convertible preferred stock in the distribution ratio for each unit in respect of which the unit holder has given notice of conversion. Upon receipt of such notice, the Cayman Trust will distribute the special convertible preferred stock to the trustees of the South African Trust in the distribution ratio. The trustees of the South African Trust will then notify Net 1 of the conversion of the shares of special convertible preferred stock into shares of Net 1 common stock and will deliver to Net 1 the shares of special convertible preferred stock and a proportionate number of New Aplitec B class preference shares and B class loan accounts.
The trustees of the South African Trust will sell the shares of common stock in Net 1 as and when directed by the reinvesting shareholders, but in any event within 12 months of the conversion to comply with Excon approval received. In the event of the South African exchange controls being relaxed or abolished permitting unit holders to hold the common shares directly, the trustees will distribute the Net 1 common shares to the unit holders in the unit holders participation ratios and wind up the trust. Upon receipt of the proceeds in South Africa and against surrender of the unit certificates, the trustees will distribute the proceeds, net of all costs, to the unit holder or holders concerned. Thereafter, the trustees will cancel the units and make the appropriate entries in the register in respect of the units realized and issue new unit certificates, if required. Once a unit holder ceases to hold any units, he will no longer be a unit holder for purposes of the South African Trust.
The relationship between the South African Trust and the Cayman Trust is governed by the Umbrella Agreement, which is described herein and a copy of which is filed as an exhibit to this proxy statement/prospectus.
Aplitec Holdings Participation Trust Deed
In order to provide for the conversion of Net 1s shares of special convertible preferred stock, the Cayman Trust has been established pursuant to a Deed of Trust among Walkers SPV, as trustee of the Cayman Trust, SAPEF III International G.P., as original enforcer, and Brait Capital Partners Trustees (Proprietary) Limited, as trustee of the South African Trust, and Net 1. An enforcer is required under applicable Cayman law and serves to oversee the actions of the trustee and ensure compliance with the trust deed. The beneficiaries of the Cayman Trust are those persons or classes of persons nominated as beneficiaries in accordance with the applicable provisions of the Cayman Trust. The Cayman Trust has no termination date.
The assets of the Cayman Trust will initially consist of 192,967,138 shares of special convertible preferred stock issued pursuant to the Aplitec acquisition, to be held until the trustee receives notification from the South African Trust to distribute some or all of the special convertible preferred stock to the South African Trust. It is not anticipated that the Cayman Trust will incur any material costs in connection with this distribution of special convertible preferred stock.
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You should carefully read the Aplitec Holdings Participation Trust Deed in its entirety, a copy of the form of which has been filed as an exhibit to this proxy statement/prospectus.
Asset Purchase Agreement
As a condition to the Aplitec acquisition, Net 1 and Net 1 Holdings have entered into an Asset Purchase Agreement pursuant to which Net 1, on behalf of a wholly-owned subsidiary to be formed or acquired in Luxembourg, will acquire selected assets of Net 1 Holdings, including the rights to the U.S. FTS patent and the UEPS technology currently held by Net 1 Holdings, and assume Net 1 Holdings rights and obligations under certain existing agreements, including the Patent and Technology Agreement with Net 1, for $1.00.
Net 1 Holdings has made the following material representations and warranties to Net 1:
• | due organization and good standing of Net 1 Holdings; | |
• | proper execution, delivery and performance of the Asset Purchase Agreement; | |
• | absence of conflicts between the Asset Purchase Agreement and any other laws regulations or constituent documents of Net 1 Holdings; and | |
• | transfer status, as well as absence of liens or other encumbrances or other defects, of the intellectual property to be acquired by Net 1. |
You should carefully read the Asset Purchase Agreement in its entirety, a copy of the form of which has been filed as an exhibit to this proxy statement/prospectus.
Transaction Expenses, Fees and Costs
All expenses, fees and costs incurred in connection with the proposed transactions will be paid by Net 1, New Aplitec and the Brait Group. Net 1 and New Aplitec estimate that their portion of these expenses, fees and costs will total approximately $5.8 million, of which $5.4 million will be paid by Net 1 and $0.4 million will be paid by New Aplitec.
Accounting Treatment
Accounting for the transaction
If a sufficient number of Aplitecs current shareholders elect the reinvestment option to constitute a majority of the voting interest (or the largest shareholder group) in Net 1, the Aplitec acquisition would be likely be accounted for as a reverse acquisition. In a reverse acquisition, Net 1 would be treated as the acquired business and goodwill would consist of the difference between the purchase price or fair value of the Net 1 business and the fair value of its individual assets and liabilities. This goodwill would be accounted for in accordance with the provisions of FASB Statement No. 142 whereby goodwill is not amortized but subject to annual impairment testing.
The historical financial statements of the combined entity would be those of the accounting acquirer (i.e. Aplitec) and any comparative financial statements presented also should be those of the accounting acquirer rather than the legal acquirer (i.e. Net 1). The components of shareholders equity would be stated in terms of Aplitecs equity accounts before the reverse acquisition, but with Net 1s issued number of shares, with an adjustment to reflect the effects of the reverse acquisition on the equity components on the date of acquisition.
In transactions involving reverse acquisitions, the purchase price is generally the fair market value of the public companys stock (legal acquirer/accounting acquiree) at the measurement date of the acquisition, multiplied by the number of shares outstanding immediately prior to the acquisition. While Aplitec and Net 1 are publicly traded companies, the purchase price would likely not take Net 1s share price into consideration due to the fact that it is a very thinly traded stock.
In this reverse acquisition the legal acquirer would issue cash and securities to acquire the shares of the accounting acquirer. The payment of cash to the shareholders of the accounting acquirer would be considered a distribution of capital thus reducing its stockholders equity.
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If an insufficient number of Aplitec shareholders take the reinvestment option such that it is not the largest shareholder group in Net 1, the transaction would be recognized as a business combination with Net 1 as both the accounting and legal acquirer. The cost of the acquisition would be the value of cash and any securities issued as consideration for the assets and liabilities of Aplitec, and would be allocated to such assets acquired and liabilities at their estimated fair values on the date of acquisition. Any cost in excess of the net value of Aplitecs assets and liabilities would be recognized as goodwill and accounted for in the same manner discussed above.
In the course of any review by the SEC of this registration statement or subsequent filings reflecting the above proposed accounting, we may be required to adopt different accounting from that discussed above. Any such modification may be significant.
Reporting by Net 1 under the Exchange Act of 1934 subsequent to the proposed transactions
The SEC staff has indicated that reports filed by the registrant after a reverse acquisition should parallel the financial reporting required under GAAP (i.e. as if the acquiree were the legal successor to the registrants reporting obligation as of the date of the merger). To comply with Exchange Act requirements, the registrant should assure that its filings with the SEC result in timely, continuous reporting, with no lapses in periods presented in the financial statements and no audited periods exceeding 12 months.
Consequently, subsequent to the consummation of the proposed transactions, Net 1 will change its fiscal year-end from December 31 to June 30 to align with the present fiscal year-end of Aplitec. In those circumstances, the SEC staff has indicated that no transition report is necessary. Periodic reports for periods ending prior to the consummation of the proposed transactions will be filed by Net 1 as they become due in the ordinary course of business. Commencing with the periodic report for the quarter in which the proposed transactions are consummated, reports will be filed based on the fiscal year of the accounting acquirer. Those financial statements will depict the operating results of the accounting acquirer, including the acquisition of the registrant from the date of consummation, but in U.S. GAAP and U.S. dollars rather than South African GAAP and ZAR as at present.
Material United States Federal Tax Consequences to Non-U.S. Holders
The following discussion describes the material United States federal income and estate tax consequences as of the date hereof to a Non-U.S. holder (as defined below) of the ownership of special convertible preferred stock of Net 1 issued in connection with the Aplitec acquisition and the ownership of common stock of Net 1 into which such preferred stock can be converted. This discussion also addresses certain tax consequences to Net 1 of issuing such stock. This discussion does not address all aspects of United States federal income and estate taxes and does not deal with foreign, state and local consequences that may be relevant to such Non-U.S. holders in light of their particular circumstances. Special rules may apply to certain Non-U.S. holders, such as United States expatriates, controlled foreign corporations, passive foreign investment companies, foreign personal holding companies, corporations that accumulate earnings to avoid United States federal income tax, and investors in pass-through entities that are subject to special treatment under the Internal Revenue Code of 1986, as amended (the Code). Such Non-U.S. holders should consult their own tax advisors to determine the United States federal, state, local and other tax consequences that may be relevant to them. Furthermore, the discussion below is based upon the provisions of the Code, and United States Treasury regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified, perhaps retroactively, so as to result in United States federal income and estate tax consequences different from those discussed below.
As discussed above under The Transactions, the special convertible preferred stock will be held through a trust arrangement. Although it is not entirely clear, it is expected that for United States federal income tax purposes the South African Trust and the Cayman Trust will be classified as grantor trusts. Consequently, Non-U.S. holders of units in the South African Trust should be treated as owners of their proportionate share of the underlying shares of special convertible preferred stock held by the Cayman Trust for United States federal income tax purposes and the discussion below assumes such treatment. It is possible, however, that the trusts could be treated as entities other than trusts for United States federal income tax purposes, although such alternative treatment should not generally result in any adverse United States federal income tax consequences to the Non-U.S. holders.
Persons considering ownership of common stock should consult their own tax advisors concerning the United States federal income and estate tax consequences in light of their particular situations, as well as any consequences arising under the laws of any other taxing jurisdiction.
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Consequences to Net 1
Net 1 will not recognize any income or gain as a result of the issuance of special convertible preferred stock and common stock in exchange for cash in connection with the proposed transactions contemplated herein.
Consequences to Non-U.S. Holders
As used herein, a Non-U.S. holder of common stock or special convertible preferred stock means a beneficial owner (other than an entity treated as a partnership) that is not any of the following for United States federal income tax purposes (i) a citizen or resident of the United States, (ii) a corporation created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust if it (a) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
Reclassification of Special Convertible Preferred Stock Interest
As discussed above under The Proposed Transactions, shareholders of Aplitec that elect the reinvestment option will receive units in a trust representing beneficial interests in B class preference shares and B class loan accounts issued by New Aplitec together with special convertible preferred stock. Although no statutory, judicial or administrative authority exists that directly addresses the tax treatment of Non-U.S. holders that elect to receive these interests, Net 1 intends to treat the special convertible preferred stock, B class preference shares and B class loan accounts as separate and distinct interests. There is a risk, however, that these interests will be treated as representing a single direct equity interest in Net 1 for United States federal income tax purposes. In such case, all distributions received by Non-U.S. holders of special convertible preferred stock, including distributions received with respect to the B class preference shares and B class loan accounts, would be treated as United States-source dividends received in respect of an equity interest in Net 1 and would be subject to United States federal withholding tax as described below under Dividends.
Dividends
Dividends paid to a Non-U.S. holder of common stock or special convertible preferred stock generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the Non-U.S. holder within the United States and, where a tax treaty applies, are attributable to a United States permanent establishment of the Non-U.S. holder, are not subject to the withholding tax, but instead are subject to United States federal income tax on a net income basis in the same manner as if the such holder were a United States person as defined under the Code. Certain certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. Any such effectively connected dividends received by a foreign corporation may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A Non-U.S. holder of common stock or special convertible preferred stock who wishes to claim the benefit of an applicable treaty rate (and avoid backup withholding as discussed below) for dividends, will be required to (a) complete Internal Revenue Service (IRS) Form W-8BEN (or other applicable form) and certify under penalty of perjury, that such holder is not a United States person or (b) if the common stock or special convertible preferred stock is held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain Non-U.S. holders that are entities rather than individuals. A Non-U.S. holder eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.
As discussed above, the shares of special convertible preferred stock will prior to their conversion or sale be held through a trust arrangement. Under the United States-South Africa income tax treaty (the Treaty), a maximum rate of 15% applies to dividends from United States sources distributed to South African residents. For United States federal income tax purposes, beneficiaries of the trusts that are residents of South Africa and are otherwise entitled to benefits under the Treaty may be entitled to the reduced rate of withholding under the Treaty in respect of any dividends paid on the special convertible preferred stock assuming such holders are taxable currently in South Africa on any dividend distributions to the trusts.
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Disposition of Common Stock or Special Convertible Preferred Stock
A Non-U.S. holder generally will not be subject to United States federal income tax with respect to any gain recognized on a sale or other disposition of common stock or on a sale, exchange, conversion or other disposition of convertible preferred stock unless (i) the gain is effectively connected with a trade or business of the Non-U.S. holder in the United States, and, where a tax treaty applies, is attributable to a United States permanent establishment of the Non-U.S. holder, (ii) in the case of a Non-U.S. holder who is an individual and holds the common stock or special convertible preferred stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of the sale, exchange or other disposition and certain other conditions are met, or (iii) Net 1 is or has been a United States real property holding corporation for United States federal income tax purposes.
An individual Non-U.S. holder described in clause (i) above will be subject to tax on the net gain derived from the sale, exchange or other disposition under regular graduated United States federal income tax rates. An individual Non-U.S. holder described in clause (ii) above will be subject to a flat 30% tax on the gain derived from the sale, exchange or other disposition which may be offset by United States source capital losses (even though the individual is not considered a resident of the United States). If a Non-U.S. holder that is a foreign corporation falls under clause (i) above, it will be subject to tax on its net gain in the same manner as if it were a United States person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. Net 1 believes it is not and does not anticipate becoming a United States real property holding corporation for United States federal income tax purposes.
Constructive Dividends
The conversion rate into which shares of special convertible preferred stock, together with B class preference shares and B class loan accounts of New Aplitec, may be exchanged for common stock of Net 1 may be adjusted in certain circumstances. Under Section 305(c) of the Code, adjustments (or failures to make adjustments) that have the effect of increasing a holders proportionate interest in Net 1s assets or earnings may in some circumstances result in a deemed dividend to holders in accordance with the earnings and profits rules under the Code.
Federal Estate Tax
Common stock or special convertible preferred stock held by an individual Non-U.S. holder at the time of death will be included in such holders gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
Net 1 must report annually to the IRS and to each Non-U.S. holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. holder resides under the provisions of an applicable income tax treaty. A Non-U.S. holder will be subject to backup withholding for dividends paid to such holder unless applicable certification requirements are met (as described above under Dividends).
Information reporting and, depending on the circumstances, backup withholding, will apply to the proceeds of a sale or exchange of common stock or special convertible preferred stock within the United States or conducted through United States-related financial intermediaries unless the beneficial owner certifies under penalty of perjury that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person) or the holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holders United States federal income tax liability provided the required information is furnished to the IRS.
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U NAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview
The unaudited pro forma consolidated financial information presented herein gives effect to the various transactions described in this proxy statement/prospectus, based on certain assumptions set forth in further detail below.
If enough Aplitec shareholders exercise the reinvestment option with the result that the Aplitec shareholders will own the majority of the voting stock of Net 1 or if Aplitecs shareholders become the single largest shareholding group of Net 1, the Aplitec acquisition would be accounted for as a reverse acquisition. In a reverse acquisition, Net 1 would become the acquired business and goodwill would arise as the difference between the purchase price or fair value of the Net 1 business and the fair value of its individual assets and liabilities.
If instead Aplitecs shareholders do not become the single largest shareholding group of Net 1, the transaction would be accounted for as a business combination with Net 1 treated as both the accounting and legal acquirer. The cost of the acquisition would be calculated as the value of cash and any securities issued as consideration for the assets and liabilities of Aplitec. The cost of the acquisition would be allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and any cost in excess of these amounts would be recognized as goodwill.
The number of shareholders of Aplitec that will take the reinvestment option is currently unknown and accordingly the purchase price and accounting treatment for the transaction cannot be determined at this time. Therefore, unaudited pro forma financial information of Aplitec after giving effect to the transaction is presented herein on two bases:
Option 1 assumes that all of the existing Aplitec shareholders who had not provided undertakings to reinvest as of January 27, 2004 choose to take the cash option. Under this option, the cash option would be elected with respect to 100,621,904 existing shares of Aplitec out of 236,977,187 shares outstanding at such date; and
Option 2 assumes that all of the existing Aplitec shareholders exercise the reinvestment option.
Basis of presentation
The following unaudited consolidated pro forma financial information (the pro forma financial information) has been derived by applying pro forma adjustments to Aplitecs historical consolidated financial statements included elsewhere in this proxy statement/prospectus. The pro forma financial information is for informational purposes only and does not purport to present what the results would have been had these transactions actually occurred on the dates presented or to project the results of operations or financial position for any future period.
The pro forma financial information should be read in conjunction with Aplitecs and Net 1s financial statements included elsewhere in this proxy statement/prospectus. The pro forma financial information gives effect to the following transactions as though they had occurred on September 30, 2003 for the pro forma balance sheet and July 1, 2002 for the pro forma income statements:
• | the contribution of $52,830,714 to Net 1 by the Brait Consortium in exchange for 105,661,428 shares of Net 1 common stock, at a subscription price of $0.50 per common share; | |
• | the distribution of cash remaining in Aplitec following the proposed transaction of either $45,452,000 or $41,936,000 to Aplitec shareholders, assuming either Option 1 or Option 2 above, respectively; | |
• | Net 1s provision for transaction costs, including tax liabilities arising as a result of the transaction, estimated at either $11,098,712 or $10,676,729, assuming either Option 1 or Option 2, respectively; | |
• | the acquisition of Aplitec for the aggregate consideration valued at $128,168,000, assuming Option 1 above; |
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• | the reverse acquisition of Net 1 for the aggregate consideration of $60,757,142, assuming Option 2 above. |
The matters set forth below are relevant to the pro forma financial information presented herein:
• | When the transaction is consummated the accounting acquirer will determine the fair value of the assets and liabilities acquired and allocate the purchase price accordingly. For the purpose of this pro forma information, a preliminary evaluation has been made, under each of the options identified, of the assets and liabilities acquired and their possible fair values. This has involved making judgments in particular as to the intangible assets that exist in each entity and their possible fair value. Consequently, the purchase price allocation assumed under each of the options is only provisional. It is possible that if and when a final purchase price allocation is determined that additional intangible assets may be identified, such as in-process research and development, or that the relevant fair value estimates will be revised. | |
• |
Pro forma per share data is based on the number of Net 1 common and special convertible preferred stock that would have been outstanding had the combination occurred on the date presented. In order to compute the number of common shares used in the calculation of pro forma basic and diluted earnings per common share, the number of common shares issued to Brait Consortium in the combination was added to the weighted average number of Net 1 shares outstanding. A reconciliation of shares used to compute historical basic earnings per share to shares used to compute pro forma basic and diluted earnings per common share follows: |
• | There are no significant inter-company balances or transactions in the periods presented. | |
• | The fair value of Aplitecs dormant subsidiaries that are not being acquired by Net 1 is negligible. | |
• | As part of the planned transactions Net 1 will acquire certain legal rights to technology from Net 1 Holdings for nominal consideration. However, these legal rights have hitherto generated income in Net 1 Holdings and therefore the pro forma income statements reflect the income and expenses of Net 1 Holdings. However, the pro forma balance sheet does not reflect the assets and liabilities of Net 1 Holdings as these are not being acquired except for the legal right referred to above, the fair value of which is immaterial. |
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PRO FORMA
CONSOLIDATED INCOME STATEMENT
(unauditedin thousands of U.S. dollars, except per share data or unless
otherwise indicated)
For the year ended June 30, 2003
Option 1
Aplitec | Net 1 | |||||||||||||
(ZAR '000) | Holdings | Pro forma | Pro forma | |||||||||||
(1) | Aplitec (3) | Net 1 (5) | (7) | adjustments | Notes | combined | ||||||||
Revenue | 678,567 | 74,924 | 41 | 134 | | 75,099 | ||||||||
Cost of sales | (234,885 | ) | (25,935 | ) | | (24 | ) | (9,732 | ) | 10 | (35,691 | ) | ||
Gross profit | 443,682 | 48,989 | 41 | 110 | (9,732 | ) | 39,408 | |||||||
Other operating | ||||||||||||||
income | 5,373 | 593 | | | | 593 | ||||||||
Operating expenses | ||||||||||||||
continuing operations | ||||||||||||||
Distribution costs | (6,155 | ) | (680 | ) | | | | (680 | ) | |||||
Administration | ||||||||||||||
expenses | (72,063 | ) | (7,957 | ) | (8 | ) | | (1,992 | ) | 9 | (9,957 | ) | ||
Other operating | ||||||||||||||
expenses | (196,334 | ) | (21,678 | ) | (142 | ) | | | (21,820 | ) | ||||
Total operating | ||||||||||||||
expenses | (274,552 | ) | (30,315 | ) | (150 | ) | | (1,992 | ) | (32,457 | ) | |||
Operating profit/(loss) | 174,503 | 19,267 | (109 | ) | 110 | (11,724 | ) | 7,544 | ||||||
Interest | ||||||||||||||
income/(expense), net | 23,546 | 2,600 | | | (2,228 | ) | 11 | 372 | ||||||
Profit before taxation | 198,049 | 21,867 | (109 | ) | 110 | (13,952 | ) | 7,916 | ||||||
Taxation | (85,794 | ) | (9,473 | ) | | (17 | ) | 5,271 | (4,219 | ) | ||||
Profit after taxation | 112,255 | 12,394 | (109 | ) | 93 | (8,681 | ) | 3,697 | ||||||
Minority interests | (4,095 | ) | (452 | ) | | | | (452 | ) | |||||
Net profit from | ||||||||||||||
continuing operations | 108,160 | 11,942 | (109 | ) | 93 | (8,681 | ) | 3,245 | ||||||
Earnings per share ($) | ||||||||||||||
Basic and diluted | ||||||||||||||
Common stock | 0.0098 | |||||||||||||
Special convertible | ||||||||||||||
preferred shares | 0.0098 | |||||||||||||
Number of common | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings per | ||||||||||||||
share | 130,235,220 | |||||||||||||
Number of special | ||||||||||||||
convertible preferred | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings per | ||||||||||||||
share | 192,967,138 |
59
PRO FORMA CONSOLIDATED INCOME STATEMENT
(unauditedin thousands of U.S. dollars, except per share data or unless
otherwise indicated)
For the three months ended September 30, 2003
Aplitec | Net 1 | |||||||||||||
(ZAR '000) | Holdings | Pro forma | Pro forma | |||||||||||
(2) | Aplitec (4) | Net 1 (6) | (8) | adjustments | Notes | combined | ||||||||
Revenue | 192,335 | 25,851 | | 41 | | 25,892 | ||||||||
Cost of sales | (64,771 | ) | (8,706 | ) | | (7 | ) | (2,433 | ) | 10 | (11,146 | ) | ||
Gross profit | 127,564 | 17,145 | | 34 | (2,433 | ) | 14,746 | |||||||
Other operating | ||||||||||||||
income | 101 | 14 | | | | 14 | ||||||||
Operating expenses - | ||||||||||||||
continuing operations | ||||||||||||||
Distribution costs | (3,490 | ) | (469 | ) | | | | (469 | ) | |||||
Administration | ||||||||||||||
expenses | (17,786 | ) | (2,391 | ) | (2 | ) | | (498 | ) | 9 | (2,891 | ) | ||
Other operating | ||||||||||||||
expenses | (44,336 | ) | (5,959 | ) | (50 | ) | | | (6,009 | ) | ||||
Total operating | ||||||||||||||
expenses | (65,612 | ) | (8,819 | ) | (52 | ) | | (498 | ) | (9,369 | ) | |||
Operating profit/ (loss) | 62,053 | 8,340 | (52 | ) | 34 | (2,931 | ) | 5,391 | ||||||
Interest income/ | ||||||||||||||
(expense), net | 6,601 | 887 | | | (760 | ) | 11 | 127 | ||||||
Profit before taxation | 68,654 | 9,227 | (52 | ) | 34 | (3,691 | ) | 5,518 | ||||||
Taxation | (27,576 | ) | (3,706 | ) | | (5 | ) | 1,395 | (2,316 | ) | ||||
Net profit from | ||||||||||||||
continuing operations | 41,078 | 5,521 | (52 | ) | 29 | (2,296 | ) | 3,202 | ||||||
Earnings per share ($) | ||||||||||||||
Basic and diluted | ||||||||||||||
Common stock | 0.0099 | |||||||||||||
Special convertible | ||||||||||||||
preferred shares | 0.0099 | |||||||||||||
Number of common | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings | ||||||||||||||
per share | 130,235,220 | |||||||||||||
Number of special | ||||||||||||||
convertible preferred | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings | ||||||||||||||
per share | 192,967,138 |
60
PRO FORMA CONSOLIDATED BALANCE SHEET
(unauditedin thousands of U.S. dollars, except per share data or unless
otherwise indicated)
As at September 30, 2003
Historical (US GAAP) | ||||||||||||
Aplitec (ZAR | Pro forma | Pro forma | ||||||||||
'000) (2) | Aplitec (4) | Net 1 (6) | adjustments | Notes | combined | |||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Inventory | 4,685 | 655 | | | ||||||||
Trade and other | ||||||||||||
receivables | 199,139 | 27,837 | 87 | | 27,924 | |||||||
Cash and cash | ||||||||||||
equivalents | 379,466 | 53,044 | 12 | (61,091 | ) | 13 | 39,431 | |||||
(45,452 | ) | 12 | ||||||||||
| | | 92,918 | 14,15 | | |||||||
Total current assets | 583,290 | 81,536 | 99 | (13,625 | ) | 68,010 | ||||||
Noncurrent assets | ||||||||||||
Goodwill | 60,104 | 8,402 | | 56,162 | 21 | 64,564 | ||||||
Intangible assets | 25,864 | 3,615 | 2 | 34,656 | 10 | 38,273 | ||||||
Property, plant and | ||||||||||||
equipment | 58,269 | 8,145 | | | 8,145 | |||||||
Deferred tax | 27,778 | 3,883 | | | 3,883 | |||||||
Total noncurrent | ||||||||||||
assets | 172,015 | 24,045 | 2 | 90,818 | 114,865 | |||||||
| | | | | ||||||||
Total assets | 755,305 | 105,581 | 101 | 77,193 | 182,875 | |||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Trade and other | ||||||||||||
payables | 62,176 | 8,691 | 464 | 11,561 | 16 | 20,716 | ||||||
Tax | 62,134 | 8,686 | | (3,467 | ) | 17 | 5,219 | |||||
Total current | ||||||||||||
liabilities | 124,310 | 17,377 | 464 | 8,094 | 25,935 | |||||||
Longterm | ||||||||||||
liabilities | ||||||||||||
Deferred taxes | 63,446 | 8,869 | | | 8,869 | |||||||
Total longterm | ||||||||||||
liabilities | 63,446 | 8,869 | | | 8,869 | |||||||
Total liabilities | 187,756 | 26,246 | 464 | 8,094 | 34,804 |
61
Shareholders' equity | ||||||||||||
Aplitec common stock, | ||||||||||||
$0.001 par value | 237 | 33 | | (33 | ) | 18 | | |||||
Net 1 common stock, | ||||||||||||
$0.001 par value | | | 16 | 106 | 122 | |||||||
Special Convertible | ||||||||||||
Preferred Stock, | ||||||||||||
$0.001 par value | | | | 111 | 19 | 193 | ||||||
82 | 15 | |||||||||||
B class preference | ||||||||||||
shares, ZAR0.001 | ||||||||||||
par value | | | | 33 | 33 | |||||||
Additional paid in | ||||||||||||
capital | 267,648 | 37,413 | 1,992 | 33 | 18 | 158,188 |
(3,563 | ) | 20 | ||||||||||
(33 | ) | |||||||||||
52,725 | 14 | |||||||||||
40,005 | 15 | |||||||||||
(61,091 | ) | 13 | ||||||||||
56,162 | 21 | |||||||||||
34,656 | 10 | |||||||||||
(111 | ) | 19 | ||||||||||
Retained earnings | 299,664 | 41,889 | (2,371 | ) | 3,563 | 20 | (10,465 | ) | ||||
(8,094 | ) | 16,17 | ||||||||||
| | | (45,452 | ) | 12 | | ||||||
Total shareholders' | ||||||||||||
equity | 567,549 | 79,335 | (363 | ) | 69,099 | | 148,071 | |||||
Total shareholders' | ||||||||||||
equity and | ||||||||||||
liabilities | 755,305 | 105,581 | 101 | 77,193 | | 182,875 |
(1) | Based on the audited financial statements of Aplitec for the year ended June 30, 2003 on a US GAAP basis (see Note 23 to Aplitecs audited financial statements). |
(2) | Based on the unaudited financial statements of Aplitec as at and for the three month period ended September 30, 2003 on a US GAAP basis. See note 10 to the financial statements of Aplitec for the three month period ended September 30, 2003. |
(3) | Translates the audited financial statements of Aplitec for the year ended June 30, 2003 on a US GAAP basis (see Note 23 to Aplitecs financial statements) at a rate of ZAR 9.0568 = $1.00 for the income statement, which approximates the average daily exchange rate for the twelve months in the period ended June 30, 2003 as reported by an independent external source (www.oanda.com). |
(4) | Translates the unaudited financial statements of Aplitec for the three-month period ended September 30, 2003 on a US GAAP basis at an exchange rate of ZAR 7.1538 = $1.00 for the balance sheet, which approximates the closing exchange rate as reported by an independent external source (www.oanda.com) on September 30, 2003 and ZAR 7.4402 = $1.00 for the income statement, which approximates the average daily exchange rate for the three months in the period ended September 30, 2003 as reported by an independent external source (www.oanda.com). |
(5) | Based on the audited US GAAP financial statements of Net 1 included in its annual report on Form 10-KSB for the year ended December 31, 2002, adding subsequent interim periods and deducting comparable preceding year interim results, as reflected in the unaudited financial statements of Net 1 included in its quarterly reports on Forms 10-QSB, as appropriate. |
(6) | Based on the unaudited US GAAP financial statements of Net 1 included in its quarterly report on Form 10-QSB for the three months ended September 30, 2003. |
(7) | Based on the unaudited management financial information of Net 1 Holdings for the year ended June 30, 2003 on a US GAAP basis. |
(8) | Based on the unaudited management financial information of Net 1 Holdings for the three month period ended September 30, 2003 on a US GAAP basis. |
(9) | Represents the stock compensation charge for 8,720,936 ordinary shares in Net 1 that have been allocated for issuance to management under the 2004 Stock Incentive Plan. It is currently contemplated that these stock awards will vest in increments of 1,744,187 per year over a period of five years. The compensation charge in year one is $1,992. The compensation charge for the first three months of year two is $498. |
(10) | Represents the recognition at estimated fair values, of intangible assets in the acquiree which at present |
62
have no carrying value in the financial statements of the acquiree. As noted above, this identification and estimation of fair value is provisional and may change if and when a final purchase price allocation is made. |
Annual | |||||||
Asset | amortization | ||||||
Asset | Fair value | life | charge | ||||
Cash Paymaster Services | |||||||
contracts | 25,320 | 3.2 | 7,912 | ||||
Contracts Investment | |||||||
Holdings | 565 | 8.6 | 66 | ||||
Support services relating to UEPS | |||||||
software | 8,771 | 5.0 | 1,754 | ||||
34,656 | 9,732 |
(11) | Represents estimated interest earned by Aplitec in the year ended June 30, 2003 and in the three month period ended September 30, 2003 on existing Aplitec cash of $45,452 that would have been distributed to shareholders and therefore not have been held by Aplitec had the transaction been consummated on July 1, 2002. An estimated pre-tax interest rate of 4.9% has been used in respect of the year ended June 30, 2003 and of 6.7% in respect of the three month period ended September 30, 2003, based on the actual interest earned on the year-end cash balance of Aplitec on a US GAAP basis. The adjustment has been tax-effected at 37.78%. |
(12) | Under Option 1, $45,452 of cash, which is equal to ZAR 300 million plus such additional cash of Aplitec as is equal to 25 cents for each of the total 236,977,187 Aplitec ordinary shares in respect of which Aplitec shareholders elect the cash option, and which has been translated at the September 30, 2003 exchange rate noted in (4) above, will not be acquired by Net 1, as described in the Common Stock Purchase Agreement. This column treats this amount as a cash distribution to Aplitecs shareholders in advance of its acquisition by Net 1. $45,452 is calculated as follows: |
Cash distribution in respect of: | ||||
Cash option | 70,328 | (i) | ||
Reinvestment option | 36,215 | (ii) | ||
Less: amount funded through non-acquisition of Aplitec cash | (45,452 | ) | (iii) | |
Cash element of purchase price | 61,091 |
(i) | 100,621,904 of Aplitec shares for whom the cash option has been exercised, are paid ZAR 5.00 per share, which at the balance sheet exchange rate of ZAR 7.1538 = $1.00 amounts to $70,328 | |
(ii) |
136,355,283 of Aplitec shares for which the reinvestment option has been exercised, are paid ZAR 1.90 per share, which at the balance sheet exchange rate of ZAR 7.1538 = $1.00 amounts to $36,215 |
|
(iii) | As calculated in (11) above |
63
(14) | Represents the effect of the Brait Consortiums capital contribution of $52,831 into Net 1 in exchange for the issuance of 105,661,428 shares of Net 1 common stock, at a subscription price of $0.50 per share. |
(15) | Represents the underwriting contribution by the Brait Consortium of ZAR 2.85 per Aplitec share in respect of which the cash option is exercised, amounting to $40,087. In combination with $52,831 per (14) above, Braits total contribution is $92,918. |
(16) | Represents the amount owing in respect of the purchase price relating to transaction costs estimated at $11,561. These costs do not include any costs paid to professional advisors. |
(17) | Included in the transaction costs adjusted for in (16) is an amount of South African Secondary Taxation on Companies (STC). This adjustment reflects $3,467 of STC which was historically provided for by Aplitec. Accordingly, the net assets of Aplitec have been increased by this amount. |
(18) | Represents the elimination of historic common stock of the legal acquiree. |
(19) | Represents the acquisition of Special Convertible Preferred Shares by reinvesting holders of Aplitec common stock at an exchange ratio of 0.814286. |
(20) | Represents the elimination of retained earnings of Aplitec, as the accounting acquiree. |
(21) | Goodwill was determined based on a provisional purchase price allocation and is equal to the difference between the purchase price and the fair value of net assets acquired, as set forth below: |
Purchase price | |||
Incremental cash paid to former Aplitec shareholders (13) | 61,091 | ||
Acquisition of Special Convertible Preferred Shares by | |||
reinvesting holders of Aplitec common (19) | 55,516 | ||
Transaction costs to be paid by Net 1 (16) | 11,561 | ||
128,168 | |||
Net assets acquired | |||
Historic net assets of Aplitec | 79,335 | ||
Add: Fair value adjustments to Aplitec intangibles (10) | 34,656 | ||
Less: Aplitec cash not acquired (12) | (45,452 | ) | |
Add: STC provided by Aplitec, to be utilised by Net 1 (17) | 3,467 | ||
72,006 | |||
Goodwill pro-forma adjustment | 56,162 | ||
Add: Historical Goodwill | 8,402 | ||
Goodwill | 64,564 |
64
PRO FORMA CONSOLIDATED INCOME STATEMENT
(unauditedin thousands of U.S. dollars, except per share data or unless
otherwise indicated)
For the year ended June 30, 2003
Option 2
Aplitec | Net 1 | |||||||||||||
(ZAR '000) | Holdings | Pro forma | Pro forma | |||||||||||
(1) | Aplitec (3) | Net 1 (5) | (7) | adjustments | Notes | combined | ||||||||
Revenue | 678,567 | 74,924 | 41 | 134 | 75,099 | |||||||||
Cost of sales | (234,885 | ) | (25,935 | ) | | (24 | ) | (36 | ) | 10 | (25,995 | ) | ||
Gross profit | 443,682 | 48,989 | 41 | 110 | (36 | ) | 49,104 | |||||||
Other operating income | 5,373 | 593 | | | | 593 | ||||||||
Operating expenses - | ||||||||||||||
continuing operations | ||||||||||||||
Distribution costs | (6,155 | ) | (680 | ) | | | | (680 | ) | |||||
Administration expenses | (72,063 | ) | (7,957 | ) | (8 | ) | | (1,992 | ) | 9 | (9,957 | ) | ||
Other operating | ||||||||||||||
expenses | (196,334 | ) | (21,678 | ) | (142 | ) | | | (21,820 | ) | ||||
Total operating expenses | (274,552 | ) | (30,315 | ) | (150 | ) | | (1,992 | ) | (32,457 | ) | |||
Operating profit/(loss) | 174,503 | 19,267 | (109 | ) | 110 | (2,028 | ) | 17,240 | ||||||
Interest income/ | ||||||||||||||
(expense), net | 23,546 | 2,600 | | | (2,055 | ) | 11 | 545 | ||||||
Profit before taxation | 198,049 | 21,867 | (109 | ) | 110 | (4,083 | ) | 17,785 | ||||||
Taxation | (85,794 | ) | (9,473 | ) | | (17 | ) | 1,543 | (7,947 | ) | ||||
Profit after taxation | 112,255 | 12,394 | (109 | ) | 93 | (2,540 | ) | 9,838 | ||||||
Minority interests | (4,095 | ) | (452 | ) | | | | (452 | ) | |||||
Net profit from | ||||||||||||||
continuing operations | 108,160 | 11,942 | (109 | ) | 93 | (2,540 | ) | 9,386 | ||||||
Earnings per share ($) | ||||||||||||||
Basic and diluted | 0.0288 | |||||||||||||
Common stock | 0.0288 | |||||||||||||
Special convertible | ||||||||||||||
preferred shares | ||||||||||||||
Number of common | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings per | ||||||||||||||
share | 130,235,220 | |||||||||||||
Number of special | ||||||||||||||
convertible preferred | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings per | ||||||||||||||
share | 192,967,138 |
65
PRO FORMA CONSOLIDATED INCOME STATEMENT
(unauditedin thousands of U.S. dollars, except per share data or
unless otherwise indicated)
For the three months ended September 30, 2003
Aplitec | Net 1 | |||||||||||||
(ZAR '000) | Holdings | Pro forma | Pro forma | |||||||||||
(2) | Aplitec (4) | Net 1 (6) | (8) | adjustments | Notes | combined | ||||||||
Revenue | 192,335 | 25,851 | | 41 | | 25,892 | ||||||||
Cost of sales | (64,771 | ) | (8,706 | ) | | (7 | ) | (9 | ) | 10 | (8,722 | ) | ||
Gross profit | 127,564 | 17,145 | | 34 | (9 | ) | 17,170 | |||||||
Other operating income | 101 | 14 | | | | 14 | ||||||||
Operating expenses - | ||||||||||||||
continuing operations | ||||||||||||||
Distribution costs | (3,490 | ) | (469 | ) | | | | (469 | ) | |||||
Administration expenses | (17,786 | ) | (2,391 | ) | (2 | ) | | (498 | ) | 9 | (2,891 | ) | ||
Other operating | ||||||||||||||
expenses | (44,336 | ) | (5,959 | ) | (50 | ) | | | (6,009 | ) | ||||
Total operating | ||||||||||||||
expenses | (65,612 | ) | (8,819 | ) | (52 | ) | (498 | ) | (9,369 | ) | ||||
Operating profit/(loss) | 62,053 | 8,340 | (52 | ) | (507 | ) | 7,815 | |||||||
Interest income/ | ||||||||||||||
(expense), net | 6,601 | 887 | | | (701 | ) | 11 | 186 | ||||||
Profit before taxation | 68,654 | 9,227 | (52 | ) | 34 | (1,208 | ) | 8,001 | ||||||
Taxation | (27,576 | ) | (3,706 | ) | | (5 | ) | 457 | (3,254 | ) | ||||
Net profit from | ||||||||||||||
continuing operations | 41,078 | 5,521 | (52 | ) | 29 | (751 | ) | 4,747 | ||||||
Earnings per share ($) | ||||||||||||||
Basic and diluted | 0.0147 | |||||||||||||
Common stock | 0.0147 | |||||||||||||
Special convertible | ||||||||||||||
preferred shares | ||||||||||||||
Number of common | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings per | ||||||||||||||
share | 130,235,220 | |||||||||||||
Number of special | ||||||||||||||
convertible preferred | ||||||||||||||
shares used to | ||||||||||||||
calculate earnings per | ||||||||||||||
share | 192,967,138 |
66
PRO FORMA CONSOLIDATED BALANCE SHEET
(unauditedin thousands of U.S. dollars, except per share data or unless
otherwise indicated)
As at September 30, 2003
Historical | ||||||||||||
Aplitec | ||||||||||||
(ZAR '000) | Pro forma | Pro forma | ||||||||||
(2) | Aplitec (4) | Net 1 (6) | adjustments | Notes | combined | |||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Inventory | 4,685 | 655 | | | 655 | |||||||
Trade and other | ||||||||||||
receivables | 199,139 | 27,837 | 87 | | 27,924 | |||||||
Cash and cash | ||||||||||||
equivalents | 379,466 | 53,044 | 12 | (21,004 | ) | 13 | 42,947 | |||||
(41,936 | ) | 12 | ||||||||||
| | | 52,831 | 14 | | |||||||
Total current assets | 583,290 | 81,536 | 99 | (10,109 | ) | 71,526 | ||||||
Non-current assets | ||||||||||||
Goodwill | 60,374 | 8,402 | | 15,835 | 21 | 24,237 | ||||||
Intangible assets | 25,864 | 3,615 | 2 | 109 | 10 | 3,726 | ||||||
Property, plant and | ||||||||||||
equipment | 58,269 | 8,145 | | | 8,145 | |||||||
Deferred tax | 27,778 | 3,883 | | | 3,883 | |||||||
Total non-current | ||||||||||||
assets | 172,015 | 24,045 | 2 | 15,944 | 39,991 | |||||||
Total assets | 755,305 | 105,581 | 101 | 5,835 | 111,517 | |||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Trade and other | ||||||||||||
payables | 62,176 | 8,691 | 464 | 11,121 | 16 | 20,276 | ||||||
Tax | 62,134 | 8,686 | | (3,467 | ) | 17 | 5,219 | |||||
Total current | ||||||||||||
liabilities | 124,310 | 17,377 | 464 | 7,654 | 25,495 | |||||||
Long-term liabilities | ||||||||||||
Deferred taxes | 63,446 | 8,869 | | 8,869 | ||||||||
Total long-term | ||||||||||||
liabilities | 63,446 | 8,869 | | | 8,869 | |||||||
Total liabilities | 187,756 | 26,246 | 464 | 7,654 | 34,364 |
67
Shareholders' equity | ||||||||||||
Aplitec common stock, | ||||||||||||
$0.001 par value | 237 | 33 | | 18 | | |||||||
Net 1 common stock, | ||||||||||||
$0.001 par value | 16 | 106 | 14 | 122 | ||||||||
Special Convertible | ||||||||||||
Preferred Stock, | ||||||||||||
$0.001 par value | | 193 | 19 | 193 | ||||||||
B class preference | ||||||||||||
shares, ZAR0.001 | ||||||||||||
par value | | 33 | 33 | |||||||||
Additional paid in | ||||||||||||
capital | 267,648 | 37,413 | 1,992 | 33 | 18 | 84,506 | ||||||
(193 | ) | 19 | ||||||||||
(33 | ) | |||||||||||
(21,004 | ) | 13 |
52,725 | 14 | |||||||||||
(2,371 | ) | 20 | ||||||||||
109 | 10 | |||||||||||
15,835 | 21 | |||||||||||
Retained earnings | 299,664 | 41,889 | (2,371 | ) | 2,371 | 20 | (7,701 | ) | ||||
(7,654 | ) | 16,17 | ||||||||||
| | | (41,936 | ) | 12 | | ||||||
Total shareholders' | ||||||||||||
equity | 567,549 | 79,335 | (363 | ) | (1,819 | ) | | 77,153 | ||||
Total shareholders' | ||||||||||||
equity and | ||||||||||||
liabilities | 755,305 | 105,581 | 101 | 5,835 | | 111,517 |
(1) | Based on the audited financial statements of Aplitec for the year ended June 30, 2003 on a US GAAP basis (see paragraph (d) of Note 23 to Aplitecs financial statements). |
(2) | Based on the unaudited financial statements of Aplitec as at and for the three month period ended September 30, 2003 on a US GAAP basis. See note 10 to the financial statements of Aplitec for the three month period ended September 30, 2003. |
(3) | Translates the audited financial statements of Aplitec for the year ended June 30, 2003 on a US GAAP basis (see Note 23 to Aplitecs financial statements) at a rate of ZAR 9.0568 = $1.00 for the income statement, which approximates the average daily exchange rate for the twelve months in the period ended June 30, 2003 as reported by an independent external source (www.oanda.com). |
(4) | Translates the unaudited financial statements of Aplitec for the three-month period ended September 30, 2003 on a US GAAP basis at an exchange rate of ZAR 7.1538 = $1.00 for the balance sheet, which approximates the closing exchange rate as reported by an independent external source (www.oanda.com) on September 30, 2003 and ZAR 7.4402 = $1.00 for the income statement, which approximates the average daily exchange rate for the three months in the period ended September 30, 2003 as reported by an independent external source (www.oanda.com). |
(5) | Based on the audited US GAAP financial statements of Net 1 included in its annual report on Form 10-KSB for the year ended December 31, 2002, adding subsequent interim periods and deducting comparable preceding year interim results, as reflected in the unaudited financial statements of Net 1 included in its quarterly reports on Forms 10-QSB, as appropriate. |
(6) | Based on the unaudited US GAAP financial statements of Net 1 included in its quarterly report on Form 10-QSB for the three months ended September 30, 2003. |
(7) | Based on the unaudited management financial statements of Net 1 Holdings for the year ended June 30, 2003 on a US GAAP basis. |
(8) | Based on the unaudited management financial information of Net 1 Holdings for the three month period ended September 30, 2003 on a US GAAP basis. |
(9) | Represents the stock compensation charge for 8,720,936 ordinary shares in Net 1 that have been allocated for issuance to management under the 2004 Stock Incentive Plan. It is currently contemplated that these stock awards will vest in increments of 1,744,187 per year over a period of five years. The compensation charge in year one is $1,992. The compensation charge for the first three months of year two is $498. |
(10) | Represents the recognition of licencing rights at a fair value of $109. The rights have an estimated useful economic life of three years, resulting in an annual amortization charge of $36. |
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(11) | Represents estimated interest earned by Aplitec in the year ended June 30, 2003 and in the three month period ended September 30, 2003 on existing Aplitec cash of $41,936 that would have been distributed to shareholders and therefore not have been held by Aplitec had the transaction been consummated on July 1, 2002. An estimated pre-tax interest rate of 4.9% has been used in respect of the year ended June 30, 2003 and of 6.7% in respect of the three month period ended September 30, 2003, based on the actual interest earned by and year-end cash balance of Aplitec on a US GAAP basis. The adjustment has been tax-effected at 37.78%. |
(12) | The reinvesting shareholders receive ZAR 1.90 per share, which is treated as a capital distribution. This is equal to $62,940, of which $41,936 is funded from existing cash of Aplitec. This distribution from existing cash is reflected here. |
(13) | Represents the distribution to reinvesting shareholders of the balance of cash described in (12). |
(14) | Represents the effect of the Brait Consortiums capital contribution of $52,831 into Net 1 in exchange for the issuance of 105,661,428 shares of Net 1 common stock, at a subscription price of $0.50 per share. |
(15) | [Not used under Option 2] |
(16) | Illustrates the effect of liabilities estimated at $11,121, including taxes arising on the cash distribution to Aplitec shareholders. |
(17) | The total amount of liabilities described in (16), is reduced by a historic STC provision carried by Aplitec of $3,467, which can be offset against taxes arising on the transaction included in (16). |
(18) | Represents the elimination of historic common stock of the legal acquiree. |
(19) | Represents the acquisition of Special Convertible Preferred Shares by reinvesting holders of Aplitec common stock at an exchange ratio of 0.814286. |
(20) | Represents the elimination of retained deficit of Net 1, as the accounting acquiree. |
(21) | Goodwill was determined based on a provisional purchase price allocation and is equal to the difference between the purchase price and the fair value of net assets acquired, as set forth below: |
Purchase price | ||||
Existing shares of Net 1 immediately prior to transaction ('000s) | 121,514 | |||
Fair value per Net 1 share 1 (US cents) | 50 | |||
Total value | $ | 60,757 | ||
Net assets acquired | ||||
Historic net liability value of Net 1 | (364 | ) | ||
Add: Capital contribution by Brait prior to transaction (14) | 52,831 | |||
Add: Fair value adjustments to Net 1 intangibles (10) | 109 | |||
Less: Incremental cost of transaction (16, 17) | (7,654 | ) | ||
44,922 | ||||
Goodwill | 15,835 |
1 | The fair value of the shares of Net 1 common stock used in determining the purchase price was $0.50, which is the price per share paid by the Brait Consortium under the Common Stock Purchase Agreement. |
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B USINESS
T HE T ECHNOLOGY
Net 1s and Aplitecs technological platforms are based upon two fundamental components:
• | FTS patents; and | |
• | the UEPS technology. |
The FTS patents were first filed by Dr. Serge Belamant and the late Andre Mansvelt in 1989. The patents in South Africa and its surrounding territories were subsequently assigned to Net 1 (Pty), which is currently a wholly-owned subsidiary of Aplitec. The patents in Europe and the United States were assigned to Net 1 Holdings.
Description of the FTS Patents . The FTS patents describe a method for the safe and secure transfer of funds from one smart card to another without the need for contact with the card issuer or authorization center at the time of the transaction. It also incorporates how these cards can be loaded or re-loaded with funds as well as how these funds can be redeemed for value in a banking or non-banking environment.
Status of FTS Patents . The FTS patents are registered in the United States, South Africa, Botswana, Namibia and Swaziland.
The European patent was filed in October 1990 and granted in December 1994. The European Patent Convention provides for an opposition period of nine months following the grant of a European patent, and six parties filed an opposition to the grant of the FTS patent. The case was heard before a Board of the Opposition Division in March 1998 and the patent was upheld. Following this decision, a number of the original opponents filed an appeal. The oral proceedings for the appeal were heard on October 10, 2002 and the Appeal Board reversed the earlier decision. The formal written decision from the Appeal Board was received on December 24, 2002. Consequently, the European patent has been revoked and there is no possibility of any further appeal.
As a result of this ruling, Net 1 will not be able to collect any patent royalties in the European Union. However, our business plan and forecast do not account for such royalties as a major source of revenue in the medium to long-term, as the key to Net 1s operations in Europe is based on its know-how and ability to exploit the technology rather than on its proprietary right. Accordingly, while Net 1 is disappointed in this ruling, it has not and is not expected to have a material adverse effect on Net 1 in the medium or long-term.
The FTS patents in South Africa, Botswana, Namibia and Swaziland were granted on September 25, 1991, March 9, 1993, April 7, 1993 and December 9, 1992, respectively. These patents, held by Net 1 (Pty), remain in full force and effect, and Aplitec is not aware of any challenges to their enforceability.
The FTS patent in the United States was granted on December 29, 1992. A reissue patent was granted under number Re. 36,788 on July 25, 2000. It currently remains in full force and effect, and Net 1 is not aware of any challenges to its enforceability.
Description of the UEPS Technology . The UEPS technology is a suite of software programs that incorporates the FTS patents into a fully integrated payment and settlement system. The primary strengths of UEPS are its affordability, security and flexibility. The system is affordable because transactions occur between the computer chips embedded in the two smart cards involved. The terminals required to enable these transactions are relatively inexpensive as they merely serve as a power source and communication channel between the two cards and require very little memory and processing power compared to traditional Point of Sale terminals. This eliminates the need for existing infrastructures such as electricity, telephone or data transmission. The payment system is secure because all transactions are verified (i.e. confirmation of the actual transfer of the funds) between the two smart cards, which are involved in the transaction using advanced hardware tamper protection and cryptographic systems, together with protocols and techniques developed by the founders of the technology. The UEPS also allows for pin code or biometric (fingerprint) verification of the cardholder at the time of transacting,
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which further enhances the security of the system. Finally, UEPS is flexible because transactions are completed offline, thus eliminating virtually all restrictions on where verified transactions can occur.
The first version of UEPS was released in 1991, and included software to both operate each smart card as well as the main payment system network. UEPS provides all of the functions necessary to issue and manage a smart card and terminal base as well as those needed to effect settlement between all of the operators and participants. UEPS is fully traceable and auditable and can provide advanced facilities such as loss tolerance and interest distribution. Finally, UEPS is scalable and can be made available to well established market leaders or as a starter kit to smaller organizations.
Rights to the technology . Net 1 owns the exclusive rights to market and sell the technology worldwide, excluding South Africa and its surrounding territories and the rights to license the U.S. FTS patent. Net 1 (Pty) owns similar rights in South Africa and its surrounding territories.
N ET 1 S B USINESS
Overview
Net 1 is a development stage company engaged in the commercialization of the UEPS technology and FTS patent through the development of strategic alliances with national and international banks and card service organizations. To date, our activities have consisted of acquiring certain rights to the above-mentioned technology from Net 1 Holdings and entering into outsourcing and distribution relationships with Aplitec. Net 1 has no full-time employees. Net 1s web site address is www.net1ueps.com.
Strategy
Following the development of a detailed business plan and marketing strategy, Net 1s management team has devoted most of its activities to the raising of the funds required to develop and operate the business successfully.
History
Net 1 was incorporated in the State of Florida in May 1997 to acquire and exploit a non-exclusive worldwide license to the UEPS payment system. Net 1 entered into a license agreement, dated May 19, 1997 (the License Agreement), with Net 1 Holdings, Net 1 Operations S.a.r.l. and Net 1 (Pty) (collectively, the Licensors), whereby the licensors granted a non-exclusive license to Net 1 for the UEPS technology in exchange for 5,412,244 shares of Net 1 common stock. On October 1, 1997, the License Agreement was amended to transfer ownership of the UEPS technology and FTS patents world wide (except for South Africa and its surrounding territories), and to assign the Technology License Agreement between Visa International Service Association and Net 1 Holdings, dated July 31, 1997 (the Visa Agreement) to Net 1 in exchange for 4,729,612 shares of Net 1 common stock. This transaction was never completed because certain conditions precedent were never satisfied.
On May 3, 2000, Net 1 entered into a Patent and Technology Agreement with Net 1 Holdings, whereby Net 1 was granted a license for the U.S. FTS patent and the now invalid European patent. The 4,729,612 shares of Net 1 common stock previously offered in the above-referenced amended License Agreement were issued to Net 1 Holdings. At December 31, 2002, Net 1 Holdings beneficially owned 8,520,578 shares of Net 1 common stock, or 53.75% of the shares then outstanding. In addition, Net 1 has the exclusive marketing rights for the UEPS technology in all countries other than South Africa and its surrounding territories.
On February 26, 2001, Net 1 entered into an Outsourcing Agreement with Net 1(Pty). In October 2002, this agreement was replaced by a Distribution Agreement, effective as of July 1, 2002, pursuant to which Net 1 (Pty) was retained to provide Net 1 with marketing, sales, administrative and technical support as an accredited UEPS integrator in Net 1s designated territories. As part of this agreement, Net 1 (Pty) receives 9.5% of fees collected by Net 1 on all new licenses and upgrades of existing licenses.
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Business
As a development stage company, Net 1 is principally focused on trying to commercially exploit the FTS patents and UEPS technology in its designated territories. Net 1s management has developed a detailed business plan and marketing strategy involving the development and implementation of the smart card system as an alternative to existing payment systems such as cash, checks, credit cards and debit cards, utilizing the proprietary technology and operating under the Net 1 brand.
Management has also focused its efforts on attracting the necessary capital to implement the business plan. On October 23, 2002, Net 1 retained Investec Bank Limited (Investec), an international merchant banking group, to provide corporate finance services and assistance in order to raise equity and/or debt funding for the company. This was unsuccessful and Investec and the company mutually agreed to terminate the engagement.
Management continues to strive to meet the following two business strategies:
• | Build partnerships . Net 1 hopes to establish partnership agreements with IT services and financial services entities, which would provide the total technical support required by Net 1 licensees to launch and develop their own applications based on the FTS patents and UEPS technology. The only partnership established thus far has been the relationship with Aplitec pursuant to the Distribution Agreement. | |
• | Develop license revenue . Net 1 hopes to increase revenue by developing its licensee network on a worldwide basis. Net 1 already receives revenues under the Patent and Technology Agreement from UEPS licensees in Latvia, Burundi, Ghana, Rwanda and Malawi and it is in negotiations with potential licensees in various other countries. |
The aforementioned Patent and Technology Agreement entitles Net 1 to receive all of Net 1 Holdings license sales revenue in an amount equal to Net 1 Holdings annual net profit before amortization. This agreement has produced minimal revenues and Net 1 has suffered recurring operating losses as is normal in development stage companies. At December 31, 2002, Net 1 had a working capital deficiency of $236,549. While Net 1 has sufficient funds to undertake its planned operations during fiscal 2004, these factors raise doubts about Net 1s ability to continue as a going concern beyond that time. The ability of Net 1 to complete its long-term business plan depends on whether it is successful in raising the capital it requires through equity financing and developing a market for its products.
Properties
Net 1 does not own any properties. We currently rent office facilities and services on an as-needed basis at 744 West Hastings Street, Vancouver B.C. Canada from Gilmour, McKay Roberts Consulting Limited, one of our financial consultants. We rent this office on a month-to-month basis at a rate of $1,000 per month.
Legal Proceedings
Net 1 is not involved in, nor is it aware of, any significant legal or arbitration proceedings which are pending or threatened and which may have, or have had in the twelve-month period preceding this proxy statement/prospectus, a material effect upon the financial position of Net 1 and its subsidiaries or affiliates.
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A PLITEC S B USINESS
Overview
Aplitec is an investment holding company established and existing under the laws of South Africa. Aplitecs subsidiaries employ specialized smart card technologies to add efficiency to a myriad of commercial activities that involve money transfers, payment systems and other electronic data applications.
Aplitecs mission is to provide a secure, universal and affordable transacting system, utilizing existing infrastructure within the financial services industry, that will enable people, regardless of income, to have access to goods and services that were previously unattainable. Access to these goods and services should result in improved lifestyles and provide access to new, low-risk and profitable markets for suppliers that use Aplitecs systems.
Through its subsidiaries, Aplitec is involved in the administration, management and payment of social welfare grants and handles the payment of pensions on behalf of provincial governments in five of the nine provinces of South Africa. Aplitec also operates micro-lending businesses with more than 100 micro-lending branches throughout South Africa, and develops, markets and licenses administrative and payment solutions for the micro-finance industry. Aplitec also provides financial services to pensioners through its proprietary smart card platform.
Aplitec, through its subsidiary Net 1 (Pty), holds the FTS patents for South Africa and its surrounding territories and, through the Distribution Agreement with Net 1, provides integrated software and hardware services to customers outside its designated territories. Aplitec also provides technical, operational and outsourcing services to companies.
Aplitec and its subsidiaries currently employ 2,044 persons. Aplitecs web site address is www.aplitec.co.za.
Strategy
Aplitecs principal goal is to deploy a national payment system that will provide an affordable and secure financial services and transacting platform to the un-banked and under-banked citizens within South Africa. As commerce and industry in South Africa continues to seek secure and cost-effective solutions that minimize the risk of performing cash transactions and provide access to consumers who may have limited access to traditional financial services, Aplitec is well-positioned to offer effective solutions through its wide range of secure smart card payment system applications. Aplitec believes that its infrastructure will extend the existing commercial banking networks and enable it to provide access to financial and transacting services for all South Africans.
The UEPS is ideally suited to South Africa and other developing countries as it is able to operate in an offline environment. It thus offers a cheaper, more effective option for transacting by poor segments of the population. The UEPS applications developed by Aplitec deliver practical, affordable and inter-operable solutions in various fields including transportation, wage and utility payments, pension distribution, premium collections, retailing and third party transfers.
The UEPS provides a secure and affordable channel through which financial and other services can be administered to persons with lower incomes. Aplitecs strategy is to provide and promote the channel, facilitate services using the channel and participate in the transaction fees based on the services that are rendered through the channel. Aplitec still retains the flexibility of selectively providing services to the channel itself where it is strategic to do so, the resources are available and the returns are commensurate with the risks taken.
The first stage of Aplitecs strategy was to build a critical mass in smart card users. This has been achieved through the administration and distribution of state pensions and social welfare grants to more than 2.2 million beneficiaries. The proliferation of cards in the hands of consumers has generated increased demand for additional services. Going forward, Aplitec will focus on developing UEPS applications that facilitate the introduction of additional services to the channel and will seek opportunities to provide services directly to the channel.
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History
Aplitec was incorporated on May 14, 1997 under the name Javelin Housing (Proprietary) Limited. On September 12, 1997, the company adopted its current name, and it also converted into a public company to facilitate the subscription of shares by the public on its listing. Aplitec debuted on the Venture Capital list of the JSE on December 11, 1997 and raised ZAR 30 million ($4.3 million) through a private placement of 30 million ordinary shares. In April 2000, Aplitec transferred its listing to the main board of the JSE.
Net 1 Southern Africa Acquisition
In May 1998, Aplitec acquired Net 1 Southern Africa (Proprietary) Limited, a business focused on supplying and servicing the point of sale, or POS terminal network of Nedcor, a major South African banking group. The purchase price for Net 1 Southern Africa was 4,560,000 Aplitec ordinary shares.
CPS Acquisition
In 1999, Aplitec acquired CPS, a business engaged in the distribution of social welfare grants, for ZAR 54 million ($7.8 million). This acquisition achieved two critical objectives. First, CPSs customer base of approximately 1.5 million people were issued UEPS smart cards, which helped Aplitec to achieve a critical mass of smart card users. Second, Aplitec acquired a logistics/implementation infrastructure that was unparalleled in reach, expertise and experience at the time. Strengthened by Aplitecs technological platform, CPS was able to renew its existing contracts and secure new ones. CPS also entered into a strategic alliance with the South African Post Office to distribute pensions through its branches in the KwaZulu-Natal province utilizing the UEPS smart cards. A key element of the awarding of this contract was the technological advances that Aplitec brought to bear in the provision of services sought. CPS is currently Aplitecs principal operating subsidiary.
Micro-lending Acquisitions
During the course of 1999 and 2000, Aplitec acquired 100% of Moneyline (Proprietary) Limited (Moneyline) for ZAR 43.5 million ($6.3 million) and 100% of NewWorld Finance (Proprietary) Limited (New World) for ZAR 25.3 million ($3.7 million). Through these acquisitions, Aplitec gained access to a network of approximately 100 micro-lending branches in South Africa through which its micro-lending administration and payment solutions could be deployed.
Nedcor Relationship
In July 2000, Nedcor Limited (Nedcor) acquired 26.2% of Aplitec. As part of the transaction, Aplitec acquired Net 1 (Pty), the entity housing the FTS patents for South Africa and its surrounding territories, for ZAR 19.5 million ($2.8 million). This acquisition consolidated the ownership of and rights to the technology for South Africa and its surrounding territories into Aplitec.
Market Opportunity
Aplitec operates in markets that contain large untapped populations of people who have no access to banking facilities (the un-banked) or very limited access to banking facilities (the under-banked). According to research done by ACNielson (FutureFact Marketscape Survey 2002), only 40% of South African adults have access to at least one form of basic bank account, compared to approximately 90% of adults in the United States. Furthermore, the distribution of bank accounts is significantly skewed towards higher income groups. This is largely due to the high relative costs associated with maintaining a bank account in South Africa. Aplitecs payment and transacting systems are ideally suited to meet the needs of the un-banked and under-banked in South Africa. The ability to execute offline transactions not only reduces the cost of a transaction, but is also essential in the rural and informal areas with limited or no communication infrastructure, where approximately 60% of South Africas population live. These markets present a substantial opportunity for Aplitec to increase its user base and the volume of transactions processed using its systems.
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Aplitec expects significant growth from its existing businesses in the future. To date, social welfare beneficiaries have not been able to transact with merchants using the value stored on their smart cards and most beneficiaries have withdrawn their full value of the grant in cash. With the rollout of terminals at selected merchants, it is expected that more beneficiaries will use their smart cards for transacting with merchants. In addition, it has been well publicized that the South African government is accelerating its social security program to provide more South Africans with social grants, in order to combat poverty. This will result in an ever-increasing number of customers for Aplitec and significantly increase the total value of grants distributed.
Aplitecs existing applications and services have largely focused on the un-banked segment of the population. However, several applications have been developed to target the under-banked market segment. These include wage payment systems that allow employees to pay salaries and wages of their employees onto smart cards, and canteen systems. These systems provide all of the benefits of cash transactions without the related fraud and security risks. Aplitec also recently launched a money transfer system that provides a fund transfer mechanism between clients in various countries. Aplitecs role is to facilitate the distribution of a secure electronic payment using biometric fingerprint technology for beneficiary identification and the loading of funds onto the beneficiaries smart card.
UEPS systems can also be used to service higher income clients. UEPS applications have been developed for the administration of national health insurance and Internet payments. UEPS can also be adapted to operate in closed environments such as casinos, hotels and gyms.
Business
Aplitecs business is organized into three divisions: Transaction-based Activities, Financial Services and Technology Sales and Outsourcing.
Transaction-based Activities
Aplitecs transaction-based activities are operated through CPS. CPS uses the UEPS to administer and distribute eight different social welfare grants in South Africa, including pensions, child grants and disability grants on behalf of the provincial government. Provincial contracts are typically awarded for a period of three years with an option by the provincial government to extend the contract for two additional years. Currently CPS holds five provincial government contracts, three of which are in the extension periods.
The system uses a smart card based biometric (fingerprint) identification system to verify beneficiaries and effect payments of social welfare grants onto individual smart cards. The beneficiary then has the choice of either converting the electronic value to cash using automated cash dispensers or effecting payments for a range of services such as loan payments and insurance premium payments. The system effectively combats the problems associated with traditional cash payment systems such as fraud and theft as a result of the biometric verification and audit trails.
Due to the limited number of services currently provided, almost all of the beneficiaries download the value onto their smart cards and then immediately withdraw the full amount as cash. Aplitecs revenue is therefore currently dependent on fees earned on the loading or redemption of value on the cards as well as the registration of beneficiaries rather than the provision of services. The direct costs associated with this business are primarily cash handling costs such as security, transport of cash, banking fees and insurance. Fixed costs comprise salaries and property rental.
CPSs competitors include Allpay, which is responsible for payments in the Free State, Gauteng, Western Cape provinces and a small portion of the Eastern Cape, and Empilweni which is responsible for payments in the Mpumalanga province.
Financial Services
Traditional Micro-lending. Aplitec operates a traditional micro-finance business with more than 100 branches under the New World Finance and Moneyline brand names. These businesses extend cash loans for
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periods ranging from 30 days up to 3 months, with the majority of loans being 30-day loans. The average interest rates charged to customers are 18-20% per month. These businesses operate on Aplitecs Milpay Pay System, or MPS, of which more than 1,000 have been sold to the industry. The system is unique in that it enables the micro-lender to set up a salary budget account, or SBA, for the client into which the employer deposits its employees net salary. The SBA allows the loan deductions that are pre-authorized by the client to be electronically transferred to the authorized party. This ensures that loan repayments are made every month and substantially lowers bad debt provisions, which provides an overall benefit to the micro-lender. The remaining sum can then be retained in the bank account or transferred to another account. Aplitec believes that marketing this system to an entire industry could result in significant annuity revenue.
The MPS module is linked to the National Loans Register, a database of micro-lending customers with existing loans, which was established by the Micro Finance Regulatory Council of South Africa to encourage responsible lending by microlenders and prevent customers from overextending themselves. The module also ensures that loans are not granted to persons with existing loans. In addition, payment slips are checked for other deductions before an affordability and lifestyle score are given to the potential customer. Based on these scores, the decision to grant a loan is made at the branch level.
At June 30, 2003, the net debtors book amounted to ZAR 33.1 million ($4.8 million). As this is not a core business, Aplitec does not intend to actively grow the debtors book in the future.
Age Secure. Towards the end of 2001, Aplitec developed a suite of financial services targeted at social welfare beneficiaries, utilizing Aplitecs issued base of smart cards as a delivery channel. The products are marketed under the Age Secure brand and include micro-loans, insurance and food parcels. Age Secure has only been implemented in the KwaZulu-Natal province and has approximately 85,000 clients. Going forward, Aplitec plans to grow and develop the Age Secure business by launching new products and into provinces where it administers social welfare grants.
Following initial start-up losses, Age Secure grew rapidly and is now profitable and cash generative with a net debtors book of ZAR 23.9 million ($3.5 million). The growth in Age Secures client base demonstrates that Aplitecs technology can be used to effectively manage the credit and collection risks inherent in the micro-lending industry.
Technology Sales and Outsourcing
Aplitec has developed a range of technological competencies to service the companys internal needs, including the development of the UEPS to provide services directly to smart card holders, and to provide the link between Aplitec and its client enterprises. Technology sales refer to the supply of the hardware and software required to implement Aplitecs UEPS systems. Aplitec has to date implemented systems on behalf of Net 1 and Net 1 Holdings in Malawi, Ghana, Burundi, Rwanda, Mozambique and the Commonwealth of Independent States or CIS.
The Malawi contract was significant breakthrough for Aplitec because it was the first time that an African central bank selected a smart card program for use with a national payment system. It was also the first use of the UEPS technology in a national switching environment (i.e. a system that allows for country-wide settlement of financial transactions between participating individuals and a central banking system) using the biometric finger print identification methodology. The system provides solutions for both the banked and un-banked market segments of Malawi. To date, six financial institutions and British Petroleum (BP), a bulk fuel supplier, have joined the system. A total of 200,000 smart cards, 7 automated teller machines, or ATMs, and 350 POS terminals have been purchased and issuing has commenced by all participants. The BP Fuel Application was launched in April 2003 and is currently being deployed throughout Malawi. A total of 54 BP service stations have been equipped with the necessary POS equipment. The government of Malawi recently committed to pay the salaries of 150,000 government employees through the use of smart cards.
When a system is implemented in a country, Aplitec provides the hardware required to receive, allocate and forward transactions to the correct financial institution, customizes the UEPS software for the network (UEPS management system, ATM integrations, POS integration), customizes the applications suite for the clients specific
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requirements (e.g. banking, retail, wage payment) and supplies the smart cards and terminals. All technology sales include an element of support services as programmers and technicians need to adapt or tailor interfaces to the clients existing systems. Ongoing services including maintaining smart card equipment, consulting and support services, and software development are provided to these clients.
The division continues to pursue opportunities to implement UEPS technologies internationally. Aplitec have been awarded a tender in Kenya to install a UEPS-based national health system requiring two million cards. The implementation of the tender has however been delayed due to the change of government in Kenya.
The outsourcing aspect of the division refers to the services Aplitec provides to Nedcor. Aplitec has a rolling contract with Nedcor relating to the outsourcing of its entire terminal management system, Stratus switching modules, software development, smart cards and terminal maintenance. Aplitec also supplies hardware to Nedcor in the form of POS terminals and card readers.
Properties
Aplitec does not own any properties. Aplitec leases certain premises under operating leases. For the fiscal year ending June 30, 2003, lease payments totaled ZAR 19.6 million ($2.8 million). Aplitecs principal offices are located at 4 th Floor, President Place, 148 Jan Smuts Avenue, Rosebank 2128 South Africa.
Legal Proceedings
Aplitec is not involved in, nor is it aware of, any significant legal or arbitration proceedings which are pending or threatened and which may have, or have had in the twelve-month period preceding this proxy statement/prospectus, a material effect upon the financial position of Aplitec and its subsidiaries or affiliates.
T HE C OMBINED C OMPANY
The proposed transactions will combine the worldwide rights to the FTS patents and UEPS technology into a single entity along with the unique implementation skills, business models and applications for UEPS systems developed by Aplitec. In addition, they will raise sufficient capital to implement Net 1s international expansion business plan.
If the proposed transactions are consummated, Net 1 intends to focus on implementing the business plan described below. However, we can give no assurance that the transactions will be consummated as planned, or that we will be successful in meeting the business plan objectives in the future.
Market Focus
In an effort to efficiently allocate Net 1s resources, we have identified two distinct markets for Net 1s products, based on the benefits that cardholders, merchant cardholders and others would find desirable from the payment system. Each of these markets will require different marketing strategies.
The first and primary set of markets for the technology is the less developed markets, which are characterized by a lack of reliable, extensive and inexpensive telecommunications and related infrastructure systems. These markets have relatively little penetration of credit or debit cards, and a large portion of the population does not have access to traditional banking services. Aplitec has substantial experience in developing and tailoring UEPS applications to meet the specific needs of potential clients in these environments. Net 1 intends to leverage off Aplitecs experience to secure new contracts in other less developed markets.
The second set of markets is the more developed markets. These markets have reliable, extensive and inexpensive telecommunications networks, a considerable penetration of credit and debit card services, and the vast majority of their populations have access to banking products.
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Less Developed Markets . Net 1s present competition in the less developed markets is principally cash. In addition, other companies are developing smart-card based systems for these markets, some of which may become competitive. The less developed markets comprise the great majority of the worlds population, and there is generally no alternative to cash in these markets. Due to their lack of infrastructure, these markets have not been particularly attractive to alternative payment systems such as debit and credit cards. Net 1 believes that its product is particularly well suited for these markets, and while individual transactions may be smaller than in developed markets, the volume of these transactions is potentially much greater, representing a significant opportunity for attaining licensing fees and joint ventures.
Net 1s goal in these markets is to provide a payment system to the population as an alternative to cash. Cash is expensive to handle in terms of the costs associated with administering a cash float and is particularly prone to theft. Moreover, since people in less developed markets do not have access to traditional banking products, they therefore do not deposit their money in secure savings accounts on which they earn interest. The Net 1 UEPS system can enhance the lives of the populations of these developing markets by affording them much greater security with respect to their money and making available banking products such as interest bearing savings accounts. In addition, by simplifying the administrative burden and removing the costs associated with handling cash, Net 1s system will result in significant savings to employers, governments and merchants. A significant focus of Net 1 in these markets, therefore, is to identify local licensees and/or joint venture partners that it believes will be in a position to effectively market the payment system to employers and governments.
Net 1s general strategy is to market the UEPS system to those who presently transfer money to others, like employee wages or government benefits. These entities would enter into arrangements with a card issuer, who would then issue cards to their employees or beneficiaries. The wages or benefits for these cardholders would then be loaded onto their cards, thus avoiding the need for the distribution of cash or checks. The funds loaded onto the cards could then be used at local merchants that accept the card for purchases of goods and services. Cash could also be obtained from the card at local banks or retail establishments. The goal is to develop a large installed cardholder base in the most efficient manner. Once a region has a sufficient number of cardholders, additional merchants can be solicited and the payment system expanded. As the cardholder base grows, additional benefits inherent in the UEPS will become recognized and the system will continue to grow. Net 1 is also exploring initiatives in these markets to utilize the UEPS in connection with public transportation, taxis and prepaid utility services such as telephones, electricity and water.
The proposed transactions will allow Net 1 to leverage Aplitecs experience and skills to develop, customize and implement the UEPS in other parts of the world. Over the last five years, Aplitec has successfully implemented systems in South Africa, Malawi, Ghana, Burundi, Mozambique and Rwanda in applications ranging from the distribution of social welfare grants to integrated national switching systems. Net 1 intends to actively pursue opportunities in less developed markets after completion of the proposed transactions.
The Developed Markets . Our principal competition in the developed markets is the existing base of credit and traditional debit cards, as well as cash, checks and other forms of payment. In addition, several other companies are developing smart card-based payment systems. In order to effectively compete in this market, an alternative payment system must offer some identifiable benefit to the cardholder and the merchant cardholder. We believe that our product offers substantial benefits over existing payment systems in connection with payments for goods and services over the Internet and other selected environments.
One significant impediment to the growth of commerce over the Internet is the reluctance of consumers to broadcast sensitive credit or debit account information. Moreover, Internet transactions settled by credit card are not generally verified, resulting in increased costs for the on-line merchant. There is a need in this market for a payment system which can provide on-line merchants with instant, verified transfers of payments from customers, while not requiring the customer to transmit any information over the Internet which can identify the customers payment account. We believe that the Net 1 FTS/UEPS payment system can meet these objectives as well as provide additional benefits to on-line consumers and merchants.
We envision a system in which consumers can use their existing account at a financial institution to load their cards with funds. This procedure will be able to operate in many different ways, depending on the relationship between Net 1 and the specific financial institution. If no relationship exists, a simple debit or stop order could be
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used to allow the cardholder to load his or her UEPS smart card through a simple Internet application, utilizing any personal computer equipped with a smart card reader. In the case where the financial institution is a licensee of Net 1, the debit or stop order would not be required to achieve the above mentioned result. Interest rates and other incentives could be offered to cardholders as an incentive to maintain higher balances on their UEPS smart cards. Internet merchants would then be able to accept guaranteed payments for the goods or services they offer over the Internet. Merchants and service providers would be able to deposit these payments in any financial institution on a daily basis. Cardholders would be protected against the unauthorized use of their card and would always maintain a full audit trail of all their transactions.
Our Internet payment solution is no different from our standard off-line POS transaction. Our ability to readily adapt UEPS to Internet transactions is due to the patented end-to-end security protocol that ensures that any active communication can only be interpreted by the cardholder and the merchant cardholders. We believe that the risk of fraud, repudiation or non-payment is reduced compared to competing systems.
Net 1 intends to have a system that can provide payment functionality in pay-as-you-use services. These services include, for example, access to databases or other information systems, professional advice or advanced software or special application systems. There are other competing systems that have been proposed for these markets. Our continuous debit function could ensure that payment is made while the service is being used. This same functionality can be used in applications such as fuel dispensing and telephonic communication.
We intend to market this product to on-line retailers and service providers and will develop a final product based on the specifications for the system required by these entities. Once there is a sufficient installed base of cards, Net 1 will then broaden its focus to conventional banking and retail applications in these markets.
Identified Sources of Revenue
Net 1 has identified several potential general sources of revenue, including:
• | manufacture licensing; | |
• | usage licensing; | |
• | joint ventures; and | |
• | hardware sales. |
In 2002, Net 1s revenue consisted of license fees collected by Net 1 Holdings (see below) from UEPS system users in Burundi, Latvia, Ghana, CIS and Malawi, as well as license usage fees from Visa International Service Association. While none of the other sources of revenue have yet been developed, the proposed transactions will:
• | provide Net 1 with sufficient capital to actively market the technology and secure new business; | |
• | provide Net 1 with a history of successful UEPS implementations as proof of the concept; and | |
• | allow Net 1 to leverage off Aplitecs experience and skills to design and implement financially viable UEPS systems. |
Manufacture Licensing . As part of our business plan, Net 1 will license manufacturers to produce UEPS smart cards. We will collect a licensing fee for each card manufactured, and we will further generate fees for access to product information and workshop materials.
Manufacturers of POS terminals and prepaid utility meter terminals who wish to produce terminals capable of supporting FTS based applications will be licensed by Net 1. It is anticipated that these manufacturer licenses will be based on a variety of payment systems, including annual payments, per-terminal payments or transaction
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fees. Generally, the terminals used in connection with the FTS/UEPS-based payment system, unlike other payment systems, do not require a great deal of technology as the security process used by the payment system is managed in its entirety by the two smart cards transacting at the time. Manufacturers, therefore, can mass-produce low cost terminals for the Net 1 FTS/UEPS payment systems. These potential revenues have now been limited to U.S.-based manufacturers, as the European FTS patent has been revoked. The proposed transactions will extend this potential revenue stream to manufacturers in South Africa and its surrounding territories.
Neither Net 1 nor Aplitec currently has any material manufacturing licenses in place.
U sage Licensing . We will license entities that will operate specific applications that use FTS intellectual property or the combined FTS/UEPS payment system. We anticipate that the license fees for these licenses will include a combination of annual fees as well as transaction fees.
The proposed transactions will consolidate the ownership of and rights to the technology under Net 1. Using Aplitecs track record of successful UEPS implementations and its skills in developing and modifying the UEPS to meet client specific needs, Net 1 will be able to effectively market the UEPS payment system to potential customers across the world.
Joint Ventures . We will explore opportunities to form joint ventures with entities within particular geographic territories. The joint venture partner will act as a system operator in that territory. Under this scenario, we will act as a licensor and may have an equity interest or other participation in the licensee. It is contemplated that we will enter into technology and know-how transfer agreements in exchange for our interest in the joint venture and the other joint venture partner or partners will contribute capital and other expertise necessary to exploit the technology in the given territory. Joint ventures will create ongoing revenue streams resulting from the profits of the joint venture and ongoing license fees referred to above.
To date, Net 1 has had no experience in implementing UEPS systems, which necessitated the Distribution Agreement with Aplitec. As a result, these joint venture opportunities have not arisen. Should the proposed transactions be consummated, there will be significant scope for Net 1 to enter into these joint venture arrangements in territories in which Aplitec has either implemented UEPS systems or has been awarded contracts to implement these systems.
Neither Net 1 nor Aplitec currently has any joint ventures in place.
Hardware Sales . We will pursue arrangements with smart card and terminal manufacturers, which will enable us to purchase these items in volumes at preferential prices. Aplitec does not currently have any manufacturing facilities, but rather outsources hardware construction to third-party manufacturers. Aplitec then licenses this hardware within South Africa and its surrounding territories. For the fiscal year ending June 30, 2003, Aplitec generated UEPS related hardware sales of ZAR 61.4 million ($8.9 million). Similarly, we contemplate selling these items to our licensees, passing along a portion of the price savings.
Competition
In addition to competition that we face from the use of cash, checks, credit and debit cards and other existing payment systems, we have identified a number of other products currently being produced that use smart card technology in connection with a fund transfer system. These include Mondex, Proton and EMV, which represent products from Visa, MasterCard and Europay. We believe that the UEPS technology can be distinguished from these competitors in a number of significant ways.
The most significant advantages of Net 1s products are the following:
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• | Lower Manufacturing Costs . Since the terminals required for UEPS transactions act only as a power supply and communication channel for smart cards, thus requiring a minimal amount of processing capacity and memory, they can be manufactured, distributed and installed at a fraction of the cost of other similar terminals, which generally require sophisticated security and communication modules; | |
• | Flexibility . Net 1s terminal network stores all of the relevant information required to perform a financial transaction on a holders smart card, and thus can operate off-line (i.e. without the need for a data communication session to be active during the transaction) or on line through the use of any communications infrastructure, including satellite, microwave, radio, landlines or any other distribution channel. By contrast, the terminals utilized by our competitors store all relevant information on a host computer and therefore must operate on line; | |
• | Increased Security . Each transaction utilizes a unique sequencing algorithm that allows verifiable auditing of the transaction creating a loss tolerant system. This enables the detection and subsequent elimination of fraudulent activity and an ability to replace lost or stolen cards. In addition, UEPS supports pin code and biometric verification of the cardholder at the time of transacting, thus reducing the risks of fraud; and | |
• | Ease of Transferring Funds . The encryption security protocols enable cardholders to receive fund-loading instructions from a third party through any unsecured communications channel such as word of mouth, telephone, newspaper or any analogue or digital network. Such loading instructions consist of ten-digit codes that the cardholder enters into any UEPS-enabled terminal. The code, along with the amount to be transferred, the cardholders PIN or biometric identifier and the smart cards unique serial number (which is encrypted on the card) is then verified by the card and the requested financial transaction is processed. |
In addition, the UEPS technology includes functionality that allows:
• | transparent and automatic recovery in the event of transaction failure resulting from terminal hardware or software problems; | |
• | the smart card itself can be used as proof of purchase, replacing the need for a separate ticket and ticketing system, for example, on buses, trains or the lottery; | |
• | continuous debiting of value off the smart card, which in turn allows for simultaneous vending and debiting in unattended environments such as fuel dispensing and telephony; | |
• | speed of processing that is mandatory in applications such as transportation and access control; and | |
• | open or restricted purses that are required to implement certain applications such as pension and welfare distribution and specific funding initiatives. |
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O PERATING A ND F INANCIAL R EVIEW A ND P ROSPECTS
The following are the managements discussions and analyses of Net 1 and Aplitec, respectively. The following discussions and analyses should be read in conjunction with the financial statements of Net 1 and Aplitec and the notes thereto and the pro forma combined financial information appearing elsewhere in this proxy statement/prospectus.
NET 1
Net 1 is a development stage company, has a limited operating and financial history and is subject to the risks, uncertainties and problems frequently encountered by companies in early stages of operation. Net 1s historical results of operations are not necessarily indicative of the results of operations to be expected in the future.
Introduction to Results of Operations
Net Revenues
Net 1 has identified several potential general sources of revenue including:
• | manufacture licensing, | |
• | usage licensing, | |
• | joint ventures, and | |
• | hardware sales. |
Net 1 Holdings has received license usage fees during calendar year 2002 from Visa International Service Association and FTS licensees for Latvia, Burundi, Malawi, Rwanda and the CIS states.
None of the other sources of revenue has yet been developed and there can be no assurance that any will develop.
Manufacture Licensing
Licenses will be required by all manufacturers that produce smart cards that incorporate into their embedded computer chip applications that utilize the FTS patents. Net 1 intends to charge a fee to smart card manufacturers for each smart card produced by such manufacturer that includes the FTS application. In addition, it is anticipated that a yearly fee will also be charged which will entitle the manufacturers to product information and workshop materials from Net 1.
Manufacturers of POS terminals and prepaid utility meter terminals who wish to produce terminals capable of supporting FTS based applications will be licensed by Net 1. It is anticipated that these manufacturer licenses will be based on a variety of payment systems including, for example, annual payments, per-terminal payments or transaction fees, depending upon the particular circumstances. Generally, the terminals used in connection with the FTS/UEPS based payment system, unlike other payment systems, do not require a great deal of technology as the security process used by the payment system is managed in its entirety by the two smart cards transacting at the time. Manufacturers, therefore, can mass-produce low cost terminals for the Net 1 FTS/UEPS payment systems. These potential revenues have now been limited to manufacturers that are U.S.-based as the European FTS patent has been revoked.
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Usage Licensing
We will license entities that will operate specific applications that use FTS patent or the UEPS technology. We anticipate that the license fees for these licenses will include a combination of annual fees as well as transaction fees.
Net 1 receives revenue from Net 1 Holdings from all sales of licenses equal to Net 1 Holdings annual net profit before amortization as certified by its auditors in its annual financial statement. Net 1 will recognize the revenue in the period when the audited financial statements of Net 1 Holdings become available and will report the revenue on a net basis as Net 1 is acting as an agent for Net 1 Holdings as per the Patent and Technology Agreement dated May 3, 2000.
Net 1 Holdings has received license usage fees during calendar year 2002 from Visa International Service Association and FTS licensees for Latvia, Burundi, Malawi, Rwanda and the CIS states.
For fiscal 2002, Net 1 recorded revenues of $157,673 from Net 1 Holdings.
Joint Ventures
We will explore opportunities to form joint ventures with entities within particular geographic territories. The joint venturer would then act as a system operator in that territory. Under this scenario we will act as a licensor and may have an equity interest or other participation in the licensee. It is contemplated that we will enter into technology and know-how transfer agreements in exchange for our interest in the joint venture and the other joint venture partner or partners will contribute capital and other expertise necessary to exploit the technology in the given territory.
Hardware Sales
Net 1 will pursue arrangements with smart card and terminal manufacturers which will enable us to purchase these items of hardware in volumes at preferential prices. We contemplate selling these items to our licensees, passing along a portion of the price savings. These revenues will only become possible if we are able to raise the funds we require to operate Net 1 as per the business plan.
Operating Expenses
Net 1s operating expenses consist primarily of business development expenses and travel expenses. In addition, Net 1 historically has incurred operating expenses related to its outsourcing agreements and consulting agreements with its management.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002
Results of Operations
Management continues to be actively involved in negotiations to secure sufficient equity and/or debt financing to fund Net 1s business plan.
On April 30, 2003, Net 1 retained the Brait Group to provide advisory services and assistance in order to raise equity and/or debt funding for Net 1. On October 24, 2003, the Company announced that it is completing financial arrangements for the securing of approximately $150 million through Brait on behalf of funds under its management. The financing, comprising the capital raising of approximately $53 million and a share exchange of approximately $97 million will enable Net 1 to make an offer to acquire Aplitec, as well as providing working capital to enable Net 1 to expand its operations and develop its internal infrastructure on an international basis. Net 1, through the Brait Group, will raise the capital through sales of its common stock at $0.50 per share.
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Net 1, through the Brait Group, has provided the board of directors of Aplitec with an offer to acquire substantially all the assets and all of the liabilities of Aplitec (excluding ZAR 300 million of cash plus enough cash as is necessary to pay holders of Aplitec shares an additional amount equal to ZAR 0.25 for each ordinary Aplitec share for which such Aplitec shareholder elects the cash option) for approximately $129 through a combination of cash and share exchange offer to Aplitecs shareholders also at a purchase price per share of $0.50. Aplitec is engaged in the sales, maintenance and development of UEPS smart card based products in South Africa and its surrounding territories with revenues of approximately $100 million. Aplitec has approximately 2,100 employees. Completion of the financing is subject to compliance with regulatory requirements in South Africa and in the United States, including an increase in the authorized capitalization of Net 1 to permit the common shares to be issued.
In the short term, management has continued the suspension of various expenses, including its consulting agreement with its chief executive officer, Claude Guerard.
Management continues to be actively involved in negotiations with potential clients in view of reaching two main targets required for future of Net 1:
• | To establish partnership agreements with IT services and financial services entities, which would provide the total technical support required by Net 1s licensees to launch and develop their own applications based on the FTS and the related UEPS technology and service. | |
• | To develop Net 1s licensee network on a worldwide basis. We have granted licenses in Latvia, Burundi, Ghana, Rwanda and Malawi, and are currently in negotiations with potential licensees in various countries of Africa. An Australian organization has approached Net 1 for an FTS license for Australia and New Zealand. Negotiations continue with various entities with the possibility to grant licenses for territories in the Pacific Rim. |
Revenue
Net 1 produced revenue of $41,017, which represented license fees collected by Net 1 Holdings through December 31, 2002 from licensees in Burundi, Latvia, Ghana, CIS and Malawi, which we recognized during the nine months ended September 30, 2003.
Net 1 received revenue from Net 1 Holdings from all sales of licenses equal to Net 1 Holdings annual net profit before amortization as certified by its auditors in its annual financial statements. Net 1 recognized the revenue in the period when the audited financial statements of Net 1 Holdings become available and will report the revenue on a net basis as Net 1 is acting as an agent for Net 1 Holdings pursuant to a Patent and Technology Agreement dated May 3, 2000. Effective July 1, 2002, Net 1 entered into a new Distribution Agreement with Net 1 (Pty), which replaced a previous agreement. Net 1 will now pay Net 1 (Pty) 9.5% of the licensee fees paid by the customer for the duration of the licenses existence. This fee is only applicable for new licenses and upgrades of existing licenses.
Administrative Expenses
Administrative expenses decreased from $146,817 for the three months ended September 30, 2002 to $51,757 for the three months ended September 30, 2003, a decrease of $95,060; and decreased from $441,177 for the nine months ended September 30, 2002 to $170,819 for the nine months ended September 30, 2003, a decrease of $270,358. The decreases resulted primarily from the cancellation of an Outsourcing Agreement with Net 1 (Pty), pursuant to which Net 1 paid for certain administrative support services, and a reduction in travel costs. Such cancellation costs do not constitute an outstanding indebtedness of Net 1 (Pty). Management intends to keep operating expenses at the lowest possible level by developing outsourcing policies.
Management has suspended payments to Claude Guerard, Net 1s chief executive officer, under his consulting agreement, which in the nine months ended September 30, 2003 accounted for $112,500. The total indebtedness by Net 1 to Mr. Guerard as of September 30, 2003 was $250,000.
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Liquidity and Capital Resources
The primary source of Net 1s cash has been through the sale of equity. Currently, Net 1 does not have available any established lines of credit with banking institutions.
Net 1 recognized revenue of $41,017 through September 30, 2003 from license fees collected through December 31, 2002, by Net 1 Holdings. Accounts receivable of $87,028 at September 30, 2003 are due from Net 1 Holdings. Additional fees from the sale of new licenses and recurring annual license fees from existing licensees will accrue to Net 1 during 2003.
Our cash decreased $8,597 from $20,054 at December 31, 2002 to an ending balance of $11,457 at September 30, 2003. The cash was used to fund our operating expenses.
Net 1 anticipates raising additional funds from the sale of equity and/or debt financing during the current fiscal year. Such funds will be used for working capital.
Net 1 believes that its current cash position, as well as payments due from Net 1 Holdings, is sufficient to meet its cash needs on a short-term basis. However, Net 1 does not currently have sufficient cash to implement any part of its business plan. Additionally, Net 1’s management believes that it is currently unable to meet its long-term liquidity needs.
Net 1’s ability to continue as a going concern is dependent upon the Company’s ability in the near future to (i) raise additional funds through equity financings involving affiliates, controlling shareholders, and unrelated parties, and (ii) further develop markets for its products.
Net 1s ability to continue as a going concern is dependent upon the Companys ability in the near future to (i) raise additional funds through equity financings involving affiliates, controlling shareholders, and unrelated parties, and (ii) further develop markets for its products.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
During 2002, management was actively involved in negotiations to secure sufficient equity and/or debt financing to fund Net 1s business plans. On October 23, 2002, Net 1 retained Investec Limited (Investec), an international merchant banking group, to provide corporate finance services and assistance in order to raise equity and/or debt funding for Net 1. Subsequently, on February 12, 2003, Investec and Net 1 mutually agreed to terminate the engagement. During 2002, Net 1 continued to pursue various negotiations to secure necessary funding either through equity/debt financing or a joint venture arrangement to develop its business.
In the short term, management has postponed various expenses including the consulting agreement with Claude Guerard and its outsourcing agreement with Net 1 (Pty).
In October 2002, Net 1 cancelled its Outsourcing Agreement with Net 1 (Pty) and both companies entered into a Distribution Agreement with an effective date of July 1, 2002. Net 1 (Pty), at its entire discretion and when it deems appropriate and under the terms and conditions as stipulated in the Distribution Agreement, will provide Net 1, with marketing, sales, administrative and technical support as an accredited UEPS integrator for any country in the world other than South Africa, Namibia, Botswana, Lesotho, Swaziland, Mozambique and Zimbabwe. Net 1 will pay Net 1 (Pty) an amount equal to 9.5% of the license fee paid by the customer for the duration of the licenses existence. This fee is only applicable for new licenses and upgrades of existing licenses. Net 1 also settled its indebtedness to Net 1 (Pty) for services rendered up to July 2002 for an amount of $50,000.
Management continues to be actively involved in negotiations in view of reaching two main targets required for the future of Net 1:
• | To establish a partnership agreement with IT services and financial services entities which would provide the total technical support required by Net 1s licensees to launch and develop their own applications based on the FTS patent and the related UEPS technologies and services. | |
• | Net 1s first partnership agreement is the Distribution Agreement which became effective July 1, 2002 with Net 1 (Pty), for any country in the world expect South Africa and its surrounding territories. |
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• | To develop Net 1s licensee network on a worldwide basis. We have granted licenses in Latvia, Burundi, Ghana, Rwanda and Malawi, and are currently in negotiations with potential licensees in various countries of Africa An Australian organization has approached Net 1 for an FTS license for Australia and New Zealand. Negotiations also include the possibility to grant licenses for territories in the Pacific Rim. |
Revenue
Net 1 is still in its development stage, and principal activities have produced revenues of $157,673, which represent license fees collected by Net 1 Holdings during calendar year 2001. License fees collected by Net 1 Holdings, during calendar year 2002 total $41,017 and have been accounted for during Net 1s 2003 fiscal year.
Net 1 receives revenue from Net 1 Holdings from all sales of licenses equal to Net 1 Holdings annual net profit before amortization as certified by its auditors in its annual financial statement. Net 1 recognized the revenue in the period when the audited financial statements of Net 1 Holdings become available and will report the revenue on a net basis as Net 1 is acting as an agent for Net 1 Holdings as per the Patent and Technology Agreement dated May 3, 2000.
Administrative Expenses
Administrative expenses have decreased $353,088 from $677,595 in the year 2001 to $324,507 during the year 2002. This decrease resulted primarily from a reduction in business development expenses and travel costs, as well as the cancellation of the above-referenced Outsourcing Agreement with Net 1 (Pty). The fees paid under this Agreement reduced from $356,938 in 2001 to $75,047 in 2002 (prior to its cancellation). Management intends to keep operating expenses at the lowest possible level by developing outsourcing policies.
Other
Management continues its efforts to secure the funding required to exploit the FTS/UEPS technology on a worldwide basis. During 2002, Net 1 held meetings with Jones Gable Securities, Gruntal Securities and Thompson Kernaghan to explore possible funding opportunities. None of these meetings were successful.
Strategic alliances, joint ventures and/or investments in companies having expertise in IT services, financial services and proven market penetration are currently being explored.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Results of Operations
In 2000 and 2001, management of Net 1 was intensively involved in negotiations to secure sufficient equity and/or debt financing to fund Net 1s business plans. In 2001, management suspended the Consulting Agreement with its chief executive officer, Claude Guerard and its Outsourcing Agreement with Net 1 (Pty), Net 1s UEPS integrator for the Central Europe, Middle East and African regions.
Management sought to enter into strategic alliances to achieve two main targets required for the future of Net 1:
• | To establish a partnership agreement with information technology and financial service providers that would provide the total technical support required by Net 1s licensees to launch and develop their own applications based on the FTS patent and the related UEPS technologies and services. To that end, the first partnerships agreement was signed in February 2001, retroactive to January 1, 2001 with Net 1 (Pty), a South African company for the CEMEA area (Central Europe, the Middle East and Africa region). |
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• | To develop Net 1s licensee network on a worldwide basis. During 2001, Net 1 appointed new licensees in Latvia, Burundi, and Malawi, and negotiated new licensees in various African countries (Kenya, Democratic Republic of the Congo, Uganda, Tanzania) as well as Australia and other countries in South America and the Middle East. The Australian licensee subsequently sought to implement FTS-based systems in Australia, Hong Kong, the Philippines, and Indonesia. On April 6, 2001, Net 1 issued the Reserve Bank of Malawi, Malawis central bank, with a license to operate Net 1s FTS/UEPS technology on its behalf and to market the technology to the banks in Malawi. A national switching and smart card system Malswitch) was installed by Net 1s UEPS integrator. Malswitchs initial launch is expected to total approximately 200,000 smart cards with initial applications in banking services. |
Revenue
During 2000 and 2001, Net 1 was in its development stage. Planned principal activities did not generate revenues in 2001 or 2000.
Net 1 received revenue from Net 1 Holdings from all sales of licenses equal to Net 1 Holdings annual net profit before amortization as certified by its auditors in its annual financial statement. Net 1 will recognize the revenue in the period when the audited financial statements of Net 1 Holdings become available and will report the revenue on a net basis as Net 1 is acting as an agent for Net 1 Holdings as per the Patent and Technology agreement dated May 3, 2000.
Net 1 Holdings did not receive license usage fees during calendar year 2000 or 2001 from FTS/UEPS licensees. Consequently, Net 1 was not able to generate any fees from these licenses.
Administrative Expenses
Administrative expenses increased $341,385 from $336,210 in 2000 to $677,595 during 2001. The increase resulted primarily from an increase in business development expenses, administrative costs, consulting fees, and fees paid to Net 1 (Pty) pursuant to an Outsourcing Agreement, under which Net 1 (Pty) provided certain support services to Net 1. Management succeeded in keeping operating expenses at the lowest possible level during 2000 and 2001 by outsourcing for necessary services.
Other
In October 2000, Net 1 raised $1,000,000 by issuing 250,000 shares at $4.00 per share by way of a private placement.
Liquidity and Capital Resources
The primary source of Net 1s cash has been through the sale of equity. As of December 31, 2002, Net 1 did not have available any established lines of credit with banking facilities.
Net 1 recognized revenue of $157,673 for the fiscal year ended December 31, 2002 from license fees collected through December 31, 2001 by Net 1 Holdings. For the fiscal year ending December 31, 2003, Net 1 expects to receive $41,017 from sales of licenses.
Net 1s cash position decreased $37,235 from $57,289 at December 31, 2001 to $20,054 at December 31, 2002. The cash was used to fund operating expenses.
Net 1 anticipates raising additional funds from the sale of equity during 2003 and 2004. To the extent raised, such capital will be used for working capital.
Net 1 believes that its current cash position, as well as payments due from Net 1 Holdings, is sufficient to meet its cash needs on a short-term basis. However, Net 1 does not currently have sufficient cash to implement any
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part of its business plan. Additionally, Net 1s management believes that it is currently unable to meet its long-term liquidity needs.
Net 1 believes that its current available cash position and revenues due from Net 1 Holdings is sufficient to meet its cash needs on a short-term basis, but Net 1 will need a substantial amount of additional capital to pursue its business plans in any meaningful manner.
Net 1s ability to continue as a going concern is dependent upon Net 1s ability in the near future to (i) raise additional funds through equity financings, loans or joint venture agreements, involving affiliates, controlling shareholders, and related or unrelated parties, and (ii) further develop markets for its products.
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APLITEC
Operating and Financial Review and Prospects
You should read the following discussion and analysis together Aplitecs annual financial statements and related Notes included elsewhere in this proxy statement/prospectus. Certain information contained in the discussion and analysis below includes forward-looking statements that involve risk and uncertainties. We have prepared our primary financial statements historically in South African GAAP (or SA GAAP) which differ in material respects from U.S. GAAP. The discussion represented below is on the basis of SA GAAP. Please see Note 23 to our financial statements for a discussion of the material differences between SA and U.S. GAAP. For purposes of convenience, we have provided certain amounts in both South African Rand (ZAR) and U.S. dollars. Unless otherwise noted, the rate of exchange used in determining these U.S. dollar amounts was ZAR 6.92 = $1.00, which was the noon buying rate for customs purposes of the Rand as reported by the Federal Reserve Bank of New York on January 28, 2004.
Introduction
For the purposes of financial segment reporting, Aplitecs business is organized into three divisions: Transaction-based activities, Technology Sales and Outsourcing and Financial Services.
Transaction-based activities
This division consists primarily of Aplitecs contracts to distribute social welfare in South Africa through CPS, its primary operating subsidiary. CPS utilizes the UEPS technology to administer and distribute social welfare grants in five of South Africas nine provinces. South African social welfare grants consist of eight different grant types, including social security, child support and disability grants. Provincial contracts are typically awarded for a period of three years, with an option by the provincial government to extend the contract for an two additional years. The current status of these contracts is:
Number of | ||||||||
Beneficiaries | ||||||||
Contract Expiration | Further | paid by CPS | ||||||
Date (including | Possible | (as of June | ||||||
Province | extensions granted) | Extensions | 2003) | |||||
Eastern Cape | November 05 | 2 years | 469,918 | |||||
KwaZulu-Natal | December 04 | Negotiable | 1,023,019 | |||||
Limpopo | November 06 | 2 years | 620,909 | |||||
Northern Cape | December 05 | - | 105,961 | |||||
North West | June 05 | - | 253,857 | |||||
Total | 2,473,664 |
Aplitec currently has a 45% market share in South Africa for the distribution of social welfare grants (including grants distributed by the South African Post Office and through electronic funds transfer).
A smart card-based biometric (fingerprint) identification system is used to verify beneficiaries and effect payments of social welfare grants onto individual smart cards. The beneficiary then has the choice of either converting the electronic value to cash using automated cash dispensers or effecting electronic payments through the smart card for a range of services such as the purchase of goods, loan repayments and insurance premium payments.
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The systems biometric verification and audit capabilities effectively combat the risks of fraud and theft traditionally associated with cash.
Due to the limited number of services currently available, almost all of the beneficiaries download the value onto their smart cards and then immediately withdraw the full amount as cash. Aplitecs revenue is therefore currently limited to fees earned on the loading and redemption of value on the cards as well as the registration of beneficiaries rather than the provision of services. The direct costs associated with this business are primarily cash handling costs such as security, transport of cash, banking fees and insurance. Fixed costs consist of salaries and property rental.
Technology Sales and Outsourcing
Aplitec has developed a range of technological competencies to service its internal needs and to provide links with its client enterprises. Technology sales refer to the supply of the hardware and software required to implement Aplitecs UEPS systems. Aplitec has, to date, implemented UEPS systems on behalf of Net 1 and Net 1 Holdings in Malawi, Ghana, Burundi, Rwanda, Mozambique and Latvia.
When a UEPS system is implemented in a country, Aplitec normally provides the hardware for the back-end switching, customizes the UEPS software for the network (UEPS management system, ATM integrations, POS integration), customizes the applications suite for the clients specific requirements (e.g. banking, retail, wage payment) and supplies the smart cards and terminals. All technology sales include an element of support services as programmers and technicians need to adapt or tailor interfaces to the clients existing systems. Ongoing ad hoc services, including maintaining smart card equipment, consulting and support services, and software development are provided to these clients who pay for these services as and when delivered.
A major local customer serviced by this division is Nedcor, South Africas largest bank by asset size. Aplitec has an arrangement with Nedcor relating to the outsourcing of its entire terminal management system, Stratus switching modules, software development, smart cards and terminal maintenance. Aplitec also supplies hardware to Nedcor in the form of POS terminals and card readers.
Financial Services
Traditional Micro-lending. Aplitec operates a traditional micro-finance business, with more than 100 branches throughout South Africa, under the New World Finance and Moneyline brand names. These branches extend short term loans for periods ranging from 30 days up to 3 months, with the majority of loans being 30-day loans
These businesses operate on Aplitecs Milpay Pay System, or MPS, which is also marketed to external micro-lenders. The system is unique in that it enables the micro-lender to set up a salary budget account, or SBA, for the client into which the employer deposits its employees net salary. The SBA can be either a traditional bank account with any banking institution or a smart card. The SBA allows a loan deduction, which is pre-authorized by the client, to be electronically transferred to the authorized party. This ensures that loan repayments are made every month and substantially lowers the risk of bad debts. The remaining sum can then be retained in the bank account or smart card, or transferred to another account.
The MPS includes a credit-vetting module that is linked to the National Loans Register. This ensures that loans are not granted to people with existing loans. In addition, payment slips are checked for other deductions before an affordability (i.e. loan as a percentage of net income) and lifestyle score are given to the potential customer. Based on these scores, the decision to grant a loan is made at the branch level.
Age Secure. Towards the end of fiscal 2001, Aplitec developed a suite of financial services targeted at social welfare beneficiaries, utilizing Aplitecs issued base of smart cards as a delivery channel. The products are marketed under the Age Secure brand and include micro-loans, insurance and food parcels. Age Secure has been implemented in the KwaZulu-Natal and Northern Cape provinces and has approximately 85,000 clients. Aplitec
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plans to grow and develop the Age Secure business by launching new products into provinces where it administers social welfare grants.
Results of Operations
Year Ended June 30, 2003 Compared to Year Ended June 30, 2002
Revenue and Operating Profit
Revenue comprises sales to customers, fees and interest earned on loans granted. In fiscal 2003, revenue increased by 31.6% from ZAR 526 million ($76 million) to ZAR 691 million ($99.9 million), mainly due to higher volumes in our transaction-based activities.
Operating profit takes into account cost of goods sold and selling, general and administrative expenses. In fiscal 2003, operating profit increased by 30.3% from ZAR 135 million ($19.5 million) to ZAR 176 million ($25.4 million) and operating profit margin decreased from 25.69% to 25.43%, in each case, as compared to fiscal 2002. Employee costs, Aplitecs largest single expense, increased 6.94% in fiscal 2003 from ZAR 129.3 million ($18.7 million) in fiscal 2002 to ZAR 138.3 million ($20 million), following a 7.5% annual inflation adjustment to employees salaries in October 2002.
The relative growth in revenue, and the contributions of our business divisions to operating profit, are illustrated below:
Year ended June 30, | ||||||||||||
% of | % of | |||||||||||
2003 | 2003 | consolidated | 2002 | 2002 | consolidated | |||||||
Business Division | ZAR 000 | US$ 000 | revenue | ZAR 000 | US$ 000 | revenue | ||||||
Consolidated revenue: | ||||||||||||
Transaction-based activities | 523,550 | 75,658 | 75.7 | 363,164 | 52,480 | 69.1 | ||||||
Technology sales and | ||||||||||||
outsourcing | 46,509 | 6,721 | 6.7 | 56,224 | 8,125 | 10.7 | ||||||
Financial services | 121,426 | 17,547 | 17.6 | 106,197 | 15,346 | 20.2 | ||||||
Total consolidated revenue | 691,485 | 99,926 | 100. 0 | 525,585 | 75,952 | 100. 0 | ||||||
Consolidated operating profit: | ||||||||||||
Transaction-based activities | 138,222 | 19,974 | 78.6 | 95,583 | 13,813 | 70.8 | ||||||
Technology sales and | ||||||||||||
outsourcing | 8,344 | 1,206 | 4.7 | 22,763 | 3,289 | 16.9 | ||||||
Financial services | 34,651 | 5,007 | 19.7 | 16,654 | 2,407 | 12.3 | ||||||
Other | (5,349 | ) | (773 | ) | (3.0 | ) | | | | |||
Total consolidated | ||||||||||||
operating profit | 175,868 | 25,414 | 100. 0 | 135,000 | 19,509 | 100. 0 |
Transaction-based activities
The increase in revenue in the transaction-based activities division during fiscal 2003 is due to the following key drivers in our social welfare grant payments business:
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• | New Eastern Cape contract: In November 2002, we commenced the implementation of a social welfare grant payment system in the Eastern Cape Province. At year-end, we processed benefits for 441,000 beneficiaries. The Eastern Cape contract generated revenue of ZAR 47.1 million ($6.8 million) in the first eight months in fiscal 2003. | |
• | Significantly higher volumes in our existing contracts : We experienced significant growth in most of the other provinces where we administer payments of social welfare grants. This growth is mainly due to new qualifying criteria announced by the South African government aimed at increasing the number of citizens eligible for social welfare grants. |
Annual price increase adjustments
Under our Service Level Agreements with provincial governments, we are entitled to annual price increases based upon factors such as average grant size, volumes and the South African Consumer Price Index, or CPI rates.
The higher volumes in our existing contracts, as well as the fiscal 2003 price increases, are detailed below:
Number of payments | Average price per payment | ||||||||||||
2003 | 2003 | 2002 | 2002 | ||||||||||
Province | 2003 | 2002 | (ZAR) | (US$) | (ZAR) | (US$) | |||||||
KwaZulu-Natal | 11,125,544 | 8,834,917 | 20.82 | 3.0 | 16.98 | 2.5 | |||||||
Limpopo | 7,613,864 | 6,025,866 | 17.64 | 2.5 | 15.32 | 2.2 | |||||||
North West | 3,008,165 | 2,992,402 | 20.99 | 3.0 | 19.93 | 2.9 | |||||||
Northern Cape | 1,138,967 | 1,005,813 | 25.07 | 3.6 | 23.16 | 3.3 | |||||||
Total | 22,886,540 | 18,858,998 |
The operating profit margin of our transaction-based activities improved marginally in fiscal 2003 from 26.32% in fiscal 2002 to 26.40%.
We incurred significant costs in connection with the commencement of the Eastern Cape social welfare payment system. This is typical for businesses such as ours that have significant up-front implementation costs but cannot begin collecting revenue until implementation is complete. This business model exerts pressure on our operating profit margin during the early stages of a new contract. Efficiency and profitability will increase over time as more customers are converted to our payment system. We expect the conversion period in the Eastern Cape to take 14 months to complete.
The losses experienced in the Eastern Cape were offset by the improved profitability of our social welfare payment contracts in other provinces. As these contracts are now well beyond their establishment phases, we continue to improve the efficiencies of these systems through strict cost control measures and improved logistical planning. We try to keep any increases in our operational, selling, general and administrative expenses below the total annual price increase rates under these contracts. A further positive effect on this divisions operating profit margin is the fact that our selling, general and administrative expenses remained predominantly fixed in fiscal 2003, while our revenue from these contracts benefited from the significant increase in volumes.
Technology sales and outsourcing
Revenue from the technology sales and outsourcing division in fiscal 2003 declined 17.3% compared to fiscal 2002. This business division has limited annuity-based revenues and is dependent on signing new contracts to sustain its revenues.
This decrease was expected given the very successful UEPS implementation in Malawi in 2002. While we successfully implemented systems in Mozambique and Latvia in 2003, these were much smaller than the Malawi
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system. The implementation of the Malawi system did result in some additional revenue in fiscal 2003 as we continue to provide smart cards and related equipment to that system.
A significant local customer serviced by this division is Nedcor, which outsources certain processing and development services to Aplitec. The Nedcor business remained fairly static during fiscal 2003.
Operating profit margin of this division declined from 40.49% in fiscal 2002 to 17.94% in fiscal 2003, mainly due to a significant change in our product mix. The implementation of the national UEPS-based payment system in Malawi, which dominated the 2002 results for this division, yielded significantly high margin revenue for that year. During fiscal 2003, systems were implemented in Latvia and Mozambique, but these were much smaller than the Malawi system. As a result, our low-margin products such as hardware sales and our outsourcing business with Nedcor, which remained fairly static during the year, had a significant impact on the margins reported for fiscal 2003.
Financial services
Revenue from the financial services business division grew 14.3% during fiscal 2003 compared to fiscal 2002, mainly due to the inclusion of the Age Secure initiative for a full financial year. The revenue of the traditional micro-lending businesses remained fairly static as the result of a conscious decision by the Aplitec board of directors not to aggressively grow these businesses. The most important key indicators of these businesses are illustrated below:
Year ended June 30, | ||||||||||
2003 | 2003 | 2002 | 2002 | % Increase/ | ||||||
ZAR 000 | US$ 000 | ZAR 000 | US$ 000 | (Decrease) | ||||||
Debtors book: Age Secure - net and | ||||||||||
gross (i.e. no provisions) | 23,861 | 3,448 | 20,174 | 2,915 | 18.3 | |||||
Debtors book: Moneyline and New | ||||||||||
World Finance gross | 81,890 | 11,834 | 82,664 | 11,946 | (0.9 | ) | ||||
Provisions | (48,771 | ) | (7,048 | ) | (42,102 | ) | (6,084 | ) | 16.8 | |
Debtors book: Moneyline and New | ||||||||||
World Finance net of provisions | 33,119 | 4,786 | 40,563 | 5,862 | (18.3 | ) |
Operating profit margin for the financial services division increased significantly in fiscal 2003 from 15.68% to 28.54%, primarily due to the following:
• | The Age Secure initiative was profitable, on a monthly basis, for the entire 2003 fiscal year. During the first half of fiscal 2002, this business was in the start-up stage and therefore incurred significant costs. Accordingly, the operating profit margin of this initiative improved significantly from the break-even result achieved during fiscal 2002. | |
• | The traditional micro-lending businesses exhibited significant improvements in operating profit margins following a management change in the latter part of fiscal 2002. This new management focused heavily on cost controls and managing bad debt. A dedicated collection department was also established, which produced significant cost savings for this division during fiscal 2003 as the amount of doubtful accounts written off and provisions for doubtful debts (calculated on the same basis as in previous years) reduced significantly, while meaningful progress was made with the recovery of debts written-off in prior fiscal periods. The cost of running an internal department is also considerably less than our previous practice of outsourcing this function. |
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Other
The outstanding share options issued to empowerment groups at the time of Aplitecs listing, which expired on December 31, 2002, were not exercised. As a result, an aggregate of ZAR 5.3 million ($0.8 million) was paid to holders of these options.
Interest received and finance costs
Interest received consists of interest received on surplus cash, while finance costs consists of interest paid on short-term borrowings. Aplitec has a unique cash flow cycle due to its obligations to pre-fund the payments of social welfare grants in the KwaZulu-Natal and Eastern Cape provinces. Aplitec provides the funds required for the grant payments on behalf of these provincial governments and is reimbursed within two weeks by the KwaZulu-Natal and Eastern Cape governments, thus exposing it to these provinces credit risk. These obligations result in a peak funding requirement, on a monthly basis, of approximately ZAR 200 million ($28.9 million) for the KwaZulu-Natal contract and ZAR 180 million ($26 million) for the Eastern Cape contract. The significantly higher payment volumes in KwaZulu-Natal during fiscal 2003, as well as the implementation of the Eastern Cape contract, resulted in an increase in finance costs in fiscal 2003 from ZAR 19 million ($2.7 million) to ZAR 49.5 million ($7.2 million).
Interest on surplus cash increased in fiscal 2003 from ZAR 33.1 million ($4.8 million) to ZAR 73.1 million ($10.6 million), primarily due to an increase of ZAR 106 million ($15.3 million) in cash on hand during fiscal 2003, as well as significantly higher interest rates earned on deposits during this period. Aplitec also maximized its interest income through the commencement in fiscal 2002 of a cash management system, which allows for the overnight set-off of balances across Aplitecs subsidiaries. Although interest is calculated on Aplitecs net cash balance, the interest cost of the overdraft pre-funding accounts for the KwaZulu-Natal and Eastern Cape contracts are calculated as part of the set-off calculation and disclosed as finance costs in our financial statements. The full benefit of this cash management arrangement was realized in fiscal 2003.
Taxation
Total taxes paid in fiscal 2003 increased from ZAR 43.3 million ($6.3 million) to ZAR 69.1 million ($10 million), mainly due to Aplitecs increased profitability.
Aplitecs effective tax rates for fiscal years 2002 and 2003 were 29.1% and 34.7%, respectively, compared to the standard South African corporate tax rate of 30%. The increase in the effective tax rate for fiscal 2003 was mainly due to the following:
• | The payment of ZAR 3.2 million ($0.5 million) Secondary Taxation on Companies or STC on dividends declared and paid during that year. Since no dividends were declared in fiscal 2002, no STC was owed that year. | |
• | Non-deductible expenses of ZAR 10.2 million ($1.5 million), including ZAR 5.3 million ($0.8 million) due to the settlement of share options. |
Minority interests
Income attributable to minority interests increased in fiscal 2003 from ZAR 1.7 million ($0.2 million) to ZAR 4.1 million ($0.6 million), due to the increased profitability of four subsidiaries that are involved in the social welfare payment business with outside shareholders. During the 2003 fiscal year, the minority interests in three of these subsidiaries were acquired for a total consideration of ZAR 12.4 million ($1.8 million), which should lead to a significant reduction in income attributable to minority interests in fiscal 2004.
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Results of Operations
Year Ended June 30, 2002 Compared to Year Ended June 30, 2001
Revenue and Operating Profit
In fiscal 2002, revenue decreased by 5.7% from ZAR 557.4 million ($80.5 million) to ZAR 525.6 million ($76 million), mainly due to the loss of a material hardware sales contract.
In fiscal 2002, operating profit increased by 7.4% from ZAR 125.8 million ($18.2 million) to ZAR 135.0 million ($19.5 million) and operating profit margin increased from 22.56% to 25.69%. Employee costs decreased by 3.5% from ZAR 134 million ($19.4 million) to ZAR 129.3 million ($18.7 million), mainly due to decrease in staff from 2,392 to 1,884 employees in connection with the sale of our security guarding business, offset by a 6% annual inflation adjustment to salaries in October 2001.
The relative growth in revenue, and the contributions of our business divisions to operating profit, are illustrated below:
Year ended June 30, | |||||||||||||
2002 | 2002 | % of | 2001 | 2001 | % of | ||||||||
Business Division | ZAR 000 | US$ 000 | consolidated | ZAR 000 | US$ 000 | consolidated | |||||||
Consolidated revenue: | |||||||||||||
Transaction-based activities | 363,164 | 52,480 | 69.1 | 355,538 | 51,378 | 65.8 | |||||||
Technology sales and | |||||||||||||
outsourcing | 56,224 | 8,125 | 10.7 | 98,993 | 14,305 | 17.8 | |||||||
Financial services | 106,197 | 15,346 | 20.2 | 91,914 | 13,282 | 16.4 | |||||||
Total consolidated revenue | 525,585 | 75,952 | 100.0 | 557,445 | 80,556 | 100.0 | |||||||
Consolidated operating profit: | |||||||||||||
Transaction-based activities | 95,583 | 13,813 | 70.8 | 77,314 | 11,173 | 61.5 | |||||||
Technology sales and | |||||||||||||
outsourcing | 22,763 | 3,289 | 16.9 | 33,749 | 4,877 | 26.8 | |||||||
Financial services | 16,654 | 2,407 | 12.3 | 14,693 | 2,123 | 11.7 | |||||||
Total consolidated | |||||||||||||
operating profit | 135,000 | 19,509 | 100.0 | 125,756 | 18,173 | 100.0 |
Transaction-based activities
The slight decrease in revenue in the transaction-based activities division during fiscal 2002 is due to the following key drivers in our social welfare grant payments business:
Loss of contracts
During fiscal 2001, contracts totaling ZAR 29.7 million ($4.3 million) expired in the Gauteng and Mpumalanga provinces (see table below).
Price and contract deviation payments
During fiscal 2001, contracts in Limpopo, North West and KwaZulu-Natal generated unusual, one-time price adjustments and contract deviations worth ZAR 46.5 million ($6.7 million).
Higher volumes in our existing contracts
We experienced significant growth in most of the other provinces where we render social welfare grant payment services. This growth, together with the price increases detailed below and one-time payments referenced above, partially offset the loss in revenue from the termination of the Mpumalanga and Gauteng contracts.
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Annual price increase adjustments
Under our Service Level Agreements with provincial governments, we are entitled to annual price increases based on factors such as average grant size, volumes and the South African CPI rates.
The higher volumes in our existing contracts, as well as the fiscal 2002 price increases, are detailed below:
Number of payments | Average price per payment | ||||||||||||
2002 | 2001 | ||||||||||||
Province | 2002 | 2001 | 2002 ZAR | US$ | 2001 ZAR | US$ | |||||||
KwaZulu-Natal | 8,834,917 | 5,400,044 | 16.98 | 2.5 | 16.69 | * | 2.4 | ||||||
Limpopo | 6,025,866 | 5,351,519 | 15.32 | 2.2 | 14.62 | * | 2.1 | ||||||
North West | 2,992,402 | 2,790,518 | 19.93 | 2.9 | 18.76 | * | 2.7 | ||||||
Northern Cape | 1,005,813 | 1,016,658 | 23.16 | 3.3 | 21.68 | 3.1 | |||||||
Gauteng | - | 736,667 | - | - | 17.86 | 2.6 | |||||||
Mpumalanga | - | 592,709 | - | - | 11.03 | 1.6 | |||||||
Total | 18,858,998 | 15,888,115 |
Technology sales and outsourcing
Revenue from technology sales and outsourcing declined 43.2% during fiscal 2002. This business division has limited annuity-based revenues and is dependent on signing new contracts to sustain its revenues.
This decrease in revenue is primarily due to extraordinary revenue in fiscal 2001 from the sale of POS terminals to Nedcor. These terminals are replaced every five to ten years, and during fiscal 2000 and 2001, Aplitec replaced all of Nedcor’s POS terminals. The major component of this division’s revenue for fiscal 2002 was the implementation of a national UEPS-based payment system in Malawi, which contributed ZAR 20 million ($2.9 million) to revenue.
The outsourcing by Nedcor of certain processing and development services to Aplitec remained fairly static during fiscal 2002.
Operating profit margin increased in fiscal 2002 from 34.09% in fiscal 2001 to 40.49%, mainly due to a significant change in the divisions product mix. The sale of POS terminals to Nedcor during fiscal 2001 was a high-volume, low-margin project, as is generally the case with IT-related hardware. By contrast, the implementation of the national UEPS-based payment system in Malawi, which dominated the 2002 results for this division, yielded significant high-margin revenue as most of the costs associated with the research and development of the core UEPS software had been expensed in prior years.
Financial services
Revenue from this division increased 15.5% in fiscal 2002, mainly due to the commencement in 2002 of the Age Secure initiative. The revenue of the traditional micro-lending businesses declined by 9.5%, due to a conscious decision by the Aplitec board of directors not to aggressively grow these businesses and to discontinue its medium-term loan products. The most important key indicators of these businesses are illustrated below:
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Year ended June 30, | ||||||||||
2002 | 2002 | 2001 | 2001 | % Increase/ | ||||||
ZAR 000 | US$ 000 | ZAR 000 | US$ 000 | (Decrease) | ||||||
Debtors book: Age Secure - net and | ||||||||||
gross (i.e. no provisions) | 20,174 | 2,915 | - | - | 100.0 | |||||
Debtors book: Moneyline and New | ||||||||||
World Finance gross | 82,664 | 11,946 | 74,744 | 10,801 | 10.6 | |||||
Provisions | (42,102 | ) | (6,084 | ) | (27,316 | ) | (3,947 | ) | 61.5 | |
Debtors book: Moneyline and New | ||||||||||
World Finance net of provisions | 40,563 | 5,862 | 47,428 | 6,854 | 14.5 |
Operating profit margin decreased marginally in fiscal 2002 from 15.99% in fiscal 2001 to 15.68%, mainly due to the following:
• | The Age Secure initiative had a break-even year following the commencement of operations during the year; and | |
• | There was no significant improvement in the operating profit margin of the traditional micro-lending businesses, as these businesses continued to battle sluggish demand conditions in an over-traded market and suffered from inadequate operational management. As in fiscal 2001, these conditions resulted in significant provisions for doubtful debts and bad debt write-offs. |
Interest received and finance costs
Interest on surplus cash increased in fiscal 2002 from ZAR 11.9 million ($1.7 million) in fiscal 2002 to ZAR 33.1 million ($4.8 million), primarily due to the increase of ZAR 120.9 million ($17.5 million) in cash on hand, as well as higher interest rates earned on deposits. The group also successfully started a cash management system to allow for the overnight set-off of balances across Aplitecs subsidiaries.
The effect of our 2002 pre-funding obligations under the KwaZulu-Natal contract, together with significantly higher payment volumes in KwaZulu-Natal and higher interest rates, resulted in the increase in 2002 finance costs from ZAR 1 million ($0.1 million) in fiscal 2001 to ZAR 19.1 million ($2.8 million).
Taxation
Tax paid increased in fiscal 2002 from ZAR 42.5 million ($6.1 million) to ZAR 43.3 million ($6.3 million), mainly due to Aplitecs increased profitability.
Our effective tax rates were 30.5% and 29% for fiscal 2001 and 2002, respectively, compared to the standard South African corporate tax rate of 30%. The decrease in 2002 is mainly due to the inclusion of ZAR 5 million ($0.7 million) of tax-exempted income.
Minority interests
Income attributable to minority interests increased in fiscal 2002 from ZAR 1.1 million ($0.2 million) to ZAR 1.7 million ($0.2 million), due to the increased profitability of four subsidiaries with outside shareholders, which are involved in the social welfare payment business.
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Liquidity and capital resources
Operations
Cash flows from operating activities in fiscal 2003 totaled ZAR 172 million ($24.9 million), compared to ZAR 124.5 million ($18 million) in fiscal 2002. This increase is primarily due to higher levels of operating profit, a decrease in working capital (decreased inventory and increased payables, partially offset by increased receivables) and an increase in net interest earned, partially offset by higher taxes and the payment of dividends during fiscal 2003. The decrease in inventory was due to the write-off of specifically identified slow moving items. The increase in receivables was due to the inclusion of the Eastern Cape contract, which resulted in amounts owing to Aplitec at year end by the Eastern Cape government, as well as higher pre-payments for smart cards bought for the Eastern Cape contract, which are paid for monthly, as part of service fee, over the duration of the contract period. Likewise, the Eastern Cape contract increased payables in 2003 as the accruals for insurance, staff-related costs and equipment/services were included for the first time.
Investing
Cash for investing activities in fiscal years 2003 and 2002 was ZAR 70.4 million ($10.2 million) and ZAR 8.9 million ($1.3 million), respectively. This increase was due to the following:
• | A ZAR 56.9 million ($8.2 million) capital expenditure related to start-up costs on the Eastern Cape contract; and | |
• | The purchase of minority interests in three group subsidiaries for a total consideration of ZAR 12.4 million ($1.8 million). These purchases resulted in ZAR 5.1 million ($0.7 million) of goodwill, which will be amortized over the remaining lifespan of the government contracts being carried out in each subsidiary. As a result of these acquisitions, the minority interests liability on Aplitecs balance sheet reduced from ZAR 3.3 million ($0.5 million) in fiscal 2002 to zero in fiscal 2003. |
Financing
Net cash from financing activities was ZAR 5.2 million ($0.8 million) in fiscal 2003, compared with ZAR 5.3 million ($0.8 million) in fiscal 2002. These amounts were due to the issuance of ordinary shares under the Aplitec employee share incentive scheme at a share price of ZAR 1.475 ($0.2) per share. The slight decrease from fiscal 2002 to fiscal 2003 was due to fewer participants in the scheme in fiscal 2003, as certain employees resigned before their shares vested.
Since Aplitec is highly cash generative and maintains large cash reserves (ZAR 321.8 million ($46.5 million) at the end of fiscal 2002 and ZAR 428.5 million ($61.9 million) at the end of fiscal 2003), it finances all operations, research and development, working capital, capital expenditure and acquisitions through its internally generated cash reserves. It has no debt to service and only requires external funding when its pre-funding requirements in the KwaZulu-Natal and Eastern Cape provinces exceed the available cash on hand. Aplitec has negotiated a ZAR 450 million ($65 million) revolving credit facility for this purpose but did not utilize it in fiscal 2003.
Aplitec has access to capital from a range of external sources, including share issuances and various debt facilities. We take the following factors into account when considering external financing:
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• | cost of capital; | |
• | cost of financing; | |
• | opportunity cost of utilizing surplus cash; and | |
• | availability of tax efficient structures to moderate financing costs. |
The significant increase in social welfare grant beneficiaries in the KwaZulu-Natal and Eastern Cape provinces may require external financing in the medium to long-term for the pre-funding of these grant payments. We are confident that our cash reserves, current overdraft facilities and access to external financing will be sufficient to fund our medium to long-term activities and expansion plans.
Off-Balance Sheet Arrangements
We have entered into certain finance arrangements that are not included in our annual financial statements under SA GAAP. These off-balance sheet arrangements relate to the existence of an insurance cell captive under the management of Mutual & Federal Limited. Aplitec utilizes the cell captive as part of its strategy to insure certain risks for which commercial insurance is not readily available. These risks relate mainly to cash losses suffered as a result of cash-in-transit heists and robberies at our depots. At the end of fiscal 2003, the cell captive had a cash balance of ZAR 10.7 million ($1.5 million).
Capital Expenditures
Capital expenditures in fiscal years 2003, 2002 and 2001 were as follows:
Year ended June 30, | |||||||||||||
2003 | 2003 | 2002 | 2002 | 2001 | 2001 | ||||||||
Business Division | ZAR 000 | US$ 000 | ZAR 000 | US$ 000 | ZAR 000 | US$ 000 | |||||||
Transaction-based activities | 56,696 | 8,193 | 11,078 | 1,601 | 20,385 | 2,946 | |||||||
Technology sales and | |||||||||||||
outsourcing | 135 | 20 | 99 | 14 | 159 | 23 | |||||||
Financial services | 960 | 139 | 8,295 | 1,199 | 1,412 | 204 | |||||||
Consolidated total | 60,791 | 8,785 | 19,472 | 2,814 | 21,956 | 3,173 |
We operate in an environment where our contracts for the payment of social welfare grants require substantial capital investment to establish our operational infrastructure when a contract commences. Further capital investment is required when the number of beneficiaries increase to the point where the maximum capacity of the original infrastructure is exceeded.
Our fiscal 2003 spending was mainly due to start-up costs in the Eastern Cape Province. Our 2002 and 2001 spending was mainly due to our expansion in the KwaZulu-Natal and Limpopo provinces, where we experienced significant growth in the number of customers we had to service.
Our other business divisions require relatively little capital investment. The most notable exception was the capital expenditure incurred to establish the Age Secure initiative within the financial services division during fiscal 2002.
All of our capital expenditures for the past three fiscal years were funded through internally generated funds.
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We had no outstanding capital commitments at the end of fiscal 2003.
Capital spending for fiscal 2004 is expected to be incurred primarily in connection with start-up costs related to our new social welfare grant program in the Limpopo province. The renewal of our contract in that province will require substantial investment to modernize our existing infrastructure. We estimate that capital expenditures for this project will be ZAR 35 million ($5.1 million) through the fiscal year ended 2005. This capital spending is expected to be funded through internally generated funds.
Contingent Liabilities, Commitments and Contractual Obligations
Aplitec leases certain premises under operating leases. The minimum future commitments of Aplitec for lease premises are as follows:
Due Within 1 | Due Within 2-5 | Due After 5 | Total Amount | ||||||||
Year
ZAR ‘000 |
Years
ZAR ‘000 |
Years
ZAR ‘000 |
Due
ZAR ‘000 |
Total
Amount Due
(US$ ‘000) |
|||||||
2003 | 7,967 | 5,586 | 81 | 13,634 | 1,970 | ||||||
2002 | 8,062 | 3,551 | | 11,613 | 1,678 | ||||||
2001 | 15,964 | 9,411 | | 25,375 | 3,667 |
Aplitecs outstanding capital commitments at the end of fiscal years 2003, 2002 and 2001 are ZAR 0, 12,643 and 3,200. These commitments will be funded from cash generated from operations. There are no other purchase commitments or obligations.
Dividends
Aplitec’s dividend policy is to declare regular annual dividend payments of between three to four times earnings. The dividend per share declared was ZAR 0.15 for fiscal 2003 and ZAR 0.11 for 2002.
Acquisitions and Dispositions
• | Acquisition of Net 1 Investment Holdings : On July 15, 2000, Aplitec announced the acquisition of Net 1 Holdings in consideration for the issuance of 9.75 million Aplitec ordinary shares with a market value of ZAR 19.5 million ($2.8 million). The effect of this acquisition was that Aplitec acquired the FTS patent for South Africa and its surrounding territories. | |
• | Disposal of security guarding business : During January 2002, Aplitec sold the assets and liabilities of its security guarding business for a total cash consideration of ZAR 4.913 million ($0.7 million). | |
• | Acquisition of remaining CPS interests : During January 2003, Aplitec acquired the remaining interests in CPS (KwaZulu-Natal), CPS (Northern Cape) and CPS (Northern)). These acquisitions consolidated Aplitecs social welfare payment businesses under a single holding company, thus improving operating and tax efficiency. Profits (attributable to the minority interests acquired) were recognized and consolidated from January 1, 2003. |
Employee benefits
Aplitec does not provide health or retirement benefits to any of its employees.
Insurance
Aplitec annually assesses its risk exposure. During fiscal years 2003, 2002 and 2001, all risks were adequately covered, except where the cost of insurance coverage was considered excessive in relation to the probability and extent of loss. This is true with respect to Aplitecs cash and cash-in-transit risks, which has become virtually impossible to procure from local and international underwriters. Aplitec self-insures its cash and cash-intransit risks through a cell captive structure, administered and managed by Mutual & Federal Limited. The periodic
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contributions to the cell captive are calculated by the groups independent insurance consultant. At the end of fiscal 2003, the cell captive had a value of ZAR 10.7 million ($1.5 million).
The main categories of Aplitecs insurance are:
• | loss of /damage to vehicles, electronic equipment and other assets; | |
• | business interruption; | |
• | motor vehicle third party claims; | |
• | group personal accident; | |
• | employment practices liability; and | |
• | directors and officers liability. |
Critical accounting policies
Aplitecs annual financial statements have been prepared in accordance with SA GAAP, which requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities. As future events and their effects cannot be determined with absolute certainty, the determination of estimates requires managements judgment based on a variety of assumptions and other determinants such as historical experience, current and expected market conditions and certain scientific evaluation techniques. Management believes that the following accounting policies are critical due to the degree of estimation required and the impact of these policies on the understanding of the results of our operations.
Deferred taxation
The group estimates its tax liability through the calculations done for the determination of its current tax liability when tax returns are filed, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are disclosed on the Groups balance sheet. Management then has to assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent that we believe recovery is likely, a valuation reserve will be created. The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income, based on estimates and assumptions. Management has considered future taxable income and ongoing feasible tax strategies in determining the need for the valuation allowance, but we must emphasize that, in the event that we were to determine that we not be able to realize our deferred tax assets in the future, a valuation allowance may not be required which would reduce net income in the period that such determination is made.
Accounts receivable and provision for doubtful debts
We maintain a provision for doubtful debts in our micro-lending business resulting from the inability of certain of our clients to make the required payments. Our current policy is to provide for the full outstanding amount for all debts which are outstanding for 150 days and longer which as of June 30, 2003 totaled ZAR 42.1 million ($6.1 million). We consider this policy to be appropriate having taken into account factors such as historical bad debts, current economic trends and changes in our customer payment patterns. Should the ability of our clients to make payments to us when due deteriorate in the future, additional provisions may be required. A significant amount of judgment is required to assess the ultimate recoverability of these receivables, including on-going evaluation of the credit worthiness of each client.
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Research and development
Our business activities and product offering to our customers depends on our proprietary UEPS software. As a result, we have a large group of software engineers and developers who are constantly revising and improving the core UEPS software. We account for the development cost of software intended for sale in accordance with SFAS No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. SFAS 86 requires product development costs to be charged to expenses as incurred until technological feasibility is attained. Technological feasibility is attained when our software has completed system testing and has been determined viable for its intended use. The time between the attainment of technological feasibility and completion of software development has been short with immaterial amounts of development costs incurred during this period. Accordingly, we did not capitalize any development costs in fiscal 2003 or fiscal 2002, particularly because the main part of our development is the enhancement and upgrading of existing products.
A significant amount of judgment is required to separate research costs, new development costs and ongoing development costs based as the transition between these stages. A multitude of factors need to be considered by management, including an assessment of the state of readiness of the software and the existence of markets for the software. The possibility of capitalizing development costs in the future, within the criteria set by SFAS 86, may have a material impact on the groups profitability in the period when the costs are capitalized, and in subsequent periods when the capitalized costs are amortized.
Qualitative and quantitative risk factors
Financial instruments
Aplitec seeks to reduce its foreign currency exposure through a policy of matching, to the extent possible, assets and liabilities denominated in foreign currencies. In addition, Aplitec uses financial instruments in order to economically hedge its exposure to exchange rate and interest rate fluctuations arising from its operations. As discussed in the notes to Aplitecs financial statements included elsewhere in this proxy statement/prospectus, Aplitec had elected to account for these instruments as hedging arrangements. Aplitec is also exposed to credit risks.
All risks described above and how Aplitec seeks to protect itself is discussed below.
Foreign exchange risk
Aplitec has used forward contracts in order to limit its exposure to the ZAR/USD and ZAR/EUR exchange rate fluctuations from foreign currency transactions. As of June 30, 2003 and 2002, the outstanding foreign exchange contracts are as follows:
2003 | 2002 | |||||
Forward purchase contracts | (FX Rate 1:10.9943) | |||||
Notional amount | - | USD 1,150,000 | ||||
Strike price | - | ZAR 12,643,445 | ||||
Maturity | - | 08/01/2003 |
Interest rate risk
As a result of its normal borrowing and leasing activities, Aplitecs operating results are exposed to fluctuations in interest rates, which Aplitec manages primarily through its regular financing activities. Aplitec generally maintains limited investment in cash equivalents and has occasionally invested in marketable securities. Typically, for every 1% increase in the South African Reserve Banks REPO rate, Aplitecs interest expense on pre-funding social welfare grants in the KwaZulu Natal and Eastern Cape provinces increases by ZAR 110,000 ($15,896) per month, while interest earned per month on any surplus cash increases by ZAR 83,333 per ZAR 100 million (or $12,042 per $14.5 million).
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Credit risk
Credit risk relates to the risk of loss that Aplitec would incur as a result of non-performance by counterparties. Aplitec maintains credit risk policies with regard to its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterpartys financial condition, credit rating, and other credit criteria and risk mitigation tools as deemed appropriate.
In regards to credit risk on financial instruments, Aplitec maintains the policy to enter into such transactions only with highly rated South African and European financial institutions (as determined by independent international credit rating agencies such as Standard & Poors).
Microlending credit risk
Aplitec is exposed to credit risk in its microlending business, which provides unsecured short-term loans to qualifying customers. Aplitec manages this risk by assigning each prospective customer a creditworthiness score, which takes into account a variety of factors such as employment status, salary earned, other debts and total expenditures on normal household and lifestyle expenses.
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D ESCRIPTION OF N ET 1 S C APITAL S TOCK
The following is a description of the material terms of Net 1s capital stock under its proposed articles of amendment to its articles of incorporation. Because the terms of Net 1s articles of amendment are more detailed than the information contained in this summary, you should carefully consider the provisions contained in the articles of amendment, a copy of which is attached as Annex A to this proxy statement/prospectus.
Share Capital
The authorized shares of Net 1 will consist of:
» | 500,000,000 common shares, par value $0.001 per share; and | ||
» | 300,000,000 preferred shares, par value $0.001 per share. |
As of the completion of the proposed transactions, Net 1 will have outstanding and issued approximately 138,956,156 shares of common stock and 192,967,138 shares of special convertible preferred stock.
Common Stock
Each holder of common stock is entitled to one vote per share for the election of directors and for all other matters to be voted on by shareholders. Holders of common stock may not cumulate their votes in the election of directors, and are entitled to share equally in the dividends that may be declared by the board of directors, but only after payment of dividends required to be paid on outstanding shares of preferred stock according to its terms.
Upon voluntary or involuntary liquidation, dissolution or winding up of Net 1, holders of common stock share ratably in the assets remaining after payments to creditors and provision for the preference of any preferred stock. There are no preemptive or other subscription rights, conversion rights or redemption or scheduled installment payment provisions relating to shares of common stock. All of the outstanding shares of common stock are fully paid and nonassessable.
The rights of holders of Net 1s common stock may be adversely affected by the rights of holders of preferred stock that is outstanding or that may be issued in the future. See Preferred Stock below.
The transfer agent and registrar for Net 1s common stock is Florida Atlantic Stock Transfer Inc. Its common stock is quoted on the OTC Bulletin Board.
Preferred Stock
Net 1s board of directors may authorize the issuance of new classes or series of preferred stock from time to time, each of which class or series will have those voting powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as shall be specified by the board of directors. The board of directors may cause shares of preferred stock to be issued in public or private transactions for any proper corporate purpose.
Special Convertible Preferred Stock
The proposed articles of amendment will establish a class of special convertible preferred stock. This class shall consist of 192,967,138 shares, par value $0.001 per share, and it will rank:
• | on parity, without preference and priority, with Net 1s common stock with respect to dividend rights (described below) or rights upon liquidation, dissolution or winding up of Net 1; and | |
• | junior in preference and priority to each other class or series of preferred stock or other equity security of Net 1 under terms that may be determined by the board of directors to expressly provide that it will rank senior in preference or priority to the special convertible preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of Net 1. |
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Dividends
Provided that shares of special convertible preferred stock are outstanding, Net 1s board will determine immediately prior to the declaration of any dividend or distribution (i) the portion, if any, of Net 1s assets available for such dividend or distribution that is attributable to funds or assets from New Aplitec, regardless of the manner received (the South African Amount), and (ii) the portion of such funds or assets that is not from New Aplitec (the Non-South African Amount). The South African Amount will not include amounts received from New Aplitec due to its liquidation, distribution or dividend after an insolvency or winding up.
Provided that shares of special convertible preferred stock are outstanding, (i) any dividends or distributions by Net 1s board of Non-South African Amounts must be paid pro rata to all holders of common stock and special convertible preferred stock, and (ii) any dividends or distributions by Net 1s board of South African Amounts can be paid only to holders of common stock. Net 1s board has complete discretion to declare a dividend or distribution with respect to South African Amounts but not Non-South African Amounts, and vice versa.
Liquidation, Dissolution and Winding Up
In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of Net 1, all outstanding shares of special convertible preferred stock will automatically convert and holders of such stock will be entitled to receive, pari passu with holders of common stock, any assets of Net 1 distributed for the benefit of its shareholders.
Voting Rights
Holders of special convertible preferred stock have the right to receive notice of, attend, speak and vote at general meetings of Net 1, and are entitled to vote on all matters on which holders of common stock are entitled to vote. Holders of special convertible preferred stock will vote together with the holders of common stock as a single class. Each holder of special convertible preferred stock present in person, or the person representing such holder, is entitled to a number of votes equal to the number of shares of common stock that would be issued upon conversion of the special convertible preferred stock held by such holder on the record date.
Net 1 may not take any of the following actions without the prior vote or written consent of holders representing at least a majority of the then outstanding shares of special convertible preferred stock, voting together as a separate class:
• | any increase (including by way of merger, consolidation or otherwise) in the total number of authorized or issued shares of special convertible preferred stock; or | |
• | any amendment, alteration or change to the powers, designations, preferences, rights, qualifications, limitations or restrictions of the special convertible preferred stock in the articles of incorporation in any manner that adversely affects the holders of such stock. |
Conversion
Special convertible preferred stock is convertible into shares of common stock on a one-for-one basis. For each converted share of special convertible preferred stock that is to be converted, Net 1 shall receive:
• | 1.228070 New Aplitec B class preference shares; and | |
• | such holders interest in the New Aplitec B loan accounts, which is equal to (A) the aggregate principal amount of New Aplitec B loans, plus any accrued interest, minus any repayment or previous transfer |
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of New Aplitec B loans to Net 1, divided by (B) the number of the shares of special convertible preferred stock outstanding at such time. |
No fractional shares of common stock shall be issued upon conversion of the special convertible preferred stock, unless Net 1s board of directors shall otherwise determine to issue fractional shares. In lieu of fractional shares, Net 1 will pay cash equal to such fractional amount multiplied by the fair market value per share of common stock on the date of conversion. If more than one share of special convertible preferred stock is being converted at one time by the same holder, then the number of full shares issuable upon conversion will be calculated on the basis of the aggregate number of shares converted at that time.
Net 1 will reserve and keep available out of its authorized but unissued shares of common stock the full number of shares of common stock deliverable upon the conversion of all outstanding special convertible preferred stock.
Upon conversion, all rights with respect to shares for special convertible preferred stock will cease. Converted shares will be cancelled and have the status of authorized but unissued preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the board of directors.
Transfer Restrictions
Special convertible preferred stock may not be sold, assigned, transferred, pledged, or encumbered, except in connection with a conversion into shares of Net 1 common stock. The shares of special convertible preferred stock may not be held by any person other than the Cayman Trust for the benefit of the South African Trust and indirectly for the benefit of reinvesting shareholders of Aplitec, or directly by the South African Trust for the benefit of reinvesting shareholders of Aplitec.
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M ANAGEMENT O F N ET 1 A FTER T HE P ROPOSED T RANSACTIONS
Board of Directors of Net 1
Net 1s board of directors currently consists of two directors: Dr. Serge Belamant and Claude Guerard.
Pursuant to the Common Stock Purchase Agreement, Net 1 will take all steps necessary to increase the size of its board of directors to 10 members. After the closing of the proposed transactions, Net 1s board will consist of 10 members, including, among them, Dr. Serge Belamant, who current is Net 1s chairman of the board and the chief executive officer of Aplitec. Net 1 has not yet determined who will join its board of directors.
Net 1 intends to appoint a number of independent directors to its board prior to the consummation of the proposed transactions. If any independent director becomes unable to serve prior to closing, his or her successor will be nominated by the remaining independent directors. Future vacancies of independent directors between annual meetings will be filled by a majority vote of Net 1s board of directors, and successors to the independent directors will be elected by the holders of Net 1s common stock and special convertible preferred stock.
Executive Officers of Net 1
The following table sets forth the names, ages and positions of each of Net 1s executive officers upon completion of the proposed transactions.
Name | Age | Position |
Dr. Serge Belamant | 50 | Chief Executive Officer and Chairman of the Board |
Herman Gideon Kotze | 34 | Chief Financial Officer |
Brenda Stewart | 46 | Senior Vice President Marketing and Sales |
Nitin Soma | 37 | Senior Vice President Information Technology |
Executive officers are appointed by, and serve at the discretion of, Net 1s board of directors.
Biographical Information
Dr. Serge Belamant has been a director of Net 1 since its inception in May 1997, and was its chief executive officer until October 2000. From June 1997 to present, Dr. Belamant has also served as chief executive officer and a director of Aplitec. From 1996 to 1997, Dr. Belamant served as a consultant in the development of COPAC (Chip Off-Line Pre-Authorized Card), a product currently being marketed internationally by Visa International. From October 1989 to September 1995, Dr. Belamant served as the managing director of Net 1 (Pty), a privately owned South African company specializing in the development of advanced technologies in the field of transaction processing and payment systems. Dr. Belamant also serves on the board of a number of other companies that are closely related to the smart card business. Dr. Belamant spent ten years working as a computer scientist for Control Data Corporation where he won a number of international awards. Later, he was responsible for the design, development, implementation and operation of the Saswitch ATM network in South Africa that rates today as the third largest ATM switching system in the world. Dr. Belamant has patented a number of inventions besides the FTS ranging from biometrics to gaming. Dr. Belamant has more than twenty years of experience in the fields of operations research, security, biometrics, artificial intelligence and on-line and off-line transaction processing systems.
Herman Gideon Kotze is currently the financial director of Aplitec and a member of the Aplitec executive committee. Mr. Kotze is a Chartered Accountant who joined Aplitec in December 1998 as a strategic financial analyst. He was appointed to the board as Group Financial Director in January 2000. Mr. Kotze served his articles from 1993 to 1997 at KPMG in Pretoria, where he was the audit manager for several major corporations in the manufacturing, mining, retail and financial services industries. During 1998, he joined the Industrial Development Corporation of South Africa Limited (IDC) as a business analyst. His main duties at the IDC were the evaluation and investigation of ventures requiring funding from the IDC, from small manufacturing concerns to huge multinational projects, as well as the structuring and implementation of loan and equity products for these concerns.
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Brenda Stewart is currently a director of Net 1 Investment Holdings and Net 1 Holdings. She is also a member of the Aplitec executive committee. Mrs. Stewart has worked for the last 20 years with Dr. Belamant while at Volkskas Industrial Bank, SASWITCH, Net 1 Southern Africa, Net 1 Solutions and Net 1 (Pty). Her primary function is to manage all marketing and sales activities for the Aplitec Group. Her secondary function is to oversee implementation and operation of country-wide projects, such as Malawi and Mozambique, as well as pension and welfare systems. Her skills involve in-depth knowledge of marketing sales, project management, operations, implementation, maintenance/repair, customer support, financial management, administration and tax, as well as a vast understanding of the UEPS technology.
Nitin Soma is a member of the Aplitec executive committee. Mr. Soma joined Aplitec in 1997, specializing in transaction switching and interbank settlements. He has represented Nedcor Bank in the development of technical specifications for the South African Interbank Standards. He is also responsible for the ATM settlement process to balance ATMs with the host as well as other card users. Mr. Soma designed the Stratus Back-End System for Aplitec.
Committees of the Board of Directors
Net 1s board intends to form standing audit and compensation committees soon after the consummation of the proposed transactions. The audit committee will have the following functions:
• | make recommendations to the board of directors regarding the selection of independent auditors; | |
• | review the results and scope of the audit and other services provided by Net 1s independent auditors; | |
• | review Net 1s financial statements; and | |
• | review and evaluate Net 1s internal control functions. |
Net 1s compensation committee will consist of a majority of independent directors. The compensation committee will make recommendations to the board of directors regarding the following matters:
• | executive compensation; | |
• | salaries and incentive compensation for Net 1s employees and consultants; and | |
• | the administration of the 2004 Stock Incentive Plan. |
Compensation of Directors and Executive Officers
Net 1 expects that directors who are also full-time employees of Net 1 will not receive additional compensation for their service as directors. Each non-employee director of Net 1 will receive compensation for service on Net 1s board of directors as determined by the board of directors.
The form and amount of compensation that Net 1 will pay to each of its executive officers in any future period will be determined by its compensation committee.
Our executive officers did not receive any compensation for the year ended December 31, 2002. Net 1 did not set aside or accrue any amounts for pension, retirement or similar benefits, as it did not provide such benefits for its executive officers.
2004 Stock Incentive Plan
Net 1 plans to adopt, subject to the approval of its shareholders, the 2004 Stock Incentive Plan and its subsidiaries. The 2004 Stock Incentive Plan will permit Net 1 to grant to our employees, directors and consultants incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance-based
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awards and other awards based on our common stock. The following description summarizes the material terms of the 2004 Stock Incentive Plan, but is qualified in its entirety by reference to the full text of the 2004 Stock Incentive Plan, the form of which is set forth as Annex B to this proxy statement/prospectus.
Administration
The board of directors of Net 1 (or its delegate) will administer the 2004 Stock Incentive Plan, and is referred to below as the committee. The committee may delegate its authority under the 2004 Stock Incentive Plan in whole or in part as it determines, but will consist, unless otherwise determined by the Board of Directors, (1) during any period that Net 1 is subject to Section 16 of the U.S. Securities Exchange Act of 1934, solely of at least two non-employee directors, and (2) during any period that Net 1 is subject to Section 162(m) of the Code, solely of at least two outside directors. The committee will determine who will receive awards under the 2004 Stock Incentive Plan, as well as the form of the awards, the number of shares underlying the awards, and the terms and conditions of the award consistent with the terms of the 2004 Stock Incentive Plan. The committee is authorized to interpret the 2004 Stock Incentive Plan, to establish, amend and rescind any rules and regulations relating to the 2004 Stock Incentive Plan, and to make any other determinations that it deems necessary or desirable for the administration of the 2004 Stock Incentive Plan. The committee also may correct any defect, supply any omission or reconcile any inconsistency in the 2004 Stock Incentive Plan in the manner and to the extent that the committee deems it necessary or desirable.
Term
No awards may be granted under the 2004 Stock Incentive Plan after the tenth anniversary of the effective date of the 2004 Stock Incentive Plan, but awards granted before such tenth anniversary may extend beyond that date.
Shares Reserved for Awards and Limits on Awards
The total number of shares of Net 1 common stock available under the 2004 Stock Incentive Plan initially will be 17,441,872, of which 8,720,936 shares may be used with respect to stock options, and 8,720,936 shares may be used in respect of other stock-based awards, which may include grants of restricted shares. Additional terms of such awards, including the maximum award that any participant may receive in any calendar year, will be determined prior to approval of the 2004 Stock Incentive Plan by Net 1s shareholders.
The number and kind of shares of Net 1 common stock issued or reserved pursuant to the 2004 Stock Incentive Plan or outstanding awards, the maximum number of shares issuable pursuant to awards, the exercise price for awards, and other affected terms of awards, are subject to adjustment on account of stock splits, stock dividends, reorganizations, recapitalizations, mergers, consolidations, spin-offs and other corporate events. Shares covered by awards that expire, terminate or lapse without payment will again be available for the grant of awards under the 2004 Stock Incentive Plan, as well as shares that are used by the holder to pay withholding taxes or as payment for the exercise price of an award, if permitted by the committee.
In the event of certain corporate events, including stock sales, mergers, and sales of substantial assets, the committee may, but shall not be obligated to, cancel outstanding awards for fair value, waive vesting requirements, provide for the issuance of substitute awards, and/or provide that, for a period of time prior to such corporate event, options will be exercisable for all shares subject to the option and that upon the occurrence of the corporate event the options will terminate.
Stock Options
The 2004 Stock Incentive Plan will permit the committee to grant employees incentive stock options, which qualify for special tax treatment in the United States, and will permit the committee to grant employees, directors and consultants nonqualified stock options. The committee will establish the duration of each option at the time it is granted. The maximum duration of an incentive stock option is ten years after the date of grant. The committee will establish the exercise price of each option at the time it is granted. Initial grants of nonqualified stock options to certain members of management may be made at an exercise price of $0.50 per share. The exercise price of an incentive stock option may not be less than the fair market value of the underlying common stock on the date of grant. The committee may establish vesting and performance requirements that must be met prior to the
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exercise of options. Unless otherwise determined by the committee, stock options will vest ratably, on an annual basis, over a period of five years, commencing with the first anniversary of the grant date.
The exercise price of stock options may be paid in cash by the holder. Stock option grants may include provisions that permit the option holder, to the extent permitted by the committee, to exercise all or part of the holders vested options, or to satisfy withholding tax liabilities, by tendering mature shares of our common stock already owned by the option holder for at least six months (or another period consistent with the applicable accounting rules) with a fair market value equal to the exercise price. Stock option grants also may include provisions that permit the option holder, to the extent permitted by the committee and only if there is a public market for the shares, to exercise all or part of the holders vested options through a cashless exercise procedure, which requires the delivery of irrevocable instructions to a broker to sell the shares obtained upon exercise of the option and deliver promptly to Net 1 the proceeds of the sale equal to the exercise price of the common stock being purchased.
Stock Appreciation Rights
The committee also may grant stock appreciation rights, either singly or in tandem with underlying stock options. Stock appreciation rights entitle the holder upon exercise to receive an amount in any combination of cash or shares of our common stock (as determined by the committee) equal in value to the excess of the fair market value of the shares covered by the right over the grant price.
Other Stock-Based Awards
The 2004 Stock Incentive Plan also will permit the committee to grant awards that are valued by reference to, or otherwise based on the fair market value of, our common stock. These awards will be in such form and subject to such conditions, as the committee may determine, including the satisfaction of performance goals, the completion of periods of service or the occurrence of events.
This may include grants of restricted stock, which, in general, are grants of our common stock (with or without payment for such stock), subject to such risks of forfeiture and other restrictions as may be determined by the committee at the time of grant. Unless otherwise determined by the committee at the time of grant, restricted stock awards will vest ratably, on an annual basis, over a period of five years, commencing with the grant date.
Performance Standards and Section 162(m)
Performance criteria for performance-based awards under the 2004 Stock Incentive Plan may relate to any combination of the total corporation, a subsidiary, and/or any business unit. Performance targets may be set at a specific level or may be expressed relative to measures at comparison companies or a defined index. The committee will establish specific targets for recipients.
In general, Section 162(m) of the Code prevents the deductibility of compensation in excess of one million dollars paid in any taxable year to an individual who on the last day of that year is the companys chief executive officer or is among its four other most highly compensated executive officers, except that a deduction may be taken for compensation that qualifies as performance-based compensation under Section 162(m). Options granted at fair market value ordinarily satisfy the performance-based requirements of Section 162(m), if shareholder disclosure and approval requirements are met. If restricted stock or performance-based awards are intended to satisfy Section 162(m) deductibility requirements, payments under such awards must be conditioned on attainment of pre-established objective performance measures that have been established and certified by a committee of outside directors and approved by shareholders. The performance criteria under the 2004 Stock Incentive Plan include: consolidated earnings before or after taxes, net income, operating income, earnings per share, book value per share, return on shareholders equity, expense management, return on investment, improvements in capital structure, profitability, profit margins, stock price, market share, revenues, costs, cash flow, working capital, and return on assets.
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Transferability
Unless otherwise determined by the committee, awards may not be transferred or assigned by the holder otherwise than by will or the laws of descent and distribution.
Amendment
Our Board may amend the 2004 Stock Incentive Plan at any time, provided that no amendment will be made without the consent of the affected holder that diminishes the rights of the holder of any award, and except that the Board may amend the plan in such manner as it deems necessary to permit awards to meet the requirements of the Internal Revenue Code or other applicable laws. No amendment to the 2004 Stock Incentive Plan by our Board may be made without the approval of shareholders if it would increase the total number of shares reserved for issuance under the 2004 Stock Incentive Plan or change the maximum number of shares for which awards may be granted to participants, except for such changes in accordance with the Long Term Incentive Plans adjustment provisions described above.
United States Federal Income Tax Consequences
The following discussion of the United States federal income tax consequences relating to the 2004 Stock Incentive Plan is based on present United States federal tax laws and regulations and does not purport to be a complete description of the United States federal tax laws. Participants may also be subject to certain U.S. state and local taxes and non-U.S. taxes, which are not described below.
When a non-qualified stock option is granted, there are no income tax consequences for the option holder or Net 1. When a non-qualified stock option is exercised, in general, the option holder recognizes compensation equal to the excess, if any, of the fair market value of the underlying class of common stock on the date of exercise over the exercise price. Net 1 is entitled to a deduction equal to the compensation recognized by the option holder.
When an incentive stock option is granted, there are no income tax consequences for the option holder or Net 1. When an incentive stock option is exercised, the option holder does not recognize income and Net 1 does not receive a deduction. The option holder, however, must treat the excess, if any, of the fair market value of the underlying class of common stock on the date of exercise over the exercise price as an item of adjustment for purposes of the alternative minimum tax. If the option holder disposes of the shares after the option holder has held them for at least two years after the incentive stock option was granted and one year after the incentive stock option was exercised, the amount the option holder receives upon the disposition over the exercise price is treated as long-term capital gain to the option holder. Net 1 is not entitled to a deduction. If the option holder makes a disqualifying disposition of the stock by disposing of the stock before the stock has been held for the holding period described above, the option holder generally recognizes compensation income equal to the excess, if any, of (1) the fair market value of the stock on the date of exercise, or, if less, the amount received on the disposition, over (2) the exercise price. Net 1 is entitled to a deduction equal to the compensation recognized by the option holder.
When a stock appreciation right is granted, there are no income tax consequences for the participant or Net 1. When a stock appreciation right is exercised, in general, the participant recognizes compensation equal to the cash and/or the fair market value of the stock received on exercise. Net 1 is entitled to a deduction equal to the compensation recognized by the participant.
In general, other types of awards that may be issued under the 2004 Stock Incentive Plan are taxable to the holder upon receipt, except that awards of restricted stock are taxable to the holder on the date the shares vest, or on the date of receipt if the individual makes an election under Section 83(b) of the U.S. Internal Revenue Code of 1986.
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P RINCIPAL S HAREHOLDERS A FTER T HE P ROPOSED T RANSACTIONS
The following table presents, as of the date of completion of the proposed transactions, the anticipated beneficial ownership of shares of Net 1 common stock and special convertible preferred stock by:
• | each person or entity which, to our knowledge, will own beneficially more than 5% of the outstanding shares of Net 1 common stock or special convertible preferred stock; | |
• | each of our directors and executive officers; and | |
• | all of our directors and executive officers as a group. |
Unless otherwise indicated, to Net 1s knowledge, all persons listed below have sole voting and investment power with respect to their shares, except to the extent applicable law gives spouses shared authority.
Number of shares | Percentage of | ||||||||
Number of | Percentage of | of special | shares of special | ||||||
Shares of | Shares of Common | convertible | convertible | ||||||
Beneficial Owner | Common Stock | Stock | preferred stock | preferred stock | |||||
Net 1 Holdings | 8,520,578 | 6.13 | | | |||||
Brait Consortium (1) | 105,661,428 | 76.04 | | | |||||
Nedbank Ltd | | | 56,542,278 | 29.29 | |||||
Allan Gray Inv. Mgmt | | | 42,914,210 | 22.24 | |||||
Serge Belamant | | | 11,593,671 | 6.01 | |||||
All directors and executive | |||||||||
officers as a group | 11,963,289 | 6.20 (2) |
(1) | Assumes that 100% of Aplitecs current shareholders elect the reinvestment option. The Brait Group, which is a member of the Brait Consortium, has committed to acquire all of the interests in New Aplitec not taken up by Aplitecs shareholders. |
(2) | Assumes that Brenda Stewart and Nitin Soma, each of whom own shares of Aplitec, elect the reinvestment option. |
Number of Shares of | Percentage of Shares | ||||
Beneficial Owner | Common Stock | of Common Stock | |||
Net 1 Holdings | 8,520,578 | 53.75% | |||
Gemplus SCA | 1,521,278 | 9.59% | |||
All directors and executive officers as a group | 0 | 0% |
112
R ELATED P ARTY T RANSACTIONS
On October 1, 1999, Net 1 entered into a consulting agreement with Claude Guerard, pursuant to which Mr. Guerard was retained in part to advise Net 1 on a possible corporate restructuring and the implementation of a worldwide partnership network for the UEPS technology. Under this agreement, Mr. Guerard was also given the title of Chief Executive Officer of Net 1. Total fees paid to Mr. Guerard under this agreement were $150,000 in 2001 and $12,500 in 2002. Additionally, Net 1 still owes Mr. Guerard $137,500 under this agreement. The parties have no formal agreement regarding the payment of this amount, but Net 1 intends to pay Mr. Guerard when it improves its liquidity position.
On February 26, 2001, Net 1 signed a one year agreement effective January 1, 2001, with Net 1 (Pty) to provide Net 1 with marketing, sales, administrative, financial reporting and technical support services at a rate of $30,000 per month.
On January 29, 2002, pursuant to a resolution of Net 1s board of directors, the above consulting fees have been postponed until Net 1 has sufficient funds to cover operating expenses. To date, Net 1 has not made any payment under this agreement.
In 2002, Net 1 recorded realized revenue of $157,653 from Net 1 Holdings pursuant to the Patent and Technology Agreement. See BusinessNet 1s BusinessHistory.
113
E XPERTS
The consolidated financial statements of Net 1 as of December 31, 2002 and 2001 and for each of the years in the three-year period ended December 31, 2002 included in this proxy statement/prospectus have been audited by Manning Elliott, chartered accountants, as stated in their report appearing herein and is included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Aplitec as of June 30, 2003 and 2002 and for each of the fiscal years in the three-year period ended June 30, 2003 included in this proxy statement/prospectus have been audited by Fisher Hoffman PKF (Jhb) Inc., chartered accountants, as stated in their report appearing herein and is included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
S HAREHOLDER P ROPOSALS
If the proposed transactions are not approved, Net 1 will hold an annual meeting of shareholders in 2004. If you are a Net 1 shareholder and want to have a shareholder proposal considered for inclusion in the proxy statement for that meeting, you must submit the proposal in writing to the secretary of Net 1 at Suite 325-744 West Hastings Street, Vancouver, British Columbia Canada V6C 1A5 on or before the date set forth in the proxy statement distributed in advance of that meeting. Any shareholder proposal that is not submitted as described above will be subject to the discretionary authority of the persons named on the proxy for Net 1s 2004 annual meeting of shareholders.
L EGAL M ATTERS
The legality of the Net 1 securities offered hereby will be passed upon for Net 1 by Schneider Weinberger LLP.
W HERE Y OU C AN F IND M ORE I NFORMATION
Net 1 has filed a registration statement on Form S-4 to register with the SEC the shares of common stock to be delivered in connection with the transactions. This proxy statement/prospectus is a part of that registration statement and constitutes a prospectus of Net 1 in connection with the Aplitec acquisition, in addition to being a proxy statement of Net 1 for the meeting of its stockholders. As allowed by SEC rules, this proxy statement/prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement.
Net 1 is subject to the information reporting requirements of the Securities Exchange Act of 1934 and, under the Exchange Act, files reports and other information with the SEC. Net 1 files annual and current reports and other information with the SEC. You may read and copy these reports and other information at the SECs Public Reference Rooms at 450 Fifth Street, NW, Washington, D.C. 20549 at prescribed rates. You may also request copies of these documents, upon payment of the duplicating fee, by writing to the Public Reference Section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the SECs Public Reference Rooms. Net 1s SEC filings are, and Net 1s future filings will also be, available to the public on the SECs Internet site (http://www.sec.gov ).
Net 1 has not authorized anyone to give any information or make any representation about the transactions that is different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that are incorporated by reference into this proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement/prospectus are unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks only as of the date of this document unless the information specifically indicates that another date applies.
114
INDEX TO FINANCIAL STATEMENTS
F-1
Independent Auditors Report
To the Stockholders and Board of Directors
of Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of Net 1 UEPS Technologies, Inc. (A Development Stage Company) as of December 31, 2002 and 2001 and the related statements of operations, shareholders equity and cash flows for the period from May 8, 1997 (Inception) to December 31, 2002 and the years ended December 31, 2002 and 2001. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in the United States. 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 audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Net 1 UEPS Technologies, Inc. (A Development Stage Company), as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the period from May 8, 1997 (Inception) to December 31, 2002 and the years ended December 31, 2002 and 2001, in conformity with generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated any revenues or profitable operations since inception. Although the initial absence of revenues or profitable operations is normal for companies in the development stage, these factors may raise doubt about the Companys ability to continue as a going concern. The financial statements do not include any adjustments that might result due to going concern uncertainties.
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 21, 2003
F-2
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Balance Sheets
September 30, | December 31, | ||||||||
2003 | |||||||||
(unaudited) | 2002 | 2001 | |||||||
Assets | |||||||||
Current Assets | |||||||||
Cash | $ | 11,457 | $ | 20,054 | $ | 57,289 | |||
Due from a related party (Note 5(d)) | 87,028 | 91,703 | - | ||||||
Prepaid expenses | - | - | 30,000 | ||||||
Total Current Assets | 98,485 | 111,757 | 87,289 | ||||||
Property, Plant and Equipment (Note 3) | - | 9 | 394 | ||||||
Intangible Assets (Note 4) | 1,563 | 2,273 | 3,219 | ||||||
Total Assets | $ | 100,048 | $ | 114,039 | $ | 90,902 | |||
Liabilities and Stockholders Deficit | |||||||||
Current Liabilities | |||||||||
Accounts payable (Note 5) | $ | 462,417 | $ | 337,503 | $ | 148,227 | |||
Accrued liabilities | 1,700 | 10,803 | 10,000 | ||||||
Total Current Liabilities | 464,117 | 348,306 | 158,227 | ||||||
Stockholders Deficiency | |||||||||
Share capital | |||||||||
Authorized | |||||||||
3,000,000 preferred shares with $0.10 par value | |||||||||
100,000,000 common shares with $0.001 par value | |||||||||
Issued | |||||||||
15,852,856 common shares | 15,853 | 15,853 | 15,853 | ||||||
Additional paid-in capital | 1,991,519 | 1,991,519 | 1,991,519 | ||||||
Deficit accumulated during the development stage | (2,371,441 | ) | (2,241,639 | ) | (2,074,697 | ) | |||
Total Stockholders Deficit | (364,069 | ) | (234,267 | ) | (67,325 | ) | |||
Total Liabilities and Stockholders Deficit | $ | 100,048 | $ | 114,039 | $ | 90,902 |
(See accompanying notes)
F-3
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Operations
Years Ended December 31, | |||||||||
2002 | 2001 | 2000 | |||||||
Revenue from a Related Party (Note 5(d)) | $ | 157,565 | $ | - | $ | - | |||
Expenses | |||||||||
Amortization | 1,331 | 2,396 | 2,015 | ||||||
Bank charges | 822 | 2,906 | 1,044 | ||||||
Consulting (Note 5) | 191,000 | 186,000 | 235,090 | ||||||
Foreign exchange | - | - | 750 | ||||||
Investor relations | - | 612 | - | ||||||
Office, rent and telephone | 6,880 | 4,514 | 10,426 | ||||||
Professional fees | 23,929 | 49,148 | 43,914 | ||||||
Subcontract (Note 5) | 75,047 | 356,938 | - | ||||||
Transfer agent and regulatory fees | - | 378 | 2,245 | ||||||
Travel | 25,606 | 74,987 | 41,201 | ||||||
Less interest income | (108 | ) | (284 | ) | (475 | ) | |||
Total Expenses | 324,507 | 677,595 | 336,210 | ||||||
Net Loss | $ | (166,942 | ) | $ | (677,595 | ) | $ | (336,210 | ) |
Net Loss Per Share | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) |
Weighted Average Shares Outstanding | 15,852,856 | 15,852,856 | 13,103,000 | ||||||
(Diluted loss per share has not been presented as the result is anti-dilutive) |
(See accompanying notes)
F-4
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Operations
Accumulation | |||||||||
from | |||||||||
May 8, 1997 | |||||||||
Nine months ended | (Inception) | ||||||||
September 30, | to September 30, | ||||||||
2003 | 2002 | 2003 | |||||||
(unaudited) | (unaudited) | (unaudited) | |||||||
Revenue from a Related Party (Note 5(d)) | $ | 41,017 | $ | 157,565 | $ | 198,582 | |||
Expenses | |||||||||
Amortization | 719 | 1,030 | 9,919 | ||||||
Bank charges | 260 | 587 | 7,941 | ||||||
Consulting (Note 5) | 139,500 | 139,500 | 1,159,933 | ||||||
Foreign exchange | - | - | 8,098 | ||||||
Investor relations | - | - | 61,093 | ||||||
Office, rent and telephone | 4,062 | 2,574 | 140,221 | ||||||
Professional fees | 25,344 | 20,369 | 397,252 | ||||||
Subcontract (Note 5) | - | 270,000 | 455,972 | ||||||
Transfer agent and regulatory fees | 150 | - | 25,257 | ||||||
Travel | 806 | 7,204 | 305,226 | ||||||
Less interest income | (22 | ) | (87 | ) | (889 | ) | |||
Total Expenses | 170,819 | 441,177 | 2,570,023 | ||||||
Net Loss | $ | (129,802 | ) | $ | (283,612 | ) | $ | (2,371,441 | ) |
Net Loss Per Share | $ | (0.01 | ) | $ | (0.02 | ) | |||
Weighted Average Shares Outstanding | 15,852,856 | 15,852,856 | |||||||
(Diluted loss per share has not been presented as the result is anti-dilutive) |
(See accompanying notes)
F-5
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Stockholders Equity
Common Stock | ||||||||||||||
Deficit | ||||||||||||||
Additional | Accumulated During | |||||||||||||
Number of | Paid-in | the Development | ||||||||||||
Shares | Amount | Capital | Stage | Total | ||||||||||
Initial capitalization (May 8, 1997) | ||||||||||||||
Stock issued for license to | ||||||||||||||
specific technology (Notes 1 & 4) | 2,706,122 | $ | 2,706 | $ | - | $ | - | $ | 2,706 | |||||
Stock issued to change license to | ||||||||||||||
exclusive (Note 1 & 4) | 2,364,806 | 2,365 | - | - | 2,365 | |||||||||
Less cancelled in a | ||||||||||||||
subsequent year | (438,694 | ) | (439 | ) | - | - | (439 | ) | ||||||
Stock issued for cash: | ||||||||||||||
at $0.0576 per share | 2,600,000 | 2,600 | 147,160 | - | 149,760 | |||||||||
at $6.50 per share | 130,500 | 131 | 848,119 | - | 848,250 | |||||||||
Net (loss) for the period | - | - | - | (134,729 | ) | (134,729 | ) | |||||||
Balance - December 31, 1997 | 7,362,734 | 7,363 | 995,279 | (134,729 | ) | 867,913 | ||||||||
Stock issued for stock split | ||||||||||||||
net of shares cancelled | 3,510,510 | 3,510 | (3,510 | ) | - | - | ||||||||
Net (loss) for the year | - | - | - | (659,002 | ) | (659,002 | ) | |||||||
Balance - December 31, 1998 | 10,873,244 | 10,873 | 991,769 | (793,731 | ) | 208,911 | ||||||||
Net (loss) for the year | - | - | - | (267,161 | ) | (267,161 | ) | |||||||
Balance - December 31, 1999 | 10,873,244 | 10,873 | 991,769 | (1,060,892 | ) | (58,250 | ) | |||||||
Stock issued for cash: | ||||||||||||||
at $4.00 per share | 250,000 | 250 | 999,750 | - | 1,000,000 | |||||||||
Stock issued for license | ||||||||||||||
(Notes 1 and 4) | 4,729,612 | 4,730 | - | - | 4,730 | |||||||||
Net (loss) for the year | - | - | - | (336,210 | ) | (336,210 | ) | |||||||
Balance - December 31, 2000 | 15,852,856 | 15,853 | 1,991,519 | (1,397,102 | ) | 610,270 | ||||||||
Net (loss) for the year | - | - | - | (677,595 | ) | (677,595 | ) | |||||||
Balance - December 31, 2001 | 15,852,856 | 15,853 | 1,991,519 | (2,074,697 | ) | (67,325 | ) | |||||||
Net (loss) for the year | - | - | - | (166,942 | ) | (166,942 | ) | |||||||
Balance - December 31, 2002 | 15,852,856 | 15,853 | 1,991,519 | (2,241,639 | ) | (234,267 | ) | |||||||
Net (loss) for the nine month period | - | - | - | (129,802 | ) | (129,802 | ) | |||||||
Balance - September 30, 2003 | 15,852,856 | $ | 15,853 | $ | 1,991,519 | $ | (2,371,441 | ) | $ | (364,069 | ) |
(See accompanying notes)
F-6
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
Years ended December 31, | |||||||||
2002 | 2001 | 2000 | |||||||
Cash Flows From Operating Activities | |||||||||
Net Loss | $ | (166,942 | ) | $ | (677,595 | ) | $ | (336,210 | ) |
Adjustments to reconcile net loss to cash | |||||||||
Amortization | 1,331 | 2,396 | 2,015 | ||||||
Changes in non-cash working capital items | |||||||||
Increase (decrease) in accounts payable | 190,079 | (27,125 | ) | 39,633 | |||||
(Increase) in accounts receivable | (91,703 | ) | - | - | |||||
(Increase) decrease in prepaid expenses | 30,000 | (30,000 | ) | 12,540 | |||||
Net Cash Used in Operating Activities | (37,235 | ) | (732,324 | ) | (282,022 | ) | |||
Cash Flows from Financing Activities | |||||||||
Proceeds from issuance of common stock | - | - | 1,000,000 | ||||||
Net Cash Provided by Financing Activities | - | - | 1,000,000 | ||||||
Cash Flows to Investing Activities | |||||||||
(Increase) in property, plant and equipment | - | - | - | ||||||
Net Cash Used in Investing Activities | - | - | - | ||||||
Increase (Decrease) in Cash in the Period | (37,235 | ) | (732,324 | ) | 717,978 | ||||
Cash - Beginning of Period | 57,289 | 789,613 | 71,635 | ||||||
Cash - End of Period | $ | 20,054 | $ | 57,289 | $ | 789,613 | |||
Non-Cash Financing Activities | |||||||||
9,361,846 shares issued for | |||||||||
a license (Note 4) | $ | - | $ | - | $ | 4,729 | |||
Supplementary Disclosure | |||||||||
Interest paid | $ | - | $ | - | $ | - | |||
Income tax paid | - | - | - |
(See accompanying notes)
F-7
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulation | |||||||||
from | |||||||||
May 8, 1997 | |||||||||
Nine months ended | (Inception) | ||||||||
September 30, | to September 30, | ||||||||
2003 | 2002 | 2003 | |||||||
(unaudited) | (unaudited) | (unaudited) | |||||||
Cash Flows From Operating Activities | |||||||||
Net Loss | $ | (129,802 | ) | $ | (283,612 | ) | $ | (2,371,441 | ) |
Adjustments to reconcile net loss to cash | |||||||||
Amortization | 719 | 1,030 | 9,919 | ||||||
Changes in non-cash working capital items | |||||||||
Increase in current liabilities | 115,811 | 364,100 | 464,119 | ||||||
(Increase) decrease in accounts receivable | 4,675 | (148,129 | ) | (87,028 | ) | ||||
Decrease in prepaid expenses | - | 30,000 | - | ||||||
Net Cash Used in Operating Activities | (8,597 | ) | (36,611 | ) | (1,984,431 | ) | |||
Cash Flows from Financing Activities | |||||||||
Proceeds from issuance of common stock | - | - | 1,998,010 | ||||||
Net Cash Provided by Financing Activities | - | - | 1,998,010 | ||||||
Cash Flows to Investing Activities | |||||||||
(Increase) in property, plant and equipment | - | - | (2,122 | ) | |||||
Net Cash Used in Investing Activities | - | - | (2,122 | ) | |||||
Increase (Decrease) in Cash in the Period | (8,597 | ) | (36,611 | ) | 11,457 | ||||
Cash - Beginning of Period | 20,054 | 57,289 | - | ||||||
Cash - End of Period | $ | 11,457 | $ | 20,678 | $ | 11,457 | |||
Non-Cash Financing Activities | |||||||||
9,361,846 shares issued for | |||||||||
a license (Note 4) | $ | - | $ | - | $ | 9,362 | |||
Supplementary Disclosure | |||||||||
Interest paid | $ | - | $ | - | $ | - | |||
Income tax paid | - | - | - |
(See accompanying notes)
F-8
Net
1 UEPS Technologies, Inc.
(A Development Stage Company) |
1. |
Development Stage Company Net 1 UEPS Technologies, Inc. herein (the Company) was incorporated in the State of Florida on May 8, 1997. The Company is a development stage company engaged in the business of commercializing the smart card technology based Universal Electronic Payment System (UEPS) and Funds Transfer System (FTS) through the development of strategic alliances with national and international bank and card service organizations. The FTS parents were first filed by Serge Belamant and the late Andre Mansvelt in 1989. The patents in South Africa and surrounding territories were subsequently assigned to Net 1 Investment Holdings (Pty) Ltd. or Net 1 (Pty), a company which was acquired by Aplitec in July 2000. The patents in Europe and the United States were assigned to Net 1 Holdings S.a.r.l. or Net 1 Holdings. See Note 4 for a discussion on the FTS European patent being revoked. The Company entered into a license agreement, dated May 19, 1997 (the License Agreement), with Net 1 Holdings, Net 1 Operations S.a.r.1. and Net 1 Pty (collectively, the Licensors), where the licensors granted a non-exclusive license to the Company for the UEPS technology for the issuance of 5,412,244 shares at a fair market value of $0.001 per share. On October 1, 1997 an Amendment to the License Agreement was signed that provided for the transfer of the ownership of the UEPS technology and FTS and for the assignment of the Technology License Agreement between VISA International Service Association and Net 1 Holdings, dated July 31, 1997 (the Visa Agreement) to the Company in consideration of 4,729,612 shares. The assignment of the Visa Agreement and the transfer of the ownership of the UEPS technology and FTS patents to the Company were never consummated because certain conditions precedent were never satisfied. On May 3, 2000 an agreement entitled Patent and Technology Agreement was entered into between the Company and Net 1 Holdings that granted the Company licensing rights in respect of the U.S. and European patents No conditions precedent were stipulated. The 4,729,612 shares of the Company previously issued into trust in consideration for the Amendment to the License Agreement were thus released to Net 1 Holdings. Effective July 1, 2002, the Company entered into a distribution agreement with Net 1 (Pty), which replaced the previous Outsourcing Agreement. As a condition of this agreement, Net 1 (Pty) received $50,000 in full settlement of $154,953 of fees due as at June 30, 2002. The Company wrote off the remaining $104,953 of the debt as a reduction of subcontract costs in that year. Net 1 Holdings as at December 31, 2002 owns 8,520,578 common shares of 15,852,856 issued and outstanding common shares, or 53.75%. The Company is a subsidiary of Net 1 Holdings. In a development stage company, management devotes most of its activities to establishing a new business primarily, the development of a detailed business plan, marketing strategy and the raising of funds required to develop and operate the business successfully. Planned principal activities have not yet produced revenues and the Company has suffered recurring operating losses as is normal in development stage companies. These factors raise doubt about the Companys ability to continue as a going concern. The ability of the Company to emerge from the development stage with respect to its planned principal business activity is dependent upon its successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for its products. In order to meet expenses over the next twelve months the Company is actively searching for additional equity financing. For fiscal 2003, the Company recorded as revenues $41,017 from sales of licenses during 2002 (2002 - $157,565) in accordance with the Companys revenue recognition policy and the Patent and Technology Agreement. See Note 6 regarding future financing and related acquisition of Net 1 Applied Technology Holdings Limited. |
|
2. | Summary of Significant Accounting Policies | |
(a) |
Comprehensive Income SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at October 31, 2002, the Company has no items that represent comprehensive income and, therefore, has not included a schedule of comprehensive income in the financial statements. |
F-9
Net
1 UEPS Technologies, Inc.
(A Development Stage Company) Notes to the Financial Statements |
2. | Summary of Significant Accounting Policies (continued) | |
|
(b) |
Recent Accounting Pronouncements FASB has issued SFAS No. 147, 148 and 149 but they will not have any relationship to the operations of the Company therefore a description of each and their respective impact on the Companys operations have not been disclosed. In May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The requirements of SFAS No. 150 apply to issuers classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. SFAS No. 150 does not apply to features that are embedded in a financial instrument that is not a derivative in its entirety. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of non-public entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principal for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of this standard is not expected to have a material effect on the Companys results of operations or financial position. On June 29, 2001, SFAS No. 141, Business Combinations, was approved by the Financial Accounting Standards Board (FASB). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Goodwill and certain intangible assets will remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The Company implemented SFAS No. 141 on July 1, 2001 and its impact is not expected to be material on its financial position or results of operations. On June 29, 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was approved by FASB. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. SFAS No. 142 requires that the purchase method of accounting be used for all business combinations initiated after December 15, 2001. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. The Company adopted SFAS No. 142 on May 1, 2002 and its impact is not expected to have a material effect on its financial position or results of operations. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligation. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, and will require companies to record a liability for asset retirement obligations in the period in which they are incurred, which typically could be upon completion or shortly thereafter. The FASB decided to limit the scope to legal obligations and the liability will be recorded at fair value. The effect of adoption of this standard on the Companys results of operations and financial positions is being evaluated. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. It provides a single accounting model for long-lived assets to be disposed of and replaces SFAS No. 121Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. The Company adopted SFAS No. 144 on May 1, 2002. The effect of adoption of this standard on the Companys results of operations and financial position is not expected to be material. |
F-10
Net
1 UEPS Technologies, Inc.
(A Development Stage Company) Notes to the Financial Statements |
2. | Summary of Significant Accounting Policies (continued) | |
(b) |
Recent Accounting Pronouncements (continued) In June, 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The Company will adopt SFAS No. 146 on January 1, 2003. The effect of adoption of this standard on the Companys results of operations and financial position is being evaluated.
FASB has also issued SFAS No. 145, 147 and 148 but they
will not have any relationship to the operations of the Company therefore
a description of each and their respective impact on the Companys
operations have not been disclosed.
|
|
(c) |
Property, Plant and Equipment Computer equipment is amortized over five years on a straight-line basis. |
|
(d) |
Long-Lived Assets Costs to acquire exclusive license rights to specific technology are considered Long-Lived assets and are capitalized as incurred. These costs are being amortized on a straight line basis over five years. Intangible assets are evaluated in each reporting period to determine if there were events or circumstances which would indicate a possible inability to recover the carrying amount. Such evaluation is based on various analyses including assessing the Companys ability to bring the commercial applications to market, related profitability projections and undiscounted cash flows relating to each application which necessarily involves significant management judgment. |
|
(e) |
Basic and Diluted Net Income (Loss) per Share The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share (SFAS 128). SFAS 128 requires presentation of both basic and diluted earnings per shares (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is antidilutive. |
|
(f) |
Foreign Currency Transactions/Balances Transactions in currencies other than the U.S. dollar are translated at the rate in effect on the transaction date. Any balance sheet items denominated in foreign currencies are translated into U.S. dollars using the rate in effect on the balance sheet date. |
|
(g) |
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from those estimates. |
F-11
Net
1 UEPS Technologies, Inc.
(A Development Stage Company) Notes to the Financial Statements |
2. | Summary of Significant Accounting Policies (continued) | |
(h) |
Tax Accounting Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted Statement of Financial Accounting Standards No. 109 (SFAS 109) as of its inception. The Company has incurred net operating losses as scheduled below: |
2002 | 2001 | 2000 | ||||||
$ | $ | $ | ||||||
Net Operating Loss | 166,297 | 673,595 | 336,210 | |||||
Statutory | 34% | 34% | 34% | |||||
Effective Tax Rate | - | - | - | |||||
Deferred Tax Asset | 56,541 | 229,022 | 114,311 | |||||
Valuation Allowance | (56,541 | ) | (229,022 | ) | (114,311 | ) | ||
Net Deferred Tax Asset | - | - | - |
(i) |
Interim Financial Data These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Companys financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. |
(j) |
Revenue Recognition The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." Revenue is recognized only when the price is fixed determinable, persuasive evidence of an arrangement exists, the service is performed, and collectibility is reasonably assured. The Company has also applied Emerging Issues Task Force Issue 99-19 (EITF 99-19), "Reporting Revenue Gross as a Principal versus Net as an Agent". The Company sells licenses on behalf of Net 1 Holdings ("Net 1"), and acting as an agent records revenue on a net basis in accordance with EITF 99-19. Revenue is equal to Net 1's prior year annual net profit before amortization as certified by its independent auditors. |
F-12
Net
1 UEPS Technologies, Inc.
(A Development Stage Company) Notes to the Financial Statements |
3. |
Property, Plant and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. |
December 31, | December 31, | ||||||||
2002 | 2001 | ||||||||
Accumulated | Net Book | Net Book | |||||||
Cost | Depreciation | Value | Value | ||||||
Computer equipment and software | $ | 2,181 | $ | 2,172 | $ | 9 | $ | 394 | |
4. | Intangible Assets |
December 31, | December 31, | ||||||||
2002 | 2001 | ||||||||
Accumulated | Net Book | Net Book | |||||||
Cost | Depreciation | Value | Value | ||||||
Exclusive License | $ | 9,361 | $ | 7,088 | $ | 2,273 | $ | 3,219 |
See Note 1 for description of the license. | ||
The Funds Transfer System patents were first filed in 1989. The European patent was granted on December 28, 1994, with effect in Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, Great Britain, Greece, Italy, Liechtenstein, Luxembourg, Netherlands and Sweden. The European Patent Convention provides for an opposition period immediately following the grant of a European patent, and six parties filed an opposition to the grant of the patent on the grounds that the invention was not patentable. The case was heard before a Board of the Opposition Division in March 1998, when the patent was upheld. Following the issue of the formal decision, a number of the original opponents filed an appeal. The appeal proceedings were heard on October 10, 2002 and the appeal board reversed its earlier decision. Consequently, the European patent has been revoked and there is no possibility of any further appeal. As a result, the Company will be unable to collect royalties or fees for patent infringement in Europe. The U.S. patent was first issued on May 17, 1991, and it is set to expire on May 11, 2011. |
||
5. | Related Party Transactions | |
(a) |
Consulting fees include $112,500 (2002
- $150,000, 2001 - $150,000) paid or payable to the CEO of the Company.
|
|
(b) |
Pursuant to a Directors Resolution
of January 29, 2002, $250,000 of consulting fees have been postponed until
the Company has sufficient funds.
|
|
(c) |
Pursuant to the distribution section
of the Patent and Technology Agreement, subcontract costs include $nil
(2002 - $75,047, 2001 - $356,938) paid to Net 1 (Pty), a company with
a common director.
|
|
(d) |
Under the terms of the Patent and Technology
Agreement dated May 3, 2000, the Company recorded revenues of $41,017
(2002 - $157,565, 2001 - $nil) from Net 1 Holdings for sales made during
the previous year. A total of $87,023 (2002 - $91,703) remains receivable
without interest and is due on demand.
|
|
(e) |
Effective July 1, 2002, the Company
entered into a distribution agreement with Net 1 (Pty), which replaces
the previous outsourcing agreement. Subcontract costs will now be determined
based on a fixed rate of 9.5% of the license fees received. As a condition
of this agreement, Net 1 (Pty) received $50,000 in full settlement of
$154,953 of fees due as at June 30, 2002. The Company wrote off the remaining
$104,953 of the debt as a reduction of subcontract costs in the year.
|
F-13
Net
1 UEPS Technologies, Inc.
(A Development Stage Company) Notes to the Financial Statements |
6. |
Subsequent Events The Company is completing financial arrangements for the securing of approximately US$ 150 million through Brait SA (Brait) on behalf of funds under its management. The financing, comprising the capital raising of US$ 53 million and a share exchange of US$ 97 million, will enable Net 1 to make an offer to acquire Net 1 Applied Technology Holdings Limited (Aplitec), a public Johannesburg Stock Exchange (JSE) listed company, as well as providing working capital to enable Net 1 to expand its operations and develop its internal infrastructure on an international basis. The Company, through Brait, will raise the capital through sales of its common stock at US$ 0.50 per common share. The Company, through Brait, has provided the Board of Directors of Aplitec with an offer to acquire all the assets and liabilities of Aplitec (excluding approximately ZAR 300 million of cash) for approximately US$ 129 million through a combination of cash and share exchange offer to Aplitec shareholders also at a purchase price of US$ 0.50. Aplitec is engaged in the sales, maintenance and development of UEPS smart card based products in South Africa and its surrounding territories with revenues of approximately US$ 100 million. Aplitec has approximately 2,200 employees. Completion of the financing is subject to compliance with regulatory requirements in South Africa and in the United States, including an increase in the authorized capitalization of the Company to permit the common shares to be issued. |
F-14
Report of the Independent Auditors
To the members of Net 1 Applied Technology Holdings Limited
We have audited the accompanying consolidated balance sheets of Net 1 Applied Technology Holdings Ltd and subsidiaries as of June 30, 2003, 2002 and 2001, and the related consolidated statements of income, changes in Shareholders equity and cash flows for each of the three years in the period ended June 30, 2003 set out on pages F-16 to F-49 . These financial statements are the responsibility of the Companys directors. Our responsibility is to express an opinion on these financial statements based on our audits.
SCOPE
We conducted our audits in accordance with auditing standards generally accepted in South Africa and 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:
We believe that our audits provide a reasonable basis for our opinion.
AUDIT OPINION
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies as of June 30, 2003, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2003, in conformity with accounting principles generally accepted in South Africa.
US GAAP RECONCILIATION
Accounting principles generally accepted in South Africa vary in significant respects from accounting principles generally accepted in the United States of America. Management has disclosed the effect of the application of accounting principles generally accepted in the United States of America on results of operations for each of the three years ended June 30, 2003 and the determination of shareholders equity at June 30, 2003, 2002 and 2001, to the extent summarised in Note 23 to the consolidated financial statements, which note has been audited by us as detailed above.
FISHER HOFFMAN PKF (JHB) INC.
Chartered Accountants (S.A.)
Registered Accountants and Auditors
Johannesburg, South Africa
August 15, 2003 excluding note 23 which was audited on November 30, 2003
F-15
Balance sheets at June 30, 2003, 2002 and 2001
(In Thousands of Rands)
Notes | 2003 | 2002 | 2001 | |||||
ASSETS | ||||||||
Non-current assets | R 96,050 | R 62,512 | R 74,289 | |||||
Property, plant and equipment | 2 | 65,075 | 33,192 | 39,751 | ||||
Intangible assets | 3 | 12,043 | 18,284 | 24,298 | ||||
Deferred tax | 4 | 18,932 | 11,036 | 10,240 | ||||
Current assets | 586,478 | 448,205 | 317,966 | |||||
Inventory | 5 | 6,437 | 15,521 | 16,611 | ||||
Trade and other receivables | 6 | 151,492 | 110,870 | 100,474 | ||||
Cash and cash equivalents | 428,549 | 321,814 | 200,881 | |||||
Total assets | 682,528 | 510,717 | 392,255 | |||||
EQUITY AND LIABILITIES | ||||||||
Capital and reserves | 524,120 | 418,455 | 309,075 | |||||
Share capital | 7 | 237 | 233 | 230 | ||||
Share premium | 134,497 | 129,342 | 123,998 | |||||
Accumulated profit | 389,386 | 288,880 | 184,847 | |||||
Minority interests | | 3,275 | 1,580 | |||||
Current liabilities | 158,408 | 88,987 | 81,600 | |||||
Trade and other payables | 8 | 107,474 | 58,591 | 52,805 | ||||
Tax | 50,934 | 30,396 | 28,795 | |||||
Total equity and liabilities | R 682,528 | R 510,717 | R 392,255 |
F-16
Income statements for the year ended June 30, 2003, 2002 and 2001.
(In Thousands of Rands)
Notes | 2003 | 2002 | 2001 | |||||
Revenue | 9 | R 691,484 | R 525,585 | R 557,445 | ||||
Cost of sales | 234,885 | 143,795 | 167,312 | |||||
Gross profit | 456,599 | 381,790 | 390,133 | |||||
Other operating income | 3,743 | 1,872 | 1,215 | |||||
Operating expenses | 284,474 | 248,662 | 265,592 | |||||
Distribution costs | 6,155 | 2,797 | 2,583 | |||||
Administration expenses | 70,895 | 57,551 | 73,493 | |||||
Other operating expenses | 207,424 | 188,314 | 189,516 | |||||
Profit/(Loss) from operations | 10 | 175,868 | 135,000 | 125,756 | ||||
Interest received | 73,086 | 33,086 | 11,940 | |||||
Finance cost | (49,540 | ) | (19,072 | ) | (954 | ) | ||
Profit/(Loss) before tax | 199,414 | 149,014 | 136,742 | |||||
Income tax expense | 12 | 69,132 | 43,286 | 42,471 | ||||
Profit/(Loss) after tax | 130,282 | 105,728 | 94,271 | |||||
Minority interests | 4,095 | 1,695 | 1,084 | |||||
Net profit/(Loss) for year | R 126,187 | R 104,033 | R 93,187 | |||||
Earnings per share (Rands) | 13 | 0.53 | 0.45 | 0.41 |
F-17
Statements of changes in equity
(In Thousands of Rands)
Share | Share | Accumulated | ||||||
capital | premium | profit | Total | |||||
Balance at June 30, 2000 | R 199 | R 63,684 | R 91,660 | R 155,543 | ||||
Issue of share capital | 31 | 60,495 | | 60,526 | ||||
Share issue cost written-off against share | ||||||||
premium | | (181 | ) | | (181 | ) | ||
Net profit for year | | | 93,187 | 93,187 | ||||
Balance at June 30, 2001 | 230 | 123,998 | 184,847 | 309,075 | ||||
Issue of share capital | 3 | 5,380 | | 5,383 | ||||
Share issue cost written-off against share | ||||||||
premium | | (36 | ) | | (36 | ) | ||
Net profit for year | | | 104,033 | 104,033 | ||||
Balance at June 30, 2002 | 233 | 129,342 | 288,880 | 418,455 | ||||
Issue of share capital | 4 | 5,179 | | 5,183 | ||||
Share issue cost written-off against share | ||||||||
premium | | (24 | ) | | (24 | ) | ||
Net profit for year | | | 126,187 | 126,187 | ||||
Dividends paid to shareholders | | | (25,681 | ) | (25,681 | ) | ||
Balance at June 30, 2003 | 237 | 134,497 | 389,386 | 524,120 |
F-18
Cash flow statements for the year ended June 30, 2003, 2002 and 2001.
(In Thousands of Rands)
Notes | 2003 | 2002 | 2001 | |||||
Cash flows from operating activities | R 171,958 | R 124,512 | R 136,468 | |||||
Cash receipts from customers | 665,211 | 503,476 | 594,094 | |||||
Cash paid to suppliers and employees | (434,627 | ) | (350,497 | ) | (429,869 | ) | ||
Cash generated from/(utilised by) | ||||||||
operations | 18 | 230,584 | 152,979 | 164,225 | ||||
Interest received | 73,086 | 33,086 | 11,940 | |||||
Finance cost | (49,540 | ) | (19,072 | ) | (954 | ) | ||
Tax paid | 19 | (56,491 | ) | (42,481 | ) | (38,743 | ) | |
Dividends paid | (25,681 | ) | | | ||||
Cash flows from investing activities | (70,382 | ) | (8,926 | ) | (27,702 | ) | ||
Additions to property, plant and | ||||||||
equipment | (60,791 | ) | (19,472 | ) | (21,956 | ) | ||
Proceeds from disposal of property, | ||||||||
plant and equipment | 2,841 | 6,335 | 282 | |||||
Cash inflow from disposal of business | 20 | | 4,211 | (66 | ) | |||
Acquisition of minority | ||||||||
interests/subsidiaries | 21 | (12,432 | ) | | (5,962 | ) | ||
Cash flows from financing activities | 5,159 | 5,347 | 36,691 | |||||
Proceeds from issue of share capital | 5,159 | 5,347 | 40,845 | |||||
Repayment of interest-bearing | ||||||||
borrowings | | | (4,154 | ) | ||||
Net increase in cash and cash | ||||||||
equivalents | 106,735 | 120,933 | 145,457 | |||||
Cash and cash equivalents at beginning | ||||||||
of year | 321,814 | 200,881 | 55,424 | |||||
Cash and cash equivalents at end of | ||||||||
year | R 428,549 | R 321,814 | R 200,881 |
F-19
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
JUNE 30, 2003, 2002 AND 2001.
(In Thousands of Rands)
1. |
ACCOUNTING POLICIES The principal policies are set out below and are consistent in all material respects with those which were applied in the previous year: |
|
1.1 |
Basis of presentation The financial statements of the Group are prepared in conformity with Statements of Generally Accepted Accounting Practice on the historical cost basis, except where otherwise stated. |
|
1.2 |
Basis of consolidation and goodwill The consolidated financial statements include those of the holding company and its subsidiaries. The results of subsidiaries are included from the effective dates of their acquisition until the effective dates of their disposal. Goodwill represents the excess of cost of an acquisition over the fair value of the Groups share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is capitalised as an intangible asset and amortised on the straight-line basis over the period of the expected benefit, which is estimated at 10 years. Inter-company transactions and balances are eliminated on consolidation. Separate disclosure is made of minority interests. |
|
1.3 |
Property, plant and equipment Property, plant and equipment are shown at cost less accumulated depreciation. Property, plant and equipment are depreciated on the straight-line basis at rates which are estimated to amortise the assets to their anticipated residual values over their useful lives. Within the following asset classifications, the expected economic lives are approximately: |
Computer equipment | 3 years | |
Office equipment | 3 years | |
Vehicles | 4 to 5 years | |
Furniture and fittings | 5 to 10 years |
The gain or loss arising on the disposal or retirement
of an asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in income.
|
||
1.4 |
Leasehold improvement costs Costs incurred in the adaptation of leased properties to serve the requirements of the Company are capitalised and amortised over the shorter of the term of the lease and the contract for which the lease has been entered into. Where the Company is required to restore a property to its original condition upon termination of a lease, the related costs are expensed as incurred. |
|
1.5 |
Intangible assets Intangible assets are shown at cost less accumulated amortisation and are amortised over their useful lives, which is estimated at five years. |
|
1.6 |
Deferred tax Deferred tax is provided at current rates on the comprehensive allocation basis, using the liability method. Deferred tax assets are raised to the extent that it is probable that taxable |
F-20
2003 | 2002 | 2001 | |||||
Forward purchase contracts | |||||||
National amount | | USD 1.150 | | ||||
Strike price | | ZAR 12.643 | | ||||
Maturity | | January 8, 2003 | |
1.8.4.2 |
Interest rate risk As a result of its normal borrowing activities, the Companys operating results are exposed to fluctuations in interest rates, which the Company manages primarily through its regular financing activities. The Company generally maintains investment in cash equivalents. |
||
1.8.4.3 |
Credit risk Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies with regard to its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterpartys financial condition, credit rating, and other credit criteria and risk mitigation tools as deemed appropriate. |
F-21
In regards to credit risk on financial instruments,
the Company maintains the policy to enter into such transactions only
with highly rated financial institutions.
|
|||
1.9 |
Foreign exchange transactions Foreign exchange transactions are translated at the spot rate ruling at the date of the transaction. Monetary items are translated at the closing spot rate at the balance sheet date. Exchange differences occurring on the settlement of monetary items or on the reporting of outstanding monetary items, are brought into account as income for the period. Non-monetary items are translated at the spot rate at the date of the transaction or the spot rate on the valuation date if carried at fair value. |
||
1.10 |
Revenue recognition Fees and commissions The Company provides a State pension and welfare benefit distribution service to provincial governments in South Africa. Fees are computed based on the number of beneficiaries included in the Government payfile. Fee income received for these services is recognised in the income statement when distributions have been made. The Company provides an automated payment collection service to third parties, for which it charges monthly fees. These fees are recognised in the income statement as the collections are made. Interest income Interest income earned from micro-lending activities is recognised in the income statement as it falls due, using the effective interest rate method by reference to the constant interest rate stated in each loan agreement. Interest receivable over the term of a loan is recognised as a receivable on inception of the loan and a corresponding amount recorded as deferred income. For loans in arrears where recovery is determined to be doubtful, an expense is recorded for amounts of interest previously recognised in the income statement that have not been collected. An expense is also charged for future interest recorded as a receivable on the balance sheet. Subsequently, interest income is recorded in the income statement as it falls due under the original terms of the loan agreement. Systems implementation projects The Company undertakes smart card system implementation projects. The hardware and software installed in these projects are in the form of customised systems, which ordinarily involve modification to meet the customers specifications. Software delivered under such arrangements is available to the customer permanently, subject to the payment of annual license fees. Revenue for such arrangements is recognised under the completed contract method, no income and profit being recognised until the contract is completed, save for annual license fees, which are recognised in the period to which they relate. Up-front and interim payments received are recorded as client deposits until customer acceptance. Other income Revenue from service and maintenance activities is charged to customers on a time-and-materials basis and is recognised in the income statement as services are delivered to customers. |
||
1.11 |
Research and development expenditure Research expenditure is written-off in the period in which it is incurred. Development expenditure is capitalised until the operation to which it relates commences trading. The expenditure is then written-off on the straight-line basis over the life of the product, which is estimated at no longer than four years. Where the project is terminated, the related development expenditure is written-off immediately. |
F-22
1.12 |
Provisions Provisions are recognised when the Group has a present obligation as a result of a part event and it is probable that this will result in an outflow of economic benefits that can be reliably estimated. |
|
1.13 |
Cost deferrals The cost of purchasing and initialising smart cards is capitalised and amortised over the term of the benefits distribution contract, subject to a limit of there being probable future revenues to match the costs deferred. |
|
1.14 |
Loan provisions A specific provision is established for all loans where it is considered likely that some of the capital will not be repaid by the borrower. Where the loan capital is insured, the amount due to be recovered from the insurer is recorded as a receivable. Default is taken to be likely after a specified period of repayment default, which is generally taken to be not more than 150 days. This assessment is made based on previous experience and on management judgement of economic conditions. |
F-23
2003 | 2002 | 2001 | |||||
2. | PROPERTY, PLANT AND | ||||||
EQUIPMENT | |||||||
Cost | |||||||
Computer equipment | R 85,482 | R 54,075 | R 49,436 | ||||
Furniture and office equipment | 17,983 | 20,715 | 19,240 | ||||
Motor vehicles | 59,606 | 35,236 | 71,524 | ||||
163,071 | 110,026 | 140,200 | |||||
Accumulated depreciation | |||||||
Computer equipment | 59,535 | 38,095 | 29,746 | ||||
Furniture and office equipment | 9,229 | 13,743 | 11,753 | ||||
Motor vehicles | 29,232 | 24,996 | 58,950 | ||||
97,996 | 76,834 | 100,449 | |||||
Carrying amount | |||||||
Computer equipment | 25,947 | 15,980 | 19,690 | ||||
Furniture and office equipment | 8,754 | 6,972 | 7,487 | ||||
Motor vehicles | 30,374 | 10,240 | 12,574 | ||||
65,075 | 33,192 | 39,751 | |||||
The carrying amount of property, plant | |||||||
and equipment can be reconciled as | |||||||
follows: | |||||||
Carrying amount at beginning of year | 33,192 | 39,751 | 38,915 | ||||
Additions | 60,791 | 19,472 | 22,412 | ||||
Disposals | (2,642 | ) | (5,656 | ) | (30 | ) | |
Depreciation | (26,266 | ) | (20,375 | ) | (21,546 | ) | |
Carrying amount at end of year | R 65,075 | R 33,192 | R 39,751 |
3. | INTANGIBLE ASSETS | ||||||
Cost | |||||||
Capitalised development costs | R 15,076 | R 15,076 | R 15,076 | ||||
Trademarks | | 2,718 | 2,718 | ||||
Goodwill | 23,093 | 18,031 | 18,031 | ||||
38,169 | 35,825 | 35,825 | |||||
Accumulated amortization | |||||||
Capitalised development costs | 15,076 | 12,797 | 9,081 | ||||
Trademarks | | 1,088 | 544 | ||||
Goodwill | 11,050 | 3,656 | 1,902 | ||||
26,126 | 17,541 | 11,527 | |||||
Carrying amount | |||||||
Capitalised development costs | | 2,279 | 5,995 | ||||
Trademarks | | 1,630 | 2,174 | ||||
Goodwill | 12,043 | 14,375 | 16,129 | ||||
R 12,043 | R 18,284 | R 24,298 | |||||
The carrying amount of intangible assets | |||||||
can be reconciled as follows: | |||||||
Carrying amount at beginning of year | R 18,284 | R 24,299 | R 12,020 | ||||
Acquisition of minority | |||||||
interests/subsidiaries | 5,062 | | 18,676 | ||||
Disposal of trademark | (1,630 | ) | | | |||
Amortisation | (9,673 | ) | (6,015 | ) | (6,398 | ) | |
Carrying amount at end of year | R 12,043 | R 18,284 | R 24,298 |
F-24
2003 | 2002 | 2001 | |||||
4. | DEFERRED TAX | ||||||
Balance at the beginning of year | R 11,036 | R 10,240 | R 8,630 | ||||
Acquisition of subsidiaries | | | (193 | ) | |||
Movement during year attributable to | |||||||
temporary differences | 7,896 | 796 | 1,803 | ||||
Balance at the end of year | 18,932 | 11,036 | 10,240 | ||||
Deferred tax on temporary differences | |||||||
arising from: | |||||||
Assessed losses | 8,496 | 8,468 | 16,909 | ||||
Capitalised development costs | 990 | 990 | (125 | ) | |||
Provisions and accruals | 16,764 | 4,048 | 1,869 | ||||
Pre-paid expenses | (8,099 | ) | (3,251 | ) | (8,625 | ) | |
Property, plant and equipment | 582 | 582 | 13 | ||||
Other | 199 | 199 | 199 | ||||
R 18,932 | R 11,036 | R 10,240 |
5. | INVENTORY | ||||||
Merchandise | R 6,437 | R 15,521 | R 16,611 | ||||
R 6,437 | R 15,521 | R 16,611 |
6. | TRADE AND OTHER RECEIVABLES |
Trade and other receivables are stated net | |||||||
of the following provisions for non-recoverable loans | R 50,770 | R 42,442 | R 25,174 | ||||
Balance of provision at beginning of year | 42,442 | 25,174 | 10,616 | ||||
Additional provisions charged to the | |||||||
income statement. | 8,383 | 19,275 | 15,142 | ||||
Amounts utilized | (55 | ) | (2,007 | ) | (584 | ) |
7. | SHARE CAPITAL | ||||||
Authorised: | |||||||
500,000,000 ordinary shares of 0.1 cent | |||||||
each | R 500 | R 500 | R 500 | ||||
500,000,000 N ordinary shares of 0,001 | |||||||
cent each | 5 | 5 | 5 | ||||
Issued: | |||||||
236,977,187 (2002: 233,463,846) ordinary | |||||||
shares of 0,1 cent each | R 237 | R 233 | R 230 | ||||
Share options | |||||||
Unexercised at beginning of year | 3,550 | 7,250 | 11,025 | ||||
Cancelled during year | (37 | ) | (50 | ) | (150 | ) | |
Exercised during year | (3,513 | ) | (3,650 | ) | (3,625 | ) | |
Unexercised at end of year | | 3,550 | 7,250 |
F-25
2003 | 2002 | 2001 | |||||||
8. | TRADE AND OTHER PAYABLES | ||||||||
Trade payables | R 47,233 | R 23,403 | R 27,305 | ||||||
Accruals | 32,897 | 18,657 | 5,189 | ||||||
Value-added tax payable | 4,938 | 3,632 | 5,579 | ||||||
Other payables | 3,160 | 2,444 | 153 | ||||||
Provisions | 19,246 | 10,455 | 14,579 | ||||||
Balance at beginning of year | 10,455 | 14,579 | 17,803 | ||||||
Additional provisions charged to the | |||||||||
income statement | 12,040 | 6,171 | 12,868 | ||||||
Unused amounts credited to the income | |||||||||
statement | (882 | ) | (2,338 | ) | (7,694 | ) | |||
Utilised in year | (2,367 | ) | (7,957 | ) | (8,398 | ) | |||
R 107,474 | R 58,591 | R 52,805 |
Provisions consist of the following: |
Bonus | Leave pay | Other | Total | ||||||
Balance at beginning of year | R 564 | R 6,514 | R 3,377 | R 10,455 | |||||
Additional provisions charged to the | |||||||||
income statement | 6,926 | 3,738 | 1,376 | 12,040 | |||||
Unused amounts credited to the income | |||||||||
statement | (32 | ) | (850 | ) | | (882 | ) | ||
Utilised in year | (988 | ) | (1,379 | ) | | (2,367 | ) | ||
R 6,470 | R 8,023 | R 4,753 | R 19,246 |
2003 | 2002 | 2001 | |||||||
9. | REVENUE | ||||||||
Sale of goods | R 72,259 | R 63,082 | R 98,993 | ||||||
Services rendered | 619,225 | 462,503 | 458,452 | ||||||
R 691,484 | R 525,585 | R 557,445 |
10. | PROFIT/(LOSS) FROM OPERATIONS | ||||||||
Profit/(Loss) from operations is stated after: | |||||||||
Auditors remuneration: | R 991 | R 930 | R 632 | ||||||
Audit fees | 603 | 615 | 600 | ||||||
Other services | 388 | 315 | 32 | ||||||
Depreciation and amortization: | 35,939 | 26,390 | 27,944 | ||||||
Amortisation capitalised | |||||||||
development costs | 2,279 | 3,716 | 3,953 | ||||||
Amortisation trademarks | | 545 | 543 | ||||||
Amortisation goodwill | 7,394 | 1,754 | 1,902 | ||||||
Depreciation computer equipment | 15,569 | 10,487 | 7,908 | ||||||
Depreciation furniture and office | |||||||||
equipment | 2,833 | 3,298 | 2,056 | ||||||
Depreciation motor vehicles | 7,864 | 6,590 | 11,582 | ||||||
Directors emoluments: | 2,949 | 2,023 | 1,855 | ||||||
For services as directors | 75 | 100 | 25 | ||||||
For managerial and other services | 2,874 | 1,923 | 1,830 | ||||||
Employee costs | 138,287 | 129,315 | 134,002 | ||||||
Operating lease rentals leased premises | 20,315 | 19,627 | 19,555 | ||||||
Profit on disposal of property, plant and | |||||||||
equipment | 200 | 679 | 252 | ||||||
Profit on disposal of business | 1,086 | 2,713 | | ||||||
Loss on disposal of joint venture | | | 188 | ||||||
Other costs: | 10,224 | | | ||||||
Settlement of share options | 5,349 | | | ||||||
Provision for loss on loan | 4,875 | | |
F-26
11. | DIRECTORS | ||||||||||||||||||
EMOLUMENTS | 2001 | 2003 | 2002 | ||||||||||||||||
Basic | Basic | Basic | |||||||||||||||||
Bonus | Total | Salaries | Bonus | Total | Salaries | Bonus | Total | Salaries | |||||||||||
Fees and salaries | |||||||||||||||||||
Paid to executive | |||||||||||||||||||
directors | R 2,294 | R 580 | R 2,874 | R 1,873 | R 50 | R 1,923 | R 1,830 | | R 1,830 | ||||||||||
S C P Belamant | 1,431 | 400 | 1,831 | 1,200 | | 1,200 | 1,200 | | 1,200 | ||||||||||
H G Kotzé | 863 | 180 | 1,043 | 673 | 50 | 723 | 630 | | 630 | ||||||||||
Fees paid to non- | |||||||||||||||||||
executive directors: | |||||||||||||||||||
J C Livingstone | 75 | 75 | | ||||||||||||||||
D A J Donald | | 25 | 25 | ||||||||||||||||
B J S Hore | | | | ||||||||||||||||
D G S Muller | | | |
000 | |||||||||||||
Shares | |||||||||||||
exercised | Sold | Exercise | Average | ||||||||||
Opening | during | during | Closing | price per | sale price | ||||||||
balance | year | year | balance | share | per share | ||||||||
Share options | |||||||||||||
Executive directors | |||||||||||||
S C P Belamant | 600 | 600 | 1,200 | | R 1.475 | R 3.51 | |||||||
H G Kotzé | 600 | 600 | 1,200 | | R 1.475 | R 3.51 | |||||||
Non-executive directors | |||||||||||||
J C Livingstone | 600 | 600 | 600 | 600 | R 1.475 | R 2.98 | |||||||
D A J Donald | | | | | | | |||||||
D G S Muller | | | | | | | |||||||
B J S Hore | | | | | | |
2003 | 2002 | 2001 | |||||
12. | INCOME TAX EXPENSE | ||||||
South African normal tax | |||||||
Current year | R 73,818 | R 44,082 | R 44,014 | ||||
Deferred tax | (7,896 | ) | (796 | ) | (1,803 | ) | |
Secondary Tax on Companies | 3,210 | | 260 | ||||
R 69,132 | R 43,286 | R 42,471 | |||||
% | % | % | |||||
Reconciliation of rate of tax: | |||||||
South African normal tax rate | 30.0 | 30.0 | 30.0 | ||||
Permanent differences | 3.1 | (1.1 | ) | 0.7 | |||
Secondary Tax on Companies | 1.6 | | 0.2 | ||||
Deferred tax not provided on tax losses | | 0.1 | 0.2 | ||||
Effective rate of tax | 34.7 | 29.0 | 31.1 | ||||
Gross estimated tax losses of certain subsidiaries | |||||||
available for utilisation against | |||||||
Future taxable income | R 46,040 | R 32,337 | R 18,211 | ||||
Applied to increase deferred tax asset | (28,320 | ) | (28,227 | ) | (18,211 | ) | |
R 17,720 | R 4,110 | R |
F-27
14. | OPERATING LEASE COMMITMENTS |
15. | CAPITAL COMMITMENTS |
Group | |||||||
2003 | 2002 | 2001 | |||||
The Groups outstanding capital commitments | |||||||
at the year-end, which have been approved | |||||||
by the directors and contracted for amounted to: | R | R 12,643 | R 3,200 |
These commitments will be funded from cash generated from operations. | |
|
|
16.
|
RETIREMENT BENEFITS
The Group Provident Fund was a defined contribution
fund, registered in terms of the Pension Funds Act (1965), of which membership
was optional. The fund was discontinued and currently the Group provides
no retirement benefits.
|
17.
|
RELATED PARTY TRANSACTIONS
Light & Livingstone Financial Services CC, in which
Mr. J C Livingstone (a non-executive director) is a member, performs the
Company Secretarial function for the Group.
|
F-28
2003 | 2002 | 2001 | ||||||||
18. | CASH GENERATED FROM/(UTILISED BY) | |||||||||
OPERATIONS | ||||||||||
Profit/(Loss) before interest and tax | R | 175,868 | R | 135,000 | R | 125,756 | ||||
Depreciation and amortisation | 35,939 | 26,390 | 27,944 | |||||||
Unpaid on disposal of joint venture | | | | |||||||
Income from subsidiaries | | | | |||||||
Profit on disposal of property, plant and equipment | (200 | ) | (679 | ) | (252 | ) | ||||
Profit on disposal of business | (1,086 | ) | (2,713 | ) | 188 | |||||
Profit/(Loss) from operations before working capital | ||||||||||
changes | 210,521 | 157,998 | 153,636 | |||||||
Working capital changes | 20,063 | (5,019 | ) | 10,589 | ||||||
Inventory | 9,084 | 1,078 | (98 | ) | ||||||
Trade and other receivables | (42,906 | ) | (12,019 | ) | 34,331 | |||||
Trade and other payables | 53,885 | 5,922 | (23,644 | ) | ||||||
R | 230,584 | R | 152,979 | R | 164,225 | |||||
19. | TAX PAID | |||||||||
Unpaid at beginning of year | R | (30,396) | R | (28,795) | R | (23,101) | ||||
Unpaid on acquisition of subsidiary | | | (246 | ) | ||||||
Unpaid on disposal of joint venture | | | 83 | |||||||
Current tax and secondary tax charged to the income | ||||||||||
statement | (77,029 | ) | (44,082 | ) | (44,274 | ) | ||||
Unpaid at end of year | 50,934 | 30,396 | 28,795 | |||||||
R | (56,491) | R | (42,481) | R | (38,743) | |||||
20. | DISPOSAL OF BUSINESS | |||||||||
Goodwill | R | 1,630 | R | | R | | ||||
Inventory | | 11 | | |||||||
Trade and other receivables | 2,284 | 1,623 | | |||||||
Cash and cash equivalents | | 702 | | |||||||
Trade and other payables | (5,000 | ) | (136 | ) | | |||||
Profit on disposal of business | 1,086 | 2,713 | | |||||||
Cash and cash equivalents received | | 4,913 | | |||||||
Cash and cash equivalents paid | | (702 | ) | | ||||||
Net cash inflow | R | | R | 4,211 | R | | ||||
21. | PURCHASE OF MINORITY | |||||||||
INTERESTS/SUBSIDIARIES | ||||||||||
Cash and cash equivalents | R | | R | | R | | ||||
Property, plant and equipment | | | 1,101 | |||||||
Inventory | | | 29 | |||||||
Trade and other receivables | | | 715 | |||||||
Trade and other payables | | | (293 | ) | ||||||
Tax | | | (246 | ) | ||||||
Deferred tax | | | (193 | ) | ||||||
Goodwill | 12,432 | | 17,886 | |||||||
Minority interests | | | 6,317 | |||||||
Acquisition costs incurred | | | 146 | |||||||
Cost price | 12,432 | | 25,462 | |||||||
Shares issued at a premium | | | (19,500 | ) | ||||||
Net cash outflow | R | 12,432 | R | | R | 5,962 | ||||
22. | CASH AND CASH EQUIVALENTS | |||||||||
Bank balances and cash | R | 428,549 | R | 321,814 | R | 200,881 |
F-29
23. |
US GAAP INFORMATION RECONCILIATION OF NET INCOME, SHAREHOLDERS EQUITY AND CASH FLOWS FROM SA GAAP TO US GAAP The financial statements have been prepared in accordance with South African Generally Accepted Accounting Principles (SA GAAP), which differs in certain respects from Generally Accepted Accounting Principles in the United States (US GAAP). The effect of applying US GAAP principles to net profit and shareholders equity is set out below along with an explanation of applicable differences between SA GAAP and US GAAP: |
Notes | 2001 | 2002 | 2003 | ||||||
Net profit as reported in accordance with SA | |||||||||
GAAP | R 93,187 | R 104,033 | R 126,187 | ||||||
Items increasing / (decreasing) net profit: | |||||||||
Goodwill - capitalization | (a) | (11,909 | ) | (11,909 | ) | | |||
Goodwill - non-amortization | (b) | | | 5,660 | |||||
Goodwill - purchase price adjustment | (c) | 1,510 | 1,510 | | |||||
Intangible assets - purchase price adjustment | (c) | (630 | ) | (630 | ) | (630 | ) | ||
Goodwill - purchase price adjustment - | |||||||||
compensation | (d) | 1,089 | 1,089 | | |||||
Goodwill - treatment of negative goodwill | (e) | 93 | 371 | | |||||
Goodwill - date of acquisition | (f) | (5,883 | ) | | (11,204 | ) | |||
Goodwill - self insurance | (i) | 1,400 | 1,400 | | |||||
Goodwill - acquisition of Net 1 Investment | |||||||||
Holdings intangible asset | (g) | (1,448 | ) | (1,448 | ) | (1,448 | ) | ||
Deferred taxes - acquisition of Net 1 Investment | |||||||||
Holdings intangible asset | (g) | 1,448 | 1,448 | 1,448 | |||||
Development expenditure | (h) | 3,307 | 3,716 | 2,279 | |||||
Self-insurance | (i) | 2,832 | 4,751 | 7,901 | |||||
Stock compensation - employees | (j) | (11,233 | ) | (3,904 | ) | (5,553 | ) | ||
Derivatives | (k) | 116 | | | |||||
Internally developed intangible asset | (l) | 543 | 543 | 1,630 | |||||
Income tax - rate differences | (m) | (10,687 | ) | (11,361 | ) | (13,886 | ) | ||
Income tax - effect of US GAAP adjustments | (n) | (2,330 | ) | (3,166 | ) | (4,224 | ) | ||
Net profit in accordance with US GAAP before | |||||||||
extraordinary item and cumulative effect of | |||||||||
change in accounting principle | 61,405 | 86,443 | 108,160 | ||||||
Extraordinary item - SFAS 142 | (e) | | | 7,764 | |||||
Change in accounting policy upon adoption of | |||||||||
SFAS 142 | (e) | | | 2,879 | |||||
Net profit in accordance with US GAAP after | |||||||||
extraordinary item and cumulative effect of | |||||||||
change in accounting principle | R 61,405 | R 86,443 | R 118,803 | ||||||
Earnings per share before extraordinary item | |||||||||
and cumulative effect of a change in | |||||||||
accounting principle computed in accordance | |||||||||
with US GAAP | |||||||||
Basic (ZAR) | 0.27 | 0.38 | 0.46 | ||||||
Diluted (ZAR) | 0.27 | 0.37 | 0.46 | ||||||
Earnings per share after extraordinary item | |||||||||
and cumulative effect of a change in | |||||||||
accounting principle computed in accordance | |||||||||
with US GAAP | |||||||||
Basic (ZAR) | 0.27 | 0.38 | 0.50 | ||||||
Diluted (ZAR) | 0.27 | 0.37 | 0.50 |
F-30
Notes | 2001 | 2002 | 2003 | ||||||
Shareholders equity as reported in accordance | |||||||||
with | |||||||||
SA GAAP | R 309,075 | R 418,455 | R 524,120 | ||||||
Items increasing / (decreasing) shareholders equity: | |||||||||
Goodwill - capitalization | (a) | 93,973 | 82,064 | 82,064 | |||||
Goodwill - non-amortization | (b) | | | 5,660 | |||||
Goodwill - purchase price adjustment | (c) | (11,299 | ) | (9,789 | ) | (9,789 | ) | ||
Intangible asset - purchase price adjustment | (c) | 5,669 | 5,039 | 4,409 | |||||
Goodwill - purchase price adjustment - | |||||||||
compensation | (d) | (8,440 | ) | (7,351 | ) | (7,351 | ) | ||
Goodwill - treatment of negative goodwill | (e) | 93 | 464 | 464 | |||||
Goodwill - date of acquisition | (f) | (5,883 | ) | (5,883 | ) | (17,087 | ) | ||
Goodwill - self insurance | (i) | 3,150 | 4,550 | 4,550 | |||||
Goodwill - acquisition of Net 1 Investment | |||||||||
Holdings intangible asset | (g) | 13,028 | 11,581 | 10,133 | |||||
Deferred taxes - impact of acquisition of Net 1 | |||||||||
Investment Holdings intangible asset | (g) | (13,028 | ) | (11,581 | ) | (10,133 | ) | ||
Development expenditure | (h) | (5,995 | ) | (2,279 | ) | | |||
Self-insurance | (i) | 2,832 | 7,583 | 15,484 | |||||
Derivatives | (k) | (125 | ) | (125 | ) | (125 | ) | ||
Internally developed intangible asset | (l) | (2,173 | ) | (1,630 | ) | | |||
Income tax - rate differences | (m) | (20,261 | ) | (31,622 | ) | (45,508 | ) | ||
Income tax - effect of US GAAP adjustments | (n) | 2,063 | (1,103 | ) | (5,327 | ) | |||
Change in accounting policy on adoption of SFAS | |||||||||
142 | (e) | | | 2,879 | |||||
Dividends declared but not paid | | (25,681 | ) | (35,547 | ) | ||||
Extraordinary item | | | 7,764 | ||||||
Shareholders equity in accordance with US | |||||||||
GAAP | R 362,679 | R 432,692 | R 526,660 | ||||||
Movements in shareholders equity in accordance | |||||||||
with US GAAP | |||||||||
Balance at beginning of period | R 229,696 | R 362,679 | R 432,692 | ||||||
Issue of share capital | 60,526 | 5,383 | 5,183 | ||||||
Share issue costs | (181 | ) | (36 | ) | (24 | ) | |||
Net profit for the year | 61,405 | 86,443 | 118,803 | ||||||
Stock-based compensation | 11,233 | 3,904 | 5,553 | ||||||
Dividends declared | | (25,681 | ) | (35,547 | ) | ||||
Balance at end of period | R 362,679 | R 432,692 | R 526,660 |
The cash flow statement is presented in accordance with SA GAAP, which in this respect is the same as IAS No 7, Cash flow statements and consequently the SEC does not require a reconciliation to US GAAP to be presented. A summary of the principal differences between SA GAAP and US GAAP applicable to the Company is set forth below: (a) Goodwill - capitalization Under SA GAAP up to and including the financial year ended June 30, 2000, goodwill arising in a business combination was written off immediately against shareholders equity. With effect from July 1, 2000, SA GAAP changed and entities were required to capitalize goodwill arising on business combinations and to amortize the goodwill over its useful life. |
F-31
The Company wrote off the following amounts of goodwill directly to reserves: |
1998 | 17,110 | ||
1999 | 71,154 | ||
2000 | 32,778 | ||
Total | R 121,042 |
Under US GAAP until July 1, 2002 goodwill should have been capitalized and amortized over its useful life not to exceed 40 years. The adjustment therefore gives effect to the amount of goodwill that would have been required to be recognized in a US GAAP balance sheet and the amount of amortization that would have arisen thereon, which has been calculated on the basis of a useful life of 10 years. (b) Goodwill - non-amortization Under current SA GAAP since July 1, 2000 (see a above), positive purchased goodwill should be capitalized as an asset. If it is regarded as having a limited useful life it should then be amortized over that useful live which is generally presumed not to exceed 20 years. If it is regarded as having a useful life in excess of 20 years the goodwill is amortized over the best estimate of its useful life and the recoverable amount of the goodwill is assessed at least annually in order to identify any impairment loss. If goodwill is regarded as having an indefinite useful live it should not be amortized. Goodwill that is not amortized should be tested for impairment at the end of each reporting period and, if necessary, written down. Under US GAAP, accounting for goodwill and intangible assets was substantially the same as current SA GAAP until the adoption of SFAS No. 141, Business Combinations (SFAS 141) and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires all business combinations consummated after June 30, 2001 to be accounted for under the purchase method. SFAS 141 also sets forth guidelines for applying the purchase method of accounting in the determination of intangible assets, including goodwill, acquired in a business combination. SFAS 142 addresses the initial and ongoing financial accounting and reporting for acquired goodwill and other intangible assets. SFAS 142 requires that goodwill be separately disclosed from other intangible assets in the balance sheet, and no longer be amortized but tested for impairment at least annually (or more frequently if impairment indicators arise). SFAS 142 is effective for financial statements for periods beginning on or after December 15, 2001. Additionally, the amortization provisions of SFAS 142 are applicable to goodwill arising in all business acquisitions consummated after June 30, 2001 regardless of the adoption date of SFAS 142. The Company adopted SFAS 142 generally with effect from July 1, 2002. From that date all goodwill is no longer amortized. This adjustment therefore reverses the amount of goodwill amortization charged after July 1, 2002 in the SA GAAP financial statements. This adjustment excludes R1,754 of expense recorded as goodwill amortization for SA GAAP purposes that would be considered to be intangible asset amortization expense under US GAAP in accordance with adjustment (g) below. The Company has carried out the initial impairment testing of goodwill required by SFAS 142 as at July 1, 2002. Fair value was determined based on discounted cash flows using reasonable and appropriate assumptions that are consistent with internal forecasts. As a result, the Company determined that goodwill was not impaired and no adjustments were recorded. (c) Goodwill and intangible assets - purchase price adjustment During the three year period ended June 30, 2000, the Company acquired controlling interests in Cash Paymaster Services (Proprietary) Limited, Country on a Card, Moneyline Financial Services (Proprietary) Limited, and Net 1 Southern Africa (Proprietary) Limited (Creative Logica). Purchase consideration was satisfied in each instance by the Company through the issuance of a fixed number of shares. The number of shares issued was determined based on a fixed share price and the value ascribed |
F-32
to the business being acquired. For the Companys purpose, the purchase price was determined using that fixed share price. US GAAP requires that shares issued in a purchase business combination should be accounted for at their fair value, which in the case of quoted shares should be determined using the market value at the date the terms of the acquisition are announced , and in the case of the acquisition of an intangible asset, at the date of acquisition. This adjustment reduces the total amount of purchased goodwill for US GAAP purposes. Because the goodwill arising under SA GAAP was written off directly to reserves, the adjustment consequently reduces the amount of amortization expense arising as a consequence of adjustment (a) above until 2003 when goodwill ceased to be amortized for US GAAP purposes, and increases the amount of amortization expense recorded in respect of the Companys intangible asset in accordance with adjustment (g) below. (d) Goodwill - purchase price adjustment and compensation effect In March 1999, the Company acquired 100% of Cash Paymaster Services (Proprietary) Limited. The consideration was payable in two tranches, and included the issuance of 5 million shares to employees of the acquired company to induce them to enter into new employment contracts. There were no provisions requiring the employees to return the shares if they left employment. For US GAAP purposes, these shares represented compensation to employees which, absent any service period, should have been immediately expensed. This adjustment therefore adjusts for US GAAP purposes the amount of goodwill that arose on the acquisition by reducing it and instead charging an amount of compensation expense to income in 1999 and thus reducing the amount of goodwill amortization arising from adjustment (a). The Company also paid R4 million for consulting services to be provided by the selling shareholder. Under SA GAAP, the amount is being amortized over the period over which the services are to be rendered. For US GAAP, such payments are not additional purchase price consideration, and should be expensed in a manner consistent with SA GAAP. (e) Treatment of negative goodwill Under SA GAAP, negative goodwill is determined as the excess of the fair value of identifiable assets and liabilities acquired over the purchase price in a business combination. It is then amortized by crediting the income statement over an appropriate period. Under SA GAAP, negative goodwill is included in the balance sheet and is credited to goodwill in two different methods. For negative goodwill that is related to anticipated future losses or expenditures, it is recognized as income when the losses or expenditure are incurred. For negative goodwill that relates to identifiable non-monetary assets, it is recognized in income on a straight-line basis over the useful economic life of the non-monetary assets. Under US GAAP, until July 1, 2002, the excess of the fair value of identifiable assets and liabilities over purchase price was first applied to reduce pro-rata the fair value of long-lived intangible and tangible assets (with certain exceptions) and once the carrying value of such assets had been reduced to zero the remaining amount (negative goodwill) was then amortized by crediting the income statement over an appropriate period. Under US GAAP for business combinations initiated after June 30, 2001, where the sum of the amounts assigned to assets acquired and liabilities assumed exceeds the cost of the acquired entity, that excess is allocated as a pro-rata reduction of the amounts that otherwise would have been assigned to all of the acquired assets except (a) financial assets other than investments accounted for by the equity method, (b) assets to be disposed of by sale, (c) deferred tax assets, (d) prepaid assets related to pension or other post retirement benefit plans, and (e) any other current assets. If any excess remains after reducing to zero the amounts that otherwise would have been assigned to those assets, that remaining excess is recognized as an extraordinary gain. Any unamortized negative goodwill relating to a business combination which occurred prior to July 1, 2001 was required to be written off and recognized as a change in accounting principle upon adoption of SFAS 142. |
F-33
Prior to July 1, 2002 no negative goodwill arose for SA GAAP purposes but because of adjustment (f) described below and the effect of reducing the purchase price for US GAAP purposes, negative goodwill arose for US GAAP purposes. This adjustment recognizes that amount of negative goodwill, amortizes it for US GAAP purposes up to July 1, 2002 and then recognizes the remaining amount as a cumulative adjustment . Subsequent to June 30, 2002 negative goodwill arose for SA GAAP and US GAAP purposes. This adjustment also credits the amount of negative goodwill recognized under US GAAP to income as an extraordinary item and reverses the amortization credit recorded for SA GAAP purposes. (f) Goodwill - date of acquisition adjustment For the Companys purposes, the date of acquisition of a minority interest in the year ended June 30, 2003 has been treated as being the beginning of the financial year and the results of the acquired business have been included in consolidated income statement from that date. Likewise, goodwill has been computed as the difference between the purchase price and the fair value of the identifiable assets and liabilities as of the same date. For US GAAP purposes, the results of acquired businesses should be reflected in the income statement only as from the date of acquisition and the fair value of acquired assets and liabilities determined as of that date. This adjustment therefore deducts from the income for the period the results of the acquired business from the beginning of the year until the date of acquisition and treats that amount as goodwill to be accounted for in accordance with SFAS 142. the relevant provisions of US GAAP at the time. (g) Goodwill - Acquisition of Net 1 Investment Holdings The Company obtained the patent for the Funds Transfer System (FTS) on its acquisition of Net 1 Investment Holdings (Proprietary) Limited (Net 1) on July 12, 2000. 100% of Net 1s issued share capital was acquired for R3 million, which was satisfied through the issuance of 9,750,000 of Aplitec common shares. Net 1 was a holding company that did not generate significant revenues or expenses and did not have significant assets or liabilities other than the FTS patent rights for South Africa and surrounding territories, on which the Companys smart card applications are now based. For SA GAAP purposes, this was treated as the acquisition of a business as it was a corporate entity and the excess of the purchase price over the identifiable assets acquired was treated as goodwill and amortized over 10 years. For US GAAP purposes, EITF 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business, defines a business and the acquisition of Net 1 Investment Holdings was in substance the acquisition of an asset. As such, the treatment of the premium on acquisition over the net asset value is regarded as being attributable to the patent rights acquired and not treated as goodwill. The patent rights carrying value should be amortized over 10 years, which is the same period that would be used to amortize goodwill. Accordingly there would be no income statement effect if the patent were amortized as opposed to goodwill of the same amount. However, while under SA GAAP, no deferred tax liability is recognized in respect of intangible assets acquired other than in a business combination where there is a difference at the date of acquisition between the assigned values and the tax bases of the assets, under US GAAP, a deferred tax liability (and corresponding increase in assets acquired) is recognized for all temporary differences between the assigned values and the tax bases of intangible assets acquired. The recording of such deferred tax liability has no net impact on net income or shareholders equity as determined under US GAAP as the decrease in income tax expense is offset by a corresponding increase in amortization. (h) Development expenditure The Company capitalised R15 million in development costs in 1998 and 1999 and has then amortised these over the four years ended June 30, 2003. Subsequent to 1999, development costs have been expensed as incurred. |
F-34
Under SA GAAP, expenditure on development is charged to income in the year in which it is incurred except where a clearly defined project is undertaken and it is reasonably anticipated that development costs will be recovered through future commercial activity. Such development costs are capitalized as an intangible asset and amortized on a straight-line basis over the life of the project from the date when the developed asset is put into use. Research costs are generally expensed as incurred. Under US GAAP, costs incurred to develop computer software to be used externally are expensed as incurred until the developed software has been proven to be technologically feasible, in accordance with SFAS 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS 86). Under SFAS 86, technological feasibility of a computer software produce is established when all planning, designing, coding, and testing activities that are necessary to establish that the produce can be produced to meet its design specifications including functions, features, and technical performance requirements. Costs to develop software for internal use by the Company are generally expensed as incurred, except in certain situations, as outlined in Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1), issued by the AICPA. Under SOP 98-1, only certain costs to develop internal-use computer software during the application development stage or costs to develop or obtain software that allows for access or conversion of old data by new systems are eligible for capitalization. All other costs, including those incurred in the project development and post-implementation stages are expensed as incurred. The Company did not meet the relevant criteria for capitalization of software development costs under US GAAP and consequently the amounts capitalized under SA GAAP would not have been capitalized under US GAAP. (i) Self-insurance provision and captive insurance company The Company has established a provision in respect of self-insured losses (mainly attributable to cash in transit theft) based on an actuarially determined amount of such losses expected to arise in the next 12 months. The amount provided is R10 million in the year ended June 30, 2002 and a further R10 million in the year ended June 30, 2003. These provisions have not been claimed for tax purposes and accordingly a debit to deferred tax has been raised to account for the tax effect of such amounts. In addition, the Company has an insurance captive with a current balance of around R10 million. This was acquired as part of the acquisition of Cash Paymaster Services in 1999. This asset was not recognised on acquisition and the amount at acquisition was R14 million. For the purpose of US GAAP, self-insurance does not represent the transfer of risk and as such it is not possible to recognize a liability for future losses that will arise from events subsequent to the balance sheet date. In addition the captive insurance company should be consolidated for US GAAP purposes. This adjustment therefore reverses that part of the charge in the income statement in respect of such losses that does not represent the losses of the period, consolidates the assets of the captive insurance company and decreases, for US GAAP purposes, the amount of goodwill amortization that is recorded under SA GAAP. (j) Stock compensation - employees Under SA GAAP there is currently no literature that regulates the accounting treatment of employee stock compensation. Accordingly, for SA GAAP purposes, the Company does not account for the stock options at the time of grant. Upon exercise, the issuance of the shares is accounted for at the exercise price of the stock option, with no effect on earnings. Options granted to directors are disclosed in the Companys financial statements. Under US GAAP, companies may elect to follow the accounting prescribed by either Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), or SFAS No 123, Accounting for Stock-Based Compensation (SFAS 123). Under US GAAP, compensation is recorded for the cost of providing warrants and options to the employee over the relevant service period. The costs can be determined based on either the intrinsic value method (APB 25) or the fair value method (SFAS 123). Under the intrinsic value method, the compensation cost is the difference between the market price of the stock at the measurement date and the price to be contributed by the employee (exercise price). |
F-35
Under the intrinsic method, the measurement date is the first date on which the employee knows the number of shares that such employee is entitled to receive and the exercise price. The measurement date is often the grant date; however, it may be later than the grant date in plans with variable terms that depend on events that occur after the grant date. These terms may be variable by design, may become variable due to their modification after the date of grant, or may be considered variable due to their relationship to other stock option features. In such cases, compensation is measured at the end of each reporting period until the measurement date or, in some cases, until exercise, forfeiture, or expiry of the stock option. The Company has elected to apply the intrinsic value method in respect of grants to employees made in May 2000. While these grants of options were made at an exercise price that was equivalent to market value at date of grant the employees were permitted to exercise using a loan provided by the Company. These loans are non-recourse and bear interest at a variable rate. Consequently, under EITF 95-16, Accounting for Stock Compensation Arrangements with Employer Loan Features under APB Opinion No. 25 and FIN 44, Accounting for Certain Transactions involving Stock Compensation, these awards are accounted for as variable awards under US GAAP with the final measurement of the compensation expense only being determined when the loans are repaid or when the options are exercised without a loan. (k) Derivative financial instruments The Company has historically entered into foreign exchange forward contracts to hedge its exposure to fluctuations in foreign currency exchange rates on specific transactions. Under SA GAAP, prior to the adoption of AC133, Financial Instruments: Recognition and Measurement (AC 133) on July 1, 2002, gains and losses on forward contracts designated as hedges of identifiable foreign currency firm commitments were recognized in the measurement of the related foreign currency transactions. Under SA GAAP, upon adoption of AC133, the difference between previous carrying amounts and the fair value of derivatives, which prior to the adoption of AC133 had been designated as either fair value or cash flow hedges but do not qualify as hedges under AC133, is recognized as an adjustment of the opening balance of retained earnings at the beginning of the financial year AC133 is initially applied. Changes in the fair value of derivatives not designated as hedges after July 1, 2002 are recorded in the income statement. Under US GAAP, upon adoption of SFAS 133, the difference between previous carrying amounts and the fair values of derivatives, which prior to the adoption of SFAS 133 had been designated as cash flow type hedges but do not qualify as hedges under SFAS 133 is recognized as a cumulative effect adjustment of other comprehensive income in the year SFAS 133 is initially applied. (l) Internally developed intangible asset In 2000, the Company incurred costs of approximately R3 million to develop and promote a trademark. Under SA GAAP, these costs were capitalized as an intangible asset. Under US GAAP, only the costs of intangible assets acquired from other enterprises or individuals that provide a future discernible benefit are capitalized, whilst other costs of developing, maintaining, or restoring intangible assets which are not specifically identifiable, have indeterminate lives, or are inherent in a continuing business and related to an enterprise as a whole are deducted from income when incurred. The trademark developed by the Company would not be considered to have a determinate life under US GAAP, and would consequently be expensed as incurred. This adjustment therefore treats the costs of developing the trademark as an expense in 2000 for US GAAP purposes and reverses the intangible asset amortization under SA GAAP from 2000. (m) Income tax - rate differences and effect on tax charge The tax rate in South Africa varies depending on whether income is distributed. The income tax rate is 30% but upon distribution an additional tax (Secondary Tax on Companies or STC) of 12.5% is due based on the amount of the dividends net of dividends received during a dividend cycle. In conformity with SA GAAP, the Company reflects the STC as a component of the income tax charge for the period in which dividends are declared. SA GAAP also requires that deferred tax be provided for at the undistributed rate of 30%. |
F-36
For the purpose of US GAAP, under SFAS No. 109, Accounting for Income Taxes (SFAS 109), temporary differences have been tax effected using the tax rate that will apply when income is distributed, i.e. an effective rate of 37.78% including STC. The Company has therefore computed the estimated STC that would become payable upon distribution of relevant undistributed earnings and accrued that amount as an additional liability for US GAAP purposes. (n) Deferred taxation The tax effects of the US GAAP adjustments have been calculated based on the enacted tax rate of 37.78% (2002: 37.78%; 2001: 37.78%). A reconciliation of the deferred tax balances under SA GAAP to the amounts determined under US GAAP is as follows: |
2001 | 2002 | 2003 | |||||
Net deferred tax assets | |||||||
(liabilities): | |||||||
As reported under SA GAAP | R 10,240 | R 11,036 | R 18,932 | ||||
Additional temporary difference | (13,028 | ) | (11,580 | ) | (10,132 | ) | |
Income tax - rate difference | 2,706 | 2,913 | 4,960 | ||||
Tax effect of US GAAP | 2,063 | (1,103 | ) | (5,327 | ) | ||
adjustments | |||||||
As adjusted under US GAAP | R 1,981 | R 1,266 | R 8,433 |
Under US GAAP, long-term tax liabilities would be recognized as of June 30, 2001, 2002, and 2003 of $20,261, $31,622 and $ 45,508, respectively, in respect of the tax rate adjustment described in adjustment (m) above. Other differences between SA GAAP and US GAAP not affecting the determination of shareholders equity or net income for the periods presented Capitalized interest Under SA GAAP, borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized as part of the cost of that asset. Under US GAAP, interest cost incurred during the construction period is capitalized. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the estimated useful life of the asset. Capitalized interest was nil for the years ended June 30, 2003, 2002 and 2001. The Company has no material GAAP difference in this respect. Revenue recognition The Company recognizes revenue when all significant risks and rewards of ownership of the asset sold are transferred. Under SA GAAP, turnover represents the net invoice value of goods and services provided to third parties, deducting sales taxes and duties. US GAAP has a number of specific pronouncements relating to aspects of revenue recognition in general and in particular industries. The SEC Staff has issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). Under SAB 101 revenue is recognized when the following four criteria are all met: (i) persuasive evidence of an arrangement exists, (ii) delivery has |
F-37
occurred or services have been rendered, (iii) the sales price to the buyer is fixed or determinable, and (iv) collectibility is reasonably assured. The Company has no material GAAP difference in this respect. Inventory Under SA GAAP, inventory is valued at the lower of cost and net realisable value. Under US GAAP inventory is valued at the lower of cost and market value. No material difference results Impairment of assets Under SA GAAP, the Company is required to annually assess at the balance sheet date or earlier should a triggering event occur, whether there are any indications that an asset may be impaired. Should there be such an indicator, the asset must be tested for impairment. An impairment loss must be recognized in the income statement, should the carrying amount of an asset exceed its recoverable amount. The impairment loss is the difference between the carrying amount of the asset and its recoverable amount. The recoverable amount is the higher of the net selling price of the asset and its value in use. Value in use is the future cash flows to be derived from the particular asset, discounted to present value using a pre-tax market-determined rate that reflects the current assessment of the time value of money and the risks specific to the asset. The reversal of an impairment loss in subsequent periods is permitted when there has been a change in economic conditions or the expected use of the asset. Under US GAAP, the Company is required to test for impairment whenever there is an indication of impairment. For assets to be held and used, impairment is first measured by reference to undiscounted cash flows. If there is no impairment by reference to undiscounted cash flows, no further action is required but the useful life of the asset must be reconsidered. If impairment exists the Company must measure impairment by comparing the fair value of the asset to its carrying value. Fair value is either market value (if an active market for the asset exists) or the sum of discounted future cash flows. The discount rate reflects the risk that is specific to that asset. For assets to be disposed of, the loss recognized is the excess of the carrying amount of the asset over its fair value less costs to sell. The reversal of previously recognized impairment losses is prohibited. The Company currently has no material GAAP difference for impairment of assets. Business combinations - contingent purchase price SA GAAP requires that when an acquisition agreement provides for an adjustment to the purchase consideration contingent on one or more future events, the amount of the adjustment should be included in the cost of the acquisition as at the date of acquisition if the adjustment is probable and the amount can be measured reliably. The cost of the acquisition should be adjusted when a contingency affecting the amount of the purchase consideration is resolved subsequent to the date of the acquisition, such that payment of the amount is probable and a reliable estimate of the amount can be made. Under US GAAP contingent purchase consideration is usually only included in the measurement of purchase price, and hence goodwill, when the contingency is resolved and consideration becomes payable. The Company currently has no material GAAP difference in this respect. Business combinations - determination of fair value Under SA GAAP, where it is not possible to complete the determination of fair values by the date on which the first post-acquisition financial statements are approved, a provisional assessment of fair values is made and any adjustments required to those provisional fair values, and the corresponding adjustments to purchased goodwill, are incorporated in the financial statements for the first full annual accounting period following the acquisition. Under US GAAP, adjustments are likewise permitted subsequent to consummation of the acquisition, but the allocation period should usually not exceed one year from the consummation of a business combination. |
F-38
The Company currently has no material GAAP difference in this respect. Accounting for minority interest in a business combination Under SA GAAP, minority interest in a business combination is either stated at the minoritys proportion of the fair values of the net identifiable assets of the acquired entity or at historical values. Under US GAAP, minority interest is determined at historical values. For SA GAAP purposes, the Company states minority interest at historical values. Accordingly, the Company has no GAAP difference in this respect. Accounting for leases Under SA GAAP, a lease is classified as a finance lease if the risks and rewards of ownership lie with the lessee. Examples of situations that would normally lead to a lease being classified as a finance lease are: |
(1) | The lease transfers ownership of the asset to the lessee by the end of the lease term. | |
(2) |
The lessee has the option to purchase
the asset at a price which is expected to be sufficiently lower than the
fair value at the date the option becomes exercisable such that, at the
inception of the lease, it is reasonably certain that the option will
be exercised.
|
|
(3) | The lease term is for the major part of the economic life of the asset even if title is not transferred. | |
(4) |
At the inception of the lease the present
value of the minimum lease payments amounts to at least substantially
all of the fair value of the leased asset.
|
|
(5) | The leased assets are of a specialized nature such that only the lessee can use them without major modifications being made. | |
(6) | If the lessee can cancel the lease, the lessors losses associated with the cancellation are borne by the lessee. | |
(7) |
Gains or losses from the fluctuation
in the fair value of the residual fall to the lessee (for example in the
form of a rent rebate equaling most of the sales proceeds at the end of
the lease).
|
|
(8) |
The lessee has the ability to continue
the lease for a secondary period at a rent that is substantially lower
than market rent.
|
Under US GAAP, if any one of the following four criteria applies to a lease agreement, then the lease must be classified as a finance lease by the lessee: |
(1) | The lease transfers ownership of the leased assets to the lessee at the end of the lease term. | |
(2) | The lease contains a bargain purchase option. | |
(3) | The lease term is greater than or equal to 75% of the economic useful life of the leased asset. | |
(4) | The present value of the minimum lease payments is greater than or equal to 90% of the fair value of the leased asset. | |
The Company currently has no material GAAP difference in this respect. Restructuring costs Under SA GAAP, a provision is required to be recognized when an entity has a present obligation as a result of a past event, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. |
F-39
Under US GAAP, restructuring costs are accounted for under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. It also concludes that an entitys commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Under SFAS 146, fair value is the objective for initial measurement of the liability. In respect to other exit costs, liabilities are simply recognized when they are incurred, which is normally when the goods or services associated with the activity are received. The Company currently has no material GAAP difference in this respect. Investments in securities Under SA GAAP, accounting for investments in equity securities that have readily determinable fair values and for all debt securities is based on the particular security classification. Debt securities that the entity has the positive intention and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Debt and equity securities that are held for current resale are classified as held for trading securities and reported at fair value, with unrealized gains and losses included in earnings. All other debt and equity securities are classified as available for sale and should be reported at fair value, with unrealized gains and losses either included in earnings or recognized in equity until the debt or equity security is sold, collected, or otherwise disposed of, or until the financial asset is determined to be impaired. A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. An enterprise should assess at each balance sheet date whether there is any objective evidence that a financial asset or group of assets may be impaired. If any such evidence exists, the enterprise should estimate the recoverable amount of that asset or group of assets and recognize any impairment loss in earnings. If a loss on a financial asset carried at fair value has been recognized directly in equity and there is objective evidence that the asset is impaired, the cumulative net loss that had been recognized directly in equity should be removed from equity and recognized in net profit or loss for the period even though the financial asset has not been derecognized. Under US GAAP, investments in equity securities with no readily determinable fair values are recorded at historical cost. The accounting for investments in equity securities that have readily determinable fair values and for all debt securities is based on the particular security classification. Debt securities that the entity has the positive intention and ability to hold to maturity are classified as held to maturity and reported at amortized cost. The requirements for use of this category are very restrictive. Debt and equity securities that are held for current resale are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. All other debt and equity securities are classified as available for sale and reported at fair value, with unrealized gains and losses reported as other comprehensive income. For securities classified as either held to maturity or available for sale, other than temporary declines in fair value require that the cost of the security be written down to the fair value and the adjustment be recorded through earnings. The Company currently has no material GAAP difference in this respect. Stock compensation - non-employees In 1997 the Company granted certain stock options (the call options) to three black empowerment agencies whereby the agency had the right to acquire shares at a pre-determined price provided that they introduced certain levels of additional business to the Company. |
F-40
These call options were not exercised because the Company believed that the required levels of additional business were not attained. However, in respect of one agency the Company decided to make cash settlement and that amount was recognized as an expense in 2002. Under US GAAP, warrants and options granted to non-employees for services performed are accounted for at fair value. The fair value is measured at the earlier of the completion of the services or the date when the Company receives a commitment of performance with estimates of final compensation expense made in the intervening periods until final cost can be measured. Because of the nature of the performance conditions, the Company does not believe it would have been required to recognize any compensation cost under these arrangements and as such a measurement date was never reached. Consequently, for the purpose of US GAAP the cash settlement appropriately measures the cost. In addition to granting the call options to the black empowerment agencies, the Company also had the option to require the agencies to purchase shares at the same pre-determined price (the put options). Although the put options in respect of two of the agencies expired unexercised, the Company exercised its put option in respect of one agency in 1999 and issued 4 million shares. At the time of issuance, the market price of the Companys share exceeded the options exercise price and the agency had no further obligation to provide any additional service. Under SA GAAP, the issuance of the put option was recognized as the issuance of share capital at the option exercise price. Under US GAAP, the option would be accounted for at fair value, with the excess between the option exercise price and the fair value of the shares recognized as a period expense. In 1999, therefore, an additional expense would have been recorded for US GAAP purposes, with an offsetting increase to additional-paid-in-capital. There is no impact of this entry on total shareholders equity, however, in any of the periods presented. Derecognition of assets Under SA GAAP, financial assets are derecognized when the Company realizes the rights to the benefits specified in the contract, the rights expire or the Company surrenders or otherwise loses control of the contractual rights that comprise the financial asset. Under SA GAAP, financial liabilities are derecognized when the obligation specified in the contract is discharged, cancelled or expires. Under US GAAP, a transfer of all or a portion of a financial asset in which the transferor surrenders control over such financial asset shall be accounted for as a sale to the extent that consideration other than beneficial interests in the transferred asset is received in exchange. The transferor has surrendered control over transferred assets if and only if all of the following conditions are met: |
a. |
The transferred assets have been isolated from the
transferor - put presumptively beyond the reach of the transferor and
its creditors, even in bankruptcy or other receivership.
|
|
b. |
transferee (or, if the transferee is a qualifying
SPE, each holder of its beneficial interests) has the right to pledge
or exchange the assets (or beneficial interests) it received, and no condition
both constrains the transferee (or holder) from taking advantage of its
right to pledge or exchange and provides more than a trivial benefit to
the transferor.
|
|
c. |
The transferor does not maintain effective control
over the transferred assets through either (1) an agreement that both
entitles and obligates the transferor to repurchase or redeem them before
their maturity or (2) the ability to unilaterally cause the holder to
return specific assets, other than through a cleanup call
|
|
The Company currently has no material GAAP difference in this respect. |
F-41
ADDITIONAL DISCLOSURES REQUIRED BY US GAAP (a) Stock-based compensation The Company accounts for stock-based compensation under the expense recognition provisions of APB 25 and provides disclosures of pro-forma stock compensation expense in accordance with SFAS 123. Included in net income for the Companys share option plan under APB 25 was a charge of R11 million (2002: R4 million; 2001: R5 million). Had compensation expense for share options granted under the stock option plan been determined based on fair value at the grant dates consistent with the method required in accordance with SFAS 123, the Companys net income and earnings per share in accordance with US GAAP for 2001, 2002 and 2003 would have been as presented in the pro-forma disclosures below: |
The fair value for these options at the date of grant
was estimated using a Black-Scholes model. The assumptions used in this
valuation were as follows:
|
Risk-free interest rate | 12.00% | 13.00% | 14.00% | ||||
Dividend yield | 0.00% | 0.00% | 0.00% | ||||
Stock volatility | 67.82% | 67.82% | 67.82% | ||||
Average expected life (years) | 2.15 | 2.15 | 2.15 |
The movement in stock-based awards outstanding during the three years ended June 30, 2003 is summarized in the following table: |
2001 | 2002 | 2003 | |||||||||||
Weighted | |||||||||||||
Weighted | Weighted | average | |||||||||||
No. of shares | average | No. of shares | average | No. of shares | exercise | ||||||||
under option | exercise price | under option | exercise price | under option | price | ||||||||
Outstanding at beginning of | |||||||||||||
year | 11,025,000 | 1.475 | 7,250,000 | 1.475 | 3,550,008 | 1.475 | |||||||
Granted | | | | | | | |||||||
Exercised | 3,625,000 | 1.475 | 3,649,992 | 1.475 | 3,513,341 | 1.475 | |||||||
Lapsed or otherwise forfeited | 150,000 | 1.475 | 50,000 | | 36,667 | | |||||||
Outstanding at end of year | | 7,250,000 | 1.475 | 3,550,008 | 1.475 | | |||||||
Exercisable at end of year | | | | | | |
(b) Goodwill and intangible assets On July 1, 2002 the Company adopted SFAS 142 for US GAAP purposes, which requires that goodwill and certain intangible assets with indefinite useful lives, including those recorded in past business combinations, no longer be amortized, but instead be tested for impairment at least annually. The standard also requires the completion of a transitional impairment test with any resulting impairment identified treated as a cumulative effect of a change in accounting principle. |
F-42
Prior to SFAS 142, the Company assessed goodwill for impairment based on the guidance in Accounting Principles Board Opinion No. 17, Intangible Assets and SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and had to evaluate the periods of amortization continually to determine whether later events and circumstances warranted revised estimates of useful lives; impairment had to be recognized when the carrying amount exceeded the fair market value of the asset. In connection with the adoption of SFAS 142, the Company completed a transitional impairment test of its goodwill. Fair value was determined based on discounted cash flows using reasonable and appropriate assumptions that are consistent with internal forecasts. As a result, the Company determined that goodwill was not impaired and that no adjustment was required. Summarized below is the carrying value and accumulated amortization of the intangible asset that will continue to be amortized under SFAS 142, as well as the carrying amount of goodwill, which will no longer be amortized. |
2002 | 2003 | ||||||||||||
Gross | Net | Gross | Net | ||||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying | ||||||||
value | amortization | value | value | amortization | value | ||||||||
Goodwill | 85,816 | (30,172 | ) | 55,644 | 90,276 | (30,172 | ) | 60,104 | |||||
Finite-lived intangible assets: | |||||||||||||
FTS patent (1) | 38,316 | (7,663 | ) | 30,653 | 38,316 | (11,494 | ) | 26,822 |
(1) | See note (g) to the description of quantified differences between US GAAP and SA GAAP for a discussion of the FTS patent. | |
Aggregate amortization expense for the year ended June 30, 2003 was R3.8 million. The Company estimates amortization expense to be R3.8 million each year for the next five years. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives and other relevant factors. As required by SFAS 142, the standard has not been retroactively applied to the results for the period prior to adoption. Net profit on a pro-forma basis, as if SFAS 142 had been adopted as of July 1, 2000, is presented below: |
2001 | 2002 | 2003 | |||||
Reported net profit | R 61,405 | R 86,443 | R 118,803 | ||||
Add back: goodwill amortization | 9,118 | 8,970 | | ||||
Recognition of negative goodwill | (5,688 | ) | | | |||
Adjusted net profit | R 64,835 | R 95,413 | R 118,803 |
(c) |
Comprehensive income
For each of the three years ended June 30, 2003, the Companys total
comprehensive income was equal to net income as reported under US GAAP.
|
|
(d) |
Summarized income statements and balance sheets (Under
US GAAP)
(In thousands of Rands) |
Balance sheets | 2001 | 2002 | 2003 | ||||
Current assets | R 334,673 | R 459,663 | R 596,768 | ||||
Goodwill | 63,535 | 55,644 | 60,104 | ||||
Intangible assets | 34,487 | 30,653 | 26,822 | ||||
Other long-term assets | 47,095 | 41,892 | 83,779 | ||||
Total assets | 479,790 | 587,852 | 767,473 |
F-43
Balance sheets | 2001 | 2002 | 2003 | ||||
Current liabilities | 81,600 | 46,342 | 174,886 | ||||
Long-term liabilities | 33,931 | 105,544 | 65,927 | ||||
Minority interests | 1,579 | 3,274 | | ||||
Shareholders equity | R 362,679 | R 432,692 | R 526,660 | ||||
Income statements | 2001 | 2002 | 2003 | ||||
Revenue | 557,445 | 525,585 | 678,567 | ||||
Cost of sales | (167,312 | ) | (143,795 | ) | (234,885 | ) | |
Other operating income | 1,215 | 1,872 | 5,373 | ||||
Operating expenses | (279,922 | ) | (253,172 | ) | (274,552 | ) | |
Interest income | 10,986 | 14,014 | 23,546 | ||||
Profit before taxation | 122,412 | 144,504 | 198,049 | ||||
Taxation | (54,040 | ) | (56,365 | ) | (85,794 | ) | |
Profit after taxation | 68,372 | 88,139 | 112,255 | ||||
Income attributable to minority interests | (6,967 | ) | (1,696 | ) | (4,095 | ) | |
Profit from continuing operations | 61,405 | 86,443 | 108,160 | ||||
Extraordinary item | | | 7,764 | ||||
Effect of accounting change | | | 2,879 | ||||
Net profit for the year | 61,405 | 86,443 | 118,803 |
(e) Operating segments The Company discloses segment information in accordance with SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information (SFAS 131), which requires companies to report selected segment information on a quarterly basis and to report certain entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Company has three reportable segments which each operate exclusively within South Africa: Transaction-based activities, Financial services and Technology sales and outsourcing. The Companys reportable segments are strategic divisions that offer different products and services and are managed separately as each division requires different resources and marketing strategies. The Transaction-based activities segment provides a state pension and welfare benefit distribution service to provincial governments in South Africa. Fee income is earned based on the number of beneficiaries included in the government payfile. This segment has individually significant customers that each provide more than 10 per cent of the total revenue of the Company. For the year ended June 30, 2003, there were two such customers, providing 35 per cent and 20 per cent of total revenue (2002: three customers providing 30, 18 and 13 per cent of total revenue; 2001: three customers providing 16, 14 and 12 per cent of total revenue). The Financial services segment derives revenue from short-term personal lending activities. Interest income is recognized in the income statement as it falls due, using the interest method by reference to the constant interest rate stated in each loan agreement The Technology sales and outsourcing segment markets, sells and implements the Universal Electronic Payment System. The segment undertakes smart card system implementation projects, delivering hardware and software in the form of customized systems. Revenue for such arrangements is |
F-44
recognized under the completed contract method, no income and profit being recognized until the contract is completed. Corporate / eliminations include the Companys head office cost centres in addition to the elimination of inter-segment transactions. The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Note 1 and any intersegment sales or transfers are eliminated. The Company evaluates segment performance based on net income after tax. The following tables summarize segment information: |
2003 | |||||||||||
Transaction- | Financial | Technology Sales | Corporate/ | ||||||||
based Activities | Services | and Outsourcing | Eliminations | Total | |||||||
Revenues from external customers | R 523,550 | R 121,426 | R 57,767 | R (11,259 | ) | R 691,484 | |||||
Interest revenue | 52,928 | 4,994 | 11,138 | 4,026 | 73,086 | ||||||
Interest expense | 44,260 | 3,886 | 2 | 1,392 | 49,540 | ||||||
Depreciation and amortization | 25,507 | 2,997 | 127 | 7,308 | 35,939 | ||||||
Income tax expense | 46,005 | 14,170 | 5,868 | 3,089 | 69,132 | ||||||
Net profit after tax | 101,580 | 32,824 | 13,612 | (17,734 | ) | 130,282 | |||||
Segment assets | 448,986 | 116,760 | 95,161 | 21,621 | 682,528 | ||||||
Expenditures for long-lived assets | 54,729 | 960 | 135 | 4,967 | 60,791 |
2002 | |||||||||||
Transaction- | Financial | Technology Sales | Corporate/ | ||||||||
based Activities | Services | and Outsourcing | Eliminations | Total | |||||||
Revenues from external customers | R 371,498 | R 106,196 | R 56,224 | R (8,333 | ) | R 525,585 | |||||
Interest revenue | 25,582 | 2,807 | 4,976 | (279 | ) | 33,086 | |||||
Interest expense | 16,406 | 4,093 | - | (1,427 | ) | 19,072 | |||||
Depreciation and amortization | 14,653 | 2,547 | 502 | 8,688 | 26,390 | ||||||
Income tax expense | 30,780 | 3,297 | 8,949 | 260 | 43,286 | ||||||
Net profit after tax | 79,035 | 7,572 | 20,929 | (1,808 | ) | 105,728 | |||||
Segment assets | 310,271 | 90,297 | 107,643 | 2,506 | 510,717 | ||||||
Expenditures for long-lived assets | 9,574 | 8,295 | 54 | 1,549 | 19,472 |
2001 | |||||||||||
Transaction- | Financial | Technology Sales | Corporate/ | ||||||||
based Activities | Services | and Outsourcing | Eliminations | Total | |||||||
Revenues from external customers | R 366,447 | R 94,914 | R 98,281 | R (2,197 | ) | R 557,445 | |||||
Interest revenue | 7,151 | 1,953 | 2,133 | 703 | 11,940 | ||||||
Interest expense | 311 | 2,633 | 10 | (2,000 | ) | 954 | |||||
Depreciation and amortization | 17,169 | 1,138 | 653 | 8,985 | 27,945 | ||||||
Income tax expense | 25,900 | 7,541 | 8,581 | 449 | 42,471 | ||||||
Net profit after tax | 57,863 | 17,660 | 20,008 | (1,260 | ) | 94,271 | |||||
Segment assets | 221,936 | 72,388 | 75,998 | 21,933 | 392,255 | ||||||
Expenditures for long-lived assets | 16,238 | 1,412 | 155 | 4,151 | 21,956 |
F-45
(f) Earnings per share Basic earnings per common share has been calculated by dividing the net income, before and after the extraordinary item and the cumulative effect of a change in accounting principle, by the weighted average number of common shares outstanding during each period. Diluted earnings per share has been calculated to give effect to the number of additional common shares that would have been outstanding if the potential common shares that were dilutive had been issued in each period. The following table details the weighted average number of common shares outstanding for the years ended June 30: |
2001 | 2002 | 2003 | |||||
Weighted average number of shares basic | 225,004,299 | 230,001,354 | 236,977,187 | ||||
Weighted average effect of dilutive securities: | |||||||
Employee stock options | 228,661,336 | 2,122,263 | - | ||||
Weighted average number of shares diluted | 228,661,336 | 232,123,617 | 236,977,187 |
(g) Recent accounting pronouncements New accounting pronouncements adopted at June 30, 2003 for US GAAP purposes. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. This Statement supersedes SFAS 121. However, this Statement retains the fundamental provisions of SFAS 121 for recognition and measurement of the (a) impairment of long-lived assets to be held and used and (b) long-lived assets to be disposed of by sale. The Company adopted SFAS 144 effective July 1, 2002 , and it had no material impact on the Companys results of operations and financial position. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF 94-3). SFAS 146 eliminates the definition and requirements for recognition of exit costs in EITF 94-3. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entitys commitment to an exit plan. SFAS 146 also concluded that an entitys commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for all exit or disposal activities initiated after December 31, 2002. The Company adopted SFAS 146 on January 1, 2003. The adoption of SFAS 146 had no impact on the Companys results of operations and financial position. In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others (an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of Interpretation No. 34) (FIN 45). This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This interpretation does not prescribe a specific approach for subsequently measuring the guarantors recognized liability over the term of the related guarantee. This interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness to Others, (FIN 34), which is being superseded. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantors fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted the disclosure requirements in the year ended June 30, 2003. |
F-46
The interpretive guidance incorporated without change from FIN 34 continues to be required for financial statements for fiscal years ending after June 15, 1981 - the effective date of FIN 34. The Company adopted the initial recognition and initial measurement provisions of FIN 45 and it had no material impact on the Companys results of operations and financial positions. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure (SFAS 148). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements of SFAS 148 are effective for interim periods beginning after December 15, 2002. As the Company has no stock-based compensation plans accounted for under SFAS 123, SFAS 148 is not applicable to the Companys stock option plan accounting in the year ended June 30, 2003. The Company continues to apply the provisions in APB 25, as interpreted by FIN 28. In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections (SFAS 145). SFAS 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt (SFAS 4), SFAS No. 44, Accounting for Intangible Assets of Motor Carriers, and SFAS No. 64, Extinguishments of Debt made to satisfy Sinking-Fund requirements. As a result, gains and losses from extinguishment of debt will no longer be classified as extraordinary items unless they meet the criteria of unusual or infrequent as described in Accounting Principles Boards Opinion 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. In addition, SFAS 145 amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted all provisions of SFAS 145 in the year ended June 30, 2002. The adoption of SFAS 145 had no material impact on the Companys results of operations or financial position. New accounting pronouncements not adopted at June 30, 2003 In August 2001, the FASB issued SFAS No. 143, Accounting for Obligations, Associated with the Retirement of Long-Lived Assets (SFAS 143). SFAS 143 establishes accounting standards for recognition and measurement of a liability at fair value for an asset retirement obligation and an addition to the associated asset retirement cost. The accretion of interest expense each period is subsequently recorded as an expense and added to the liability. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS 143 on July 1, 2003 and is currently evaluating the impact it will have on its results of operations and financial position. However, the Company does not believe that the adoption of SFAS 143 will have a material impact on its results of operations and financial position. In November 2002, the EITF reached a final consensus related to Revenue Arrangement with Multiple Deliverables (EITF 00-21). The consensus requires that revenue arrangements with multiple deliverables should be divided into separate units of accounting if (a) a delivered item has value to the customer on stand alone basis, (b) there is objective and reliable evidence of the fair value of the undelivered item and (c) if the arrangement includes a general right of return, delivery or performance of the undelivered items is considered probable and substantially in the control of the vendor. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair value and appropriate revenue recognition criteria would be applied to each separate unit of accounting. The Company has not yet determined what effect, if any, EITF 00-21 would have on revenue and net income determined in accordance with US GAAP. The EITF agreed the effective date for the consensus will be for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted. The Company is still evaluating the impact of this EITF on its financial statements. This EITF will be effective for the Company for revenue arrangements entered into after July 1, 2004. |
F-47
In January 2003, the FASB
issued FASB Interpretation No. 46,
Consolidation of Variable Interest
Entities - and Interpretation of ARB No. 51
(FIN 46). This interpretation
of Accounting Research Bulletin No. 51,
Consolidated Financial Statements
,
addresses consolidation by business enterprises of variable interest entities,
which have one or both of the following characteristics:
|
|||
1. | The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interest that will absorb some or all of the expected losses of the entity. | ||
2. | The equity investors lack one or more of the following essential characteristics of a controlling financial interest: | ||
(a) | The direct or indirect ability to make decisions about the entitys activities through voting rights or similar rights. | ||
(b) | The obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities. | ||
(c) | The right to receive the expected residual returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. | ||
FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Interpretation applies to public enterprises as of the beginning of the applicable interim or annual period. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The Company is still evaluating the impact of this interpretation on its financial statements. However, the Company does not believe that the adoption of FIN 46 will have a material impact on its results of operations and financial position. In April 2003 the FASB issued SFAS No. 149, Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. In particular, it (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to the language used in FIN 45 and (4) amends certain other existing pronouncements. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The provisions of SFAS 149 that relate to SFAS 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. SFAS 149 should be applied prospectively. The Company does not expect that the adoption of this Statement will have a material impact on its results of operations and financial position. In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 modifies the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS 150 affects an issuers accounting for three types of freestanding financial instruments, namely:
|
F-48
SFAS 150 does not apply to features embedded in financial instruments that are not derivatives in their entirety. In addition to its requirements for the classification and measurement of financial instruments within its scope, SFAS 150 also requires disclosures about alternative ways of settling such instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently evaluating the impact of SFAS 150 on its results of operations and financial position. |
F-49
Net 1 Applied Technology Holdings Limited
Interim balance sheets at September 30, 2003 and June 30, 2003
(In Thousands of Rands)
September 30, | June 30, | |||||
Notes | 2003 | 2003 | ||||
(Unaudited) | (Audited) | |||||
ASSETS | ||||||
Non-current assets | R 95,518 | R 96,050 | ||||
Property, plant and equipment | 63,306 | 65,075 | ||||
Intangible assets | 2 | 10,195 | 12,043 | |||
Deferred tax | 22,017 | 18,932 | ||||
Current assets | 573,000 | 586,478 | ||||
Inventory | 4,810 | 6,437 | ||||
Trade and other receivables | 199,139 | 151,492 | ||||
Cash and cash equivalents | 369,051 | 428,549 | ||||
Total assets | 668,518 | 682,528 | ||||
EQUITY AND LIABILITIES | ||||||
Capital and reserves | 524,596 | 524,120 | ||||
Share capital | 237 | 237 | ||||
Share premium | 134,307 | 134,497 | ||||
Accumulated profit | 390,052 | 389,386 | ||||
Current liabilities | 143,922 | 158,408 | ||||
Trade and other payables | 87,995 | 107,474 | ||||
Tax | 55,927 | 50,934 | ||||
Total equity and liabilities | R 668,518 | R 682,528 |
F-50
Net 1 Applied Technology Holdings Limited
Interim income statements for the three month periods ended September 30, 2003
and September 30, 2002 (unaudited)
(In Thousands of Rands)
Three months | Three months | |||||
ended | ended | |||||
September 30, | September 30, | |||||
Notes | 2003 | 2002 | ||||
(Unaudited) | (Unaudited) | |||||
Revenue | R 192,335 | R 159,275 | ||||
Cost of sales | 64,771 | 61,013 | ||||
Gross profit | 127,564 | 98,262 | ||||
Other operating income | 101 | 58 | ||||
Operating expenses | 73,403 | 54,300 | ||||
Distribution costs | 3,490 | 520 | ||||
Administration expenses | 17,786 | 12,067 | ||||
Other operating expenses | 52,127 | 41,713 | ||||
Profit/(Loss) from operations | 54,262 | 44,020 | ||||
Interest received | 27,485 | 12,803 | ||||
Finance cost | (20,884 | ) | (5,890 | ) | ||
Profit/(Loss) before tax | 60,863 | 50,933 | ||||
Income tax expense | 3 | 24,650 | 18,637 | |||
Profit/(Loss) after tax | 36,213 | 32,296 | ||||
Minority interests | - | 2,003 | ||||
Net profit/(Loss) for year | R 36,213 | R 30,293 | ||||
Earnings per share (Rands) | 5 | 0.15 | 0.13 |
F-51
Net 1 Applied Technology Holdings Limited
Interim cash flow statements for the three month periods ended September 30,
2003 and September 30, 2002 (unaudited)
(In Thousands of Rands)
Three months | Three months | |||||
ended | ended | |||||
September 30, | September 30, | |||||
Notes | 2003 | 2002 | ||||
(Unaudited) | (Unaudited) | |||||
Cash flows from operating activities | R (53,365) | R (11,356) | ||||
Cash receipts from customers | 147,305 | 157,908 | ||||
Cash paid to suppliers and employees | (148,982 | ) | (129,491 | ) | ||
Cash (utilised by) / generated from | ||||||
operations | 8 | (1,677 | ) | 28,417 | ||
Interest received | 27,485 | 12,803 | ||||
Finance cost | (20,884 | ) | (5,890 | ) | ||
Tax paid | (22,742 | ) | (21,005 | ) | ||
Dividends paid | (35,547 | ) | (25,681 | ) | ||
Cash flows from investing activities | (5,944 | ) | (12,900 | ) | ||
Additions to property, plant and | ||||||
equipment | (6,023 | ) | (13,093 | ) | ||
Proceeds from disposal of property, | ||||||
plant and equipment | 79 | 193 | ||||
Cash flows from financing activities | (189 | ) | - | |||
Proceeds from issue of share capital | 1 | - | ||||
Share issue expenses | (190 | ) | | |||
Net decrease in cash and cash | ||||||
equivalents | (59,498 | ) | (24,256 | ) | ||
Cash and cash equivalents at beginning | ||||||
of year | 428,549 | 321,814 | ||||
Cash and cash equivalents at end of | ||||||
year | R 369,051 | R 297,558 |
F-52
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002
(Unaudited)
(In Thousands of Rands)
1. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements (hereinafter referred to as the Interim Financial Statements) have been prepared in accordance with South African generally accepted accounting principles (SA GAAP). The Interim Financial Statements are unaudited but include all adjustments (consisting of normal recurring adjustments) which the Companys management considers necessary for a fair presentation of the financial position as of such dates and the operating results and cash flows for those periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with SA GAAP have been condensed or omitted. The results of operations for the three-month period ended September 30, 2003 may not necessarily be indicative of the operating results that may be incurred for the entire fiscal year. The June 30, 2003 balance sheet was derived from audited financial statements but does not include all disclosures required by SA GAAP. The Company believes that the disclosures are adequate to make the information presented not misleading. These Interim Financial Statements should be read in conjunction with the Companys audited consolidated balance sheets as of June 30, 2003, 2002 and 2001, and the related audited consolidated statements of operations, cash flows and changes in stockholders equity for each of the three years in the period ended June 30,2003. |
September 30, | June 30, | ||||
2003 | 2003 | ||||
2. | INTANGIBLE ASSETS | ||||
Cost | |||||
Capitalised development costs | R 15,076 | R 15,076 | |||
Trademarks | | - | |||
Goodwill | 23,093 | 23,093 | |||
38,169 | 38,169 | ||||
Accumulated amortization | |||||
Capitalised development costs | 15,076 | 15,076 | |||
Trademarks | | - | |||
Goodwill | 12,898 | 11,050 | |||
27,974 | 26,126 | ||||
Carrying amount | |||||
Capitalised development costs | | - | |||
Trademarks | | - | |||
Goodwill | 10,195 | 12,043 | |||
R 10,195 | R 12,043 | ||||
The carrying amount of intangible | |||||
assets can be reconciled as follows: | |||||
Carrying amount at beginning of year | R 12,043 | R 18,284 | |||
Acquisition of minority | |||||
interests/subsidiaries | - | 5,062 | |||
Disposal of trademark | - | (1,630 | ) | ||
Amortisation | (1,848 | ) | (9,673 | ) | |
Carrying amount at end of year | R 10,195 | R 12,043 |
F-53
Three months | Three months | ||||
ended | ended | ||||
September 30, | September 30, | ||||
2003 | 2002 | ||||
3. | INCOME TAX EXPENSE | ||||
South African normal tax | |||||
Current year | R 23,292 | R 13,586 | |||
Deferred tax | (3,085 | ) | 1,841 | ||
Secondary Tax on Companies | 4,443 | 3,210 | |||
R 24,650 | R 18,637 | ||||
% | % | ||||
Reconciliation of rate of tax: | |||||
South African normal tax rate | 30.0 | 30.0 | |||
Permanent differences | 3.2 | 0.3 | |||
Secondary Tax on Companies | 7.3 | 6.3 | |||
Deferred tax not provided on tax | |||||
losses | | - | |||
Effective rate of tax | 40.5 | 36.6 | |||
Gross estimated tax losses of certain | |||||
subsidiaries available for utilisation | |||||
against | |||||
Future taxable income | R 56,347 | R 43,190 | |||
Applied to increase deferred tax asset | (38,603 | ) | (35,480 | ) | |
R 17,744 | R 7,710 | ||||
September | June 30, | ||||
30, 2003 | 2003 | ||||
4. | SHARE CAPITAL | ||||
Authorised: | |||||
500,000,000 ordinary shares of 0.1 cent | |||||
each | R 500 | R 500 | |||
500,000,000 N ordinary shares of | |||||
0,001 cent each | 5 | 5 | |||
Issued: | |||||
236,977,187 (2002: 233,463,846) | |||||
ordinary shares of 0,1 cent each | R 237 | R 237 | |||
Share options | |||||
Unexercised at beginning of year | - | 3,550 | |||
Cancelled during year | - | (37 | ) | ||
Exercised during year | - | (3,513 | ) | ||
Unexercised at end of year | - | |
F-54
6 . | OPERATING LEASE COMMITMENTS |
Within | Within | After | |||||||||
Due | 1 year | 2-5 years | 5 years | Total | |||||||
The Group leases certain premises under operating leases. The minimum future commitments for leased premises are: | |||||||||||
2003 | R 7,967 | R 5,586 | R 81 | R 13,634 | |||||||
2002 | 8,062 | 3,351 | - | 11,613 |
7. | CAPITAL COMMITMENTS |
September | June 30, | ||||
30, 2003 | 2003 | ||||
The Groups outstanding capital commitments | |||||
at the year-end, which have been approved | |||||
by the directors and contracted for amounted | |||||
to: | R 9,048 | R - |
F-55
Three months | Three months | ||||
ended | ended | ||||
September 30, | September 30 | ||||
2003 | 2002 | ||||
8. | CASH GENERATED FROM/(UTILISED BY) | ||||
OPERATIONS | |||||
Profit/(Loss) before interest and tax | R 54,262 | R 44,023 | |||
Depreciation and amortisation | 9,584 | 6,093 | |||
Unpaid on disposal of joint venture | | | |||
Income from subsidiaries | | | |||
Profit on disposal of property, plant and | |||||
equipment | (24 | ) | 206 | ||
Profit on disposal of business | - | - | |||
Profit/(Loss) from operations before working | |||||
capital changes | 63,822 | 50,322 | |||
Working capital changes | (65,499 | ) | (21,095 | ) | |
Inventory | 1,628 | 290 | |||
Trade and other receivables | (47,647 | ) | (10,171 | ) | |
Trade and other payables | (19,480 | ) | (12,024 | ) | |
R (1,647) | R 28,417 |
9. |
RELATED PARTY TRANSACTIONS Light & Livingstone Financial Services CC, in which Mr. J C Livingstone (a non-executive director) is a member, performs the Company Secretarial function for the Group. |
F-56
10. |
US GAAP INFORMATION RECONCILIATION OF NET INCOME, SHAREHOLDERS EQUITY AND CASH FLOWS FROM SA GAAP TO US GAAP The interim financial statements have been prepared in accordance with South African Generally Accepted Accounting Principles (SA GAAP), which differs in certain respects from Generally Accepted Accounting Principles in the United States (US GAAP). The effect of applying US GAAP principles to net profit and shareholders equity is set out below: |
Three months ended September 30 | |||||||
2002 | 2003 | ||||||
Notes | (Unaudited) | (Unaudited) | |||||
Net profit as reported in accordance with SA GAAP | R 30,293 | R 36,213 | |||||
Items increasing / (decreasing) net profit: | |||||||
Goodwill non-amortization | (b) | 5 | 707 | ||||
Intangible assets - purchase price adjustment | (c) | (158 | ) | (158 | ) | ||
Goodwill date of acquisition | (f) | 3,934 | 854 | ||||
Goodwill acquisition of Net 1 Investment Holdings intangible asset | (g) | (362 | ) | (362 | ) | ||
Deferred taxes acquisition of Net 1 Investment Holdings intangible asset | (g) | 362 | 362 | ||||
Development expenditure | (h) | 2,370 | - | ||||
Self-insurance | (i) | 4,658 | 6,750 | ||||
Stock compensation employees | (j) | (560 | ) | - | |||
Internally developed intangible asset | (l) | 136 | - | ||||
Income tax rate differences | (m) | (791 | ) | (797 | ) | ||
Income tax effect of US GAAP adjustments | (n) | (2,650 | ) | (2,490 | ) | ||
Net profit in accordance with US GAAP from continuing operations | 37,237 | 41,079 | |||||
Extraordinary item SFAS 142 | (e) | 7,764 | - | ||||
Change in accounting policy upon adoption of SFAS 142 | (e) | 2,879 | - | ||||
Net profit in accordance with US GAAP after extraordinary item and cumulative | |||||||
effect of change in accounting principle | R 47,880 | R 41,079 | |||||
Earnings per share before extraordinary item and cumulative effect of a | |||||||
change in accounting principle computed in accordance with US GAAP | |||||||
Basic and diluted | 0.16 | 0.17 | |||||
Earnings per share after extraordinary item and cumulative effect of a | |||||||
change in accounting principle computed in accordance with US GAAP | |||||||
Basic and diluted | 0.21 | 0.17 |
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June 30, | September 30, | ||||||
2003 | 2003 | ||||||
Notes | (Audited) | (Unaudited) | |||||
Shareholders equity as reported in accordance with SA GAAP | R 524,120 | R 524,595 | |||||
Items increasing / (decreasing) shareholders equity: | |||||||
Goodwill capitalization | (a) | 82,064 | 82,064 | ||||
Goodwill non-amortization | (b) | 5,660 | 6,367 | ||||
Goodwill - purchase price adjustment | (c) | (9,789 | ) | (9,789 | ) | ||
Intangible asset - purchase price adjustment | (c) | 4,409 | 4,251 | ||||
Goodwill purchase price adjustment - compensation | (d) | (7,351 | ) | (7,351 | ) | ||
Goodwill treatment of negative goodwill | (e) | 464 | 464 | ||||
Goodwill date of acquisition | (f) | (17,087 | ) | (16,234 | ) | ||
Goodwill self insurance | (i) | 4,550 | 4,550 | ||||
Goodwill acquisition of Net 1 Investment Holdings intangible asset | (g) | 10,133 | 9,771 | ||||
Deferred taxes impact of acquisition of Net 1 Investment Holdings intangible | |||||||
asset | (g) | (10,133 | ) | (9,771 | ) | ||
Self-insurance | (i) | 15,484 | 22,234 | ||||
Derivatives | (k) | (125 | ) | (125 | ) | ||
Income tax rate differences | (m) | (45,508 | ) | (46,304 | ) | ||
Income tax effect of US GAAP adjustments | (n) | (5,327 | ) | (7,817 | ) | ||
Change in accounting policy on adoption of SFAS 142 | (e) | 2,879 | 2,879 | ||||
Dividends declared but not paid | (35,547 | ) | - | ||||
Extraordinary item | 7,764 | 7,764 | |||||
Shareholders equity in accordance with US GAAP | R 526,660 | R 567,548 |
The cash flow statement is presented in accordance with SA GAAP, which in this respect is the same as IAS No 7, Cash flow statements and consequently the SEC does not require a reconciliation to US GAAP to be presented. A discussion of the material variations in the accounting principles, practices, and methods used in preparing the audited consolidated financial statements in accordance with SA GAAP from the principles, practices, and methods generally accepted in the United States is provided in Note 23 to the Companys audited financial statements for the three years ended June 30, 2003. There are no new significant variations between SA GAAP and US GAAP accounting principles, practices, and methods used in preparing the unaudited consolidated interim financial statements. ADDITIONAL DISCLOSURES REQUIRED BY US GAAP (a) Goodwill and intangible assets On July 1, 2002 the Company adopted SFAS 142 for US GAAP purposes, which requires that goodwill and certain intangible assets with indefinite useful lives, including those recorded in past business combinations, no longer be amortized, but instead be tested for impairment at least annually. The standard also requires the completion of a transitional impairment test with any resulting impairment identified treated as a cumulative effect of a change in accounting principle. Prior to SFAS 142, the Company assessed goodwill for impairment based on the guidance in Accounting Principles Board Opinion No. 17, Intangible Assets and SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and had to evaluate the periods of amortization continually to determine whether later events and circumstances warranted revised estimates of useful lives; impairment had to be recognized when the carrying amount exceeded the fair market value of the asset. In connection with the adoption of SFAS 142, the Company completed a transitional impairment test of its goodwill. Fair value was determined based on discounted cash flows using reasonable assumptions that are consistent with internal forecasts. As a result, the Company determined that goodwill was not impaired and that no adjustment was required. |
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Summarized below is the carrying value and accumulated
amortization of the intangible asset that will continue to be amortized
under SFAS 142, as well as the carrying amount of goodwill, which will
no longer be amortized.
|
Aggregate amortization expense for the quarter ended September 30, 2003 was approximately R 1 million. The Company estimates amortization expense to be R3.8 million each year for the next five years. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives and other relevant factors. (b) Comprehensive income For each of the three month periods ended September 30, 2002 and September 30, 2003, the Companys total comprehensive income was equal to net income as reported under US GAAP. (c) Summarized income statements and balance sheets |
June 30, | September 30, | ||||
Balance sheets | 2003 | 2003 | |||
Current assets | 596,768 | 583,290 | |||
Goodwill | 60,104 | 60,104 | |||
Intangible assets | 26,822 | 25,864 | |||
Other long-term assets | 83,779 | 86,047 | |||
Total assets | 767,473 | 755,305 | |||
Current liabilities | 153,435 | 124,310 | |||
Long-term liabilities | 61,697 | 63,446 | |||
Shareholders' equity | 552,341 | 567,549 | |||
Income statements | Three month period ended | ||||
September 30 | |||||
2002 | 2003 | ||||
Revenue | 159,275 | 192,335 | |||
Cost of sales | (61,013 | ) | (64,771 | ) | |
Other operating income | 58 | 101 | |||
Operating expenses | (44,277 | ) | (65,612 | ) | |
Interest income | 6,913 | 6,601 | |||
Profit before taxation | 60,956 | 68,654 | |||
Taxation | (21,716 | ) | (27,576 | ) | |
Profit after taxation | 39,240 | 41,078 | |||
Income attributable to minority interests | 2,003 | - | |||
Net profit from continuing operations | 37,237 | 41,078 | |||
Extraordinary item | 7,764 | - | |||
Effect of accounting change | 2,879 | - | |||
Net profit for the year | 47,880 | 41,078 |
(d) Operating segments The Company discloses segment information in accordance with SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information (SFAS 131), which requires companies to report selected segment information on a quarterly basis and to report certain entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. |
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The Company has three reportable segments which each operate exclusively within South Africa: Transaction-based activities, Financial services and Technology sales and outsourcing. The Companys reportable segments are strategic divisions that offer different products and services and are managed separately as each division requires different resources and marketing strategies. The Transaction-based activities segment provides a state pension and welfare benefit distribution service to provincial governments in South Africa. Fee income is earned based on the number of beneficiaries included in the government payfile. This segment has individually significant customers that each provide more than 10 per cent of the total revenue of the Company. For the year ended June 30, 2003, there were two such customers, providing 35 per cent and 20 per cent of total revenue (2002: three customers providing 30, 18 and 13 per cent of total revenue; 2001: three customers providing 16, 14 and 12 per cent of total revenue). The Financial services segment derives revenue from short-term personal lending activities. Interest income is recognized in the income statement as it falls due, using the interest method by reference to the constant interest rate stated in each loan agreement The Technology sales and outsourcing segment markets, sells and implements the Universal Electronic Payment System. The segment undertakes smart card system implementation projects, delivering hardware and software in the form of customized systems. Revenue for such arrangements is recognized under the completed contract method, no income and profit being recognized until the contract is completed. Corporate / eliminations include the Companys head office cost centers in addition to the elimination of inter-segment transactions. The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Note 1 to the Companys audited financial statements and any intersegment sales or transfers are eliminated. The Company evaluates segment performance based on net income after tax. The following tables summarize segment information: |
September 30, 2003 | |||||||||||
Transaction- | Technology | ||||||||||
based | Financial | sales and | Corporate / | ||||||||
activities | services | outsourcing | Eliminations | Total | |||||||
R'000 | R'000 | R'000 | R'000 | R'000 | |||||||
Revenues from external customers | 157,343 | 28,395 | 10,142 | (3,545 | ) | 192,335 | |||||
Interest revenue | 20,819 | 1,141 | 3,104 | 2,421 | 27,485 | ||||||
Interest expense | 19,681 | 203 | - | 1,000 | 20,884 | ||||||
Depreciation and amortization | 7,414 | 767 | 3 | 1,400 | 9,584 | ||||||
Income tax expense | 14,839 | 3,970 | 1,040 | 4,801 | 24,650 | ||||||
Net profit after tax | 33,206 | 9,538 | 2,426 | (8,958 | ) | 36,212 | |||||
Segment assets | 455,025 | 117,091 | 78,687 | 17,715 | 668,518 | ||||||
Expenditures for long-lived assets | 5,418 | 288 | 4 | 313 | 6,023 |
September 30, 2002 | |||||||||||
Transaction- | Technology | ||||||||||
based | Financial | sales and | Corporate / | ||||||||
activities | services | outsourcing | Eliminations | Total | |||||||
R'000 | R'000 | R'000 | R'000 | R'000 | |||||||
Revenues from external customers | 106,668 | 30,127 | 24,799 | (2,319 | ) | 159,275 | |||||
Interest revenue | 9,412 | 961 | 2,041 | 389 | 12,803 | ||||||
Interest expense | 4,888 | 970 | - | 32 | 5,890 | ||||||
Depreciation and amortization | 3,215 | 824 | 90 | 1,965 | 6,094 | ||||||
Income tax expense | 10,273 | 2,958 | 2,523 | 2,883 | 18,637 | ||||||
Net profit after tax | 23,933 | 7,027 | 5,886 | (4,550 | ) | 32,296 |
F-60
(e) Recent accounting pronouncements New accounting pronouncements adopted at September 30, 2003 for US GAAP purposes In August 2001, the FASB issued SFAS No.143, Accounting for Obligations, Associated with the Retirement of Long-Lived Assets (SFAS 143). SFAS 143 establishes accounting standards for recognition and measurement of a liability at fair value for an asset retirement obligation and an addition to the associated asset retirement cost. The accretion of interest expense each period is subsequently recorded as an expense and added to the liability. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS 143 on July 1, 2003. The Company adopted SFAS 143 effective July 1, 2003, and it had no material impact on the Companys results of operations or financial position. In April 2003 the FASB issued SFAS No. 149, Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. In particular, it (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to the language used in FIN 45 and (4) amends certain other existing pronouncements. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The provisions of SFAS 149 that relate to SFAS 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. SFAS 149 should be applied prospectively. The Company adopted SFAS 149 effective July 1, 2003, and it had no material impact on the Companys results of operations or financial position. In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 modifies the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS 150 affects an issuer's accounting for three types of freestanding financial instruments, namely:
SFAS 150 does not apply to features embedded in financial instruments that are not derivatives in their entirety. In addition to its requirements for the classification and measurement of financial instruments within its scope, SFAS 150 also requires disclosures about alternative ways of settling such instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted the SFAS 150 effective July 1, 2003, and it had no material impact on the Companys results of operations or financial position. New accounting pronouncements not adopted at September 30, 2003 for US GAAP purposes In November 2002, the EITF reached a final consensus related to Revenue Arrangement with Multiple Deliverables (EITF 00-21). The consensus requires that revenue arrangements with multiple deliverables should be divided into separate units of accounting if (a) a delivered item has value to the customer on stand alone basis, (b) there is objective and reliable evidence of the fair value of the undelivered item and (c) if the arrangement includes a general right of return, delivery or performance of the undelivered items is considered probable and substantially in the control of the vendor. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair value and appropriate revenue |
F-61
recognition criteria would be applied to each separate unit of accounting. The Company has not yet determined what effect, if any, EITF 00-21 would have on revenue and net income determined in accordance with US GAAP. The EITF agreed the effective date for the consensus will be for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted. The Company is still evaluating the impact of this EITF on its financial statements. This EITF will be effective for the Company for revenue arrangements entered into after July 1, 2004. In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities - and Interpretation of ARB No. 51 (FIN 46). This interpretation of Accounting Research Bulletin No.51, Consolidated Financial Statements , addresses consolidation by business enterprises of variable interest entities, which have one or both of the following characteristics: |
|||
1. |
The equity investment at
risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties,
which is provided through other interest that will absorb some or all
of the expected losses of the entity.
|
||
2. | The equity investors lack one or more of the following essential characteristics of a controlling financial interest: | ||
(a) | The direct or indirect ability to make decisions about the entity's activities through voting rights or similar rights. | ||
(b) | The obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities. | ||
(c) |
The right to receive the expected residual
returns of the entity if they occur, which is the compensation for the
risk of absorbing the expected losses.
|
||
In December 2003, the FASB issued a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R" or the "Interpretation"). FIN 46R clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires the consolidation of these entities, known as variable interest entities ("VIEs"), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both. Among other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the Interpretation for public companies, to the end of the first reporting period ending after March 15, 2004, except that all public companies must at a minimum apply the provisions of the Interpretation to entities that were previously considered "special-purpose entities" under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. The Company does not anticipate that the adoption of FIN 46 will have a material impact on its financial position, cash flows and results of operations. |
F-62
ANNEX A
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
NET 1 UEPS TECHNOLOGIES, INC.
Pursuant to the provisions of section 607.1006, Florida Statutes, this Florida corporation adopts the following articles of amendment to the articles of incorporation:
FIRST: Amendment adopted (indicate articles number being amended, added or deleted)
ARTICLE IV, CAPITAL STOCK IS AMENDED TO READ AS FOLLOWS:
The maximum number of shares of capital stock (as defined in Section 6 herein) that the Corporation (as defined in Section 6 herein) shall be authorized to issue and have outstanding at any one time shall be eight hundred million (800,000,000), of which five hundred million (500,000,000) shares shall be designated as common stock (the Common Stock ), par value $.001 per share, and three hundred million (300,000,000) shares shall be designated as Preferred Stock (the Preferred Stock ) par value of $ 0.001 per share.
Blank Check Preferred Stock
Series of the Preferred Stock may be created and issued from time to time, with such designations, preferences, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof as shall be stated and express in the resolution or resolutions providing for the creation and issuance of such series of Preferred Stock as adopted by the Board of Directors pursuant to the authority in this paragraph given.
Special Convertible Preference Stock
The Corporation hereby establishes and designates a class of its Preferred Stock as follows:
Section 1. Number; Designation; Rank .
(a) This series of convertible Preferred Stock is designated as the Special Convertible Preference Stock (the Convertible Preference Stock ). The number of shares constituting the Convertible Preference Stock is 192,967,138 shares, par value $0.001 per share. The Convertible Preference Stock ranks, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation:
(ii) junior in preference and priority to each other class or series of Equity Security of the Corporation the term of which expressly provide that it will rank senior in preference or priority to the Convertible Preference Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation (collectively, the Senior Securities ).
Section 2. Dividends .
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(a) So long as there are any shares of Convertible Preference Stock outstanding, immediately prior to the declaration of any dividend or distribution on the Common Stock or the Convertible Preference Stock, the Board of Directors shall determine the portion (if any) of the Corporations assets available for such dividend or distribution that is the result of funds or assets from New Aplitec (as defined in Section 6 herein), received by way of dividend, distribution, or other payment of earnings, capital, interest or principal or otherwise (the South African Amount ) and shall determine what portion of such assets available for such dividend or distribution is not the South African Amount (the Non-South African Amount ); provided that the South African Amount shall not include amounts received by way of any liquidation, distribution or dividend after an Insolvency Event on the part of New Aplitec has occurred.
(b) So long as there are any shares of Convertible Preference Stock outstanding, the Directors may declare and pay a dividend or distribution on the shares of Convertible Preference Stock and the Common Stock solely from a Non-South African Amount (without declaring and paying a dividend from the South African Amount) and the Directors may declare and pay a dividend or distribution on the Common Stock solely from a South African Amount (without declaring and paying a dividend from the Non-South African Amount).
(c) Any determination by the Board of Directors of a South African Amount or a Non-South African Amount shall be made in good faith and shall be final and binding on both the holders of Common Stock and the holders of Convertible Preference Stock.
(d) So long as there are any shares of Convertible Preference Stock outstanding, each holder of issued and outstanding Convertible Preference Stock will be entitled to receive, when, as and if declared by the Board, for each share of Convertible Preference Stock a pro rata portion, together with the holders of Common Stock on a share for share basis, of the Non-South African Amount. The holders of Common Stock and Convertible Preference Stock shall rank pari passu in respect of dividends and distributions from Non-South African Amounts.
(e) So long as there are any shares of Convertible Preference Stock outstanding, dividends and distributions from the South African Amounts shall be paid only to the holders of Common Stock and the holders of Convertible Preference Stock shall have no entitlement to participate in any such dividends or distributions from South African Amounts.
(f) So long as there are any shares of Convertible Preference Stock outstanding, the Corporation shall take all actions necessary or advisable under the Florida Business Corporation Act to authorize and permit the payment of dividends to the holders of Common Stock in the maximum amount of the South African Amount, and to the extent permitted in the exercise of their fiduciary duties and under the Florida Business Corporation Act, the Board of Directors shall declare and cause the Corporation to pay a dividend on the Common Stock in the South African Amount promptly upon the receipt of proceeds representing the South African Amount after deducting therefrom the taxes payable by the Corporation on the amount so received.
Section 3. Liquidation, Dissolution and Winding Up .
In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of shares of Convertible Preference Stock shall be entitled to receive, share for share and pari passu with the holders of shares of Common Stock, all the assets of the Corporation of whatever kind available for distribution to stockholders, after the rights of the holders of Senior Securities have been satisfied.
Section 4. Voting Rights .
(a) Holders of Convertible Preference Stock have the right to receive notice of, attend, speak and vote at general meetings of the Corporation.
(b) The holders of Convertible Preference Stock are entitled to vote on all matters on which the holders of Common Stock are entitled to vote, and except as otherwise provided herein or by law, the holders of Convertible Preference Stock will vote together with the holders of Common Stock as a single class. Each holder of
A-2
Convertible Preference Stock present in person (as defined in Section 6 herein), or the person representing the holder of Convertible Preference Stock, is entitled to a number of votes equal to the number of shares of Common Stock that would be issued upon conversion of the Convertible Preference Stock held by such holder on the record date.
(c) So long as there are any shares of Convertible Preference Stock outstanding, as adjusted for stock dividends, splits, combinations and similar events, and except as otherwise provided by law, the Corporation may not take any of the following actions without the prior vote or written consent of holders representing at least a majority of the then outstanding shares of Convertible Preference Stock, voting together as a separate class:
(ii) any amendment, alteration or change to the powers, designations, preferences, rights, qualifications, limitations or restrictions of the Convertible Preference Stock set forth in these Articles of Incorporation in any manner (including by way of merger, consolidation or otherwise) that adversely affects the holders of Convertible Preference Stock.
Section 5. Conversion .
Each share of Convertible Preference Stock is convertible into one share of Common Stock as provided in this Section 5.
(a) General . Convertible Preference Stock is convertible upon the occurrence of a Trigger Event (as defined in Section 6 herein) into duly authorized, validly issued, fully paid and nonassessable shares of Common Stock in the ratio of one share of Convertible Preference Stock for each one share of Common Stock. For each share of Convertible Preference Stock that is converted, the holder thereof shall transfer and deliver to the Corporation (i) 1.228070176 New Aplitec B Share (as defined in Section 6 herein) (the Equity Payment Ratio ) and (ii) the Appropriate Principal Amount (as defined in Section 6 herein). The Equity Payment Ratio is the ratio of (i) the number of New Aplitec B Shares required to be delivered to the Corporation in connection with the conversion of shares of Convertible Preference Stock to (ii) one share of Convertible Preference Stock, and shall equal 1.228070176 but may be adjusted from time to time as provided herein.
(b) Optional Conversion . Each holder of Convertible Preference Stock is entitled to convert, at any time and from time to time at the option and election of such holder, any or all shares of outstanding Convertible Preference Stock held by such holder into shares of Common Stock. In order to convert shares of Convertible Preference Stock into shares of Common Stock, the holder, or any trustee holding the Convertible Preference Stock and acting for the account of the holder upon receipt of written notice by such holder that such holder elects to convert any or all of such number of shares represented by such certificates as specified therein, must surrender (A) the certificates representing such shares of Convertible Preference Stock, (B) the certificates for the New Aplitec B Shares, and (C) an assignment and transfer, in favor of the Corporation, evidencing the New Aplitec B Loans, in each case in the appropriate amounts as described in Section 5(a), at the principal office of the Corporation, or if so designated by the Corporation, the Corporations transfer agent or other agent appointed by the Corporation for effectuating the conversion (the Conversion Agent ).
(c) Mandatory Conversion . Upon the notice of the Corporation that an Exchange Control Event (as defined in Section 6 herein) has occurred or without notice upon the occurrence of an Insolvency Event (as defined in Section 6 herein), the outstanding shares of Convertible Preference Stock shall automatically and without any further act by the holder thereof be converted into Common Stock. The Corporation shall provide written notice to all holders of Convertible Preference Stock and to New Aplitec stating that the Convertible Preference Stock has been converted to Common Stock, the Conversion Date (as defined below) and that the holders of Convertible Preference Stock are required to deliver to the Corporation on the date set out in the notice (which shall be a date not earlier than fourteen days from the date of notice) (i) the share certificates for the shares of Convertible Preference Stock, (ii) the certificates for the New Aplitec B Shares, and (iii) an assignment and transfer in favor of the Corporation of the New Aplitec B Loans.
A-3
(d) Fractional Shares . No fractional shares of Common Stock shall be issued upon conversion of the Convertible Preference Stock, unless the Board of Directors of the Corporation shall otherwise determine to issue fractional shares. Subject to the foregoing, in lieu of fractional shares, the Corporation shall pay cash equal to such fractional amount multiplied by the Fair Market Value per share of Common Stock as of the Conversion Date (as defined below). If more than one share of Convertible Preference Stock is being converted at one time by the same holder, then the number of full shares issuable upon conversion will be calculated on the basis of the aggregate number of shares of Convertible Preference Stock converted by such holder at such time.
(e) Mechanics of Conversion .
(ii) The Corporation shall at all times reserve and keep available, free from any preemptive rights, out of its authorized but unissued shares of Common Stock for the purpose of effecting the conversion of the Convertible Preference Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding Convertible Preference Stock (assuming for the purposes of this calculation that all outstanding shares of Convertible Preference Stock are held by one holder). The Corporation shall comply with all United States federal and state laws, rules and regulations and applicable rules and regulations of any securities exchange or automated quotation system on which the Common Stock is then listed or quoted. Before taking any action which would cause an adjustment in the Equity Payment Ratio that would result in the consideration received by the Corporation upon conversion per share of Common Stock to be below the then par value of the shares of Common Stock issuable upon conversion of the Convertible Preference Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock after taking such action.
(iii) From and after the Conversion Date, dividends on the Convertible Preference Stock to be converted on such Conversion Date shall cease to accrue; such shares shall no longer be deemed to be outstanding; and all rights of the holder thereof as a holder of Convertible Preference Stock (except the right to receive from the Corporation the Common Stock upon conversion) shall cease and terminate with respect to such shares. Any shares of Convertible Preference Stock that have been converted will, after such conversion, be deemed cancelled and retired and have the status of authorized but
A-4
unissued Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board.
(iv) If the optional conversion is in connection with any public offering or other sale, the conversion may, at the option of any holder tendering any share of Convertible Preference Stock for conversion, be conditioned upon the closing of the sale of shares of Common Stock with the underwriter or other purchaser in such sale, in which event such conversion of such shares of Convertible Preference Stock shall not be deemed to have occurred until immediately prior to the closing of such sale.
(v) The New Common Stock shall be credited as fully paid and shall rank pari passu in all respects and form once class with the shares of Common Stock then in issue.
(vi) If the shares of Convertible Preference Stock remain capable of conversion into shares of Common Stock and there is a consolidation or stock-split of then outstanding shares of Common Stock, the shares of Convertible Preference Stock shall be consolidated or split in a similar manner in order, in the Directors fair and reasonable opinion, to maintain the relative economic benefits attributable to the shares of Convertible Preference Stock and the shares of Common Stock after the consolidation or stock-split with the position prior to such consolidation or stock-split. In any such event, the Equity Payment Ratio shall be adjusted in a similar manner in order, in the Directors fair and reasonable opinion, to maintain the relative economic benefits attributable to the shares of Convertible Preference Stock and the New Aplitec B Shares, New Aplitec B Loans and the shares of Common Stock.
(f) Effect of Reclassification, Merger or Sale .
(ii) If the holders of Common Stock were entitled to exercise a right of election as to the kind or amount of capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) receivable upon such reclassification, change, merger, consolidation, combination, sale, conveyance or transfer, then the holders of Convertible Preference Stock shall have the same election as to the kind and amount of capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) receivable in respect of each share of Common Stock issuable upon conversion of the Convertible Preference Stock.
(iii) If a tender offer (which includes any exchange offer) is made to and accepted by the holders of Common Stock under circumstances in which, upon completion of such tender offer, the maker thereof, together with members of any group (as defined in Section 6 herein) of which such maker is a part, and together with any affiliate or associate (as defined in Section 6 herein) of such maker and any members of any such group of which any such affiliate or associate is a part, own beneficially more than 50% of the outstanding shares of Common Stock, each holder of Convertible Preference Stock will be
A-5
entitled to receive the highest amount of capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) to which such holder would actually have been entitled as a holder of Common Stock if such holder had converted such holders Convertible Preference Stock prior to the expiration of such tender offer, accepted such offer and all of the Common Stock held by such holder had been purchased pursuant to such tender offer.
(iv) This Section 5(f) will similarly apply to successive reclassifications, changes, mergers, consolidations, combinations, sales, conveyances and transfers. If this Section 5(f) applies to any event or occurrence, Section 5(e) will not apply.
(g) Notice of Record Date . In the event of:
(ii) any reclassification, change, merger, consolidation, combination, sale, conveyance or transfer to which Section 5(f) applies; or
(iii) the dissolution, liquidation or winding up of the Corporation;
then the Corporation shall file with its corporate records and mail to the holders of the Convertible Preference Stock at their last addresses as shown on the records of the Corporation, at least 10 days prior to the record date specified in (A) below or 20 days prior to the date specified in (B) below, a notice stating:
(B) the date on which such reclassification, change, merger, consolidation, combination, sale, conveyance, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record will be entitled to exchange their shares of Common Stock for the capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) deliverable upon such reclassification, change, merger, consolidation, combination, sale, conveyance, transfer, liquidation, dissolution or winding up.
(h) Certificate of Adjustments . Upon the occurrence of each adjustment or readjustment of the Equity Payment Ratio pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof (as defined in Section 6 herein) and furnish to each holder of Convertible Preference Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based and shall file a copy of such certificate with its corporate records. The Corporation shall, upon the reasonable written request of any holder of Convertible Preference Stock, furnish to such holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Equity Payment Ratio then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) which then would be received upon the conversion of Convertible Preference Stock.
(i) No Impairment . The Corporation may not, whether by any amendment of these Articles of Incorporation, by any reclassification or other change to its capital stock, by any merger, consolidation or other combination involving the Corporation, by any sale, conveyance or other transfer of any of its assets, by the liquidation, dissolution or winding up of the Corporation or by any other way, impair or restrict its ability to convert shares of Convertible Preference Stock and issue shares of Common Stock therefor, or avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such
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action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Convertible Preference Stock against impairment to the extent required hereunder.
Section 6. Additional Definitions . For purposes of these articles of amendment, the following terms shall have the following meanings:
(a) affiliate means, with respect to any specified person, any other person that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified person, for so long as such other person remains so associated to such specified person.
(b) Aplitec means Net 1 Applied Technology Holdings Limited, registration number 1997/007207/06, a public company incorporated in South Africa.
(c) Aplitec Holdings Participation Trust means the Aplitec Holdings Participation Trust, a trust established in the Cayman Islands.
(d) Appropriate Principal Amount means, as of any time, (i) the aggregate principal amount of the New Aplitec B Loans initially issued, plus any accrued interest, less (A) any repayments of such loans and (B) any of such loans transferred to the Corporation in connection with the conversion of shares of Convertible Preferred Stock into shares of Common Stock, divided by (ii) the number of shares of Convertible Preference Stock outstanding at such time.
(e) associate has the meaning given such term in Rule 12b-2 under the Exchange Act.
(f) Board of Directors or Board or Directors means the board of directors of the Corporation.
(g) capital stock means any and all shares, interests, participations or other equivalents (however designated, whether voting or non voting) of capital stock, partnership interests (whether general or limited) or equivalent ownership interests in or issued by such person, and with respect to the Corporation includes, without limitation, any and all shares of Common Stock and the Preferred Stock.
(h) Corporation means this Corporation.
(i) Equity Securities means (x) any shares of capital stock of the Corporation, (y) any rights, options, warrants or similar securities to subscribe for, purchase or otherwise acquire any shares of capital stock of the Corporation, and (z) debt or other evidences of indebtedness, capital stock or other securities directly or indirectly convertible into or exercisable or exchangeable for any shares of capital stock of such the Corporation.
(j) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(k) Exchange Control Event means the relaxation or abolishment of exchange control regulations in the Republic of South Africa such that residents of South Africa are permitted to hold shares of Common Stock, provided that the Corporation may rely on the reasonable opinion of South African legal counsel as to the occurrence of an Exchange Control Event.
(l) Fair Market Value of any property means the fair market value thereof as determined in good faith by the Board, which determination must be set forth in a written resolution of the Board, in accordance with the following rules:
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(ii) for Common Stock that is not so traded or quoted, the Fair Market Value shall be determined: (x) mutually by the Board and the holders of at least a majority of the then outstanding shares of Convertible Preference Stock, (y) by the Board based on a valuation of the Corporation not less than the implied valuation of the Common Stock based on an arms-length sale of Equity Securities to a non-affiliate third-party within six months of the date of determination, or (z) by a nationally recognized investment bank or accounting firm (whose fees and expenses will be paid by the Corporation); or
(iii) for any other property, the Fair Market Value shall be determined by the Board assuming a willing buyer and a willing seller in an arms-length transaction;
provided that if holders representing two-thirds of the then outstanding shares of Convertible Preference Stock object to a determination of the Board made pursuant to clause (ii)(y) or (z) or clause (iii), then the Fair Market Value of such property will be as determined by a nationally recognized investment banking or accounting firm (whose fees and expenses will be paid by the Corporation) selected by mutual agreement between the Board and the holders representing a majority of the then outstanding shares of Convertible Preference Stock.
(m) group has the meaning assigned to such term in Section 13(d)(3) of the Exchange Act.
(n) hereof , herein and hereunder and words of similar import refer to these resolutions as a whole and not merely to any particular clause, provision, section or subsection.
(o) Insolvency Event means
(ii) any case, action or proceeding or other action of relief of a nature referred to in clause (i) above against either the Corporation or New Aplitec, which, in each case, (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days;
(iii) any case, proceeding or action against either the Corporation or New Aplitec, and in each case, seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) any action by either the Corporation or New Aplitec, and in each case, in furtherance of, or indicating consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above.
(p) New Aplitec means Newshelf 713 (Proprietary) Limited registration number is 2002/03144607, to be renamed Net 1 Applied Technologies South Africa (Proprietary) Limited or a similar name, a private company incorporated in South Africa.
(q) New Aplitec B Loans means B class loans in the capital of New Aplitec in an aggregate principal amount of ZAR 239,356,482, or ZAR 1.001004 per New Aplitec B Share which are linked by their terms to the New Aplitec B Shares.
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(r) New Aplitec B Shares means the B Class preference shares of New Aplitec of nominal value ZAR 0.001 each in the capital of New Aplitec which are linked by their terms to the New Aplitec B Loans.
(s) New Aplitec Participation Trust means the New Aplitec Participation Trust, a trust established in South Africa.
(t) person means any individual, corporation, limited liability Corporation, limited or general partnership, joint venture, association, joint stock Corporation, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity or any group comprised of two or more of the foregoing.
(u) Subsidiaries means any of the Corporations majority or wholly owned subsidiaries.
(v) Trigger Event means, any of:
(ii) the occurrence of an Insolvency Event; or
(iii) the occurrence of an Exchange Control Event.
(w) ZAR means the South African Rand.
Section 7. Transfer Restrictions.
The shares of Convertible Preference Stock may not be sold, assigned, transferred, pledged, or encumbered, except in connection with the conversion into shares of Common Stock. The shares of Convertible Preference Stock may not be held by any person other than the Aplitec Holdings Participation Trust for the benefit of the New Aplitec Participation Trust and indirectly for the benefit of former shareholders of Aplitec, and directly by the New Aplitec Participation Trust indirectly for the benefit of former shareholders of Aplitec.
Section 8. Miscellaneous.
(a) Notices. Any notice, demand, offer, request or other communication required or permitted to be given by the Corporation to the holders of shares of Convertible Preference Stock shall be in writing and shall be deemed to be given upon the earliest to occur of:
(ii) one (1) business day after being delivered by facsimile (with receipt of appropriate confirmation);
(iii) one (1) business day after being deposited with a nationally recognized overnight courier service; or
(iv) three (3) business days after being addressed to each holder of record at such holders address appearing on the books of the Corporation and deposited in the United States mail (first class with postage prepaid and return receipt requested).
(b) Status of Converted or Redeemed Shares . No shares of Convertible Preference Stock converted into shares of Common Stock or redeemed, repurchased or otherwise acquired by the Corporation or any of its Subsidiaries (as defined in Section 6 herein) shall be reissued as Convertible Preference Stock and shall have the status of undesignated Preferred Stock.
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(c) Amendments . Any amendment to this Article IV shall be subject to the terms hereof and shall comply with the Florida Business Corporation Act.
(d) Reports . The Corporation shall mail to all holders of Convertible Preference Stock any reports, proxy statements and other materials that it mails to the holders of Common Stock.
(e) Headings and Subheadings . The headings and subheadings of the sections, paragraphs, subparagraphs, clauses and sub clauses of this Article are for convenience of reference only and shall not define, limit or otherwise affect any of the provisions hereof.
[ Rest of page intentionally left blank. ]
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SECOND: If an amendment provides for an exchange, reclassification or cancellation of issued shares, provision for implementing the amendment if not contained in the amendment itself, are as follows: NONE.
THIRD: The date of each amendments adoptions is ____________ , 2004.
FOURTH: The date of the adoption of this Amendment ____________ , 2004:
The amendment was approved by the shareholders. The number of votes cast for the amendment was sufficient for approval.
Signed this ___ day of ________, 2004 | |||
By: | |||
Name: | |||
Title: |
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ANNEX B
FORM OF
2004 STOCK INCENTIVE PLAN OF
NET 1 UEPS TECHNOLOGIES, INC.
AND ITS SUBSIDIARIES
1. | Purpose of the Plan |
The purpose of the Plan is to aid the Company and its Affiliates in recruiting and retaining key employees, directors or consultants of outstanding ability and to motivate such employees, directors or consultants to exert their best efforts on behalf of the Company and its Affiliates by providing incentives through the granting of Awards. The Company expects that it will benefit from the added interest which such key employees, directors or consultants will have in the welfare of the Company as a result of their proprietary interest in the Companyssuccess. | |
2. | Definitions |
The following capitalized terms used in the Plan have the respective meanings set forth in this Section: |
(a) | Act : The Securities Exchange Act of 1934, as amended, or any successor thereto. | |||
(b) | Affiliate : With respect to the Company, any entity directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board in which the Company or an Affiliate has an interest. | |||
(c) | Award : An Option, Stock Appreciation Right or Other Stock-Based Award granted pursuant to the Plan. | |||
(d) | Beneficial Owner : A beneficial owner, as such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). | |||
(e) | Board : The Board of Directors of the Company. | |||
(f) | Code : The Internal Revenue Code of 1986, as amended, or any successor thereto. | |||
(g) | Committee : The Board, or such committee of the Board as it shall designate from time to time, in accordance with Section 4. | |||
(h) | Company : Net 1 UEPS Technologies, Inc., a Florida corporation. | |||
(i) | Disability : Inability of a Participant to perform in all material respects the Participants duties and responsibilities to the Company, or any Subsidiary of the Company, by reason of a physical or mental disability or infirmity which inability is reasonably expected to be permanent and has continued (i) for a period of six consecutive months or (ii) such shorter period as the Committee may reasonably determine in good faith. The Disability determination shall be in the sole discretion of the Committee and a Participant (or the Participants representative) shall furnish the Committee with medical evidence documenting the Participants disability or infirmity which is satisfactory to the Committee. | |||
(j) | Effective Date : The date the Board approves the Plan, or such later date as is designated by the Board. |
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(k) |
Employment
: The term Employment
as used herein shall be deemed to refer to (i) a Participants employment
if the Participant is an employee of the Company or any of its Affiliates,
(ii) a Participants services as a consultant, if the Participant
is consultant to the Company or its Affiliates and (iii) a Participants
services as an non-employee director, if the Participant is a non-employee
member of the Board.
|
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(l) |
Fair Market Value
: On a given date,
(i) if there should be a public market for the Shares on such date, the
arithmetic mean of the high and low prices of the Shares as reported on
such date on the Composite Tape of the principal national securities exchange
on which such Shares are listed or admitted to trading, or, if the Shares
are not listed or admitted on any national securities exchange, the arithmetic
mean of the per Share closing bid price and per Share closing asked price
on such date as quoted on the Over-the-Counter Bulletin Board (or such
market in which such prices are regularly quoted)(the
OTC Bulletin
Board
), or, if no sale of Shares shall have been reported on
the Composite Tape of any national securities exchange or quoted on the
OTC Bulletin Board on such date, then the immediately preceding date on
which sales of the Shares have been so reported or quoted shall be used,
and (ii) if there should not be a public market for the Shares on such
date, the Fair Market Value shall be the value established by the Committee
in good faith.
|
|||
(m) |
ISO
: An Option that is also an incentive
stock option granted pursuant to Section 6(d) of the Plan.
|
|||
(n) |
LSAR
: A limited stock appreciation
right granted pursuant to Section 7(d) of the Plan.
|
|||
(o) |
Other Stock-Based Awards
: Awards
granted pursuant to Section 8 of the Plan.
|
|||
(p) |
Option
: A stock option granted pursuant
to Section 6 of the Plan.
|
|||
(q) |
Option Price
: The purchase price
per Share of an Option, as determined pursuant to Section 6(a) of the
Plan.
|
|||
(r) |
Participant
: An employee, director
or consultant of the Company or a Subsidiary who is selected by the Committee
to participate in the Plan.
|
|||
(s) |
Performance-Based Awards
: Certain
Other Stock-Based Awards granted pursuant to Section 8(b) of the Plan.
|
|||
(t) |
Person
: A person, as
such term is used for purposes of Section 13(d) or 14(d) of the Act (or
any successor section thereto).
|
|||
(u) |
Plan
: The 2004 Stock Incentive Plan
of Net 1 UEPS Technologies, Inc. and its Subsidiaries.
|
|||
(v) |
Shares
: Shares of common stock,
par value $0.001 per share, of the Company.
|
|||
(w) |
Stock Appreciation Right
: A stock
appreciation right granted pursuant to Section 7 of the Plan.
|
|||
(x) |
Subsidiary
: With reference to the
Company, a subsidiary corporation, as defined in Section 424(f) of the
Code (or any successor section thereto).
|
3. Shares Subject to the Plan
(a) | The total number of Shares which may be issued under the Plan is 17,441,872; provided, |
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that, (i) the maximum number of Shares for which Options may be granted is 8,720,936, and (ii) the maximum number of Shares for which Stock Appreciation Rights and Other Stock-Based Awards may be granted is 8,720,936. The maximum number of Shares for which Options and Stock Appreciation Rights (or Awards other than in Section 8(b)) may be granted during a calendar year to any Participant shall be [ ____________ ]. The Shares may consist, in whole or in part, of unissued Shares or treasury Shares. The issuance of Shares or the payment of cash upon the exercise of an Award or in consideration of the cancellation or termination of an Award shall reduce the total number of Shares available under the Plan, as applicable. Shares which are subject to Awards which terminate or lapse without the payment of consideration may be granted again under the Plan. Shares delivered to the Company as part or full payment for the exercise of an Option or to satisfy withholding obligations upon the exercise of an Option, in each case if permitted by the Committee, may be granted again under the Plan. |
4. Administration
The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof, which Committee shall consist, unless otherwise determined by the Board, (i) during any period that the Company is subject to Section 16 of the Act, solely of at least two individuals who are intended to qualify as Non-Employee Directors within the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and (ii) during any period that the Company is subject to Section 162(m) of the Code, solely of outside directors within the meaning of Section 162(m) of the Code (or any successor section thereto). Awards may, in the discretion of the Committee, be made under the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or its affiliates or a company acquired by the Company or with which the Company combines. The number of Shares underlying such substitute awards shall be counted against the aggregate number of Shares available for Awards under the Plan. The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, to grant awards consistent with the terms of the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). The Committee shall have the full power and authority to establish the terms and conditions of any Award consistent with the provisions of the Plan and to waive any such terms and conditions at any time (including, without limitation, accelerating or waiving any vesting conditions). The Committee shall require payment of any amount it may determine to be necessary to withhold for federal, state, local or other taxes as a result of the exercise, grant or vesting of an Award. Unless the Committee specifies otherwise, the Participant may elect to pay a portion or all of such withholding taxes by (a) delivery in Shares or (b) having Shares withheld by the Company from any Shares that would have otherwise been received by the Participant.
5. Limitations
No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date.
6. Terms and Conditions of Options
Options granted under the Plan shall be, as determined by the Committee, non-qualified or incentive stock options for federal income tax purposes, as evidenced by the related Award agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine:
(a) | Option Price . The Option Price per Share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Shares on the date an Option is granted; provided, however, that the Committee may, in its sole discretion, initially grant Options following the Effective Date with an Option Price per Share of $.50. |
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(b) | Exercisability . Options granted under the Plan shall vest and become exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted. Unless otherwise provided in an Award agreement, an Option shall vest with respect to twenty percent (20%) of the Shares initially covered by the Option on each of the first, second, third, fourth and fifth anniversaries of the date the Option was granted, subject to the Participants continued Employment with the Company and the other terms and conditions of the Plan and the Award agreement. | |||
(c) | Exercise of Options . Except as otherwise provided in the Plan or in an Award agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of Section 6 of the Plan, except as otherwise provided in an Award agreement, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, the date payment is received by the Company pursuant to clauses (i), (ii), (iii) or (iv) in the following sentence. The purchase price for the Shares as to which an Option is exercised shall be paid to the Company in full, in accordance with Committee procedures, at the election of the Participant (i) in cash or its equivalent (e.g., by check), (ii) to the extent permitted by the Committee, in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee; provided that such Shares have been held by the Participant for no less than six months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment applying generally accepted accounting principles), (iii) partly in cash and, to the extent permitted by the Committee, partly in such Shares or (iv) to the extent permitted by the Committee, if there is a public market for the Shares at such time, through the delivery of irrevocable instructions to a broker to sell Shares obtained upon the exercise of the Option and to deliver promptly to the Company an amount out of the proceeds of such Sale equal to the aggregate Option Price for the Shares being purchased. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. | |||
(d) | ISOs . The Committee may grant Options under the Plan that are intended to be ISOs. Such ISOs shall comply with the requirements of Section 422 of the Code (or any successor section thereto). No ISO may be granted to any Participant who at the time of such grant owns ten percent or more of the total combined voting power of all classes of stock of the Company or of any Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the Fair Market Value of a Share on the date the ISO is granted and (ii) the date on which such ISO terminates is a date not later than the day preceding the fifth anniversary of the date on which the ISO is granted. Any Participant who disposes of Shares acquired upon the exercise of an ISO either (i) within two years after the date of grant of such ISO or (ii) within one year after the transfer of such Shares to the Participant, shall notify the Company of such disposition and of the amount realized upon such disposition. All Options granted under the Plan are intended to be nonqualified stock options, unless the applicable Award agreement expressly states that the Option is intended to be an ISO. If an Option is intended to be an ISO, and if for any reason such Option (or portion thereof) shall not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a nonqualified stock option granted under the Plan; provided that such Option (or potion thereof) otherwise complies with the Plans requirements relating to nonqualified stock options. In no event shall any member of the Committee, the Company or any of its Affiliates (or their respective employees, officers or directors) have any liability to any Participant (or any other Person) due to the failure of an Option to qualify for any reason as an ISO. |
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(e) | Attestation . Wherever in this Plan or any agreement evidencing an Award a Participant is permitted to pay the exercise price of an Option or taxes relating to the exercise of an Option by delivering Shares, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirement by presenting proof of beneficial ownership of such Shares, in which case the Company shall treat the Option as exercised without further payment and shall withhold such number of Shares from the Shares acquired by the exercise of the Option. |
7. Terms and Conditions of Stock Appreciation Rights
(a) | Grants . The Committee also may grant (i) a Stock Appreciation Right independent of an Option or (ii) a Stock Appreciation Right in connection with an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to clause (ii) of the preceding sentence (A) may be granted at the time the related Option is granted or at any time prior to the exercise or cancellation of the related Option, (B) shall cover the same number of Shares covered by an Option (or such lesser number of Shares as the Committee may determine) and (C) shall be subject to the same terms and conditions as such Option except for such additional limitations as are contemplated by this Section 7 (or such additional limitations as may be included in an Award agreement). | |||
(b) | Terms . The exercise price per Share of a Stock Appreciation Right shall be an amount determined by the Committee but in no event shall such amount be less than the greater of (i) the Fair Market Value of a Share on the date the Stock Appreciation Right is granted or, in the case of a Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, the Option Price of the related Option and (ii) the minimum amount permitted by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. Each Stock Appreciation Right granted independent of an Option shall entitle a Participant upon exercise to an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the exercise price per Share, times (ii) the number of Shares covered by the Stock Appreciation Right. Each Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, shall entitle a Participant to surrender to the Company the unexercised Option, or any portion thereof, and to receive from the Company in exchange therefore an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the Option Price per Share, times (ii) the number of Shares covered by the Option, or portion thereof, which is surrendered. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in Shares or in cash, or partly in Shares and partly in cash (any such Shares valued at such Fair Market Value), all as shall be determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares with respect to which the Stock Appreciation Right is being exercised. No fractional Shares will be issued in payment for Stock Appreciation Rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole Share. | |||
(c) | Limitations . The Committee may impose, in its discretion, such conditions upon the exercisability or transferability of Stock Appreciation Rights as it may deem fit. | |||
(d) | Limited Stock Appreciation Rights . The Committee may grant LSARs that are exercisable upon the occurrence of specified contingent events. Such LSARs may provide for a different method of determining appreciation, may specify that payment will be made only in cash and may provide that any related Awards are not exercisable while such LSARs are exercisable. Unless the context otherwise requires, whenever the term Stock Appreciation Right is used in the Plan, such term shall include LSARs. |
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8.
Other Stock-Based Awards
(a) | Generally . The Committee, in its sole discretion, may grant or sell Awards of Shares, Awards of restricted Shares and Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Shares (Other Stock-Based Awards). Such Other Stock-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive, or vest with respect to, one or more Shares (or the equivalent cash value of such Shares) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine to whom and when Other Stock-Based Awards will be made, the number of Shares to be awarded under (or otherwise related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled in cash, Shares or a combination of cash and Shares; and all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof and provisions ensuring that all Shares so awarded and issued shall be fully paid and non-assessable). Unless otherwise provided in an Award agreement, Other Stock-Based Awards shall vest with respect to twenty percent (20%) of the Shares initially covered by such Other Stock-Based Award on each of the grant date and the first, second, third and fourth anniversaries of the date such Award was granted, subject to the Participants continued Employment with the Company and the other terms and conditions of the Plan and the Award agreement. | |||
(b) | Performance-Based Awards . Notwithstanding anything to the contrary herein, certain Other Stock-Based Awards granted under this Section 8 may be granted in a manner which is deductible by the Company under Section 162(m) of the Code (or any successor section thereto) ( Performance-Based Awards ). A Participants Performance-Based Award shall be determined based on the attainment of written performance goals approved by the Committee for a performance period established by the Committee (i) while the outcome for that performance period is substantially uncertain and (ii) no more than 90 days after the commencement of the performance period to which the performance goal relates or, if less, the number of days which is equal to 25% of the relevant performance period. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per Share; (v) book value per Share; (vi) return on shareholders equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working capital and (xviii) return on assets. The foregoing criteria may relate to the Company, one or more of its Subsidiaries or one or more of its divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items. The maximum amount of a Performance-Based Award during a calendar year to any Participant shall be: (x) with respect to Performance-Based Awards that are Options, [_________] Shares and (y) with respect to Performance-Based Awards that are not Options, $[______]. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the |
B-6
amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however , that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) of the Code, elect to defer payment of a Performance-Based Award . |
9. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the following
provisions shall apply to all Awards granted under the Plan:
(a) | In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spinoff, combination or transaction or exchange of Shares or other corporate exchange, or any distribution to shareholders of Shares other than regular cash dividends or any transaction similar to the foregoing, the Committee, in its sole discretion and without liability to any person, may make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the maximum number of Shares for which Options or Stock Appreciation Rights may be granted during a calendar year to any Participant, (iii) the maximum amount of a Performance-Based Award that may be granted during a calendar year to any Participant, (iv) the Option Price or exercise price of any stock appreciation right and/or (v) any other affected terms of such Awards. | |||
(b) | In the event a significant corporate transaction such a sale of voting stock, merger, sale of substantial assets, or other similar corporate event involving the Company, occurs after the Effective Date, (i) if determined by the Committee in the applicable Award agreement or otherwise, any outstanding Awards then held by Participants which are unexercisable or otherwise unvested or subject to lapse restrictions may automatically be deemed exercisable or otherwise vested or no longer subject to lapse restrictions, as the case may be, as of immediately prior to such Corporate transaction, and (ii) the Committee may, but shall not be obligated to, (A) cancel such Awards for fair value (as determined in the sole discretion of the Committee) which, in the case of Options and Stock Appreciation Rights, may equal the excess, if any, of value of the consideration to be paid in such corporate transaction to holders of the same number of Shares subject to such Options or Stock Appreciation Rights (or, if no consideration is paid in any such transaction, the Fair Market Value of the Shares subject to such Options or Stock Appreciation Rights) over the aggregate exercise price of such Options or Stock Appreciation Rights or (B) provide for the issuance of substitute Awards that will substantially preserve the otherwise applicable terms of any affected Awards previously granted hereunder as determined by the Committee in its sole discretion or (C) provide that for a period of at least 15 days prior to the consummation of such corporate transaction, such Options shall be exercisable as to all shares subject thereto and that upon the consummation of such corporate transaction, such Options shall terminate and be of no further force and effect. |
10. No Right to Employment or Awards
The granting of an Award under the Plan shall impose no obligation on the Company or any Subsidiary to continue the Employment of a Participant and shall not lessen or affect the Companys or Subsidiarys right to terminate the Employment of such Participant. No Participant or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committees determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated).
B-7
11. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and a
Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or trustee
in bankruptcy or representative of the Participants creditors.
12.
Nontransferability of Awards
Unless otherwise determined by the Committee, an Award shall not be transferable
or assignable by the Participant otherwise than by will or by the laws of descent
and distribution. An Award exercisable after the death of a Participant may
be exercised by the legatees, personal representatives or distributees of the
Participant.
13.
Amendments or Termination
The Board may amend, alter or discontinue the Plan, but no amendment, alteration
or discontinuation shall be made, (a) without the approval of the shareholders
of the Company, if such action would (except as is provided in Section 9 of
the Plan), increase the total number of Shares reserved for the purposes of
the Plan or change the maximum number of Shares for which Awards may be granted
to any Participant or (b) without the consent of a Participant, if such action
would diminish any of the rights of the Participant under any Award theretofore
granted to such Participant under the Plan; provided, however, that the Committee
may amend the Plan in such manner as it deems necessary to permit the granting
of Awards meeting the requirements of the Code or other applicable laws.
14.
International Participants
With respect to Participants who reside or work outside the United States of
America and who are not (and who are not expected to be) covered employees
within the meaning of Section 162(m) of the Code, the Committee may, in its
sole discretion, amend the terms of the Plan or Awards with respect to such
Participants in order to conform such terms with the requirements of local law.
15.
Choice of Law
The Plan shall be governed by and construed in accordance with the laws of the
State of Florida without regard to conflicts of laws.
16.
Effectiveness of the Plan
The Plan shall be effective as of the Effective Date, subject to the approval of the shareholders of the Company.
B-8
ANNEX C
January 30, 2004
Board of Directors
Net 1 UEPS Technologies, Inc.
744 West Hastings St., #325
Vancouver, BC V6C 1A5
Canada
Members of the Board:
Re: Fairness Opinion
You have requested our Opinion as independent business valuators as to the fairness (Opinion) of the consideration to be received by Net 1 UEPS Technologies, Inc. (NET or the Company) for the issuance of approximately 105.6 million shares of common stock at a price of $0.50 per share (the Issuance) to Brait Private Equity (BRAIT) at January 30, 2004 (the Valuation Date). We have not been requested to opine as to, and our Opinion does not in any manner address, the underlying business decision of the Company to proceed with the contemplated acquisition of substantially all of the assets and the assumption of substantially all of the liabilities (the Transaction) of Net Applied Technology Holdings Limited (APLITEC). In addition, we have not been requested to explore any alternatives to the Issuance. The basis for our Opinion is supported by our Valuation Report addressed to Mr. Claude Guerard, Chief Executive Officer of NET dated January 30, 2004.
In arriving at our Opinion, we, among other things, included discussions, meetings, reliance and review of the following:
a) |
Form 10Q for the quarter ended September 30, 2003
and Form 10K for the year ended December 31, 2002;
|
|
b) |
Discussions with management and directors of NET
were undertaken;
|
|
c) |
Assumptions on NETs market, competitive position
and outlook as relayed by NET management at the Valuation Date;
|
|
d) |
Relevant external and internal public information
including economic, investment, industry, public market and transaction
data as a background against which to assess findings specific to the
business were considered;
|
|
e) |
Major contracts both existing and anticipated in
the very near future for NET, if any, were discussed with management,
including any features or factors that may have an influence on value;
|
|
f) |
Managements forecast financial statements for
the Company; and,
|
|
g) |
Discussed with management of the Company the nature
of the business, past operating results, future prospects with respect
to operations, profitability and competition.
|
In arriving at our Opinion, we relied upon and assumed the accuracy and completeness of all of the financial and other information that was used, without assuming any responsibility for any independent verification of any such information, and further relied upon the assurances of NETs management that they were not aware of any facts or circumstances that would make any such information inaccurate or misleading.
Further, we relied upon representations by NET management that there were no material changes to NETs financial position, results of operations, or the forecast financial statements provided to us subsequent to September 30, 2003, the date of the most current available financial statements provided to us. We have not audited this information as part of our analysis and therefore, we do not express an opinion or other form of assurance regarding the information.
C-1
We assumed that the Issuance will comply, in all respects, with the securities laws, trade regulations and other applicable statutes and regulations of the various foreign jurisdictions under which the Issuance may be governed. Our Opinion was based upon market, economic and other conditions as they existed on, and could be evaluated as of, January 30, 2004. Accordingly, although subsequent developments may affect our Opinion, we do not assume any obligation to update, review or reaffirm our Opinion.
In connection with our services, we received a fee for this engagement which was in no way contingent upon the results of our analysis. In addition, the Company has agreed to indemnify us for certain liabilities that may arise out of the rendering of this Opinion. This Opinion is not intended to be and does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote, if required to, with respect to either the Issuance or the Transaction.
Our Opinion is for the use and benefit of the Board of Directors of the Company and is rendered to the Board of Directors in connection with its consideration of the Issuance and may not be used by the Company for any other purpose or reproduced, disseminated, quoted or referred to by the Company at any time, in any manner or for any purpose, without the prior written consent of Stenton Leigh Capital Corp., except that this Opinion may be reproduced in full in, and references to the Opinion and to Stenton Leigh Capital Corp. and its relationship with the Company may be included in any proxy statement or registration statement relating to the Issuance that the Company files with the U.S. Securities and Exchange Commission and is distributed to holders of the Companys Common Stock in connection with the Issuance.
Based upon and subject to the foregoing, it is our Opinion that, as of the date of this letter, (a) the value of NET is approximately $.004 per share at January 30, 2004, the Valuation Date and (b) the consideration to be received by NET from BRAIT, is fair.
Very truly yours,
STENTON LEIGH CAPITAL CORP.
Milton H. Barbarosh, CPA, CA, MBA, CBV, ASA
President
C-2
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 607.0850(1) of the Florida Business Corporation Act (FBCA) permits a Florida corporation to indemnify any person who may be a party to any third party proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, against liability incurred in connection with such proceeding (including any appeal thereof) if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 607.0850(2) of the FBCA permits a Florida corporation to indemnify any person who may be a party to a derivative action if such person acted in any of the capacities set forth in the preceding paragraph, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expenses of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding (including appeals), provided that the person acted under the standards set forth in the preceding paragraph. However, no indemnification shall be made for any claim, issue or matter for which such person is found to be liable unless, and only to the extent that, the court determines that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper.
Section 607.0850(4) of the FBCA provides that any indemnification made under the above provisions, unless pursuant to a court determination, may be made only after a determination that the person to be indemnified has met the standard of conduct described above. This determination is to be made by a majority vote of a quorum consisting of the disinterested directors of the board of directors, by duly selected independent legal counsel, or by a majority vote of the disinterested shareholders. The board of directors also may designate a special committee of disinterested directors to make this determination.
Section 607.0850(3), however, provides that a Florida corporation must indemnify any director, or officer, employee or agent of a corporation who has been successful in the defense of any proceeding referred to in Section 607.0850(1) or (2), or in the defense of any claim, issue or matter therein, against expenses actually and reasonably incurred by him in connection therewith.
Expenses incurred by a director or officer in defending a civil or criminal proceeding may be paid by the corporation in advance of the final disposition thereof upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it is ultimately determined that such director or officer is not entitled to indemnification under Section 607.0850. Expenses incurred by other employees or agents in such a proceeding may be paid in advance of final disposition thereof upon such terms or conditions that the board of directors deems appropriate.
The FBCA further provides that the indemnification and advancement of payment provisions contained therein are not exclusive and it specifically empowers a corporation to make any other further indemnification or advancement of expenses under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both for actions taken in an official capacity and for actions taken in other capacities while holding an office. However, a corporation cannot indemnify or advance expenses if a judgment or other final adjudication establishes that the actions of the director or officer were material to the adjudicated cause of action and the director or officer (a) violated criminal law, unless the director or officer had reasonable cause to believe his conduct was unlawful, (b) derived an improper personal benefit from a transaction, (c) was or is a director in a circumstance where the liability under Section 607.0834 (relating to unlawful distributions) applies, or (d) engages in willful misconduct or conscious disregard for the best interests of the corporation in a proceeding by or in right of the corporation to procure a judgment in its favor or in a proceeding by or in right of a shareholder.
Net 1s Bylaws provide that Net 1 shall indemnify any director or officer or any former director or officer against any liability arising from any action or suit to the full extent permitted by Florida law as referenced above.
II-1
Advances against expenses may be made under the Net 1 Bylaws and any other indemnification agreement that may be entered into by Net 1 and the indemnity coverage provided thereunder may include liabilities under the federal securities laws as well as in other contexts.
Reference is made to Article V of Net 1s Bylaws filed as Exhibit 3.3 hereto.
II-2
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
II-3
Item 22. Undertakings
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrants annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plans annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement 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.
The undersigned registrant undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed pursuant to the paragraph immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment 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.
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 foregoing provisions, 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 by Net 1 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
II-4
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 by it 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 to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective.
II-5
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of New York, state of New York, on February 2, 2004.
NET 1 UEPS TECHNOLOGIES, INC. | ||
By: | /s/ Claude Guerard | |
Name: Claude Guerard | ||
Title: Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Claude Guerard and each or any one of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature | Title | Date |
/s/ Claude Guerard | Chief Executive | February 2, 2004 |
Claude Guerard | Officer and Director | |
(Principal Executive Officer) | ||
/s/ Serge Belamant | Non-Executive Chairman | February 2, 2004 |
Serge Belamant | ||
/s/ David Anthony | Secretary and Treasurer | February 2, 2004 |
David Anthony | (Principal Financial and | |
Accounting Officer) |
10.3 | | Service Level Agreement between The Limpopo Provincial Government in its Department of Health and Welfare and Cash Paymaster Services (Northern) (Pty) Limited. | |
10.4 | | Service Level Agreement between the Department of Social Welfare and Population Development, Kwazulu Natal and Cash Paymaster Services Kwazulu Natal (Pty) Ltd. | |
10.5 | | 2004 Stock Incentive Plan (included as Annex B to the proxy statement/prospectus which is part of this Registration Statement and incorporated by reference herein). | |
23.1 | | Consent of Manning Elliott, Chartered Accountants | |
23.2 | | Consent of Fisher Hoffman PKF (Jhb) Inc. | |
23.3 | | Consent of Schneider Weinberger LLP (incorporated by reference to Exhibit 5.1 to the Registration Statement) | |
24.1 | | Power of Attorney (contained in the Signatures section of the Registration Statement) | |
99.1 | | Fairness Opinion of Stenton Leigh Capital Corporation (included as Annex C to the proxy statement/prospectus and incorporated by reference herein). | |
99.2 | | Form of Proxy for Special Meeting of Net 1 Shareholders |
Exhibit 2.1
SALE AGREEMENT
Between
NET1 APPLIED TECHNOLOGY HOLDINGS LIMITED
And
NET1 INVESTMENT HOLDINGS (PROPRIETARY) LIMITED
And
NET1 SUPPORT SERVICES (PROPRIETARY) LIMITED
And
NEWSHELF 713 (PROPRIETARY) LIMITED
______________________________
CONTENTS
i
21. | COSTS | 27 | |
22. | COUNTERPARTS | 28 |
ii
1. |
INTERPRETATION
|
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1.1 |
The headings to the clauses
and schedules of this agreement are for reference purposes only and shall
in no way govern or affect the interpretation of nor modify nor amplify
the terms of this agreement nor any clause or schedule hereof.
|
||
1.2 |
Unless the context dictates
otherwise, the words and expressions set forth below shall bear the following
meanings and cognate expressions shall bear corresponding meanings:
|
||
1.2.1 |
accounts means the audited annual financial
statements of Aplitec and the audited consolidated financial statements
of the Aplitec group as at and for the 12 months ended 30 June 2003, prepared
on the same basis as previous audited annual financial statements annexed
hereto as Schedule 1;
|
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1.2.2 |
agreement means this sale agreement and
its schedules;
|
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1.2.3 |
Aplitec means Net 1 Applied Technology
Holdings Limited (Registration No. 1997/007207/06, a public company duly
incorporated according to the company laws of South Africa;
|
||
1.2.4 |
Aplitec group means Aplitec and all its
subsidiaries;
|
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1.2.5 |
Aplitec Holdings Participation Trust
means the Aplitec Holdings Participation Trust, a Star trust established
in the Cayman Islands;
|
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1.2.6 |
Aplitec shareholder means a holder of
Aplitec shares;
|
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1.2.7 |
Aplitec shares means ordinary shares
of 0,1 cent each in the issued share capital of Aplitec;
|
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1.2.8 |
B class loan account means a loan account
against the purchaser, having the rights set forth in Schedule 2;
|
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1.2.9 |
Brait Consortium means funds under the
management of Brait S.A., Southern Cross Capital Limited and FF&P
Asset Management Limited;
|
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1.2.10 |
businesses means the entire businesses
as at the effective date of the
|
1
sellers, as going concerns,
comprising the business assets and the liabilities, but excluding:
|
||||
1.2.10.1 |
cash in Aplitec in the sum of R300 000 000; and
|
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1.2.10.2 |
additional cash in Aplitec sufficient to result in
the distribution of an extra 25 cents (after payment of any STC thereon)
per Aplitec share to Aplitec shareholders who elect the cash option; and
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1.2.10.3 |
the shares held by the sellers in Country On A Card
(Proprietary) Limited, Net1 Loyalty (Proprietary) Limited and Net1 Payroll
(Proprietary) Limited, and, for the sake of clarity, the shares held by
Aplitec in the other sellers;
|
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1.2.11 |
business assets
means all the assets of the sellers as at the effective date, including
the sale equity, but excluding the assets described in 1.2.10.1 and 1.2.10.3;
|
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1.2.12 |
business day
means any day other than a Saturday, Sunday or an official public holiday
in South Africa;
|
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1.2.13 |
cash option
means the cash option referred to in 5.3.1;
|
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1.2.14 |
CGT means tax
on capital gains as provided for in terms of the Eighth Schedule to the
Income Tax Act;
|
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1.2.15 |
closing date
means the 16th business day after the effective date;
|
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1.2.16 |
common shares
means common shares in the authorised share capital of NUEP, having the
rights of ordinary shares;
|
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1.2.17 |
Companies Act
means the Companies Act, 61 of 1973;
|
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1.2.18 |
Competition Act
means the Competition Act, 89 of 1998;
|
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1.2.19 |
contracts means
all contracts of whatsoever nature or kind of the sellers as at the effective
date;
|
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1.2.20 |
distribution ratio
means the ratio in which the special convertible preference
|
2
shares shall be distributed
on the occurrence of a trigger event, which at the closing date, shall
be 0,814285714 special convertible preference shares for every one preference
share. If after the closing date NUEP consolidates or sub-divides the
common shares, the special convertible preference shares shall be consolidated
or sub-divided in the same proportions, and the distribution ratio shall
be adjusted accordingly;
|
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1.2.21 |
effective date
means the first business day after the date of fulfilment or waiver of
the last of the suspensive conditions;
|
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1.2.22 |
employees means
all the persons in the employment of the sellers on the effective date;
|
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1.2.23 |
FTS means the
sellers proprietary Funds Transfer System technology which:
|
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1.2.23.1 | specifies a method by which funds can be transferred from one smart card to another in a secure off-line manner; | |||
1.2.23.2 | manages how cards are loaded and reloaded with funds; and | |||
1.2.23.3 | manages how funds can be redeemed for value in a banking or non-banking environment; | |||
1.2.24 |
Income Tax Act
means the Income Tax Act, 58 of 1962;
|
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1.2.25 |
intellectual property
means all of the intellectual property of the sellers, including but not
limited to:
|
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1.2.25.1 | all the patents and patent applications and all rights attaching thereto, including all rights, to the extent permitted by law, to file corresponding applications in any country; | |||
1.2.25.2 | all inventions, trade secrets, know-how or formulae, whether patentable or unpatentable, owned by the sellers and relating to the businesses, including those related to products under research and/or development, and all rights attaching thereto, and further including any rights as permitted by law to obtain patents and/or design registrations thereon in |
3
any country;
|
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1.2.25.3 |
all the trade marks (registered or unregistered),
trade mark applications and copyrights and all rights attaching thereto;
|
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1.2.25.4 |
all of the above subject to the existing licences
and rights of third parties and existing ownership interests of third
parties;
|
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including the right to sue
at law for any past infringement of or impairment to the intellectual
property, and including the intellectual property listed in Schedule 3;
|
||||
1.2.26 |
JSE means the
JSE Securities Exchange South Africa;
|
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1.2.27 |
Labour Relations Act
means the Labour Relations Act, 66 of 1995;
|
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1.2.28 |
liabilities
means all liabilities of whatsoever nature or kind of the sellers whether
actual, contingent or otherwise;
|
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1.2.29 |
Net1 SARL means
Net1 Holdings S.A.R.L., Registration Number 14933, a 1929 company incorporated
in Luxembourg;
|
|||
1.2.30 |
Net1 SARL Assets and
Obligations means those assets and obligations of Net1 SARL and
its associates as reflected in Schedule 4
|
|||
1.2.31 |
NUEP means Net1
UEPS Technologies, Inc., IRS Employer Number 65-0903895, a company incorporated
in Florida in the United States of America;
|
|||
1.2.32 |
OTC Bulletin Board
means the USA Over The Counter Bulletin Board quotation system, a regulated
quotation system that displays real time trades, last traded prices and
volume information on over the counter securities;
|
|||
1.2.33 |
parties means
the purchaser and the sellers and party shall, as the context
requires, be a reference to any one of them;
|
|||
1.2.34 |
preference share
means a B class preference share in the share capital of the purchaser,
having the rights set forth in Schedule 5;
|
|||
1.2.35 |
prime rate means
the variable rate of interest calculated and charged from
|
4
time to time by Nedbank Limited to its
most favoured corporate customers in respect of overdraft facilities,
compounded monthly in arrears, as certified by any manager or director
of such bank, whose appointment need not be proved and whose certificate
shall be final and binding on the parties;
|
|||
1.2.36 |
purchase price means the
purchase consideration payable by the purchaser to the sellers for the
businesses as set forth in 5;
|
||
1.2.37 |
purchaser means Newshelf
713 (Proprietary) Limited, Registration No. 2002/031446/07, to be renamed
Net1 Applied Technologies South Africa (Proprietary) Limited
or a similar name, a private company duly incorporated according to the
company laws of South Africa;
|
||
1.2.38 |
record date means close
of business on Friday, 13 February 2004 or any later date which may be
agreed in writing between the purchaser and Aplitec and announced in respect
of the transactions contemplated herein on the electronic news service
of the JSE and in the press;
|
||
1.2.39 |
reinvestment option means
the reinvestment option referred to in 5.3.2;
|
||
1.2.40 |
sale claims means all claims
of whatsoever nature and howsoever arising, whether actual, contingent
or otherwise, which the sellers have against the sold subsidiaries on
the effective date;
|
||
1.2.41 |
sale equity means the sale
shares and the sale claims;
|
||
1.2.42 |
sale shares means all those
issued shares in the sold subsidiaries that are held by the sellers as
at the effective date as set out in Schedule 7;
|
||
1.2.43 |
SA Trust means the New Aplitec
Participation Trust, a bewind trust established in South Africa;
|
||
1.2.44 |
SEC means the Securities
Exchange Commission of the United States of America;
|
||
1.2.45 |
sellers means Aplitec and
the companies listed in Schedule 6; 1.2.46 signature date
means the date of last signature of this agreement;
|
5
1.2.47 |
sold subsidiaries
means those companies listed in Schedule 7;
|
|||
1.2.48 |
special convertible
preference shares means special convertible preference shares in
the share capital of NUEP, having the rights set forth in Schedule 8;
|
|||
1.2.49 |
STC means secondary
tax on companies as provided for in the Income Tax Act;
|
|||
1.2.50 |
suspensive conditions
means the suspensive conditions stipulated in 3.1;
|
|||
1.2.51 |
trigger event
means:
|
|||
1.2.51.1 |
a unit holder of SA Trust notifies the
trustees in writing that he wishes SA Trust to dispose of the preference
shares and B class loan accounts attributable to some or all of his units
in SA Trust; or
|
|||
1.2.51.2 |
the purchaser is wound-up or placed
under judicial management, whether provisionally or finally; or
|
|||
1.2.51.3 |
NUEP is wound up or placed under judicial
management, whether provisionally or finally; or
|
|||
1.2.51.4 |
South African Exchange Controls are
relaxed or abolished, permitting unit holders of SA Trust to hold the
common shares directly;
|
|||
1.2.52 |
UEPS means the
sellers Universal Electronic Payment Systems which is a suite of
computer programmes that incorporates the FTS to deliver a fully integrated
payment and settlement system suitable for multiple applications;
|
|||
1.2.53 |
VAT means Value-Added
Tax in terms of the Value-Added Tax Act; 1.2.54 Value-Added Tax
Act means the Value-Added Tax Act, 89 of 1991.
|
|||
1.3 |
Any reference in this agreement
to:
|
|||
1.3.1 |
an affiliate
means, in relation to any person, a subsidiary of that person or a holding
company of that person or any other subsidiary of that holding company;
|
6
1.3.2 |
a clause shall, subject
to any contrary indication, be construed as a reference to a clause hereof;
|
||
1.3.3 |
a holding company shall
be construed in accordance with the Companies Act;
|
||
1.3.4 |
law shall be construed as
any law (including common or customary law), or statute, constitution,
decree, judgment, treaty, regulation, directive, bye-law, order or any
other legislative measure of any government, supranational, local government,
statutory or regulatory body or court;
|
||
1.3.5 |
a person shall be construed
as a reference to any person, firm, company, corporation, government,
state or agency of a state or any association or partnership (whether
or not having separate legal personality) of two or more of the foregoing;
|
||
1.3.6 |
a schedule shall, subject
to any contrary indication, be construed as a reference to a schedule
hereof;
|
||
1.3.7 |
a subsidiary shall be construed
in accordance with the Companies Act.
|
||
1.4 |
Unless inconsistent with
the context or save where the contrary is expressly indicated:
|
||
1.4.1 |
if any provision in a definition is
a substantive provision conferring rights or imposing obligations on any
party, notwithstanding that it appears only in this interpretation clause,
effect shall be given to it as if it were a substantive provision of this
agreement;
|
||
1.4.2 |
when any number of days is prescribed
in this agreement, same shall be reckoned exclusively of the first and
inclusively of the last day unless the last day falls on a day which is
not a business day, in which case the last day shall be the next succeeding
business day;
|
||
1.4.3 |
in the event that the day for payment
of any amount due in terms of this agreement should fall on a day which
is not a business day, the relevant day for payment shall be the preceding
business day;
|
7
1.4.4 |
in the event that the day for performance
of any obligation to be performed in terms of this agreement should fall
on a day which is not a business day, the relevant day for performance
shall be the subsequent business day;
|
||
1.4.5 |
any reference in this agreement to an
enactment is to that enactment as at the signature date and as amended
or re-enacted from time to time;
|
||
1.4.6 |
any reference in this agreement to this
agreement or any other agreement or document shall be construed as a reference
to this agreement or, as the case may be, such other agreement or document
as same may have been, or may from time to time be, amended, varied novated
or supplemented;
|
||
1.4.7 |
no provision of this agreement constitutes
a stipulation for the benefit of any person who is not a party to this
agreement;
|
||
1.4.8 |
references to day/s, month/s or year/s
shall be construed as Gregorian calendar day/s, month/s or year/s;
|
||
1.4.9 |
a reference to a party includes that
partys successors-in-title and permitted assigns.
|
||
1.5 |
Unless inconsistent with
the context, an expression which denotes:
|
||
1.5.1 |
any one gender includes the other genders;
|
||
1.5.2 |
a natural person includes an artificial
person and vice versa; and
|
||
1.5.3 |
the singular includes the plural and
vice versa.
|
||
1.6 |
The schedules to this agreement
form an integral part hereof and words and expressions defined in this
agreement shall bear, unless the context otherwise requires, the same
meaning in such schedules. To the extent that there is any conflict between
the schedules to this agreement and the provisions of this agreement,
the provisions of this agreement shall prevail.
|
||
1.7 |
Where any term is defined
within the context of any particular clause in this agreement, the term
so defined, unless it is clear from the clause in question that the term
so defined has limited application to the relevant clause, shall bear
the
|
8
same meaning as ascribed to it for all
purposes in terms of this agreement, notwithstanding that that term has
not been defined in this interpretation clause.
|
||
1.8 |
The rule of construction that, in the
event of ambiguity, the contract shall be interpreted against the party
responsible for the drafting thereof, shall not apply in the interpretation
of this agreement.
|
|
1.9 |
The expiration or termination of this
agreement shall not affect such of the provisions of this agreement as
expressly provide that they will operate after any such expiration or
termination or which of necessity must continue to have effect after such
expiration or termination, notwithstanding that the clauses themselves
do not expressly provide for this.
|
|
1.10 |
This agreement shall be binding on and
enforceable by the estates, heirs, executors, administrators, trustees,
permitted assigns or liquidators of the parties as fully and effectually
as if they had signed this agreement in the first instance and reference
to any party shall be deemed to include such partys estate, heirs,
executors, administrators, trustees, permitted assigns or liquidators,
as the case may be.
|
|
1.11 |
The use of any expression in this agreement
covering a process available under South African law such as winding-up
(without limitation
eiusdem generis
) shall, if any of the parties
to this agreement is subject to the law of any other jurisdiction, be
construed as including any equivalent or analogous proceedings under the
law of such other jurisdiction.
|
|
1.12 |
Where figures are referred to in numerals
and in words, if there is any conflict between the two, the words shall
prevail.
|
|
2. |
INTRODUCTION
|
|
2.1 |
The sellers are the owners of the businesses
and are entitled to dispose thereof.
|
|
2.2 |
The sellers wish to sell and the purchaser
wishes to purchase the businesses on the terms and conditions contained
in this agreement.
|
9
3. | SUSPENSIVE CONDITIONS | ||
3.1 |
This entire agreement, save
for the provisions of this 3 and 1, 2, 15, 16, 17, 18, 19, 20, 21 and
22 which shall be of immediate force and effect, is subject to the fulfilment
of the following suspensive conditions by not later than 31 May 2004:
|
||
3.1.1 |
Receiving all approvals required in
terms of the Competition Act, provided that where any such approval is
conditional, this suspensive condition will only be deemed to be fulfilled
if Aplitec and the purchaser, in their sole discretion, jointly agree
thereto in writing;
|
||
3.1.2 |
Receiving all and any approvals of the
Exchange Control Department of the South African Reserve Bank;
|
||
3.1.3 |
The Aplitec shareholders authorising
the disposal of the businesses as required by Section 228 of the Companies
Act and Section 9.22 of the JSE Listings Requirements;
|
||
3.1.4 |
Receiving the consent, to the extent
required, of third parties to the contracts to the assignment of rights
and obligations under such contracts to the purchaser, or to the change
of control in Aplitec; provided that where any consent is subject to any
conditions, this suspensive condition will only be deemed to have been
fulfilled if Aplitec and the purchaser, in their sole discretion, agree
in writing to such conditions;
|
||
3.1.5 |
The purchaser making an offer to the
Aplitec shareholders of the reinvestment option;
|
||
3.1.6 |
The purchaser causing a prospectus to
be issued and registered with the Registrar of Companies as required by
Section 145 of the Companies Act and causing the prospectus and copies
of the S4 and proxy statement for NUEP to be circulated to the Aplitec
shareholders;
|
||
3.1.7 |
The signature of all documents that
will enable the assignment to the purchaser of all the intellectual property;
|
||
3.1.8 |
The completion by the purchaser to its
satisfaction, and written notification
|
10
11
3.1.15.1 | All such documents as will enable Aplitec to verify that the preference shares in the purchaser and the special convertible preference shares in NUEP have been created in accordance with the terms and conditions of Schedules 5 and 8, and that all resolutions have been passed and all things have been done as will authorise and enable the purchaser and NUEP to lawfully issue such preference shares and special convertible preference shares upon the closing date in accordance with the terms and conditions of the reinvestment option; | |||
3.1.15.2 | The deeds of trust of SA Trust and Aplitec Holdings Participation Trust and all such further documents as will enable Aplitec to verify that SA Trust and Aplitec Holdings Participation Trust will comply with their respective obligations under the reinvestment option; and | |||
3.1.15.3 | All such further agreements and documents as will enable Aplitec to verify that the terms and conditions of the reinvestment option will be fully complied with; | |||
and Aplitec confirming to the purchaser in writing that it is satisfied with all of the aforegoing, which confirmation will not be unreasonably withheld; | ||||
3.1.16 | The purchaser and the sellers having agreed the value as at the effective date of the leave pay accrued to the employees, the severance pay that would be payable to the employees in the event of a dismissal for operational requirements and any payments accrued to the employees but not paid in terms of Section 197(7) of the Labour Relations Act; | |||
3.1.17 | All necessary agreements in respect of the transactions contemplated herein having been concluded. | |||
3.2 | The suspensive conditions in: | |||
3.2.1 | 3.1.15 has been inserted for the benefit of Aplitec; | |||
3.2.2 | 3.1.7, 3.1.8, 3.1.10 and 3.1.14 have been inserted for the benefit of the purchaser; and |
12
3.2.3 |
3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.1.6,
3.1.9, 3.1.11, 3.1.12, 3.1.13, 3.1.16 and 3.1.17 have been inserted for
the benefit of Aplitec and the purchaser.
|
||
3.3 |
The party or parties in
whose favour a suspensive condition has been expressed may in writing,
prior to the date stipulated for fulfilment thereof, waive the suspensive
condition. Any suspensive condition which has been inserted for the benefit
of Aplitec and the purchaser may be waived by agreement in writing between
Aplitec and the purchaser on or before the date stipulated for fulfilment
thereof. The date for fulfilment of any of the suspensive conditions may
be extended by agreement in writing between Aplitec and the purchaser.
|
||
3.4 |
The parties shall use their
best endeavours to procure the fulfilment of the suspensive conditions
as soon as reasonably possible after the signature date.
|
||
3.5 |
In the event that the suspensive
conditions are not fulfilled or waived timeously, then save for the provisions
of this 3 and 2, 16, 17, 18, 19, 20,21 and 22 which shall remain of full
force and effect, this agreement shall never become of any force or effect
and no party shall have any claim against any other party for anything
done hereunder or arising herein, save as a result of a breach of any
of the provisions of this 3 by a party, and the parties shall be restored
to the status
quo ante.
|
||
4. |
SALE AND PURCHASE
|
||
4.1 |
With effect from the effective
date, the sellers hereby indivisibly sell and the purchaser hereby purchases
the businesses (as going concerns) subject to the terms and conditions
of this agreement.
|
||
4.2 |
In addition, with effect
from the effective date, the sellers hereby delegate to the purchaser,
which hereby assumes, the liabilities, subject to the terms and conditions
of this agreement.
|
||
5. |
PURCHASE PRICE
|
||
5.1 |
The purchase price payable
by the purchaser for the businesses shall be an amount which would result
in the Aplitec shareholders receiving 475 cents per Aplitec share plus
an additional 25 cents per Aplitec share for those Aplitec shareholders
who
|
13
elect the cash option (after taking
into account any costs which Aplitec and any member of the Aplitec group
which is not disposed of to the purchaser may incur in connection with
the disposal of their assets in terms of this agreement and their subsequent
winding up, including but not limited to any STC payable on distribution
of the 475 cents per Aplitec share (and the additional 25 cents per Aplitec
share for those Aplitec shareholders who elect the cash option) to the
Aplitec shareholders, provided that such a distribution is made in the
course of or in anticipation of the winding-up or liquidation of Aplitec
as contemplated by Section 64B(5)(f) read with Section 41(4) of the Income
Tax Act, any income tax, CGT or other taxes payable by Aplitec and any
member of the Aplitec group and transaction costs, but excluding personal
taxes payable by the Aplitec shareholders). In addition, as part of the
purchase price the purchaser hereby assumes all the liabilities. Thus
the total purchase price shall be the amount which will result in the
Aplitec shareholders who elect the cash option receiving 500 cents per
Aplitec share and the Aplitec shareholders who elect the reinvestment
option receiving 475 cents per Aplitec share, the taxes and other costs
and liabilities referred to above, and the liabilities of the sellers.
|
||
5.2 |
The purchaser shall apportion the purchase
price among the business assets following completion of the due diligence
investigation. The apportionment shall be submitted to Aplitec in writing
within seven days of the purchaser completing the due diligence investigation
to its satisfaction. The allocation of the purchase price will be based,
inter alia
, on the purchasers understanding of the allocation
of cash balances and inter-company loan accounts between members of the
Aplitec group as at 31 July 2003. If this allocation is materially different
as at the effective date, the purchaser reserves the right to reallocate
the purchase price accordingly. The funds raised by way of the A class
loans advanced by NUEP and the B class loan accounts will be utilised
in the first instance to acquire the businesses of the sellers referred
to in Schedule 6 as well as the assets and liabilities of Aplitec, but
excluding the sale shares.
|
|
5.3 |
Subject to the Aplitec shareholders
authorising and approving the voluntary winding-up of Aplitec, the purchaser
hereby undertakes, by 31 January 2004 or such later date as may be agreed
in writing between Aplitec and the purchaser, which shall not be later
than 31 May 2004, to make an offer to Aplitec shareholders (as set out
in
|
14
3.1.5) and to cause a prospectus
to be registered by the Registrar of Companies as required by Section
145 of the Companies Act and to be issued to the Aplitec shareholders
(as set out in 3.1.6), granting them the right to elect in respect of
each Aplitec share held by them to receive the purchase price as a dividend
in anticipation of liquidation in one of two ways:
|
||||
5.3.1 |
The cash option, in which
event they will receive a cash payment of 500 cents per Aplitec share;
or
|
|||
5.3.2 |
Subject to 5.4, the reinvestment
option, in which event they will receive:
|
|||
5.3.2.1 |
Cash in the sum of 190 cents per Aplitec share (equivalent
to 40% of 475 cents); and
|
|||
5.3.2.2 |
Renounceable non-negotiable nil paid letters of allocation
issued by the purchaser to be renounced in favour of SA Trust which shall
entitle SA Trust to be issued with one preference share and to be credited
with a B class loan account in the sum of 101,004 cents (together equivalent
to 285 cents being 60% of 475 cents), both of which shall be held by SA
Trust for the benefit of the relevant Aplitec shareholder. In addition,
SA Trust, for the benefit of the relevant Aplitec shareholders, will be
granted the right by Aplitec Holdings Participation Trust to receive special
convertible preference shares in the distribution ratio in due course
on the occurrence of a trigger event. The reinvestment option has been
fixed at an exchange rate of R7,00 to US$1, which is the exchange rate
used to determine the number of special convertible preference shares
to be issued to the Aplitec Holdings Participation Trust.
|
|||
5.4 |
If Aplitecs shareholders
elect the reinvestment option, apart from the cash in the sum of 190 cents
referred to in 5.3.2.1, no cash will change hands, but the following sequence
of transactions will occur:
|
|||
5.4.1 |
The aggregate sum reinvested
by the Aplitec shareholders who have exercised the reinvestment option
(being 285 cents per Aplitec share) shall not be paid by the purchaser
to Aplitec, but shall be retained by the purchaser, and in respect of
every Aplitec share in respect of which the reinvestment
|
15
option is exercised, the purchaser will
issue to SA Trust, credited as fully paid up, a preference share, issued
at the par value thereof, being R0,001 plus a premium of 183,896 cents,
and SA Trust will be credited with a B class loan account in the sum of
101,004 cents; and
|
|||
5.4.2 |
SA Trust in its books will issue to
the shareholder who exercises the reinvestment option one unit in SA Trust
in respect of every preference share (or for the sake of clarity, in respect
of every Aplitec share in respect of which the reinvestment option is
exercised), which unit shall comprise a capital contribution of 183,996
cents and a loan account of 101,004 cents; and
|
||
5.4.3 |
The Aplitec Holdings Participation Trust
will be issued special convertible preference shares which shall be distributed
in the distribution ratio to SA Trust for the benefit of the relevant
Aplitec shareholders on the occurrence of a trigger event.
|
||
5.5 |
Subject to the approval
of the voluntary winding-up of Aplitec as contemplated in 5.3 and to Aplitec
being placed in voluntary liquidation, the Aplitec shareholders may exercise
the reinvestment option by notifying the purchaser in writing on or before
the record date of the number of Aplitec shares in respect of which they
wish to exercise the reinvestment option and reinvest in the purchaser
through SA Trust. If any Aplitec shareholders fail to exercise the election
between the cash option and the reinvestment option, such Aplitec shareholders
shall be deemed to have exercised the cash option.
|
||
5.6 |
If the Aplitec shareholders
fail to pass the necessary resolutions for the voluntary winding-up of
Aplitec as envisaged in 5.3, or if Aplitec for any other reason is not
placed in voluntary liquidation, Aplitec through SA Trust shall subscribe
for the preference shares and extend the B class loan account and Aplitec
will be issued units as contemplated in 5.4.2 for its own account.
|
||
5.7 |
The terms and conditions
of the loan account to be credited by SA Trust to the Aplitec shareholders
who exercise the reinvestment option (or Aplitec, as the case may be,
in the case of 5.6) are set out in Schedule 9.
|
16
17
8.1.2 |
sign and deliver any and
all documents which are reasonably necessary to effect transfer of the
businesses and the business assets, including the intellectual property
to the purchaser;
|
|||
8.1.3 |
sign and deliver to the
purchaser any and all such documents which are necessary to cede and assign
to the purchaser all of their respective rights and obligations under
the contracts;
|
|||
8.1.4 |
deliver certificates in
respect of the sale shares together with duly completed transfer forms
(blank as to transferee);
|
|||
8.1.5 |
deliver a written cession
of the sale claims in favour of the purchaser or its nominee;
|
|||
8.1.6 |
deliver certified copies
of resolutions of the directors of the sold subsidiaries:
|
|||
8.1.6.1 |
approving the transfer of the sale equity
to the purchaser; and
|
|||
8.1.6.2 |
noting the cession of the sale claims;
|
|||
8.1.7 |
deliver all books, documents
and records of the businesses, including copies of the contracts and the
employment contracts between the sellers and the employees.
|
|||
8.2 |
On the closing date, the
purchaser shall deliver to the seller a certified copy of an underwriting
agreement between the South African Private Equity Trust III and the purchaser
whereby the South African Private Equity Trust III undertakes to underwrite
the reinvestment option in full, save to the extent that any irrevocable
undertakings have been given to the purchaser by Aplitec shareholders
to accept the reinvestment option.
|
|||
8.3 |
Each of the sellers shall
be obliged to:
|
|||
8.3.1 |
enter into all such agreements
and sign all such documents and do all such things as may reasonably be
required of it to give effect to the provisions of 8.1; and
|
|||
8.3.2 |
use commercially reasonable
endeavours to obtain the consent from any party
|
18
19
20
21
22
16.1.1 |
Each party chooses the addresses set
out opposite its name below as its address to which any written notice
in connection with this agreement may be addressed.
|
16.1.1.1 | sellers: | |||||
Physical Address | : | 4 th Floor, President Place | ||||
148 Jan Smuts Avenue | ||||||
Rosebank, Johannesburg | ||||||
Postal Address | : | PO Box 2424 | ||||
Pinelands, 2121 | ||||||
Telefax No. | : | (011) 880 7080 | ||||
Attention: | Serge Belamant | |||||
16.1.1.2 | purchaser: | |||||
Physical Address | : | 9 Fricker Road, Illovo Boulevard | ||||
Illovo, Johannesburg | ||||||
Postal Address | : | Private Bag X1 | ||||
Northlands, 2116 | ||||||
Telefax No. | (011) 507 1001 | |||||
Attention | Antony Ball | |||||
16.1.2 |
Any notice or communication required
or permitted to be given in terms of this agreement shall be valid and
effective only if in writing but it shall be competent to give notice
by telefax transmitted to its telefax number set out opposite its name
above.
|
|||||
16.1.3 |
Any party may by written notice to the
other parties change its chosen addresses and/or telefax number for the
purposes of 16.1.1 to any other address(es) and/or telefax number, provided
that the change shall become effective on the fourteenth day after the
receipt of the notice by the addressee.
|
|||||
16.1.4 |
Any notice to a party contained in a
correctly addressed envelope and:
|
23
16.1.4.1 | sent by prepaid registered post to it at its chosen postal address in terms of 16.1.1; or | |||
16.1.4.2 |
delivered by hand to a responsible person during
ordinary business hours at its chosen physical address in terms of 16.1.1,
|
|||
shall be deemed to have
been received in the case of 16.1.4.1, on the seventh business day after
posting (unless the contrary is proved) and, in the case of 16.1.4.2 on
the day of delivery.
|
||||
16.1.5 |
Any notice by telefax to
a party at its telefax number shall be deemed to have been received on
the first business day after the date of transmission.
|
|||
16.1.6 |
Notwithstanding anything
to the contrary herein contained, a written notice or communication actually
received by a party shall be an adequate written notice or communication
to it, notwithstanding that it was not sent to or delivered at its chosen
address and/or telefax number.
|
|||
16.2 | Domicilia | |||
16.2.1 |
Each of the parties chooses
the address set out opposite its name below as its
domicilium citandi
et executandi
at which documents in legal proceedings in connection
with this agreement may be served.
|
16.2.1.1 | sellers: | 4 th Floor, President Place | |||
148 Jan Smuts Avenue | |||||
Rosebank, Johannesburg | |||||
Telefax No. | (011) 880 7080 | ||||
Attention: | Serge Belamant | ||||
16.2.1.2 | purchaser: | 9 Fricker Road, Illovo Boulevard | |||
Illovo, Johannesburg | |||||
Telefax No. | (011) 507 1001 | ||||
Attention: | Antony Ball |
24
16.2.2 |
Any party may by written notice to the
other parties change its
domicilium
from time to time to another
address, not being a post office box or a
poste restante
, in South
Africa; provided that any such change shall only be effective on the fourteenth
day after deemed receipt of the notice by the other party pursuant to
16.1.4 and 16.1.5, as the case may be.
|
||
17. |
GOVERNING LAW The entire provisions of this agreement shall be governed by and construed in accordance with the laws of South Africa. |
||
18. | DISPUTES | ||
18.1 |
Any dispute arising from
or in connection with this agreement or its termination, shall in the
first instance be referred to the respective chief executive officers
of the parties to the dispute, failing whom, their respective equivalents
or nominees (CEOs). Should the CEOs be unable to resolve the
dispute within 14 days after the referral of the dispute to them, the
dispute shall, at the request of any party to the dispute, be dealt with
as provided in 18.1.
|
||
18.2 |
Any dispute arising from
or in connection with this agreement or its termination, which has not
been resolved pursuant to 18.1, shall, if so requested by any party to
the dispute, be finally resolved in accordance with the rules of the Arbitration
Foundation of Southern Africa (AFSA) by an arbitrator agreed
to between the parties to the dispute and failing such agreement within
three days of a request therefor by any party, appointed by AFSA, provided
that there shall be no appeal against the award of the arbitrator. The
arbitration shall be held in Johannesburg.
|
||
18.3 |
Notwithstanding anything
to the contrary contained in this 18, no party shall be precluded from
instituting any injunctive or similar proceedings in any appropriate court
of competent jurisdiction and, if successful, being granted appropriate
injunctive relief.
|
||
18.4 |
For the purposes of 18.3
and for the purposes of having any award made by the arbitrator being
made an order of court, each of the parties hereby submits itself to the
non-exclusive jurisdiction of Witwatersrand Local Division of the High
Court of
|
25
South Africa. | |||
18.5 | This 18 | ||
18.5.1 |
is severable from the rest of this agreement
and shall, notwithstanding the termination, cancellation, invalidity or
alleged invalidity of this agreement or any part of it for any reason,
remain in full force and effect;
|
||
18.5.2 |
constitutes an irrevocable consent by
the parties to any proceedings in terms hereof and no party shall be entitled
to withdraw therefrom or to claim in any such proceedings that it is not
bound by this 18. For the purposes of this 18, proceedings
shall include proceedings referred to in 18.3.
|
||
19. |
SEVERABILITY Each provision in this agreement is severable from all others, notwithstanding the manner in which they may be linked together or grouped grammatically, and if in terms of any judgment or order, any provision, phrase, sentence, paragraph or clause is found to be defective or unenforceable for any reason, the remaining provisions, phrases, sentences, paragraphs and clauses shall nevertheless continue to be of full force. In particular, and without limiting the generality of the aforegoing, the parties hereto acknowledge their intention to continue to be bound by this agreement notwithstanding that any provision may be found to be unenforceable or void or voidable, in which event the provision concerned shall be severed from the other provisions, each of which shall continue to be of full force. |
||
20. | GENERAL | ||
20.1 |
This document constitutes
the sole record of the agreement between the parties in regard to the
subject matter thereof.
|
||
20.2 |
No party shall be bound
by any express or implied term, representation, warranty, promise or the
like, not recorded herein.
|
||
20.3 |
No addition to, variation
or consensual cancellation of this agreement and no extension of time,
waiver or relaxation or suspension of any of the provisions or terms of
this agreement shall be of any force or effect unless in writing and signed
|
26
by or on behalf of all the parties. | ||
20.4 |
No latitude, extension of time or other
indulgence which may be given or allowed by any party to any other party
in respect of the performance of any obligation hereunder or enforcement
of any right arising from this agreement and no single or partial exercise
of any right by any party shall under any circumstances be construed to
be an implied consent by such party or operate as a waiver or a novation
of, or otherwise affect any of that partys rights in terms of or
arising from this agreement or estop such party from enforcing, at any
time and without notice, strict and punctual compliance with each and
every provision or term hereof.
|
|
20.5 |
The parties undertake at all times to
do all such things, to perform all such acts and to take all such steps
and to procure the doing of all such things, the performance of all such
actions and the taking of all such steps as may be open to them and necessary
for or incidental to the putting into effect or maintenance of the terms,
conditions and import of this agreement.
|
|
20.6 |
Neither party shall be entitled to cede
or delegate any of its rights or obligations under this agreement without
the prior written consent of the other parties affected by such transfer
of rights or obligations, which consent may not unreasonably be withheld
or delayed.
|
|
21. | COSTS | |
21.1 |
If the suspensive conditions are fulfilled
or waived, the purchaser shall bear the costs of and incidental to the
negotiation, preparation, execution and implementation of this agreement,
and the purchaser shall be liable for all stamp duty payable on the transfer
of the shares. In the event that the suspensive conditions are not fulfilled
or waived, each party will pay its own costs.
|
|
21.2 |
All legal costs incurred by any party
in consequence of any default of the provisions of this agreement by any
other party shall be payable on demand by the defaulting party on the
scale as between attorney and own client and shall include collection
charges, the costs incurred by the non-defaulting party in endeavouring
to enforce such rights prior to the institution of legal proceedings and
the costs incurred in connection with the satisfaction or enforcement
of any judgement awarded in favour
|
27
of the non-defaulting party in relation to its rights in terms of or arising out of this agreement. | ||
22. |
COUNTERPARTS This agreement may be executed by each party signing a separate copy thereof and each of the copies together shall constitute the agreement of the parties. |
Signed at Johannesburg on
October 31, 2003
/s/ Serge Belamant
NET 1 APPLIED TECHNOLOGY HOLDINGS LIMITED
who warrants that he is duly authorised hereto
Signed at Johannesburg on
October 31, 2003
/s/ Serge Belamant
NET1 INVESTMENT HOLDINGS (PROPRIETARY) LIMITED
who warrants that he is duly authorised hereto
Signed at Johannesburg on October 31, 2003
/s/ Serge Belamant
NET1 SUPPORT SERVICES (PROPRIETARY) LIMITED
who warrants that he is duly authorised hereto
Signed at Johannesburg on October 31, 2003
/s/ Chad Smart
NEWSHELF 713 (PROPRIETARY) LIMITED
who warrants that he is duly authorised hereto
SCHEDULE 1
AUDITED ANNUAL FINANCIAL STATEMENTS OF
APLITEC AS AT 30 JUNE 2003
SCHEDULE 2
TERMS OF THE B CLASS LOAN ACCOUNTS CREDITED BY THE PURCHASER TO SA TRUST
1. |
The B class loan accounts
will rank pari passu in all respects with the A class loan accounts advanced
by NUEP to the purchaser.
|
|
2. |
The B class loan accounts
shall:
|
|
2.1 |
be repayable as and when directed by
the board of directors of the purchaser in its sole and absolute discretion;
provided that no capital under the B class loan accounts shall be repayable
until at least 30 days have elapsed from the date upon which the B class
loan accounts are credited to SA Trust; and provided further that the
B class loan accounts may only be repaid when the Exchange Control Department
of the South African Reserve Bank has approved the repayment of the A
class loan accounts advanced by NUEP to the purchaser;
|
|
2.2 |
bear interest at the rate of interest
determined by the board of directors of the purchaser annually in advance
in its sole and absolute discretion; provided that the interest rate shall
not exceed the prime rate. The interest so determined shall be paid as
and when determined by the board;
|
|
2.3 |
be repaid in full if the purchaser
is wound up or placed under judicial management, whether provisionally
or finally;
|
|
2.4 |
be repaid pro rata to the A class loan
accounts advanced by NUEP to the purchaser;
|
|
2.5 |
be subordinated in favour of all creditors
of the purchaser (other than NUEP as holder of the A class loans) if so
decided by the board of directors of the purchaser;
|
|
2.6 |
not be assigned, ceded, transferred
or encumbered by SA Trust in any way except to NUEP on the occurrence
of a trigger event;
|
|
2.7 | be denominated in South African Rands. |
SCHEDULE 3
INTELLECTUAL PROPERTY
Patents
RSA Patent 90/71/06 Botswana Patent P810 Namibia Patent 92/0091 Swaziland patent RP/45/1992
Registered Trade Marks
Net1 and device: |
|
South Africa 90/2569 (Class 9) and 90/2570 (Class 16)
Botswana SA 12743 (Class 9) and SA12744 (Class 16)
France 003055677 (Classes 9 and 42)
Lesotho LS/M/90/03065 (Classes 9 and 16)
Namibia 90/0456 (Class 9) and 90/0457 (Class 16)
Swaziland 110/1992/SA (Class 9) and 111/1992/SA (Class 16)
Unregistered Trade Marks
Aplitec
UEPS
Copyright
UEPS (including all related applications)
FTS
SCHEDULE 4
NET1 SARL ASSETS AND OBLIGATIONS
1. |
Patent and Technology Agreement between
Net1 SARL and NUEP dated 3 May 2000.
|
2. |
UEPS Product Licence Agreement between
Net1 SARL, Net1 Operations S.A.R.L. and the Social Security Bank of Ghana
dated 2 April 1997.
|
3. |
UEPS Product Licence Agreement between
Net1 SARL and Banque De Gestion Et De Financement Burundi dated 2 March
2000.
|
4. |
UEPS Product Licence Agreement between
Net1 SARL and Banque de Commercie de Development ED Industrie B.C.C.I.
S.A. Rwanda dated 4 February 1999.
|
5. |
US Patent RE 36788.
|
SCHEDULE 5
TERMS OF PREFERENCE SHARES
The rights, privileges and conditions of the preference shares shall be the following:
1. |
The preference shares shall be held
by SA Trust on behalf of Aplitec shareholders who elect the reinvestment
option ("reinvesting shareholders").
|
2. |
The preference shares will constitute
58,14 percent of the entire issued share capital of the purchaser and
will rank
pari passu
with ordinary shares in respect of participation
in dividends and return of capital prior to the winding-up of the purchaser
for any reason. The preference shares shall not participate in dividends
or a return of capital on a winding-up of the purchaser.
|
3. |
The holder of the preference shares
("preference shareholder") shall not be entitled to be present or to vote,
either in person or by proxy, at any meeting of the purchaser, by virtue
of, or in respect of the preference shares, save as provided in Section
194 of the Companies Act, or unless a resolution of the purchaser is proposed
which directly affects the rights attached to the preference shares or
the interests of the preference shareholder, including a resolution for
the declaration of a dividend on any class of shares in the issued share
capital of the purchaser, for payment of interest and capital on B class
loan accounts, for the disposal of any intellectual property of the purchaser,
for the winding-up of the purchaser or for the reduction of its share
capital or share premium account, or for the repayment or distribution
of the share premium or non-distributable reserves of the purchaser or
the issue of capitalisation shares. The rights and privileges attaching
to the preference shares shall not be regarded as being directly or adversely
affected by the creation and issue by the purchaser of any further shares
of any class, unless those new shares rank as regards participation in
assets or profits of the purchaser or voting rights in all or some respects
in priority to or
pari passu
with the preference shares.
|
4.
|
At every meeting at which the preference
shareholder is entitle to be present and to vote the provisions of the
articles of association of the purchaser relating to general meetings
of ordinary members shall apply
mutatis mutandis
, except that a
quorum at any such
|
general meeting shall be
any person or persons holding or representing by proxy at least one-fifth
of the preference shares; provided that if at any adjournment of such
meeting a quorum is not so present, the provisions of the articles of
association of the purchaser relating to adjourned general meetings shall
apply
mutatis mutandis
. At every general meeting of the purchaser
at which the preference shareholder as well as other classes of shares
are present and entitled to vote, upon a poll the preference shareholder
shall be entitled to that proportion of the total votes in the purchaser
which the aggregate number of the preference shares held by it bears to
the aggregate number of all shares entitled to be voted at such meeting;
provided that no resolution for the declaration of a dividend or for the
disposal of any intellectual property of the purchaser shall be passed
unless 50,1 percent of the votes exercisable in respect of the preference
shares are voted in favour of the resolution.
|
||
5. |
Unless a resolution is passed
by 75 percent of the votes exercisable in respect of the preference shares
in the same manner
mutatis mutandis
as a special resolution:
|
|
5.1 |
the terms of the preference shares may
not be modified, altered, varied, added to or abrogated;
|
|
5.2 |
the share capital or stated capital
may not be reduced;
|
|
5.3 |
the share premium or non-distributable
reserves of the purchaser may not be repaid or distributed;
|
|
5.4 |
no shares in the capital of the purchaser
ranking, as regards rights to dividend or redemption or, on a winding-up,
as regards return of capital, in priority to or
pari passu
with
the preference shares, shall be created or issued.
|
|
6. |
The preference shareholder may not in
any manner sell, transfer or dispose of the preference shares unless upon
the occurrence of a trigger event, and then only by transferring them
to NUEP at the same time as it cedes a pro rata portion of its B class
loan accounts against the purchaser to NUEP.
|
|
7. |
On the occurrence of a trigger event, the preference shareholder will notify Aplitec Holdings Participation Trust thereof in writing whereupon Aplitec Holdings Participation Trust shall distribute to the preference shareholder special convertible preference shares in the distribution ratio for each preference share in respect of which notice has been given to Aplitec Holdings Participation Trust. For the sake of clarity, it is recorded that a reinvesting shareholder may instruct the preference shareholder to dispose of the preference shares indirectly held by him in whole or in part. |
|
8. |
The consideration payable to the preference
shareholder by NUEP for the preference shares transferred and B class
loan accounts ceded shall be the conversion of the special convertible
preference shares referred to in 7 to common shares in NUEP on a one-for-one
basis.
|
SCHEDULE 6
SELLERS OTHER THAN APLITEC
Net1 Investment Holdings (Proprietary) Limited
Net1 Support Services (Proprietary) Limited
SCHEDULE 7
SOLD SUBSIDIARIES
No. | Company |
Shares held by
and number held |
Percentage |
1 |
Cash Paymaster
Services (Proprietary) Limited |
Aplitec | 100% |
2 |
Net1 Finance
(Proprietary) Limited |
Aplitec | 100% |
3 |
Net1 Southern Africa
(Proprietary) Limited |
Aplitec | 100% |
4 |
Net1 Solutions
(Proprietary) Limited |
Net1 Support
Services (Pty) Ltd |
100% |
5 |
Commutercard
(Proprietary) Limited |
Support
Services (Pty) Ltd |
100% |
SCHEDULE 8
RIGHTS ATTACHING TO SPECIAL CONVERTIBLE PREFERENCE SHARES IN NUEP
The rights and restrictions attaching to the common shares and the special convertible preference shares in NUEP are as follows:
1. |
The special convertible
preference shares shall be held by the Aplitec Holdings Participation
Trust on behalf of SA Trust, for the benefit of the reinvesting shareholders.
|
|
2. |
The special convertible
preference shares shall constitute 58,14 percent of the entire issued
share capital of NUEP prior to any conversion of the special convertible
preference shares into common shares.
|
|
3. |
Dividends
|
|
3.1.
|
For so long as there are any special
convertible preference shares in issue, the directors of NUEP (the
Directors) shall, immediately prior to the resolution and declaration
of any dividend, determine the amount (if any) of that dividend which
is to be paid from amounts received from the purchaser either by way of
dividend or capital distributions or loan repayments of capital or interest
(for the sake of clarity, this excludes the receipt of any liquidation
distribution or dividend after an Act of Insolvency in relation to the
purchaser as the special convertible preference shares will have automatically
converted into common shares) ("SA Dividend Amount") and the amount (if
any) of that dividend which is to be paid from the other retained distributable
reserves of NUEP ("Non-SA Dividend Amount").
|
|
3.2.
|
For so long as there are any special
convertible preference shares in issue, the Directors may declare and
pay a dividend which comprises solely a Non-SA Dividend Amount (that is,
without declaring and paying a SA Dividend Amount) and the Directors may
declare and pay a dividend which comprises solely a SA Dividend Amount
(that is, without declaring and paying a Non-SA Dividend Amount).
|
3.3. |
Any determination by the Directors of a SA Dividend
Amount and/or a Non-SA Dividend Amount shall be made by the Directors
in good faith and shall be final and binding on both the holders of common
shares and the holders of special convertible preference shares (Collectively
Members).
|
|
3.4. |
For so long as there are any special convertible
preference shares in issue, any Non-SA Dividend Amount shall be paid to
the Members pro rata to their respective shareholdings in the Company,
and the common shares and the special convertible preference shares shall
rank pari passu in respect of dividends declared and/or paid from Non-SA
Dividend Amounts
|
|
3.5. |
For so long as there are any special convertible
preference shares in issue, any SA Dividend Amount shall be paid only
to the holders of common shares and the holders of special convertible
preference shares shall have no entitlement to participate in any dividend
declared and/or paid from a SA Dividend Amount.
|
|
3.6. |
For so long as there are any special convertible
preference shares in issue and subject to NUEP having sufficient distributable
reserves, NUEP shall, on receipt of amounts from the purchaser either
by way of dividend or capital distributions or loan repayments of capital
or interest, declare and pay a SA Dividend in an amount equal to the amounts
so received from the purchaser, after deducting therefrom the taxes payable
by NUEP on the amount so received.
|
|
4. | Voting | |
4.1. |
Holders of common shares and special convertible
preference shares have the right to receive notice of, attend, speak and
vote at general meetings of NUEP.
|
|
4.2. |
All voting at general meetings of NUEP shall be taken
by a poll and not a show of hands.
|
|
4.3. |
A holder of common shares or special convertible
preference shares present in person, or the person representing a holder
of common shares or special convertible preference shares by proxy, shall
at a general meeting of NUEP have one vote for each share in NUEP held
or represented, whether common shares or special convertible preference
shares
|
5. | Conversion | |
5.1.
|
Upon the instruction of SA Trust, the
Aplitec Holdings Participation Trust shall distribute special convertible
preference shares to SA Trust in the distribution ratio.
|
|
5.2.
|
SA Trust shall convert the special
convertible preference shares it receives in terms of 5.1 above by delivering
to NUEP the share certificates for the special convertible preference
shares, share transfers in favour of NUEP in the form reasonably required
by the Directors and accompanying certificates for a pro rata portion
of the preference shares and an assignment and transfer in favour of NUEP
in the form reasonably required by the Directors of a pro rata portion
of the B class loan accounts. Each special convertible preference share
will be converted into one common share. The date of delivery of these
certificates and transfers shall be a "Conversion Date").
|
|
5.3.
|
The common shares into which the special
convertible preference shares are converted shall be credited as fully
paid and shall rank pari passu in all respects and form one class with
the common shares then in issue.
|
|
5.4.
|
The allotment of new common shares shall
be made within three days of the relevant Conversion Date. A certificate
for new common shares shall be sent as soon as practicable after the relevant
Conversion Date to the SA Trust without charge. Pending delivery of certificates
for new common shares transfers shall be certified against the register.
|
|
5.5.
|
If special convertible preference shares
remain capable of conversion into common shares and either (A) a resolution
for voluntary winding up of NUEP is passed or (B) a winding-up order is
made by the court in relation to NUEP, the Aplitec Holdings Participation
Trust shall immediately distribute all the special convertible preference
shares to SA Trust, which shall thereupon convert the special convertible
preference shares into common shares in NUEP.
|
|
5.6.
|
In the event of an Act of Insolvency
in relation to the purchaser, the Aplitec Holdings Participation Trust
shall immediately distribute all the special convertible preference shares
to SA Trust, who shall thereupon convert the special convertible preference
shares into common shares in NUEP.
|
|
6. |
Restriction on holding
of special convertible preference shares
|
No person other than the Trustee of the Aplitec Holdings
Participation Trust or SA Trust (following a distribution of the special
convertible preference shares by the Aplitec Holdings Participation Trust
to SA Trust, before conversion of the special convertible preference shares
into common shares by SA Trust), shall hold special convertible preference
shares.
|
|
7. | Winding up |
In circumstances when the special convertible preference
shares have not been converted into common shares for any reason, on a
return of capital on winding up or otherwise (other than on conversion,
redemption or purchase of shares) NUEP's assets available for distribution
among the Members shall be applied pari passu to the holders of common
shares and the holders of special convertible preference shares on the
basis that the special convertible preference shares will be deemed to
have been converted into common shares.
|
SCHEDULE 9
TERMS OF THE LOAN ACCOUNTS CREDITED BY SA TRUST TO APLITEC SHAREHOLDERS EXERCISING THE REINVESTMENT OPTION
The loan accounts shall:
1. |
rank
pari passu
and be repayable
to the Aplitec shareholders pro rata;
|
2. |
be repayable as and when the B class
loan accounts of SA Trust are repaid;
|
3. |
bear interest at the same rate of interest
as is paid by the purchaser in respect of the B class loan accounts from
time to time;
|
4. |
be repaid in full if the purchaser is
wound up or placed under judicial management, whether provisionally or
finally;
|
5. |
not be assigned, ceded, transferred
or encumbered in any way.
|
Exhibit 2.2
SUBSCRIPTION AGREEMENT
Between
NET1 UEPS TECHNOLOGIES, INC.
and
NEWSHELF 713 (PROPRIETARY) LIMITED
______________________________________________
CONTENTS
i
1
laws of South Africa;
|
|||
condition
|
the condition precedent in clause 3.1;
|
||
issue date
|
The later of 16 February 2004 and the first business
day after the date that the condition is fulfilled;
|
||
issue price
|
the price at which the company shall allot and issue
the shares to the subscriber in terms of this agreement, which amount
shall be, per share 33,668 cents, being the par value thereof of 0,1 cent
plus a premium of 33,568 cents;
|
||
loan account
|
a credit A class loan account in the company in the
sum of 101,004 cents per share, having the rights set forth in Schedule
1;
|
||
New Aplitec Participation Trust
|
the New Aplitec Participation Trust, a bewind trust
established in South Africa
|
||
parties
|
the company and the subscriber;
|
||
RSA
|
the Republic of South Africa;
|
||
shares
|
A class ordinary shares in the company, having a
par value of 0,1 cents per share, having the rights of ordinary shares;
|
||
signature date
|
the date of last signature of this agreement
|
2
subscriber
|
Net1 UEPS Technologies, Inc., IRS Employer Number
65-0903895, a company incorporated in Florida in the United States of
America.
|
|||
1.3 |
If any provision in a definition
is a substantive provision conferring rights or imposing obligations on
any party, notwithstanding that it is only in the definition clause, effect
shall be given to it as if it were a substantive provision of this agreement.
|
|||
1.4 |
Any reference to an enactment
is to that enactment as at the signature date. 1.5 Unless inconsistent
with the context, an expression which denotes:
|
|||
1.5.1 |
any gender includes the
other genders;
|
|||
1.5.2 |
a natural person includes
an artificial person and vice versa;
|
|||
1.5.3 |
the singular includes the
plural and vice versa.
|
|||
1.6 |
Where any term is defined
within the context of any particular clause in this agreement, the term
so defined, unless it is clear from the clause in question that the term
so defined has limited application to the relevant clause, shall bear
the meaning ascribed to it for all purposes in terms of this agreement,
notwithstanding that that term has not been defined in this interpretation
clause.
|
|||
1.7 |
The rule of construction
that the contract shall be interpreted against the party responsible for
the drafting or preparation of this agreement, shall not apply.
|
|||
1.8 |
The schedule to this agreement
forms an integral part hereof and words and expressions defined in this
agreement shall bear, unless the context otherwise requires, the same
meaning in such schedule.
|
|||
2. | INTRODUCTION | |||
2.1 |
In terms of the acquisition
agreement, the company will acquire all the assets and liabilities of
the Aplitec Group, excluding R 300 million in cash plus an additional
25 cents per Aplitec share for those Aplitec shareholders who elect the
cash option and
|
3
certain dormant subsidiaries.
|
||||
2.2 |
The subscriber shall subscribe
for the shares and shall advance the loan account to the company to enable
it to meet its obligations under the acquisition agreement.
|
|||
3. | CONDITION PRECEDENT | |||
3.1 |
This entire agreement (save
in respect of clauses 1, this 3, 6, 7, 8 and 9, which shall be of immediate
force and effect) shall be subject to the condition that, by not later
than 31 May 2004, or such later date as the parties may agree in writing,
the acquisition agreement shall become unconditional.
|
|||
3.2 |
In the event that the condition
shall not have been fulfilled by the date specified in clause 3.1, this
agreement (save in respect of clauses 1, this 3, 6, 7, 8 and 9, which
shall remain of full force and effect) shall be of no force or effect
and no party shall have any claim against any other party for anything
done hereunder and/or arising herefrom.
|
|||
4. | ALLOTMENT AND ISSUE OF SHARES | |||
4.1 |
On the issue date:
|
|||
4.1.1 |
The subscriber shall:
|
|||
4.1.1.1 |
subscribe for the shares and pay the
issue price; and
|
|||
4.1.1.2 |
advance the loan account to the company,
|
|||
in cash, free of exchange,
deduction or set-off, by electronic transfer to the companys bank
account;
|
||||
4.1.2 |
The company shall:
|
|||
4.1.2.1 |
allot and issue the shares to the subscriber;
and
|
|||
4.1.2.2 |
credit the subscriber with the loan
account in its books.
|
|||
4.2 |
The company will deliver
the share certificates in respect of the shares described in
|
4
5
6
7.3 |
All notices, demands, communications
or payments intended for any party shall be made or given at such party's
domicilium for the time being.
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||
7.4 |
A notice sent by one party
to another party shall be deemed to be received:
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||
7.4.1 |
on the same day, if delivered by hand;
|
||
7.4.2 |
on the same day, if transmitted electronically with
receipt received confirming completion of transmission;
|
||
7.4.3 |
on the same day of transmission if sent by telefax
with receipt received confirming completion of transmission;
|
||
7.4.4 |
on the seventh day after posting, if sent by prepaid
registered mail.
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||
7.5 |
Notwithstanding anything
to the contrary herein contained a written notice or communication actually
received by a party shall be an adequate written notice or communication
to it notwithstanding that it was not sent to or delivered at its chosen
domicilium citandi et executandi.
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||
8. | COSTS | ||
8.1 |
The company shall pay the
costs of and incidental to the negotiation, preparation and execution
of this agreement.
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||
8.2 |
The company shall pay the
stamp duty payable on the issue of the shares.
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||
9. | GENERAL | ||
9.1 |
This document constitutes
the sole record of the agreement between the parties in regard to the
subject matter thereof.
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||
9.2 |
Neither party shall be bound
by any express or implied term, representation, warranty, promise or the
like, not recorded herein.
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||
9.3 |
No addition to, variation
or consensual cancellation of this agreement shall be of any force or
effect unless in writing and signed by or on behalf of all the parties.
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9.4 |
No indulgence which either party (the grantor)
may grant to the other (the grantee shall constitute a waiver of
any of the rights of the grantor, who shall not thereby be precluded from
exercising any rights against the grantee which might have arisen in the
past or which might arise in the future.
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|
9.5 |
The parties undertake at all times to do all such
things, to perform all such acts and to take all such steps and to procure
the doing of all such things, the performance of all such actions and
the taking of all such steps as may be open to them and necessary for
or incidental to the putting into effect or maintenance of the terms,
conditions and import of this agreement.
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|
9.6 |
Neither party shall be entitled to cede, delegate
or otherwise transfer all or any of its rights, interest or obligations
under and in terms of this agreement except with the prior written consent
of the other party.
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Signed at Johannesburg on this the 31st day of October, 2003
/s/ Serge Belamant
For:
NET1 UEPS TECHNOLOGIES, INC.
(who warrants that he is duly authorised hereto)
Signed at Johannesburg on this the 31st day of October, 2003
/s/ Chad Smart
For:
NEWSHELF 713 (PROPRIETARY) LIMITED
(who warrants that he is duly authorised hereto)
SCHEDULE 1
THE LOAN ACCOUNT
The loan account shall:
1. |
be repayable as and when directed by
the board of directors of the company in its sole and absolute discretion;
provided that no capital under the loan shall be repayable until at least
30 days have lapsed from the date upon which the loan is credited to the
subscriber; and provided further that the loan account may only be repaid
with the prior written consent of the Exchange Control Department of the
South African Reserve Bank;
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2. |
bear interest at the rate of interest
determined by the board of directors of the company annually in advance
in its sole and absolute discretion; provided that the interest rate shall
not exceed the prime rate. The interest so determined shall be paid as
and when determined by the board;
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3. |
be repaid in full if the company is
wound up or placed under judicial management, whether provisionally or
finally;
|
4. |
be repaid pro rata to the B class loan
accounts advanced by the New Aplitec Participation Trust to the company;
|
5. |
rank
pari passu
in all respects
with the B class loan accounts advanced by the New Aplitec Participation
Trust to the company;
|
6. |
be subordinated in favour of all creditors
of the company (other than the New Aplitec Participation Trust as the
holder of the B class loan accounts) if so decided by the board of directors
of the company;
|
7. |
not be assigned, ceded, transferred
or encumbered by the subscriber in any way;
|
8. |
be denominated in South African Rands.
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Exhibit 2.3
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this Agreement ) dated as of January 30, 2004, between Net 1 Holdings S.a.r.l, a Luxemburg company (the Seller) and Net 1 UEPS Technologies. Inc., a corporation organized under the laws of the State of Florida (NUEP), on behalf of a new Luxembourg company to be formed (the Purchaser ) which will be a wholly owned subsidiary of NUEP.
WHEREAS, the Seller is the owner of the Seller Intellectual Property (as hereinafter defined) and is the majority shareholder of NUEP;
WHEREAS, the Seller Intellectual Property makes up all of the technology owned by the Seller used in the Funds Transfer System (FTS) and Universal Electronic Payment System (UEPS, and with FTS, the Technology), which together comprise a technology for the transfer of funds from one smart card to another in a secure and off-line manner incorporating methods for the loading, reloading and unloading of funds and the redemption of such funds for value in a banking or non-banking environment;
WHEREAS, the Seller is party to certain Contracts (as hereinafter defined);
WHEREAS, the Purchaser desires to purchase the entire right, title and interest of the Seller in the Seller Intellectual Property and the Contracts; and
WHEREAS, Newshelf 713 (Proprietary) Limited, a private company incorporated in South Africa and a wholly owned subsidiary of the Purchaser (New Aplitec), will acquire certain assets and liabilities (the Aplitec Acquisition ) of Net 1 Applied Technology Holdings Limited, a public company incorporated in South Africa (Aplitec), pursuant to the terms of the Sale Agreement (as defined herein);
NOW, THEREFORE in consideration of the premises and of the mutual agreements herein contained, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
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ARTICLE I
Definitions
Section 1.1. Definitions . The terms defined in this Section 1.1 shall, for all purposes of this Agreement, have the meanings herein specified, unless the context clearly requires otherwise:
Contracts means the agreements set forth in Exhibit A and all rights and privileges related thereto owned or held by the Seller and any of its associates in whole or in part or which the Seller has a right to use.
Intellectual Property means all U.S. and foreign intellectual property, including without limitation all (i) (a) the patents (including the Seller Patent), inventions, discoveries, processes, designs, techniques, developments, technology and know-how, (b) copyrights and works of authorship in any media, including computer programs, hardware, firmware, software, applications, files, specifications, Internet site content, databases and compilations, documentation and related items textual works, graphics, advertising, marketing and promotional materials, photographs, drawings, articles, textual works, the protected features of any utilitarian objects or pictorial or graphic works; (c) trademarks, service marks, trade names, brand names, corporate names, domain names, logos, trade dress and other source indicators, and the goodwill of any business symbolized thereby; (d) trade secrets, confidential, proprietary or non-public information, documents, data, analyses, research and lists including but not limited to all design documents, specifications, source code and all current and potential customer lists; (ii) all registrations, applications, recordings and the right to obtain renewals, extensions, substitutions, continuations, continuations-in-part, divisions, re-issues, re-examinations or similar legal protections related thereto; (iii) all material licenses, consents, royalty and other agreements concerning all the foregoing to which the Seller is a party; (iv) the right to bring an Action at law or in equity for the Infringement of the foregoing before the Closing Date, including the right to receive all proceeds and damages therefrom; and (v) all materials or tangible media embodying or incorporating the foregoing.
Sale Agreement means the Sale Agreement dated on or about October 31, 2003 among Aplitec, Net 1 Investment Holdings (Proprietary) Limited, Net 1 Support Services (Proprietary) Limited and New Aplitec.
Seller Intellectual Property means the Intellectual Property owned, held or used by the Seller.
Seller Patent means the U.S. No. Patent RE36788 and the registration and application therefor set forth in Exhibit B and all common law rights and other legal rights and privileges related thereto owned or held by the Seller.
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ARTICLE II.
Purchase and Sale
Section 2.1. Purchase and Sale of the Seller Patent and Contracts . Subject to the terms and conditions hereof:
(a) |
The Seller hereby sells, assigns, transfers,
conveys and delivers to Purchaser the Seller Intellectual Property, including
without limitation the right to sue at law or in equity for any past infringement
of, or impairment to the Seller Intellectual Property, including the right
to receive all proceeds and damages therefrom.
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(b) |
The Seller hereby sells, assigns, transfers,
conveys and delivers to the Purchaser all of Seller's right, title and
interest in and to the Contracts, including without limitation the right
to sue at law or in equity for any past breach under such Contracts, including
the right to receive all proceeds and damages therefrom.
|
(c) |
In consideration of such sale, assignment,
transfer and conveyance of the Seller Intellectual Property, the Contracts
and such interests of the Seller to the Purchaser, the Purchaser shall
pay to the Seller the amount of US$1.
|
(d) |
Other than as specifically set forth in
this Agreement, the Purchaser will assume no direct or indirect liabilities
or obligations, whether absolute or contingent, in connection with the
Seller Intellectual Property or the transactions contemplated hereby.
|
Section 2.2. Delivery of Instruments and Further Assurances . In order more fully to effect the sale, assignment, transfer and conveyance described in Sections 2.1, the Seller agrees that from and after the date hereof it will execute and deliver to the Purchaser such general instruments of sale, assignment, conveyance and transfer relating to the Seller Intellectual Property and Contracts as the Purchaser may reasonably request, which instruments shall be in such form and shall contain such provisions consistent herewith as shall be reasonably satisfactory to the Purchaser and its counsel. The Seller and its counsel shall assist in the current and future maintenance and registration of the Seller Patent and in the prosecution of any infringement or impairment thereof. As promptly as practicable after the date of this Agreement, the Seller will provide the Purchaser with the registration certificates relating to the Seller Patent assigned to the Purchaser pursuant to this Agreement. The Seller also agrees to take such actions as the Purchaser may reasonably request to effect the recordation of the sale, assignment, transfer and conveyance, and to place the Purchaser in possession and control of the Seller Intellectual Property and the goodwill symbolized thereby or connected therewith intended to be sold, assigned, transferred and conveyed by this Agreement. If the Seller shall have failed to procure any required consent, approval or authorization of any person in connection with the assignment or transfer any Contract pursuant to Section 2.2, the Seller shall use its best efforts to (i) obtain the consent of any such person, (ii) make the benefit of such Contract available to the Purchaser to the same extent, as nearly as may be possible, as if such impediment to assignment or transfer
3
did not exist and (iii) enforce, at the request of the Purchaser and for the benefit of the Purchaser, any rights of the Seller arising therefrom. In addition, the Seller, effective as of the date hereof, hereby irrevocably appoints the Purchaser its true and lawful attorney-in-fact, coupled with an interest in and to the Seller Intellectual Property intended to be sold, assigned, transferred and conveyed by this Agreement, to take all steps (including proceedings at law, in equity or otherwise) and to execute, acknowledge and deliver any and all instruments of sale, assignment, transfer and conveyance to accomplish more effectively the purchase and sale effected or purported to be effected hereby, and to place the Purchaser in possession and control of the Seller Intellectual Property and the goodwill symbolized thereby or connected therewith intended to be sold, assigned, transferred and conveyed by this Agreement.
Section 2.3. Delivery and Execution of the Sale Agreement . Notwithstanding any provision contained in this Section 2 to the contrary, the Purchasers obligation to purchase, and the Sellers obligations to sell the Seller Intellectual Property pursuant to this Agreement are conditioned up the execution, delivery and implementation of the Sale Agreement in accordance with its terms.
ARTICLE III .
Representations and Warranties of the Seller
Section 3.1. Representations and Warranties of the Seller . The Seller hereby represents and warrants to Purchaser as follows:
(a) Due Organization and Power . The Seller is a corporation duly organized, validly existing and in good standing (to the extent that the concept of good standing exists in Luxembourg) under the laws of Luxembourg, and has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.
(b) Authorization and Validity of Agreement . The execution, delivery and performance by the Seller of this Agreement and the consummation by it of the transactions contemplated hereby has been duly authorized by its Board of Directors and its shareholders, and no other corporate action on the part of the Seller is necessary for the execution, delivery and performance by the Seller of this Agreement and the consummation by the Seller of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller and this Agreement is the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with and subject to its terms.
4
(c) No Conflict . The execution, delivery and performance by the Seller of this Agreement and the consummation by the Seller of the transactions contemplated hereby does not and will not (i) violate any provision of any law, rule or regulation or any order, injunction, judgment or decree applicable to the Seller; (ii) require any consent or approval of, or filing with or notice to, any governmental or regulatory authority under any provision of law applicable to the Seller; (iii) violate any provision of the certificate of incorporation or by-laws or other constituent documents of the Seller; or (iv) require any consent, approval or notice under, conflict with, or result in the breach, lapse, cancellation or termination of, or constitute a default under, or result in the acceleration (whether after the filing of notice or the lapse of time or both) of any right or obligation of or the performance by the Seller under, or result in a loss of any benefit to which the Seller is entitled under any indenture, mortgage, deed of trust, lease, license, franchise, contract (other than a Contract), agreement, concession or other instrument to which the Seller is a party or by which the Seller or any of its assets are bound or encumbered.
(d) The Seller Intellectual Property . (i) The Seller owns or has the right to use all the Intellectual Property material to sale and licensing of the Technology as currently and proposed to be conducted; (ii) the Seller Intellectual Property is fully transferable, free and clear of all liens, encumbrances or other defects and not the subject of any license, security interest or other agreement granting rights therein to any person, except for the Contracts; (iii) the Seller does not use the Seller Intellectual Property by revocable or terminable consent of any other person and is not required to or makes any payment to others with respect thereto and is aware of no third party claim of ownership of any right, title or interest in and to, or license to use, the Seller Intellectual Property, inconsistent with the rights being transferred to the Purchaser hereunder; (iv) all of the material Seller Intellectual Property is valid and enforceable, has not expired or been abandoned, does not infringe, impair, misappropriate, dilute or otherwise violate (Infringe) the rights of others and is not being Infringed by others; (v) Exhibit B hereto includes each and every registration and application (if any) owned by or in the name the Seller or any other of its affiliates in every country in the world and all such Registered Intellectual Property is duly issued, currently valid, subsisting and unexpired and such applications are duly filed and pending; (vi) no actions are necessary (including filing of documents or payment of fees) within 90 days after the Closing Date to maintain or preserve the validity or status of any Registered Intellectual Property; (vii) the Seller is not a party to any pending suit, dispute or claim and there is no action, judgment, decree, injunction, order or agreement pending or in effect, which would limit, cancel or question the validity, enforceability, ownership or use of any Seller Intellectual Property, and the Seller knows of no valid basis for same; (viii) the Seller takes all appropriate actions (including executing non-disclosure and intellectual property assignment agreements and filing for statutory protections) to protect, preserve and maintain the Seller Intellectual Property, including all necessary actions to protect the confidentiality, integrity and security of its software, databases, systems and networks and all information stored or contained therein or transmitted thereby (Software) from any unauthorized use, access, interruption or modification by third parties; (ix) the Seller has executed all appropriate agreements with current and past employees, contractors and agents to assign to the Seller all of their right, title and interest in any Seller Intellectual Property; (x) the Seller uses reliable encryption (or equivalent) protection to guarantee the security and integrity of transactions executed through its Software; and (xi) the Seller uses reliable methods (including passwords) to ensure the correct identity of its users and customers.
5
ARTICLE IV .
Representations and Warranties of NUEP
Section 4.1. Representations and Warranties . NUEP hereby represents and warrants to the Seller as follows:
(a) Due Organization and Power . (i) NUEP is a corporation duly organized, validly existing and in good standing under the laws of Florida and has all requisite corporate power and authority to enter into this Agreement on behalf of the Purchaser.
(ii) Purchaser will be a corporation duly organized, validly existing and in good standing under the laws of Luxembourg and shall have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.
(b) Authorization and Validity of Agreement . The execution, delivery and performance by NUEP on behalf of the Purchaser of this Agreement and the consummation by it of the transactions contemplated is duly authorized by its Board of Directors, and no other corporate action on the part of the Purchaser is necessary for the execution, delivery and performance by the Purchaser of this Agreement and the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by NUEP on behalf of the Purchaser and this Agreement is the legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with and subject to its terms.
ARTICLE V.
Covenants
Section 5.1. Recordation . The Seller shall use its best efforts to cause the sale, assignment, transfer and conveyance of any and all registrations and applications for the Seller Patent from the Seller to the Purchaser to be recorded with the patent offices of each country in which such registrations were granted or applications were filed.
Section 5.2. Taxes . The Purchaser shall be responsible for all transfer taxes and any other taxes payable in connection with the transfer of the Seller Intellectual Property from the Seller to the Purchaser.
ARTICLE VI .
Indemnification
Section 6.1. Indemnification .
6
(a) On and after the date hereof, the Purchaser hereby agrees to indemnify, defend and hold harmless the Seller (the Seller Indemnified Party) from and against and in respect of any and all claims, losses, damages, costs, expenses, obligations, liabilities, charges, actions, suits, proceedings, deficiencies, interest, penalties and fines (including costs of collection, attorneys fees and other costs of defense (collectively, Damages) imposed on, sustained, incurred or suffered by or asserted against them, directly or indirectly, in respect of, but only in respect of:
(i) any breach of NUEPs representations and warranties;
(ii) Purchasers failure to perform or otherwise fulfill any of its agreements, covenants, obligations or undertakings hereunder; and
(iii) all liabilities relating to Purchasers use of the Seller Intellectual Property after the date hereof.
(b) On and after the date hereof, the Seller hereby agrees to indemnify, defend and hold the Purchaser (the Purchaser Indemnified Party), harmless from and against and in respect of any and all Damages imposed on, sustained, incurred or suffered by or asserted against it directly or indirectly, but only in respect of:
(i) any breach of any representations and warranties of the Seller;
(ii) any failure of the Seller to perform or otherwise fulfill any of its agreements; covenants, obligations or, undertakings hereunder; and
(iii) all liabilities relating, directly or indirectly, to the use of the Seller Intellectual Property and arising before the date hereof.
Section 6.2 Procedure . If a claim by a third party is made against an indemnified party, and if such party intends to seek indemnity with respect thereto under this Article VI or under any other provisions of this Agreement providing for indemnification, such indemnified party shall promptly notify the indemnifying party in writing of such claims setting forth such claims in reasonable detail. The failure of the indemnified party to give the indemnifying party prompt notice as provided herein shall not relieve the indemnifying party of any of its obligations under this Article VI, except to the extent that the indemnifying partys legal rights are materially prejudiced by such failure. The indemnifying party shall have 30 days after receipt of such notice to undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and the indemnified party shall cooperate with it in connection therewith; provided that the indemnified party may participate in such settlement or defense through counsel chosen by such indemnified party if the fees and expenses of such counsel shall be borne by such indemnified party. So long as the indemnifying party is reasonably contesting any such claim in good faith, the indemnified party shall not pay or settle any such claim. Notwithstanding the foregoing, the indemnified party shall have the right to pay or settle any such claim; provided that in such event it shall waive any right to indemnity therefor by the indemnifying party. If the indemnifying party does not notify
7
the indemnified party within 30 days after the receipt of the indemnified partys notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the indemnified party shall have the right to contest, settle or compromise the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. The indemnifying party shall not, except with the consent of the indemnified party, enter into any settlement that does not include as an unconditional term thereof the giving by the person or persons asserting such claim to all indemnified parties ( i.e. , Seller Indemnified Party or Purchaser Indemnified Party, as the case may be) an unconditional release from all liability with respect to such claim or consent to entry of any judgment.
ARTICLE VII.
Miscellaneous
Section 7.1 Survival of Representations and Warranties. The representations and warranties of the parties contained in this Agreement and in any agreement or other document to be delivered pursuant to this Agreement shall survive the execution of thisAgreement and the delivery of any such agreement or other document.
Section 7.2 Fees and Expenses . Whether or not the transactions contemplated hereby are consummated, each of the parties hereto shall pay its own fees and expenses incident to the negotiation, preparation and execution of this Agreement, including attorneys, accountants and other advisors fees.
Section 7.3 Notices . All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or by overnight courier with delivery charges prepaid, or sent by facsimile, as follows:
(a) | if to the Seller, to it at: |
Suite 325-744 West Hastings Street
Vancouver, British Columbia Canada V6C 1A4 |
|
(b) | if to the Purchaser, to it at: |
4
th
Floor
President Place 148 Jan Smuts Avenue Rosebank 2128 South Africa |
or to such other person or address as either party shall specify by notice in writing to the other
8
party. All such notices, requests, demands, waivers and communications shall be deemed to have been received on the date of delivery.
Section 7.4. Entire Agreement . This Agreement (including the Exhibits hereto) constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof.
Section 7.5. Binding Effect; Benefit . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
Section 7.6 . Assignability . This Agreement shall not be assigned by the Seller without the prior written consent of the Purchaser. The Purchaser shall have the right to assign any or all of its rights under this Agreement to any of its affiliates, provided, however, that no such assignment shall release the Purchaser from any of its liabilities or obligations hereunder.
Section 7.7 . Amendment and Modification; Waiver . Subject to applicable law, neither this Agreement nor any Exhibit attached hereto may be amended, modified or supplemented other than by a written instrument identified as an amendment hereto and signed by each of the parties hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party so waiving. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach. No failure on the part of either party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof.
Section 7.8 . Specific Performance . The Purchaser and the Seller each acknowledge that, in view of the uniqueness of the transactions contemplated by this Agreement, the other parties might not have an adequate remedy at law for money damages if this Agreement has not been performed in accordance with its terms. Each party therefore agrees that the other party shall be entitled to such specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity.
Section 7.9 . Section Headings . The section headings contained in this Agreement are inserted for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
Section 7.10 . Counterparts . This Agreement may be executed in any number of counterparts (including by telecopy), each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument.
Section 7.11 . Applicable Law; Consent to Jurisdiction . This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with
9
the laws of the State of New York. The parties hereto hereby exclusively and irrevocably submit to the jurisdiction of the United States federal court located in New York City, New York over any action arising out of or relating to this Agreement and all parties hereby irrevocably agree that all claims in respect of such suit, action or proceeding shall be heard and determined in such court. The parties hereby irrevocably waive, to the fullest extent permitted by the applicable law, any objection which they may now or thereafter have to the laying of venue of any such suit, action or proceeding brought in such court or any defense of inconvenient forum for the maintenance of such suit, action or proceeding. Each of the parties hereto agrees that a judgment in any such action or proceeding may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law.
Section 7.12. Severability of Provision s. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent and only for the duration of such prohibition or enforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. If any such provision shall be adjudged by any court or authority of competent jurisdiction to be prohibited or unenforceable but would be valid and enforceable if part of the wording thereof were to be deleted and/or the period thereof were to be reduced and/or the area thereby were to be reduced, such provision shall apply within the jurisdiction of such court or authority with such modifications as are necessary to make it valid and enforceable.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
NET 1 UEPS TECHNOLOGIES, INC., on behalf | |||
of the Purchaser | |||
By: | /s/ Claude Guerard | ||
Name: Claude Guerard | |||
Title: | |||
NET 1 HOLDINGS S.A.R.L | |||
By: | /s/ Serge Belamant | ||
Name: Serge Belamant | |||
Title: |
Exhibit A
Contracts
1. | Patent and Technology Agreement between the Seller and NUEP dated May 3, 2000. |
2. | Procurement and Commission Agreement between the Seller, the Reserve Bank of Malawi and Net 1 Investment Holdings, dated April 6, 2001. |
2. | Technology License Agreement, between Visa International Service Association and the Seller, dated July 31, 1997. |
3. | UEPS Products License Agreement between the Seller and Net 1 Operations S.a.r.l. and Social Security Bank of Ghana dated April 2, 1997. |
4. | UEPS Products License Agreement between the Seller and Banque de Gestion et de Financement Burundi dated March 2, 2000. |
5. | UEPS Products License Agreement between the Seller and Banque de Commercie, de Development ED Industrie B.C.D.I. S.A. Rwanda dated February 4, 1999. |
Exhibit B
Seller Patent
US Patent RE36788
Exhibit 2.4
COMMON STOCK PURCHASE AGREEMENT Between NET 1 UEPS TECHNOLOGIES, INC. And SAPEF III INTERNATIONAL G.P. LIMITED (OR ITS NOMINEES) Dated as of January 30, 2004
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Table of Contents
i
ii
iii
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT (this Agreement ), dated as of January 30, 2004, between NET 1 UEPS TECHNOLOGIES, INC., a Florida corporation (the Company ), and SAPEF III INTERNATIONAL G.P. LIMITED, a British Virgin Islands company and its nominees (together, with its nominees, the Purchaser ).
RECITALS
WHEREAS, pursuant to a Sale Agreement dated October 31, 2003 among Aplitec (as defined herein), Net 1 Investment Holdings (Proprietary) Limited, Net 1 Support Services (Proprietary) Limited and New Aplitec (as defined herein) (the Aplitec Acquisition Agreement), the Company intends to acquire, through a wholly owned subsidiary, substantially all of the assets and liabilities of Aplitec (the Aplitec Acquisition );
WHEREAS, the Company intends to amend its Articles of Incorporation in the form attached hereto as Exhibit A (the Amendment ) to (i) increase the maximum number of the Companys authorized shares of the Common Stock, par value $0.001 per share (the Common Stock ) from 100,000,000 shares to 500,000,000 shares, (ii) increase the authorized shares of preferred stock (the Preferred Stock ) from 3,000,000 to 300,000,000 and (iii) set forth the designations, preferences, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution providing for the creation and issuance of such series of Preferred Stock as adopted by the Board of Directors pursuant to the authority of Article IV of the Articles of Incorporation;
WHEREAS, the Amendment requires approval from the majority of the unaffiliated holders of shares of Common Stock (Stockholder Approval );
WHEREAS, subject to obtaining the Stockholder Approval, the Company has authorized the sale and issuance of an aggregate of 105,661,428 shares of its Common Stock, and 192,967,138 shares of its Special Convertible Preference Stock, par value $0.001 per share (the Convertible Preference Stock );
WHEREAS, the Company intends to use a portion of the proceeds from the sale of shares of Common Stock in connection with the Aplitec Acquisition, which portion will be in a certain dollar amount equal to 229,814,997 South African Rand on the date of payment for the shares of Common Stock as contemplated herein and for which will constitute a suspensive condition in the Aplitec Acquisition Agreement, and the balance of the proceeds will be used for working capital and general corporate purposes of the Company, which is not a suspensive condition under the Aplitec Acquisition Agreement;
1
WHEREAS, the Purchaser initially desires to purchase shares of Common Stock, on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell such shares of Common Stock to the Purchaser on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I AGREEMENT TO SELL AND PURCHASE
SECTION 1.1. Authorization of Shares . The Company, subject to Stockholder Approval, has authorized (i) the initial sale and issuance to the Purchaser of 105,661,428 shares of Common Stock (the Firm Shares), subject to the Stockholder Approval, (ii) the issuance of up to 192,967,138 shares of Convertible Preference Stock in connection with the Aplitec Acquisition, and (iii) the issuance of up to 192,967,138 shares of Common Stock upon conversion of the shares of Convertible Preference Stock (the Conversion Shares). The Convertible Preference Stock shall have the rights, preferences, privileges and restrictions set forth in the Amendment.
SECTION 1.2. Sale and Purchase . Subject to the terms and conditions hereof, the Company hereby agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, the Firm Shares for the consideration of (i) cash in the amount of $0.50 per Firm Share and (ii) the procurement of the assignment of all the issued and outstanding capital stock of New Aplitec. Subject to the terms and conditions hereof, the Company will issue and sell to the Purchaser and the Purchaser will purchase from the Company, at the Closing, 105,661,428 Firm Shares.
ARTICLE II CLOSING, DELIVERY AND PAYMENT
SECTION 2.1. Closing . The closing of the sale and purchase of the Firm Shares under this Agreement (the Closing ), shall take place on the 12th business day after the satisfaction or waiver of the conditions set forth in Section 6, at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017, or at such other time or place as the Company and the Purchaser may mutually agree (such date for the purchase of the Firm Shares is hereinafter referred to as the Closing Date ).
SECTION 2.2. Delivery . At the Closing, subject to the terms and conditions hereof, the Company will deliver to the Purchaser all of the Firm Shares to be purchased in accordance with Section 1.2 at the Closing, by delivery of a certificate or certificates evidencing the Firm Shares to be purchased at such Closing, free and clear of any encumbrances (other than those placed thereon by or on behalf of the Purchaser), and the Purchaser will make payment to the Company of the aggregate purchase price therefor by wire transfer of immediately available
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funds to an account designated by the Company at least two business days prior to the applicable Closing Date.
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1. Organization, Good Standing and Qualification . (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida, has the requisite power and authority to own, lease and operate its properties and to carry on its business as now conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (as defined herein) on the Company, and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure so to qualify or to be in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. The copies of the Articles of Incorporation and By-laws of the Company which were previously furnished or made available to the Purchaser are true, complete and correct copies of such documents as in effect on the date of this Agreement. The Company is not in default in the performance, observation or fulfillment of its Articles of Incorporation or By-laws, and except for the Amendment, no amendments to the Companys Articles of Incorporation or By-laws are currently pending. The minute books and other corporate records of the Company are complete and accurate in all material respects and contain all resolutions and other appropriate documents ratifying the actions of the Company to the date of this Agreement. The stock records of the Company are true and complete. The Company has made true, complete and correct copies or originals of all such documents available for review and inspection by the Purchaser and its representatives.
(b) The Company has no Subsidiaries.
SECTION 3.2. Capital Structure .
(a) As of the date of this Agreement, the authorized capital stock of the Company consists of (A) 100,000,000 shares of Company Common Stock, of which 15,852,856 shares were outstanding as of the date hereof, (B) 3,000,000 shares of Preferred Stock, $.10 par value per share, of which no shares of are outstanding. Since December 31, 2002 to the date of this Agreement, there have been no issuances of shares of the capital stock of the Company or any other securities of the Company. All issued and outstanding shares of the capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, and no capital stock is entitled to preemptive rights. There were outstanding as of the date hereof no options, warrants or other rights to acquire capital stock from the Company. No options or warrants or other rights to acquire capital stock from the Company have been issued or granted since December 31, 2002 to the date of this Agreement.
(b) No bonds, debentures, notes or other indebtedness of the Company having the right to vote on any matters on which stockholders may vote are issued or outstanding.
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(c) Except as otherwise set forth in this Section, as of the date of this Agreement, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. As of the date of this Agreement, there are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of the Company.
(d) After giving effect to the Aplitec Acquisition and the transactions contemplated in this Agreement and the Aplitec Acquisition Agreement, there will be outstanding 121,514,284 shares of Common Stock and 192,967,138 shares of Convertible Preferred Stock.
SECTION 3.3. Authority; No Conflicts; Governmental Approvals .
(a) The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, subject to the Shareholder Approval referred to in Section 3.7. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to the adoption of the Amendment by the Stockholder Approval. This Agreement has been duly executed and delivered by the Company and, assuming that this Agreement constitutes the valid and binding agreement of the Purchaser, constitutes a valid and binding agreement of the Company, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar Laws (as defined herein) relating to or affecting creditors generally or by general equity principles (regardless of whether such enforceability is considered in a proceeding in equity or at Law) or by an implied covenant of good faith and fair dealing.
(b) The execution and delivery of this Agreement by the Company does not, and the other transactions contemplated hereby will not, conflict with, or result in a Violation pursuant to: (A) any provision of the Articles of Incorporation or By-laws of the Company or (B) subject to obtaining or making the consents, approvals, Orders, authorizations, registrations, declarations and filings referred to in paragraph (c) below, any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit plan or other agreement, obligation, instrument, Permit (as defined herein), Law or Order (as defined herein) applicable to the Company or any Subsidiary of the Company or their respective properties or assets.
(c) No consent, approval, Order or authorization of, or registration, declaration or filing with, any Governmental Entity (as defined herein) is required by or with respect to the Company in connection with the execution and delivery of this Agreement by the Company and the consummation of the other transactions contemplated hereby, except for those required under or in relation to (A) the Florida Business Corporation Act (the Florida Statute ) with respect to the filing of the Amendment, (B) the filing of a proxy statement with respect to the Stockholder Approval with the SEC under the Securities and Exchange Act of 1934, as
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amended (the Exchange Act), which proxy statement will also constitute the prospectus for the Registration Statement on Form S-4 referred to in clause (C) (the Proxy Statement/Prospectus) and (C) the filing of a registration statement of the Company on Form S-4 with the SEC (the Form S-4) under the Securities Act of 1933, as amended, (the Securities Act) with respect to the issuance of the shares of Convertible Preference Stock and the shares of Common Stock issuable upon conversion of such shares of Convertible Preference Stock, and the declaration by the SEC of the Form S-4 effective, and (D) such consents, approvals, Orders, authorizations, registrations, declarations and filings the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 3.4. Reports and Financial Statements .
(a) The Company and its controlling stockholders have filed all required registration statements, prospectuses, reports, schedules, forms, statements and other documents required to be filed by it with the SEC since January 1, 2001 (collectively, including all exhibits thereto, the SEC Reports). None of the SEC Reports, as of their respective dates (and, if amended or superseded by a filing prior to the date of this Agreement or the Closing Date, then on the date of such filing), contained or will contain any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The SEC Reports and any public announcements made by the Company after the date hereof as of the date of filing or announcement, as applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances, not misleading. Each of the financial statements (including the related notes) included in the SEC Reports presents fairly, in all material respects, the consolidated financial position and consolidated results of operations and cash flows of the Company as of the respective dates or for the respective periods set forth therein, all in conformity with GAAP (as defined herein) applied on a consistent basis throughout the periods involved except as otherwise noted therein, and subject, in the case of the unaudited interim financial statements, to normal and recurring adjustments that were not or are not expected to be material in amount, and lack of footnote disclosure. All of such SEC Reports, as of their respective dates (and as of the date of any amendment to the respective SEC Report), complied as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act.
(b) Except as disclosed in the SEC Reports filed prior to the date hereof, the Company has not incurred any liabilities or obligations (whether or not accrued, contingent or otherwise) that are of a nature that would be required to be disclosed on a balance sheet of the Company or the footnotes thereto prepared in conformity with GAAP, other than (A) liabilities incurred in the ordinary course of business or (B) liabilities that would not, in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 3.5. Information Supplied .
(a) None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (A) the Form S-4 will, at the time the Form S-4 is filed
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with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) the Proxy Statement/Prospectus will, on the date it is first mailed to the Company stockholders or at the time of the stockholders meeting at which the stockholders will vote to on the matters as set forth in the Proxy Statement/Prospectus, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Proxy Statement/Prospectus will comply as to form in all material respects with the requirements of the Exchange Act and the Securities Act and the rules and regulations of the SEC thereunder.
(b) Notwithstanding the foregoing provisions of this Section 3.5(b), no representation or warranty is made by the Company with respect to statements made or incorporated by reference in the Form S-4 or the Proxy Statement/Prospectus based on information supplied by (i) the Purchaser or (ii) Aplitec (as defined herein) in connection with the Aplitec Acquisition (as defined herein).
SECTION 3.6. Board Approval. The Board of Directors of the Company, by resolutions duly adopted by vote of those voting at a meeting duly called and held and not subsequently rescinded or modified in any way, has duly (i) determined that this Agreement is advisable, fair to and in the best interests of the Company and its stockholders, (ii) approved this Agreement and the transactions contemplated hereby, including the Aplitec Acquisition Agreement, (iii) opted-out of Section 607.0902 of the Florida Statute (regarding control-share acquisitions), (iv) determined that the filing of the Amendment with the State of Florida Department of State is in the best interest of the Company in connection with the terms of this Agreement, and (v) approved the designation of shares of Convertible Preference Stock as set forth in the Amendment. No state takeover statute or other similar statute is applicable to this Agreement or the other transactions contemplated hereby, including Section 607.0901 of the Florida Statute (regarding affiliated transactions) and 607.0902 of the Florida Statute (regarding control-share acquisitions).
SECTION 3.7. Vote Required. The affirmative vote of the majority of holders of Common Stock who cast votes to approve the Amendment is the only vote of the holders of any class or series of the Company capital stock necessary to adopt this Agreement and approve the filing of the Amendment and the other transactions contemplated hereby.
SECTION 3.8. Litigation, Compliance with Laws.
(a) There is no suit, action, investigation or proceeding pending or, to the Knowledge (as defined herein) of the Company, threatened, against or affecting the Company, nor is there any Order of any Governmental Entity (as defined herein) or arbitrator outstanding against the Company.
(b) Except as disclosed in the SEC Reports filed prior to the date of the Agreement and except as would not reasonably be expected to have a Material Adverse Effect on the Company, the Company holds all Permits necessary for the operation of the Businesses of the
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Company, taken as a whole. The Company is in compliance with the terms of each such Permit, except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. Except as disclosed in the SEC Reports filed prior to the date of this Agreement, the business of the Company is not being conducted in violation of, and the Company has not received any notices of violations with respect to, any Law of any Governmental Entity, except for possible violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 3.9. Absence of Certain Changes or Events . Except for liabilities incurred in connection with this Agreement or the transactions contemplated hereby and except as disclosed in the SEC Reports filed prior to the date of this Agreement, since June 30, 2003, the Company has conducted its business only in the ordinary course and there has not been (i) any change, circumstance or event which has had, or would reasonably be expected to have, a Material Adverse Effect on the Company or (ii) any action taken by the Company during the period from June 30, 2003 through the date of this Agreement that, if taken during the period from the date of this Agreement through the Closing Date, would have constituted a breach of Section 5.1.
SECTION 3.10. Environmental Matters . Except as would not reasonably be expected to have a Material Adverse Effect on the Company, (i) the operations of the Company have been and are in compliance with all applicable Environmental Laws (as defined herein) and with all Environmental Permits (as defined herein), (ii) there are no pending or, to the Knowledge of the Company, threatened, actions, suits, claims, investigations or other proceedings under or pursuant to Environmental Laws against the Company or, to the Knowledge of the Company, involving any real property currently or formerly owned, operated or leased by the Company, (iii) the Company is not subject to any Environmental Liabilities (as defined herein) and, to the Knowledge of the Company, no facts, circumstances or conditions relating to, arising from, associated with or attributable to any real property currently or formerly owned, operated or leased by the Company or operations thereon would reasonably be expected to result in Environmental Liabilities, (iv) all real property owned and all real property operated or leased by the Company is free of Hazardous Materials (as defined herein) in conditions and concentrations that would reasonably be expected to have an adverse effect on human health or the environment and the Company has disposed of any Hazardous Materials on or about such premises, and (v) no release, discharge, spillage or disposal of any Hazardous Material and no soil, water or air contamination by any Hazardous Material has occurred or is occurring in, from or on such premises the result of which would have a Material Adverse Effect on the Company.
SECTION 3.11. Intellectual Property . Except as would not reasonably be expected to have a Material Adverse Effect on the Company, (a) the Company owns, or is licensed to use (in each case, free and clear of any Liens), all Intellectual Property (as defined herein) used in or necessary for the conduct of its business as currently conducted; (b) to the Knowledge of the Company, the use of any Intellectual Property by the Company does not infringe on or otherwise violate the rights of any Person and is in accordance with any applicable license pursuant to which the Company acquired the right to use any Intellectual Property; (c) to the Knowledge of the Company, no Person is challenging or infringing on or otherwise violating any right of the Company with respect to any Intellectual Property owned by or licensed to the
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Company; and (d) the Company has not received any written notice of any pending claim with respect to any Intellectual Property used by the Company and to the Knowledge of the Company no Intellectual Property owned or licensed by the Company is being used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of such Intellectual Property. Each of the Technology Agreements (as defined herein) is in full force and effect and there is no Violation of any of such Technology Agreements.
SECTION 3.12. Brokers or Finders . No agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any brokers or finders fee or any other similar commission or fee in connection with any of the transactions contemplated by this Agreement, based upon arrangements made by or on behalf of the Company, except for Brait Advisory Services Limited (BAS) appointed by Letter of Appointment dated April 25, 2003, whose fees and expenses will be paid by the Company in accordance with the Companys agreements with such firm, copies of which have been provided to the Purchaser.
SECTION 3.13. Taxes . The Company (i) has prepared in good faith and duly and timely filed (taking into account any extension of time within which to file) all material Tax Returns (as defined herein) required to be filed by any of them and all such filed Tax Returns are complete and accurate in all material respects; (ii) has paid all Taxes (as defined herein) that are shown as due and payable on such filed Tax Returns or that the Company is obligated to pay without the filing of a Tax Return; (iii) has paid all other assessments received to date in respect of Taxes other than those being contested in good faith for which provision has been made in accordance with GAAP on the most recent balance sheet included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2002; (iv) has withheld from amounts owing to any employee, creditor or other Person (as defined herein) all Taxes required by law to be withheld and have paid over to the proper governmental authority in a timely manner all such withheld amounts to the extent due and payable; (v) has not waived any applicable statute of limitations with respect to United States federal or state income or franchise Taxes and have not otherwise agreed to any extension of time with respect to a United States federal or state income or franchise Tax assessment or deficiency; (vi) has never been members of any consolidated group for income tax purposes; and (vii) is not party to any tax sharing agreement or arrangement. No Liens for Taxes exist with respect to any of the assets or properties of the Company, except for statutory Liens for Taxes not yet due or payable or that are being contested in good faith. The Company has made available to the Purchaser true and correct copies of the United States federal income Tax Returns filed by the Company for each of the years ended December 31, 2001 and 2002. There is no contract or agreement, plan or arrangement by the Company covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company by reason of Section 280G of the Code or would constitute compensation in excess of the limitation set forth in Section 162(m) of the Code. There are not being conducted or, to the Knowledge of the Company, threatened in writing any material audits, examinations, investigations, litigation, or other proceedings in respect of Taxes of the Company. The Company has not been a party to a Section 355 transaction that could give rise to a Tax liability pursuant to Section 355(e) of the Code.
SECTION 3.14. Certain Contracts .
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(a) The Disclosure Schedule attached hereto as Schedule 3.13 (the Disclosure Schedule ) lists, as of the date hereof, each of the following contracts, agreements or arrangements to which the Company is a party or by which it is bound: (i) any contract for the purchase or sale of services, materials, products or supplies which involve aggregate payments by the Company of more than $10,000 for each such agreement or involve aggregate payments to the Company of more than $10,000 for each such agreement or other statutory or regulatory requirements), (ii) promissory notes, loans, agreements, indentures, evidences of indebtedness or other instruments providing for the lending of money, whether as borrower, lender or guarantor (excluding trade payables or receivables arising in the ordinary course of business), (iii) any contract or other agreement restricting the payment of dividends or the repurchase of stock or other equity, (iv) employment agreements, (v) change in control or similar arrangements with any officers, employees or agents of the Company that will result in any obligation (absolute or contingent) to make any payment to any officers, employees or agents of the Company following either the consummation of the transactions contemplated hereby, termination of employment, or both, (vi) labor contracts, (vii) joint venture, partnership agreements or other similar agreements, (viii) any contract for the pending acquisition, directly or indirectly (by merger or otherwise), of any entity or business, (ix) any contract, agreement or policy for reinsurance, (x) any contract or agreement that is material to the business, assets or condition (financial or otherwise) of the Company taken as a whole, or (xi) any non-competition agreement or any other agreement or arrangement that limits or otherwise restricts the Company or any successor thereto or that would, after the Closing Date, limit or restrict the Purchaser or any of its affiliates or any successor thereto, from engaging or competing in any line of business or in any geographic area (collectively, the Material Contracts ).
(b) The Company is not, nor has it received any notice or has any Knowledge that any other party is, in default (or would be in default but for the lapse of time or the giving of notice or both) in any respect under any such Material Contract, except for those defaults which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 3.15. Employee Benefit Plans .
(a) The Company has no Benefit Plan (as defined herein), stock purchase, stock option, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA, whether formal or informal, oral or written, legally binding or under which any employee or former employee of the Company or any of its Subsidiaries has any present or future right to benefits or under which the Company or any of its Subsidiaries has any present or future liability.
(b) No Company Plan (as defined herein) exists which could result in the payment to any employee of the Company of any money or other property or rights or accelerate or provide any other rights or benefits to any such employee as a result of the transactions contemplated by this Agreement.
SECTION 3.16. Labor Matters .
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The Company has only one employee.
SECTION 3.17. Affiliate Transactions .
Except as disclosed in Schedule 3.13, there are no contracts, commitments, agreements, arrangements or other transactions between the Company, on the one hand, and any Affiliate of the Company or any of its Subsidiaries, on the other hand.
SECTION 3.18. Insurance .
The Company has provided or made available to the Purchaser true, correct and complete copies of all policies of insurance to which the Company is a party or is a beneficiary or named insured. The Company maintains insurance coverage with reputable insurers in such amounts and covering such risks as are in accordance with normal industry practice for companies engaged in businesses similar to that of the Company (taking into account the cost and availability of such insurance).
SECTION 3.19. Opinion of the Company Financial Advisor .
The Board of Directors of the Company has received the opinion of Stenton Leigh Capital Corporation (the Company Financial Advisor ), dated the date of this Agreement, to the effect that, as of such date, the consideration to be paid for the Firm Shares is fair, from a financial point of view, to the holders of Company Common Stock (other than the Purchaser and its Affiliates), copy of which opinion will promptly be made available to the Purchaser after receipt by the Company.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
SECTION 4.1. Requisite Power and Authority . The Purchaser has all requisite power and authority to execute and deliver this Agreement to consummate the transactions contemplated hereby and to perform its obligations hereunder. All action on the Purchasers part necessary for the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the performance of all obligations of the Purchaser hereunder as of the Closing has been or will be effectively taken prior to the Closing. This Agreement has been or will be duly executed and delivered by the Purchaser. This Agreement (assuming due execution and delivery by the Company) will be legal, valid and binding obligations of the Purchaser, enforceable against it in accordance with their terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
SECTION 4.2. Investment Representations . The Purchaser acknowledges that the Firm Shares have not been registered under the Securities Act or under any state securities
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laws. The Purchaser (a) is acquiring the Firm Shares for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof, (b) is an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the SEC, (c) acknowledges that the Firm Shares must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from the registration requirements of the Securities Act is available and (d) represents that by reason of its business or financial experience, the Purchaser has the capacity to protect its own interests in connection with the transactions contemplated by this Agreement. The Purchaser has had an opportunity to discuss the Companys business, management and financial affairs with the Companys management. The Purchaser has had an opportunity to ask questions of and receive answers from, officers of the Company. The Purchaser understands that such discussions, as well as any other written information issued by the Company, were intended to describe certain aspects of the Companys business and operations, but were not an exhaustive description.
SECTION 4.3. Litigation . There is no Action pending, or to the Purchasers knowledge, currently threatened against the Purchaser which, if adversely determined, would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the Purchaser to perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
SECTION 4.4. No Broker . The Purchaser has not employed any broker or finder, or incurred any liability for any brokerage or finders fees or any similar fees or commissions in connection with the transactions contemplated by this Agreement.
ARTICLE V COVENANTS OF THE COMPANY
SECTION 5.1. Ordinary Course of Business . The Company covenants and agrees that, during the period from the date hereof to the Closing Date and except as contemplated herein, in the Aplitec Acquisition Agreement, the Asset Purchase Agreement or as otherwise agreed to in writing by the Purchaser, the business of the Company shall be conducted only in, and the Company shall not take any action except in the ordinary course of business and in a manner consistent with past practice and in compliance with applicable Laws; and the Company shall use its commercially reasonable efforts to preserve substantially intact the business organization of the Company, to keep available the services of the present officers, employees and consultants of the Company and to preserve the present relationships of the Company with such of the customers, suppliers, licensors, licensees, or distributors with which the Company has significant business relations. By way of amplification and not limitation, the Company shall not, between the date of this Agreement and the Closing Date, except as contemplated herein, in the Aplitec Acquisition Agreement, or in the Asset Purchase Agreement, directly or indirectly do, or propose or commit to do, any of the following:
(a) Except to incorporate the provisions of the Amendment, amend its Articles of Incorporation or By-laws or, equivalent organizational documents;
(b) Issue, deliver, sell, pledge, dispose of or encumber, or authorize or commit to the issuance, sale, pledge, disposition or encumbrance of any shares of capital
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stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including but not limited to stock appreciation rights or phantom stock), of the Company;
(c) Declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(e) Acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division or line of business, whether in a single transaction or series of related transactions or (B) enter into any proposed transaction or series of related transactions involving a change of control of the Company;
(f) Transfer, lease, mortgage, or otherwise dispose of or subject to any lien any of its assets;
(g) Incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans, advances or capital contributions to, or investments in, any other person;
(h) Enter into or amend any contract or agreement, other than contracts or amendments issued or entered into in the ordinary course of business with customers or providers of the Company, or any agreement contemplated herein;
(i) Increase the compensation or fringe benefits of any of its directors, officers or employees, or grant any severance or termination pay or enter into, or amend, any employment, consulting or severance agreement or arrangement with any present or former director, officer or other employee of the Company, or establish, adopt, enter into or amend or terminate any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, welfare, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees;
(j) Except as may be required as a result of a change in Law or in GAAP, make any change to the accounting practices or principles or reserving or underwriting practices or principles used by it;
(k) Settle or compromise any pending or threatened suit, action or claim;
(l) Adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the Company;
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(m) Fail to maintain in full force and effect the existing insurance policies covering the Company or its properties, assets and businesses or comparable replacement policies to the extent available for a cost not exceeding 150% of the current cost of such policy;
(n) Authorize or make capital expenditures which are, in the aggregate, in excess of $100,000 for the Company;
(o) Expand its marketing efforts beyond those countries or states in which its products are offered as of the date of this Agreement, except as agreed in writing with the Purchaser;
(p) Make any Tax election or settle or compromise any material federal, state, local or foreign Tax liability, change any annual tax accounting period, change any method of Tax accounting, enter into any closing agreement relating to any Tax, surrender any right to claim a Tax refund, or consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment; or
(q) Take, or offer or propose to take, or agree to take in writing or otherwise, any of the actions described in Sections 5.1(a) through 5.1(q) or any action which would result in any of the conditions set forth in Article VII not being satisfied or materially delay the Closing.
SECTION 5.2. Access . From the date of this Agreement to the Closing Date (the Pre-Closing Period), the Company shall, and shall cause its officers, directors, employees, auditors and other agents to, (a) afford the officers, employees, auditors and other agents of the Purchaser, during normal business hours reasonable access at all reasonable times to its officers, employees, auditors, legal counsel, properties, offices, plants and other facilities and to all books and records, (b) furnish the Purchaser with all financial, operating and other data and information as the Purchaser, through its officers, employees or agents, may from time to time reasonably request and (c) afford the Purchaser the opportunity to discuss the Companys affairs, finances and accounts with the Companys officers on a regular basis.
SECTION 5.3. Creation of Subsidiaries for Certain Acquisitions . On the Closing Date, each of New Aplitec and Applied Technologies shall become direct, wholly owned subsidiaries of the Company, and the Company shall cause them to consummate the transactions contemplated in this Agreement for the purpose of effecting the Aplitec Acquisition, in the case of New Aplitec, and the acquisition of the IP rights of Luxco pursuant to the Asset Purchase Agreement, in the case of Applied Technologies.
SECTION 5.4. Use of Proceeds . The Company shall use the proceeds from the sale of the Firm Shares to finance the Aplitec Acquisition, to fund working capital and for general corporate purposes; provided that a certain dollar amount to be equal to ZAR 229,814,997 as determined on the Closing Date, of such proceeds shall be used by the Company to (i) invest in New Aplitec A Class Shares (as defined herein) and (ii) advance a credit loan account in New Aplitec in the aggregate principal amount of ZAR 172,361,248, all on the terms
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and subject to the conditions set forth in the Subscription Agreement, dated as of October 31, 2003, between the Company and New Aplitec (the Subscription Agreement ).
SECTION 5.5. Efforts . Each party hereto agrees to use commercially reasonable efforts to take any and all actions required in order to consummate the transactions contemplated in this Agreement.
SECTION 5.6. Notification of Certain Matters . During the Pre-Closing Period, the Company shall give prompt notice to the Purchaser of the occurrence or non-occurrence of any event known to the Company the occurrence or non-occurrence of which would reasonably be expected to cause any representation or warranty contained in Article III to be untrue, or the failure of the Company to comply with or satisfy any covenant or agreement under this Agreement or result in the failure or inability to satisfy any of the conditions precedent set forth in Section 6.1.
SECTION 5.7. Regulatory and Other Authorizations; Notices and Consents . Each of the parties hereto shall use their commercially reasonable efforts to give such notices and obtain all authorizations, consents, orders and approvals of all governmental authorities and other third parties that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and will cooperate fully with the other parties hereto in promptly seeking to obtain all such authorizations, consents, orders and approvals.
SECTION 5.8. Appointment of Directors .
(a) Prior to the Closing, the Company shall take all action necessary to increase the size of the Board up to 10 (ten) directors and to elect three (3) designees of the Purchaser to the Board.
(b) At any time, in the Purchasers reasonable determination and at the request of the Purchaser, (i) the Company shall nominate Brait Nominees (as defined herein) for election or appointment to the Board of Directors as part of the management slate that is included in the proxy statement (or consent solicitation or similar document) of the Company relating to the annual election of directors, and shall provide the same support for the election of such Brait Nominee as it provides to other persons standing for election as directors of the Company as part of the Companys management slate, (ii) the Company shall not permit the removal of any of the Brait Nominees from the Board of Directors without the approval of the Purchaser, and (iii) unless otherwise agreed to by the Purchaser, each committee of the Board of Directors (including any executive committee, audit committee or compensation committee) shall contain a number of Brait Nominees (to the extent available), rounded upward to the nearest whole number, equal to the total number of directors on such committee multiplied by the percentage of the entire Board of Directors who are Brait Nominees.
(c) The Company shall reimburse each Brait Nominee that serves as a director for all reasonable costs and expenses (including travel expenses) incurred in connection with such directors attendance at meetings of the Board of Directors or any committee of the Board of Directors upon which such director serves. The Company shall indemnify and provide directors
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and officers liability insurance for each such director to the maximum extent permitted by law. The Company shall purchase additional policies or endorsements to existing insurance policies as are necessary to provide continuous directors and officers liability insurance coverage including coverage for claims asserted up to six years after the termination of such a policy that arise out of matters occurring prior to such policy terminations, as reasonably requested by the Purchaser.
SECTION 5.9. Stockholder Approval . As promptly as practicable following the filing and causing the S-4 to be declared effective by the SEC and mailing or providing to the shareholders of Aplitec a copy of the Proxy Statement/Prospectus, the Company shall take all action necessary to obtain the Stockholder Approval approving the Capital Increase as set forth in the Amendment, including, without limitation, preparing, filing with the SEC and mailing to its stockholders a Proxy Statement/Prospectus or statements with respect thereto, and duly calling, setting a record date for, giving notice of, convening and holding a meeting or meetings of its stockholders for such purpose. The Board shall recommend stockholder approval of (i) the issuance of the Firm Shares and the shares of Convertible Preference Stock and (ii) the Amendment.
SECTION 5.10. The Registration Rights Agreement . Prior to the Closing, the Company, Purchaser, Purchasers nominees who purchase Firm Shares and other investors mutually agreed to between the Company and the Purchaser shall enter into a registration rights agreement, with such terms as may agreed upon among the parties thereto.
SECTION 5.11. Convertible Preference Stock . In connection with the Aplitec Acquisition, the Company shall issue 192,967,138 shares of Convertible Preference Stock, as provided for in the Amendment, which shares shall be issued to the Aplitec Holdings Participation Trust, a trust established in the Cayman Islands, for the benefit of the New Aplitec Participation Trust, a trust established in South Africa, and indirectly the shareholders of Aplitec who elect the reinvestment option pursuant to the terms of the Aplitec Acquisition Agreement.
ARTICLE VI CONDITIONS TO CLOSING
SECTION 6.1. Conditions to the Purchasers Obligation .
(a) Closing. The Purchasers obligation to purchase the Firm Shares at the Closing is subject to the satisfaction (or waiver by the Purchaser) of the following conditions:
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agreements, obligations, covenants and conditions herein required to be performed or observed by it on or prior to the Closing Date.
(ii) Legal Investment . On such Closing Date, there shall not be in effect any Law or Order directing that the purchase and sale of the Shares, as the case may be, and the other transactions contemplated by this Agreement not be consummated or which has the effect of rendering it unlawful to consummate such transactions.
(iii) Proceedings and Litigation . No Action shall have been commenced by any governmental authority against any party hereto seeking to restrain or delay the purchase and sale of the Shares, as the case may be, or the other transactions contemplated by this Agreement.
(iv) Approvals . All approvals, consents, permits and waivers of governmental authorities and of third parties in the reasonable judgment of the Purchaser necessary or appropriate for consummation of the transactions contemplated by this Agreement shall have been obtained, and no such approval, consent, permit or waiver of any governmental authority or such other third party shall contain any term or condition that the Purchaser in its reasonable discretion determines to be unduly burdensome.
(v) Compliance Certificate; Secretarys Certificate . The Company shall have delivered to the Purchaser a compliance certificate, executed by the Chairman of the Board of Directors and the Chief Executive Officer President of the Company, dated the Closing Date, to the effect that the conditions specified in Section 6.1(a)(i) have been satisfied. The Company shall have delivered to the Purchaser a certificate executed by the Secretary of the Company, dated the Closing Date, certifying as to (i) the resolutions of the Board evidencing approval of the transactions contemplated by and from this Agreement and the authorization of the named officer or officers to execute and deliver this Agreement and (ii) certain of the officers of the Company, their titles and examples of their signatures.
(vi) Legal Opinion . The Purchaser shall have received from legal counsel to the Company an opinion addressed to them, dated as of the Closing Date, in the form attached hereto as Exhibit B.
(vii) Stockholder Approval . The Stockholder Approval shall have been obtained.
(viii) Amendment . The Amendment authorizing the increase of authorized shares of Common Stock and designation of the stock of Convertible Preference Stock shall have been filed with and certified by the State of the Florida Department of State.
(ix) Board of Directors . The Company shall have taken all actions required by Section 5.9.
(x) Asset Purchase Agreement . The Asset Purchase Agreement shall have been executed and delivered.
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SECTION 6.2. Conditions to Obligations of the Company.
(a) Closing. The Companys obligation to issue and sell the Firm Shares at the Closing is subject to the satisfaction (or waiver by the Company), on or prior to the Closing, of the following conditions:
(ii) Legal Investment . On the Closing Date, there shall not be in effect any Law or Order directing that the purchase and sale of the Firm Shares, as the case may be, and the other transactions contemplated by this Agreement not be consummated or which has the effect of rendering it unlawful to consummate such transactions.
(iii) Proceedings and Litigation . No Action shall have been commenced by any governmental authority against any party hereto seeking to restrain or delay the purchase and sale of the Firm Shares or the other transactions contemplated by this Agreement.
(iv) Approvals . All approvals, consents, permits and waivers of governmental authorities and other third parties in the reasonable judgment of the Purchaser necessary or appropriate for consummation of the transactions contemplated by this Agreement shall have been obtained.
(v) Stockholders Approval . The Stockholder Approval shall have been obtained.
ARTICLE VII SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS; INDEMNIFICATION
SECTION 7.1. Survival . Notwithstanding any right of any party to fully investigate the affairs of the other party and notwithstanding any knowledge of facts determined or determinable by such party pursuant to such investigation or right of investigation, each party has the right to rely fully upon the representations, warranties, covenants and agreements of each other party in this Agreement. All representations, warranties, covenants and agreements contained in this Agreement shall remain operative and in full force and effect for 24 months after the Closing Date. Notwithstanding the preceding sentence, (i) the representations and warranties contained in Section 3.13 (Taxes) shall terminate on the date that is thirty (30) days
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after the expiration of the period of all applicable statutes of limitations, (ii) the representations and warranties contained in Section 3.10 (Environmental Matters) shall terminate on the date that is five (5) years after the Closing Date and (iii) the representations and warranties contained in Sections 3.1 (Organization, Good Standing and Qualification), 3.2 (Capital Structure), 3.3 (Authority; No Conflicts; Governmental Approvals) and 3.11 (Brokers or Finders) will survive the Closing indefinitely.
(b) No claim for indemnification hereunder for breach of any such representations or warranties may be made after the expiration of the survival period applicable to such claims; provided that any representation or warranty in respect of which indemnity may be sought under this Article VII, and the indemnity with respect thereto, shall survive the time at which it would otherwise terminate pursuant to this Section 7.1 if notice of breach or potential breach thereof giving rise to such right or potential right of indemnity shall have been given to the Person against whom such indemnity may be sought prior to such time.
SECTION 7.2. Exclusivity . After the closing to the extent permitted by Law, the indemnities set forth in Section 7.3 shall be the exclusive remedies of the Purchaser against the Company, on the one hand, and of the Company against the Purchaser and its Affiliates, on the other hand for any breach of representation or warranty or breach of any covenant or agreement contained in this Agreement. Notwithstanding the foregoing, nothing herein will eliminate the availability to the parties of any equitable remedies with respect to any dispute that may arise under this Agreement or limit any remedies available under applicable Law for fraud or willful breach.
SECTION 7.3. Indemnification .
(a) Subject to the other Sections of this Article VII, the Company (the Purchaser Indemnifier) shall indemnify the Purchaser, its Affiliates and their respective partners, members, stockholders, representatives, officers, directors, employees, agents, successors and permitted assigns (collectively, the Purchaser Indemnitee) in respect of, and save and hold each of them harmless from and against, any and all Losses (as defined herein) suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to (i) any breach of a representation or warranty made by the Company without regard to any materiality qualifiers (including Material Adverse Effect) and, in the case of Section 4.2(j) (Environmental Matters), qualifications of Knowledge or (ii) any breach or non-fulfillment of any covenant or agreement or other provision by the Company contained in this Agreement.
(b) Subject to the other Sections of this Article VII, the Purchaser (the Company Indemnifier, and together with the Purchaser Indemnifier, the Indemnifiers) shall indemnify the Company, its officers, directors, employees, agents, successors and permitted assigns (collectively, the Company Indemnitee , and together with the Purchaser Indemnitee, the Indemnified Parties ) in respect of, and save and hold each of them harmless from and against, any and all Losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to (i) any breach of a representation or warranty made by the Company without regard to any materiality qualifiers (including Material
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Adverse Effect) and (ii) any breach or non-fulfillment of any covenant or agreement or other provision by the Purchaser contained in this Agreement.
SECTION 7.4. Method of Asserting Claims .
All claims for indemnification by any Indemnified Party under Section 7.3 will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which a Indemnified Party might seek indemnity under Section 7.3 is asserted against or sought to be collected from a Indemnifier by a Person other than the Purchaser or any Affiliate of the Purchaser (a Third Party Claim), the Indemnified Party shall deliver a Claim Notice with reasonable promptness to the Indemnifier; provided that the failure to so notify the Indemnifier shall not relieve the Indemnifier of its obligations hereunder except to the extent (and only to the extent) that such failure shall have caused the damages for which the Indemnifier is obligated to be greater than such damages would have been had the Indemnified Party given the Indemnifier prompt notice hereunder. The Indemnifier will notify the Indemnified Party as soon as practicable within the Dispute Period (as defined herein) whether the Indemnifier disputes its liability to the Indemnified Party under this Section 7.3 or whether the Indemnifier desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.
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the Indemnifier to participate, (ii) in the reasonable opinion of counsel to the Indemnified Party, a conflict or potential conflict exists between the Indemnified Party and the Indemnifying that would make such separate representation advisable or (iii) the Indemnified Party has defenses available to it that are not available to the Indemnifier.
(ii) If an Indemnifier fails to notify the Indemnified Party within the Dispute Period that the Indemnifier desires to defend the Third Party Claim pursuant to this Section 7.4(a), or if an Indemnifier gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, or if the Indemnifier fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party will have the right to defend, at the sole cost and expense of the Indemnifier, the Third Party Claim by all appropriate proceedings, which proceedings will be vigorously and diligently prosecuted by the Indemnified Party to a final conclusion or will be settled at the discretion of the Indemnified Party (with the consent of the Indemnifier, which consent will not be unreasonably withheld delayed or conditioned). If an Indemnified Party defends any Third Party Claim, then the Indemnifier shall be required to reimburse the Indemnified Party for the reasonable costs and expenses of defending such Third Party Claim within ten (10) Business Days after the date of receipt of any bill. The Indemnified Party will have full control of such defense and proceedings, including (except as provided in the immediately preceding sentence) any settlement thereof; provided , however, that if requested by the Indemnified Party, the Indemnifier will, at the sole cost and expense of the Indemnifier, cooperate with the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting, or, if appropriate and related to the Third Party Claim in question, in making any counterclaim against the Person asserting the Third Party Claim, or any cross-complaint against any Person (other than the Company Indemnifier or any of its Affiliates). The Indemnifier may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this clause (ii), and the Indemnifier will bear its own costs and expenses with respect to such participation.
(b) In the event an Indemnified Party should have a claim under Section 7.3 against any Indemnifier that does not involve a Third Party Claim, the Indemnified Party shall deliver an Indemnity Notice with reasonable promptness to the Indemnifier. The Indemnifier shall notify the Indemnified Party within thirty (30) days following its receipt of such notice if the Indemnifier disputes its liability to the Indemnified Party under this Article 7. If the Indemnifier does not so notify the Indemnified Party, the claim specified by the Indemnified Party in such notice shall be conclusively deemed to be a liability of the Indemnifier under this Article 8, and the Indemnifier shall pay the amount of such liability to the Indemnified Party on demand, or, in the case of any notice in which the amount of the claim (or any portion of the claim) is estimated, on such later date when the amount of such claim (or such portion of the claim) becomes finally determined.
ARTICLE VIII CERTAIN AGREEMENTS
SECTION 8.1. Financial Statements and Other Reports . The Company shall deliver, or cause to be delivered to the Purchaser:
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(a) Monthly Financials . As soon as practicable and in any event within 30 days after the end of each calendar month of the Company, copies of the consolidated and consolidating income statement, operating cash flow statement, balance sheet and performance to budget analysis for the Company and its consolidated Subsidiaries for and as of the end of such month.
(b) Quarterly Financials . As soon as practicable and in any event within 45 days after the end of each fiscal quarter of the Company, a consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such period, and the related unaudited consolidated statements of income and of cash flows, as contained in the Form 10-Q for such fiscal quarter provided by the Company to the SEC, and if such Form 10-Q is no longer required to be so provided by the Company, then the Company shall provide the Purchaser with comparable financial statements, certified by the chief financial officer of the Company that they fairly present the financial condition and results of operations of the Company and its consolidated Subsidiaries, as appropriate, as at the end of such periods and for such periods, subject to changes resulting from audit and normal year-end adjustments.
(c) Year-End Financials . As soon as practicable and in any event within 90 days after the end of each fiscal year of the Company, the audited consolidated balance sheet of the Company and its consolidated Subsidiaries, as at the end of such year, and the related consolidated statements of income, shareholders equity and cash flows of the Company and its consolidated Subsidiaries for such fiscal year, (1) accompanied by a report thereon of independent certified public accountants of recognized international standing selected by the Company and reasonably satisfactory to the Purchaser, which report shall state that the examination by such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards without any limitations being imposed on the scope of such examination and (2) certified by the chief financial officer of the Company that they fairly present the financial condition and results of operations of the Company and its consolidated Subsidiaries, as at the dates and for the periods indicated, as appropriate.
(d) Reconciliation Statement . If, as a result of any change in accounting principles and policies from those used in the preparation of the financial statements, the financial statements of the Company and its Subsidiaries delivered pursuant to subsections (b), (c) or (e) of this Section will differ in any material respect from the financial statements that would have been delivered pursuant to such subsection had no such change in accounting principles and policies been made, then, together with the first delivery of financial statements pursuant to subsections (b), (c) or (e) following such change, financial statements of the Company and its consolidated Subsidiaries prepared on a pro forma basis, for (1) the current year to the effective date of such change and (2) the one full fiscal year immediately preceding the fiscal year in which such change is made, as if such change had been in effect during such period.
(e) Accountants Reports. Promptly upon receipt thereof, copies of all significant reports submitted to the Company by independent public accountants in connection with each annual, interim or special audit of the financial statements of the Company made by such accountants, including, without limitation, the comment letter submitted by such accountants to management in connection with their annual audit.
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(f) Reports and Filings . Within five days after the same are sent, copies of all financial statements and reports which the Company sends to its stockholders, and within five days after the same are filed, copies of all financial statements and reports which the Company may make to, or file with, the SEC.
(g) Events of Default etc. Promptly upon, but in any event no later than two Business Days after, any executive officer of the Company obtaining knowledge (1) of any condition or event that constitutes a violation or default, or becoming aware that any lender has given any notice or taken any other action with respect to a claimed violation or default under the instruments governing its outstanding debt, (2) that any Person has given any notice to the Company or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition that would be required to be disclosed in a current report filed by the Company with the SEC on Form 8-K (Items 1, 2, 4 and 5 of such Form as in effect on the date hereof) or (3) of any condition or event which has had or could reasonably be expected to have a Material Adverse Effect, an officers certificate specifying the nature and period of existence of such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed violation, default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto.
(h) Litigation. promptly upon any executive officer of the Company obtaining knowledge of (1) the institution of any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company or any Subsidiary not previously disclosed by the Company to the Purchaser or (2) any material adverse development in any such action, suit, proceeding, governmental investigation or arbitration that, in any case involves claims in excess of $500,000 in the aggregate or would reasonably be expected to cause a Material Adverse Effect, the Company shall promptly give notice thereof to the Purchaser and provide such other information as may be reasonably available to them to enable the Purchaser and its counsel to evaluate such matters;
(i) Financial Plans . As soon as practicable and in any event no later than 30 days before the end of any fiscal year of the Company, a budget and financial forecast for the Company and its Subsidiaries including, (1) a forecasted operating cash flows statement of the Company and its Subsidiaries for the next succeeding fiscal year, (2) forecasted operating cash flows statement of the Company and its Subsidiaries for each fiscal quarter of the next succeeding fiscal year and (3) such other information and projections as the Purchaser may reasonably request, in each case, in a format satisfactory to the Purchaser.
(j) Other Information . With reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by the Purchaser.
ARTICLE IX MISCELLANEOUS
SECTION 9.1. Other Definitions . The following terms as used in this Agreement shall have the following meanings:
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Affiliate means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person, for so long as such Person remains so associated to the specified Person.
Aplitec means Net 1 Applied Technology Holdings Limited, a public company incorporated in South Africa and listed on the Johannesburg Stock Exchange.
Applied Technologies means Net 1 Applied Technologies S.a.r.l. or such other name as determined by the Company, a Luxembourg company to be incorporated or formed as a wholly owned subsidiary of the Company.
Asset Purchase Agreement means the Asset Purchase Agreement between Luxco and the Company whereby the Company will purchase on behalf of Applied Technologies certain intellectual property from Luxco.
Benefit Plans means, with respect to any Person, each employee benefit plan, program, arrangement and contract (including, without limitation, any employee benefit plan , as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and any bonus, deferred compensation, stock bonus, stock purchase, restricted stock, stock option, employment, termination, stay agreement or bonus, change in control and severance plan, program, arrangement and contract) in effect on the date of this Agreement or disclosed on the Disclosure Schedule to which such Person or its Subsidiary is a party, which is maintained or contributed to by such Person, or with respect to which such Person could incur material liability under Section 4069, 4201 or 4212(c) of ERISA.
Board of Directors means the Board of Directors of any specified Person and any committees thereof.
Brait Nominee means any individual nominated by the Purchaser or any purchaser nominee for election to the Board of Directors.
Claim Notice means written notification pursuant to Section 7.4 of a Third Party Claim as to which indemnity under Section 7.3 is sought by an Indemnified Party, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Partys claim against the Indemnifier under Section 7.4, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim.
Code means the Internal Revenue Code of 1986, as amended.
Control (including the terms controlled by and under common control with), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.
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Dispute Period means the period ending thirty (30) calendar days following receipt by the Indemnifier of either a Claim Notice or an Indemnity Notice.
Environmental Laws means all applicable Laws and Orders relating in any manner to contamination, pollution or protection of human health, natural resources or the environment.
Environmental Liabilities with respect to any person means any and all liabilities of or relating to such person or any of its Subsidiaries (including any entity which is, in whole or in part, a predecessor of such person or any of such Subsidiaries), whether vested or unvested, contingent or fixed, actual or potential, known or unknown, which (i) arise under applicable Environmental Laws or with respect to Hazardous Materials, and (ii) relate to actions occurring or conditions existing, on or prior to the Closing Date.
Environmental Permits means all Permits and other governmental authorizations required under Environmental Laws for the Company to conduct its operations.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
GAAP means generally accepted accounting principles, consistently applied.
Governmental Entity means any government, quasi-governmental authority, court, tribunal, arbitrator, authority, regulatory body, agency, commission, official or other instrumentality and any supranational organization of sovereign states exercising such function for such sovereign states of the United States or any foreign country or any domestic or foreign state, county, city or other political subdivision exercising executive, legislative or judicial authority.
Group shall have the meaning assigned to it in Section 13(d)(3) of the Exchange Act.
Hazardous Materials means all hazardous, infectious, dangerous or toxic substances, including without limitation, petroleum (including without limitation crude oil or any fraction thereof), asbestos and asbestos-containing materials, polychlorinated biphenyls, and any other material that is regulated pursuant to any Environmental Laws or that could result in any Loss under any Environmental Laws.
Intellectual Property means all intellectual property, including without limitation all (i) (a) the patents, inventions, discoveries, processes, designs, techniques, developments, technology and know-how, (b) copyrights and works of authorship in any media, including computer programs, hardware, firmware, software, applications, files, specifications, Internet site content, databases and compilations, documentation and related items textual works, graphics, advertising, marketing and promotional materials, photographs, drawings, articles, textual works, the protected features of any utilitarian objects or pictorial or graphic works; (c) trademarks, service marks, trade names, brand names, corporate names, domain names, logos, trade dress and other source indicators, and the goodwill of any business symbolized thereby; (d) trade secrets, confidential, proprietary or non-public information, documents, data, analyses,
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research and lists including but not limited to all design documents, specifications, source code and all current and potential customer lists; (ii) all registrations, applications, recordings and the right to obtain renewals, extensions, substitutions, continuations, continuations-in-part, divisions, re-issues, re-examinations or similar legal protections related thereto; (iii) all material licenses, consents, royalty and other agreements concerning all the foregoing; and (iv) all materials or tangible media embodying or incorporating the foregoing, and any renewals or extensions thereof; and any similar intellectual property or proprietary rights.
Known or Knowledge means, with respect to the Company or the Purchaser, the actual conscious knowledge of the Company or the Purchaser, as the case may be, or the knowledge that would be expected to have been obtained after reasonable inquiry, of any director or officer of the Company or the Purchaser, as the case may be.
Laws means all laws, common law, statutes, rules, regulations, ordinances, constitutions, treaties, compacts, directives, codes, orders, Permits, authorizations, variances, rules, judicial decisions, governmental agreements and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.
Liens means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), other charge or security interest; or any preference, priority or other agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any capital lease having substantially the same economic effect as any of the foregoing).
Loss means any and all liabilities, damages, fines, penalties, deficiencies, Taxes, losses and expenses (including without limitation interest, court costs, reasonable fees of attorneys, accountants and other experts or other reasonable expenses of litigation or other proceedings or any claim, default or assessment).
Luxco means Net 1 Holdings S.a.r.l., a Luxembourg company.
Material Adverse Effect means, with respect to the Purchaser or the Company, any effect that is material and adverse to the business, assets or financial condition of the Purchaser, or the Company, taken as a whole, respectively.
New Aplitec means Newshelf 713 (Proprietary) Limited to be renamed Net1 Applied Technologies South Africa (Proprietary) Limited or a similar name, a private company incorporated in South Africa and whose ordinary shares will be owned 100% by the Company pursuant to terms of the Subscription Agreement.
New Aplitec A Class Share s means the A class ordinary shares, par value ZAR 0.001 per share, of New Aplitec.
Order means any writ, judgment, decree, injunction, award, settlement or stipulation, decision, determination, ruling, subpoena or verdict or similar order entered, issued, made or rendered by any Governmental Entity (in each such case whether preliminary or final).
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Permit means all licenses, permits, orders, consents, approvals, registrations, authorizations, qualifications and filings with and under all U.S. federal, state or local or other non-U.S. laws and Governmental Entities.
Permitted Liens means (i) any liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, (ii) carriers, warehousemens, mechanics, materialmens, repairmens or other similar liens, (iii) pledges or deposits in connection with workers compensation, unemployment insurance, and other social security legislation and (iv) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto.
Person means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivisions thereof or any Group comprised of two or more of the foregoing.
SEC means the U.S. Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Subsidiary when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, (i) of which such party or any other Subsidiary of such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interests in such partnership) or (ii) at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries.
Tax (including, with correlative meaning, the terms Taxes and Taxable) means all federal, state, local and foreign income, profits, premium, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or governmental levies of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts or filing requirements and any interest in respect of such penalties and additions.
Tax Return means all returns and reports (including elections, declarations, disclosures, schedules, estimates, information returns, claim for refund, and amended returns) relating to Taxes.
Technology Agreements means the collective reference to (i) the Patent and Technology Agreement dated May 3, 2000 between Luxco and the Company and (ii) the Distribution Agreement, dated as of July 1, 2002, between the Company and Net 1 Investment Holdings (Pty) Limited.
26
ZAR means the South African Rand.
SECTION 9.2. Governing Law; Jurisdiction; Waiver of Jury Trial . This Agreement shall be governed in all respects by the laws of the State of New York. No suit, action or proceeding with respect to this Agreement may be brought in any court or before any similar authority other than in a court of competent jurisdiction in the State of New York, as the Purchaser may elect in its sole discretion, and the Company hereby submits to the exclusive jurisdiction of such courts for the purpose of such suit, proceeding or judgment. The Company hereby irrevocably waives any right which it may have had to bring such an action in any other court, domestic or foreign, or before any similar domestic or foreign authority. Each of the parties hereto hereby irrevocably and unconditionally waives trial by jury in any legal action or proceeding in relation to this Agreement and for any counterclaim therein.
SECTION 9.3. Successors and Assigns; Assignment . Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each Person who shall be a holder of the Shares from time to time. This Agreement may not be assigned without the prior written consent of the other party, except that the Purchaser may assign its rights and obligations hereunder to any Affiliate or Affiliates or nominee purchasers of any of the Firm Shares and each nominee purchaser shall benefit from all the representations, warranties and covenants of the Company contained herein to the same degree as the Purchaser.
SECTION 9.4. No Reliance . Except as provided in Section 9.3, no third party is entitled to rely on any of the representations, warranties and agreements contained in this Agreement, and the Company and the Purchaser assume no liability to any third party because of any reliance on the representations, warranties and agreements of the Company and the Purchaser contained in this Agreement.
SECTION 9.5. Entire Agreement; Supersedes Prior Agreement . This Agreement and the Exhibits and Schedules hereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.
SECTION 9.6. Severability . In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 9.7. Amendment and Waiver . This Agreement may be amended or modified, and the rights of the Company or the Purchaser hereunder may only be waived, upon the written consent of the Company and the Purchaser.
SECTION 9.8. Delays or Omissions . It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, shall impair any such right, power or
27
remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of or in any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character
on the Purchasers part of any breach, default or noncompliance under this
Agreement or any waiver on such partys part of any provisions or conditions
of this Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies under this Agreement, by
Law, or otherwise afforded to any party, shall be cumulative and not alternative.
SECTION
9.9.
Notices.
All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) business day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be
sent to the addresses set forth below:
If to the Company: | ||
Net 1 UEPS Technologies, Inc. | ||
325-744 West Hastings Street | ||
Vancouver, British Columbia, Canada | ||
V6C 1A5 | ||
Attn: Chief Executive Officer | ||
with copies to: | ||
Schneider Weinberger LLP | ||
2499 Glades Road, Suite 108 | ||
Boca Raton, FL 33431 | ||
Telephone: (561) 362-9595 | ||
Fax: (561) 362-9612 | ||
Attn: Jim Schneider, Esq. | ||
If to the Purchaser: | ||
19 Baarestrasse | ||
Zug | ||
Switzerland | ||
Telephone: | ||
Fax: 0941 41 710 3377 | ||
c/o Brait Capital Partners Limited | ||
19 Baarestrasse | ||
Zug | ||
Switzerland | ||
Telephone: |
28
Fax: 0941 41 710 3377 | ||
with copies to: | ||
Simpson Thacher & Bartlett LLP | ||
425 Lexington Avenue | ||
New York, NY 10017 | ||
Telephone: (212) 455-2000 | ||
Fax: (212) 455-2502 | ||
Attn: John W. Carr, Esq. |
SECTION 9.10. Expenses . The Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. The Company shall pay all fees and expenses as set forth in the Letter of Appointment dated April 25, 2003 from BAS to the Company. The Company shall, at or after the Closing, reimburse all reasonable expenses of the Purchaser incurred in connection with the transactions contemplated by this Agreement, including the payment of the reasonable fees, disbursements and expenses payable to consultants, accountants and counsel to the Purchaser. The Purchaser may, at its option, net any such amounts against amounts payable to the Company at the Closing.
SECTION 9.11. Titles and Subtitles . The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
SECTION 9.12. Termination . This Agreement may be terminated by (i) mutual agreement of the parties hereto or (ii) by the Purchaser or the Company in the event the Closing has not occurred by May 31, 2004; provided that this termination right may not be exercised by a party whose nonperformance has delayed the Closing. Upon termination of this Agreement pursuant to this Section, this Agreement shall be void and of no further force and effect and no party shall have any liability to any other party under this Agreement, except that nothing herein shall relieve any party from any liability for the breach of any of the representations, warranties, covenants and agreements set forth in this Agreement and except as contemplated by Section 9.10.
SECTION 9.13. Counterparts; Execution by Facsimile Signature . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed by facsimile signature(s).
29
IN WITNESS WHEREOF, the parties hereto have executed this Common Stock Purchase Agreement as of the date set forth in the first paragraph hereof.
NET 1 UEPS TECHNOLOGIES, INC. | ||
By: | /s/ Claude Guerard | |
Name: | Claude Guerard | |
Title: | Chief Executive Officer | |
SAPEF III INTERNATIONAL G.P. LIMITED | ||
By: | /s/ Hans Schibli | |
Name: | Hans Schibli | |
Title: | Director |
Schedule 3.17 Disclosure Schedule
Patent and Technology Agreement between Luxco and the Company dated May 3, 2000
Distribution Agreement between the Company and Net 1 Investment Holdings (Pty) Limited dated July 1, 2002
EXHIBIT A
Articles of Amendment to the Articles of Incorporation of the Company
EXHIBIT B
FORM OF OPINION OF COUNSEL TO THE COMPANY
The Purchaser shall have received the favorable opinion, dated as of the Closing Date, of Schneider Weinberger LLP, counsel to the Company, in form and substance satisfactory to the Purchaser, and addressed to the Purchaser and to the effect that:
1. |
The Company has been duly incorporated
and is validly existing and in good standing as a corporation under the
laws of the State of Florida and has full corporate power and authority
to conduct its business as described in the Proxy Statement/Prospectus.
|
2. |
The Company has full corporate power
and authority to enter into and perform its obligations under the Stock
Purchase Agreement and the transactions contemplated thereby and to issue
the Common Shares. The execution and delivery of the Stock Purchase Agreement
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary corporate action, and
no further consent or authorization of the Company or its Board of Directors
or stockholders is required. The Stock Purchase Agreement has been duly
executed and delivered, and constitutes a valid and binding obligation
of the Company enforceable against the Company in accordance with its
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally
the enforcement of, creditors rights and remedies or by other equitable
principles of general application.
|
3. |
The Common Shares have been duly authorized
and, upon payment and delivery in accordance with the Stock Purchase Agreement,
will be, validly issued, fully paid and nonassessable.
|
4. |
The statements made in the Proxy Statement/Prospectus
under the caption Description of Capital Stock, insofar as
they purport to constitute summaries of the terms of the Common Stock
and Preferred Stock, constitute accurate summaries of the terms of such
Common Stock and Preferred Stock in all material respects.
|
5. |
No consent, approval, authorization,
order, registration or qualification of or with any federal or Florida
governmental agency or body, to such Counsels knowledge, any federal
or Florida court or any Florida court acting pursuant to the Florida Business
Corporation Act is required for the issue and sale of the shares of Common
Stock by the Company or the issuance of the shares of Convertible Preference
Stock by the Company, except for the registration under the Securities
Act of such shares, and such consents, approvals, authorizations, registrations
or qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase shares of Common Stock by the Purchaser.
|
6. |
There are no preemptive rights under
federal or Florida law to subscribe for or purchase shares of the Common
Stock. There are no preemptive or other rights to subscribe for or purchase,
nor any restriction upon the voting or transfer of, any shares of the
Common Stock pursuant to the Companys Articles of Incorporation
or By-laws or any agreement or other instrument filed on the annexed schedule
furnished to us by the Company.
|
7. |
To such Counsels knowledge, there
are no statutes or pending or threatened legal or governmental proceedings
against the Company required to be described in the Proxy Statement/Prospectus
which are not described as required, or any contracts or documents to
which the Company is a party of a character required to be described in
the Proxy Statement/Prospectus or to be filed as exhibits to the Proxy
Statement/Prospectus or incorporated by reference therein that are not
described and filed or incorporated by reference as required.
|
8. |
The authorized capital stock of the
Company consists of 500,000,000 shares of Common Stock, par value $0.001
per share, and 300,000,000 shares of Preferred Stock, par value of $0.001
per share.
|
9. |
The Company is not an investment
company within the meaning of and subject to regulation under the
Investment Company Act of 1940, as amended.
|
Exhibit 2.5
SUBSCRIPTION AGREEMENT
between
THE TRUSTEES FOR THE TIME BEING OF THE NEW APLITEC PARTICIPATION
TRUST
and
NEWSHELF 713 (PROPRIETARY) LIMITED
CONTENTS
i
1. | INTERPRETATION | |
1.1 | The headnotes to the clauses of this agreement are inserted for reference purposes only and shall in no way govern or affect the interpretation hereof. | |
1.2 | Unless inconsistent with the context, the expressions set forth below shall bear the following meanings: |
A class ordinary shares |
A class ordinary shares in the share capital of the
company, having the rights of ordinary shares;
|
||
acquisition agreement |
the agreement between the company and Aplitec whereby
the company will acquire all the assets and liabilities of the Aplitec
Group, excluding R 300 million in cash and additional cash sufficient
to result in the distribution of an extra 25 cents (after payment of any
STC thereon) per Aplitec share to Aplitec shareholders who elect the cash
option and certain dormant subsidiaries;
|
||
Act |
the Companies Act, 1973 (Act 61 of 1973), as amended
from time to time;
|
||
Aplitec |
Net1 Applied Technology Holdings Limited, Registration
Number 1997/007207/06, a public company incorporated in the RSA;
|
||
Aplitec Group |
Aplitec and all its subsidiaries;
|
||
business day |
any day other than a Saturday, Sunday or official
public holiday in the RSA;
|
1
common shares |
common shares in the authorised share capital of
NUEP, having the rights of ordinary shares;
|
||
company |
Newshelf 713 (Proprietary) Limited, Registration
Number 2002/031446/07, to be renamed Net1 Applied Technologies South
Africa (Proprietary) Limited or a similar name, a private company
duly incorporated according to the company laws of South Africa;
|
||
condition |
the condition precedent in clause 3.1;
|
||
distribution ratio |
the ratio in which the special convertible preference
shares shall be distributed on the occurrence of a trigger event, which
at the closing date, shall be 0,814285714 special convertible preference
shares for every one preference share. If after the closing date NUEP
consolidates or subdivides the common shares, the special convertible
preference shares shall be consolidated or sub-divided in the same proportions,
and the distribution ratio shall be adjusted accordingly;
|
||
Holdings Trust |
The Aplitec Holdings Participation Trust, a trust
established in the Cayman Islands;
|
||
issue date |
The later of 16 February 2004 and the first business
day after the date that the condition is fulfilled;
|
2
3
4
1.5.1 |
any gender includes the other genders;
|
||
1.5.2 |
a natural person includes an artificial person and
vice versa;
|
||
1.5.3 |
the singular includes the plural and vice versa.
|
||
1.6 |
Where any term is defined
within the context of any particular clause in this agreement, the term
so defined, unless it is clear from the clause in question that the term
so defined has limited application to the relevant clause, shall bear
the meaning ascribed to it for all purposes in terms of this agreement,
notwithstanding that that term has not been defined in this interpretation
clause.
|
||
1.7 |
The rule of construction
that the contract shall be interpreted against the party responsible for
the drafting or preparation of this agreement, shall not apply.
|
||
1.8 |
The schedule to this agreement
forms an integral part hereof and words and expressions defined in this
agreement shall bear, unless the context otherwise requires, the same
meaning in such schedule.
|
||
2. | INTRODUCTION | ||
2.1 |
In terms of the acquisition
agreement, the company will acquire all the assets and liabilities of
the Aplitec Group, excluding R 300 million in cash plus an additional
25 cents per Aplitec share for those Aplitec shareholders who elect the
cash option and certain dormant subsidiaries.
|
||
2.2 |
Pursuant to the acquisition
agreement, it is intended that Aplitec will be voluntarily wound up and
that the shareholders of Aplitec will receive the consideration payable
by the company for Aplitecs assets and liabilities in the form of
the advance distribution of a liquidation dividend.
|
||
2.3 |
The shareholders of Aplitec
will be entitled to receive the advance distribution, of 475 cents per
ordinary Aplitec share plus an additional 25 cents per Aplitec share for
those Aplitec shareholders who elect the cash option, in whole or in part
at their election as follows:
|
||
2.3.1 |
The cash option
|
5
500 cents in cash in respect of each ordinary Aplitec
share; and/or
|
|||
2.3.2 |
The reinvestment option An amount of 190 cents in cash and the balance in the form of a reinvestment in the company via the subscriber, comprising one preference share to the value of 183,996 cents and a loan account of 101,004 cents, in respect of each Aplitec ordinary share, by way of renounceable nil paid letters of allocation issued by the company, to be renounced by the Aplitec shareholders in favour of the subscriber. In addition, the subscriber will be granted the right by Holdings Trust to receive special convertible preference shares in the distribution ratio in due course on the occurrence of a trigger event. The reinvestment option has been fixed at an exchange rate of R7,00 to US$1, which is the exchange rate used to determine the number of NUEP special convertible preference shares to be issued to Holdings Trust. |
||
2.4 |
Those Aplitec shareholders
who choose to receive the consideration payable to them in whole or in
part by way of the reinvestment option shall be issued with one unit in
the subscriber credited as fully paid for each share in Aplitec in respect
of which they exercise the reinvestment option.
|
||
2.5 |
Each unit in the subscriber
shall be evidenced by a certificate issued by the subscriber recording:
|
||
2.5.1 |
The name of the beneficial owner; 2
|
||
.5.2 |
The serial number of the certificate;
and
|
||
2.5.3 |
The number of units held by the unit
holder.
|
||
2.6 |
Each unit will vest the
unit holder with one preference share and one loan account, credited as
fully paid up.
|
||
2.7 |
In turn, the subscriber
shall subscribe for and be issued with one preference share, to the value
of 183,996 cents, and one loan account in the sum of 101,004 cents, both
credited as fully paid, for each Aplitec share in respect of which the
reinvestment option is exercised.
|
6
2.8 |
SAPET III will underwrite
the reinvestment option. Thus, if the reinvestment option is not fully
subscribed, SAPET III shall take up those units not taken up by the Aplitec
shareholders and shall become a unit holder of the subscriber.
|
|||
2.9 |
If the Aplitec shareholders
fail to pass the necessary resolutions for the voluntary winding-up of
Aplitec or if Aplitec is not placed in voluntary liquidation for any other
reason, Aplitec through the subscriber shall subscribe for the preference
shares and extend the loan account and shall become a unit holder of the
subscriber.
|
|||
3. |
CONDITION PRECEDENT
|
|||
3.1 |
This entire agreement (save
in respect of clauses 1, this 3, 6, 7, 8 and 9, which shall be of immediate
force and effect) shall be subject to the condition that, by not later
than 31 May 2004, or such later date as the parties may agree in writing,
the acquisition agreement shall become unconditional in accordance with
its terms.
|
|||
3.2 |
In the event that the condition
shall not have been fulfilled by the date specified in clause 3.1, this
agreement (save in respect of clauses 6, 7, 8 and 9, which shall remain
of full force and effect) shall be of no force or effect and no party
shall have any claim against any other party for anything done hereunder
and/or arising hereout.
|
|||
4. |
ALLOTMENT AND ISSUE OF
PREFERENCE SHARES
|
|||
4.1 |
On the issue date:
|
|||
4.1.1 | The subscriber shall subscribe for the preference shares, subject to the terms and conditions of this agreement; | |||
4.1.2 | The company shall: | |||
4.1.2.1 | allot and issue the preference shares to the subscriber; and | |||
4.1.2.2 | credit the subscriber with the loan accounts in its books; credited as fully paid up. |
7
4.2 |
The subscriber shall receive
one preference share and one loan account for every Aplitec share in respect
of which Aplitec shareholders exercise the reinvestment option.
|
||
4.3 |
The company will deliver
the share certificates in respect of the preference shares described in
clause 4.1 to the subscriber simultaneously with the allotment and issue
of the preference shares.
|
||
5. |
WARRANTIES AND UNDERTAKINGS
|
||
5.1 |
The company warrants that,
on the issue date:
|
||
5.1.1 |
the company shall have full power, capacity
and authority to issue the preference shares;
|
||
5.1.2 |
the directors of the company shall have
the necessary authority and will have taken all steps necessary to allot
and to issue the preference shares to the subscribers;
|
||
5.1.3 |
other than the A class ordinary shares,
there shall be no class of shares in the authorised and/or issued share
capital of the company which ranks in priority to the preference shares;
|
||
5.1.4 |
no third party has the right to purchase,
acquire and/or subscribe for any preference shares in the company, other
than as provided for in terms of this agreement and the acquisition agreement;
|
||
5.1.5 |
the company shall have no assets or
liabilities, save pursuant to the acquisition agreement;
|
||
5.1.6 |
the company shall have no contracts,
save pursuant to the acquisition agreement;
|
||
5.1.7 |
the company shall have no employees,
save pursuant to the acquisition agreement;
|
||
5.1.8 |
the company shall not have conducted
any prior business.
|
8
5.2 |
Save in respect of the warranties set
out in clause 5.1, the company makes no representations and/or gives no
warranties in respect of and/or concerning the preference shares, which
are allotted and issued voetstoots and as they stand.
|
|
6. |
BREACH Should any party (the defaulting party) commit a breach of any of the provisions hereof, then any of the other parties (the aggrieved party) shall, if it wishes to enforce its rights hereunder, be obliged to give the defaulting party 14 days written notice to remedy the breach. If the defaulting party fails to comply with such notice, the aggrieved party shall be entitled to cancel this agreement against the defaulting party or to claim immediate payment and/or performance by the defaulting party of all of the defaulting party's obligations whether or not the due date for payment and/or performance shall have arrived, in either event without prejudice to the aggrieved party's rights to claim damages; provided that there shall be no right of cancellation if the condition has been fulfilled. The foregoing is without prejudice to such other rights as the aggrieved party may have at law. |
|
7. | DOMICILIUM | |
7.1 | The parties hereto choose domicilia citandi et executandi for all purposes of and in connection with this agreement as follows: |
The company: | 9 Fricker Road | ||
Illovo Boulevard | |||
Illovo | |||
Sandton, Gauteng | |||
Attention: Antony Ball | |||
Fax: (011) 507 1001 | |||
With a copy to Aplitec: | 4 th Floor, President Place | ||
148 Jan Smuts Avenue | |||
Rosebank, Johannesburg | |||
Fax: (011) 880 7080 | |||
Attention Serge Belamant |
9
The subscriber: | 9 Fricker Road | ||
Illovo Boulevard | |||
Illovo | |||
Sandton | |||
Gauteng | |||
Attention: Antony Ball | |||
Fax: (011) 507 1001 | |||
With a copy to Aplitec: | 4 th Floor, President Place | ||
148 Jan Smuts Avenue | |||
Rosebank, Johannesburg | |||
Fax: (011) 880 7080 | |||
Attention Serge Belamant |
7.2 |
Either party shall be entitled
to change its
domicilium
from time to time, provided that any new
domicilium selected by it shall be an address other than a box number
in the RSA, and any such change shall only be effective upon receipt of
notice in writing by the other parties of such change.
|
||
7.3 |
All notices, demands, communications
or payments intended for any party shall be made or given at such party's
domicilium for the time being.
|
||
7.4 |
A notice sent by one party
to another party shall be deemed to be received:
|
||
7.4.1 |
on the same day, if delivered by hand;
|
||
7.4.2 |
on the same day, if transmitted electronically
with receipt received confirming completion of transmission;
|
||
7.4.3 |
on the same day of transmission if sent
by telefax with receipt received confirming completion of transmission;
|
||
7.4.4 |
on the seventh day after posting, if
sent by prepaid registered mail.
|
||
7.5 |
Notwithstanding anything
to the contrary herein contained a written notice or communication actually
received by a party shall be an adequate written notice or communication
to it notwithstanding that it was not sent to or delivered at its chosen
|
10
domicilium citandi et executandi.
|
||
8. | COSTS | |
8.1 |
The company shall pay the costs of and incidental
to the negotiation, preparation and execution of this agreement.
|
|
8.2 |
The company shall pay the stamp duty payable on the
issue of the preference shares.
|
|
9. | GENERAL | |
9.1 |
This document constitutes the sole record of the
agreement between the parties in regard to the subject matter thereof.
|
|
9.2 |
Neither party shall be bound by any express or implied
term, representation, warranty, promise or the like, not recorded herein.
|
|
9.3 |
No addition to, variation or consensual cancellation
of this agreement shall be of any force or effect unless in writing and
signed by or on behalf of all the parties.
|
|
9.4 |
No indulgence which either party (the grantor)
may grant to the other (the grantee shall constitute a waiver of
any of the rights of the grantor, who shall not thereby be precluded from
exercising any rights against the grantee which might have arisen in the
past or which might arise in the future.
|
|
9.5 |
The parties undertake at all times to do all such
things, to perform all such acts and to take all such steps and to procure
the doing of all such things, the performance of all such actions and
the taking of all such steps as may be open to them and necessary for
or incidental to the putting into effect or maintenance of the terms,
conditions and import of this agreement.
|
|
9.6 |
Neither party shall be entitled to cede, delegate
or otherwise transfer all or any of its rights, interest or obligations
under and in terms of this agreement except with the prior written consent
of the other party.
|
11
Signed at Johannesburg on this the 10th day of November, 2003
/s/ Chad Smart
For:
THE NEW APLITEC PARTICIPATION TRUST
(who warrants that he is duly authorised hereto)
Signed at Johannesburg on this the 31st day of October, 2003
/s/ Chad Smart
For:
NEWSHELF 713 (PROPRIETARY) LIMITED
(who warrants that he is duly authorised hereto)
SCHEDULE 1
THE LOAN ACCOUNTS
The loan accounts shall:
1. |
rank pari passu in all respects with
the A class loan accounts advanced by NUEP to the company;
|
2. |
be repayable as and when directed by
the board of directors of the company in its sole and absolute discretion;
provided that no capital under the loan accounts shall be repayable until
at least 30 days have elapsed from the date upon which the loan is credited
to the subscriber; and provided further that the loan accounts may only
be repaid when the Exchange Control Department of the South African Reserve
Bank has approved the repayment of the A class loan accounts advanced
by NUEP to the company;
|
3. |
bear interest at the rate of interest
determined by the board of directors of the company annually in advance
in its sole and absolute discretion; provided that the interest rate shall
not exceed the prime rate. The interest so determined shall be paid as
and when determined by the board;
|
4. |
be repaid in full if the company is
wound up or placed under judicial management, whether provisionally or
finally;
|
5. |
be repaid pro rata to the A class loan
accounts advanced by NUEP to the company;
|
6. |
be subordinated in favour of all creditors
of the company (other than NUEP as the holder of the A class loan accounts)
if so decided by the board of directors of the company;
|
7. |
not be assigned, ceded, transferred
or encumbered by the subscriber in any way except to NUEP on the occurrence
of a trigger event;
|
8. | be denominated in South African Rands. |
SCHEDULE 2
THE PREFERENCE SHARES
The rights, privileges and conditions of the preference shares shall be the following:
1. |
The preference shares shall be held
by the subscriber on behalf of Aplitec shareholders who elect the reinvestment
option ("reinvesting shareholders").
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2. |
The preference shares will constitute
58,14 percent of the entire issued share capital of the company and will
rank
pari passu
with ordinary shares in respect of participation
in dividends and return of capital prior to the winding-up of the company
for any reason. The preference shares shall not participate in dividends
or a return of capital on a winding-up of the company.
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3. |
The holder of the preference shares
("preference shareholder") shall not be entitled to be present or to vote,
either in person or by proxy, at any meeting of the company, by virtue
of, or in respect of the preference shares, save as provided in Section
194 of the Companies Act, or unless a resolution of the company is proposed
which directly affects the rights attached to the preference shares or
the interests of the preference shareholder, including a resolution for
the declaration of a dividend on any class of shares in the issued share
capital of the company, for payment of interest and capital on B class
loan accounts, for the disposal of any intellectual property of the company,
for the winding-up of the company or for the reduction of its share capital
or share premium account, or for the repayment or distribution of the
share premium or non-distributable reserves of the company or the issue
of capitalisation shares. The rights and privileges attaching to the preference
shares shall not be regarded as being directly or adversely affected by
the creation and issue by the company of any further shares of any class,
unless those new shares rank as regards participation in assets or profits
of the company or voting rights in all or some respects in priority to
or
pari passu
with the preference shares.
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4. |
At every meeting at which the preference
shareholder is entitle to be present and to vote the provisions of the
articles of association of the company relating to general meetings of
ordinary members shall apply
mutatis mutandis
, except that a quorum
at any such general meeting shall be any person or persons holding or
representing by proxy at least one-fifth
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of the preference shares;
provided that if at any adjournment of such meeting a quorum is not so
present, the provisions of the articles of association of the company
relating to adjourned general meetings shall apply
mutatis mutandis
.
At every general meeting of the company at which the preference shareholder
as well as other classes of shares are present and entitled to vote, upon
a poll the preference shareholder shall be entitled to that proportion
of the total votes in the company which the aggregate number of the preference
shares held by it bears to the aggregate number of all shares entitled
to be voted at such meeting; provided that no resolution for the declaration
of a dividend or for the disposal of any intellectual property of the
company shall be passed unless 50,1 percent of the votes exercisable in
respect of the preference shares are voted in favour of the resolution.
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5. |
Unless a resolution is passed
by 75 percent of the votes exercisable in respect of the preference shares
in the same manner
mutatis mutandis
as a special resolution:
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5.1 |
the terms of the preference shares may
not be modified, altered, varied, added to or abrogated;
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5.2 |
the share capital or stated capital
of the company may not be reduced;
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5.3 |
the share premium or non-distributable
reserves of the company may not be repaid or distributed;
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5.4
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no shares in the capital of the company
ranking, as regards rights to dividend or redemption or, on a winding-up,
as regards return of capital, in priority to or
pari passu
with
the preference shares, shall be created or issued.
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6. |
The preference shareholder
may not in any manner sell, transfer or dispose of the preference shares
unless upon the occurrence of a trigger event, and then only by transferring
them to NUEP at the same time as it cedes a pro rata portion of its loan
accounts against the company to NUEP.
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7. | On the occurrence of a trigger event, the preference shareholder will notify Holdings Trust thereof in writing whereupon Holdings Trust shall distribute to the preference shareholder special convertible preference shares in the distribution ratio for each preference share in respect of which notice has been given to Holdings Trust. For the sake of clarity, it is |
recorded that a reinvesting
shareholder may instruct the preference shareholder to dispose of the
preference shares indirectly held by him in whole or in part.
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8. |
The consideration payable
to the preference shareholder by NUEP for the preference shares transferred
and loans ceded shall be the conversion of the special convertible preference
shares referred to in clause 7 to common shares in NUEP on a one-for-one
basis.
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SCHEDULE 3
RIGHTS OF SPECIAL CONVERTIBLE PREFERENCE SHARES IN HOLDINGS
The rights and restrictions attaching to the special convertible preference shares in NUEP are as follows:
1. |
The special convertible
preference shares shall be held by the Holdings Trust on behalf of reinvesting
shareholders.
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2. |
The special convertible
preference shares shall constitute 58,14 percent of the entire issued
share capital of NUEP prior to any conversion of the special convertible
preference shares into common shares.
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3. |
Dividends
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3.1.
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For so long as there are any special
convertible preference shares in issue, the directors of NUEP (the
Directors) shall, immediately prior to the resolution and declaration
of any dividend, determine the amount (if any) of that dividend which
is to be paid from amounts received from the company either by way of
dividend or capital distributions or loan repayments of capital or interest
(for the sake of clarity, this excludes the receipt of any liquidation
distribution or dividend after an Act of Insolvency in relation to the
company as the special convertible preference shares will have automatically
converted into common shares) ("SA Dividend Amount") and the amount (if
any) of that dividend which is to be paid from the other retained distributable
reserves of NUEP ("Non-SA Dividend Amount").
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3.2.
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For so long as there are any special
convertible preference shares in issue, the Directors may declare and
pay a dividend which comprises solely a Non-SA Dividend Amount (that is,
without declaring and paying a SA Dividend Amount) and the Directors may
declare and pay a dividend which comprises solely a SA Dividend Amount
(that is, without declaring and paying a Non-SA Dividend Amount).
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3.3.
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Any determination by the Directors of
a SA Dividend Amount and/or a Non-SA Dividend Amount shall be made by
the Directors in good faith and shall be final and binding on both the
holders of common shares and Holdings Trust (collectively Members).
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3.4.
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For so long as there are any special
convertible preference shares in issue, any Non-SA Dividend Amount shall
be paid to the Members pro rata to their respective shareholdings in the
Company, and the common shares and the special convertible preference
shares shall rank pari passu in respect of dividends declared and/or paid
from Non-SA Dividend Amounts.
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3.5.
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For so long as there are any special
convertible preference shares in issue, any SA Dividend Amount shall be
paid only to the holders of common shares and the holders of special convertible
preference shares shall have no entitlement to participate in any dividend
declared and/or paid from a SA Dividend Amount.
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3.6.
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For so long as there are any special
convertible preference shares in issue and subject to NUEP having sufficient
distributable reserves, NUEP shall, on receipt of amounts from the company
received either by way of dividend or capital distributions or loan repayments
of capital or interest, declare and pay a SA Dividend in an amount equal
to the amounts so received from the company, after deducting therefrom
the taxes payable by NUEP on the amount so received.
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4.
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Voting
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4.1.
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Holders of common shares and special
convertible preference shares have the right to receive notice of, attend,
speak and vote at general meetings of NUEP.
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4.2.
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All voting at general meetings of NUEP
shall be taken by a poll and not a show of hands.
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4.3.
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A holder of common shares present in
person, or the person representing a holder of common shares by proxy,
shall at a general meeting of NUEP have one vote for each share in NUEP
held or represented, whether common shares or special convertible preference
shares
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5.
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Conversion
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5.1. |
Upon the instruction of SA Trust, the Holdings Trust
shall distribute special convertible preference shares in the distribution
ratio.
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5.2. |
SA Trust shall convert the special convertible preference
shares it receives in terms of 5.1 by delivering to NUEP the share certificates
for the special convertible preference shares, share transfers in favour
of NUEP in the form reasonably required by the Directors and accompanying
certificates for preference shares and an assignment and transfer in favour
of NUEP in the form reasonably required by the Directors of the loan accounts.
The date of delivery of these certificates and transfers shall be a "Conversion
Date").
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5.3. |
The common shares to which the special convertible
preference shares are converted shall be credited as fully paid and shall
rank pari passu in all respects and form one class with the common shares
then in issue.
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5.4. |
The allotment of new common shares shall be made
within three days of the relevant Conversion Date. A certificate for new
common shares shall be sent as soon as practicable after the relevant
Conversion Date to the Holdings Trust without charge. Pending delivery
of certificates for new common shares transfers shall be certified against
the register.
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5.5. |
If special convertible preference shares remain capable
of conversion into common shares and either (A) a resolution for voluntary
winding up of NUEP is passed or (B) a winding-up order is made by the
court in relation to NUEP, Holdings Trust shall immediately distribute
all the special convertible preference shares to SA Trust, which shall
thereupon convert the special convertible preference shares into common
shares into NUEP.
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5.6. |
In the event of an Act of Insolvency in relation
to the company the Holdings Trust shall immediately distribute all the
special convertible preference shares to SA Trust, who shall thereupon
convert the special convertible preference shares into common shares in
NUEP.
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6. |
Restriction on holding
of special convertible preference shares
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No person other than the Trustee of the Holdings
Trust and SA Trust (following a distribution of the special convertible
preference shares to SA Trust, before conversion of the special convertible
preference shares into common shares by SA Trust), shall hold special
convertible preference shares.
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7. |
Winding up In circumstances when the special convertible preference shares have not been converted into common shares for any reason, on a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares) NUEP's assets available for distribution among the Members shall, save as otherwise provided by paragraph 5 above, be applied pari passu to the holders of common shares and the holders of special convertible preference shares on the basis that the special convertible preference shares will be deemed to have been converted into common shares. |
Exhibit 2.6
TRUST DEED
In respect of
THE NEW APLITEC PARTICIPATION TRUST
entered into between
NEWSHELF 713 (PROPRIETARY) LIMITED
And
BRAIT CAPITAL PARTNERS TRUSTEES (PROPRIETARY) LIMITED
CONTENTS
i
22. | UNIT HOLDERS NOT TO DEAL WITH TRUST ASSETS | 19 | |
23. | BOOKS OF ACCOUNT | 19 | |
24. | REMUNERATION AND EXPENSES | 20 | |
25. | AMENDMENT | 20 | |
26. | CONTRACTS WITH TRUST | 20 |
SCHEDULES
ii
1
1.3.2.7 |
Aplitec shares means ordinary shares
of 0,1 cent each in the issued share capital of Aplitec;
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1.3.2.8 |
cash option means the cash option referred
to in 2.3.1;
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1.3.2.9 |
closing date means the date upon which
the acquisition agreement becomes unconditional;
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1.3.2.10 |
common shares means common shares in
the authorised share capital of NUEP having the rights of ordinary shares;
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1.3.2.11 |
company means Newshelf 713 (Proprietary)
Limited, Registration Number 2002/031446/07 (to be renamed Net1
Applied Technologies South Africa (Proprietary) Limited or a similar
name approved by the Registrar of Companies), a private company incorporated
in the RSA;
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1.3.2.12 |
deed means this deed of trust;
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1.3.2.13 |
distribution ratio means the ratio in
which the special convertible preference shares shall be distributed on
the occurrence of a trigger event, which at the closing date, shall be
0,814285714 special convertible preference shares for every one share.
If after the closing date, NUEP consolidates or sub-divides the common
shares, the special convertible preference shares shall be consolidated
or subdivided in the same proportions, and the distribution ratio shall
be adjusted accordingly;
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1.3.2.14 |
founder means the company;
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1.3.2.15 |
loan account means the B class loan account
against the company, having the rights set forth in Schedule 1 hereto,
in the sum of 101,004 cents, to be credited to the trust as fully paid
up for each Aplitec share in respect of which an Aplitec shareholder exercises
the reinvestment option;
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1.3.2.16 |
NUEP means Net1 UEPS Technologies, Inc.,
IRS Employer Number 65/0903895, a company incorporated in Florida in the
United States of America;
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3
1.3.2.26.1 |
a unit holder notifies the trustees in writing that
he wishes the trust to dispose of the shares and loan account attributable
to some or all of his units; or
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1.3.2.26.2 |
the company is wound-up or placed under judicial
management, whether provisionally or finally; or
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1.3.2.26.3 |
NUEP is wound up or placed under judicial management,
whether provisionally or finally; or
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1.3.2.26.4 |
South African Exchange Controls are relaxed or abolished,
permitting unit holders to hold the common shares directly;
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1.3.2.27 |
trust means
The New Aplitec Participation Trust, being the trust constituted in terms
of 2, which is the subject of this deed;
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1.3.2.28 |
trust assets
means the shares and loan accounts held by the trust in the company and
the rights to the distribution by the Aplitec Holdings Participation Trust
of special convertible preference shares on the occurrence of a trigger
event;
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1.3.2.29 |
trustee/s means
the persons appointed as trustees of the trust for the time being in accordance
with this deed, the initial trustee being Brait Capital Partners Trustees
(Proprietary) Limited, Registration Number 1998/010776/07, a private company
incorporated in the RSA;
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1.3.2.30 |
trust income
means the income derived from the trust assets, including dividends paid
in respect of the shares and capital and interest paid in respect of the
loan accounts;
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1.3.2.31 |
unit means a
unit in the trust, comprising a capital contribution of 183,996 cents
and a loan contribution of 101,004 cents (having the rights set forth
in Schedule 4 hereto), and units bears a corresponding meaning;
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1.3.2.32 |
unit holder
means a person who from time to time holds units (who are limited to the
reinvesting shareholders) and unit holders shall bear a corresponding
meaning;
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1.3.2.33 |
unit holders participation ratio
means that proportion that the number of units held by a unit holder bears
to all the units in issue;
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1.3.2.34 |
units in issue means the aggregate number
of current units issued by the trustees in accordance with the terms and
conditions of this deed and held by the unit holders from time to time.
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2. | PREAMBLE | |||
2.1 |
In terms of the acquisition
agreement, the company will acquire all the assets and liabilities of
the Aplitec Group, excluding R 300 million in cash plus an additional
25 cents per Aplitec share for those Aplitec shareholders who elect the
cash option and the shares in Country On A Card (Proprietary) Limited,
Net1 Loyalty (Proprietary) Limited and Net1 Payroll (Proprietary) Limited.
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2.2 |
Pursuant to the acquisition
agreement, it is intended that Aplitec will be voluntarily wound up and
that the Aplitec shareholders will receive the consideration payable by
the company for Aplitecs assets and liabilities in the form of the
advance distribution of a liquidation dividend.
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2.3 |
The Aplitec shareholders
will be entitled to receive the advance distribution, of 475 cents per
Aplitec share plus an additional 25 cents per Aplitec share for those
Aplitec shareholders who elect the cash option, in whole or in part at
their election as follows:
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2.3.1 |
The cash option 500 cents in cash in respect of each Aplitec share; and/or |
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2.3.2 |
The reinvestment option
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2.3.2.1 |
In respect of each Aplitec share, an amount of 190
cents in cash and the balance in the form of a reinvestment in the company
via the trust, comprising one share to the value of 183,996 cents and
a loan account of 101,004 cents by way of nil paid renounceable letters
of allocation issued by the company, which will be deemed to have been
renounced by the Aplitec shareholders in favour of the trust. In addition,
the trust, for the benefit of the relevant Aplitec shareholders, will
be granted the right by Aplitec Holdings Participation Trust to
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5
receive special convertible preference shares in
the distribution ratio in due course on the occurrence of a trigger event.
The reinvestment option has been fixed at an exchange rate of R7,00 to
US$1, which is the exchange rate used to determine the number of special
convertible preference shares to be issued to the Aplitec Holdings Participation
Trust.
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2.4 |
Those Aplitec shareholders
who choose to receive the consideration payable to them in whole or in
part by way of the reinvestment option shall subscribe for and shall be
issued with one unit credited as fully paid for each share in Aplitec
in respect of which they exercise the reinvestment option.
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2.5 |
In turn, the trust shall
be issued with one share, to the value of 183,996 cents, and one loan
account in the sum of 101,004 cents, both credited as fully paid, for
each Aplitec share in respect of which the reinvestment option is exercised.
The shares and the loan accounts are linked and may not be disposed of
separately or other than by way of cession to NUEP on the occurrence of
a trigger event.
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2.6 |
It is intended that the
interest of the unit holders in the units shall mirror in all respects
the interest of the trust in the shares and the loan accounts on a one
for one basis.
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2.7 |
SAPET III will underwrite
the reinvestment option. Thus, if the reinvestment option is not fully
subscribed, SAPET III shall take up those units not taken up by the Aplitec
shareholders and shall become a unit holder in terms of this deed.
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2.8 |
If the Aplitec shareholders
fail to pass the necessary resolutions for the voluntary winding-up of
Aplitec or if Aplitec is not placed in voluntary liquidation for any other
reason, Aplitec through the trust shall subscribe for the shares and extend
the loan account and Aplitec will be issued units as contemplated for
its own account and shall become a unit holder in terms of this deed.
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2.9 |
The rights of the unit holders
to dispose of their units shall be restricted as contemplated in this
deed.
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3. | CREATION AND NAME OF TRUST | ||
3.1 |
A trust is hereby created,
known as The New Aplitec Participation Trust.
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3.2 |
The trustees may change the name of the trust at
any time.
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3.3 |
The founder, in its capacity as founder of the trust,
has advanced an initial amount of R 100,00 to the trust.
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3.4 |
The unit holders in the unit holders participation
ratio shall own the trust assets and the trust income, subject to the
administration and control thereof by the trustees in terms of this deed.
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3.5 |
The unit holders in the unit holders participation
ratio shall be entitled to the distribution of the trust income as soon
as practicably possible.
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3.6 |
The trustees hereby acknowledge receipt of the initial
advance recorded in 3.3 and declare that they will hold the trust assets
upon trust, on behalf of and for the benefit of the unit holders.
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4. | MAIN PURPOSE OF THE TRUST | |
4.1 |
The founder wishes to establish a trust as envisaged
in part (b) of the definition of trust in Section 1 of the
Act for the benefit of the unit holders. To this end, the unit holders
shall be the beneficial owners of the trust assets, while control of the
trust assets is hereby made over and vests in the trustees, to be administered
or disposed of in accordance with the provisions of this deed for the
unit holders sole risk and benefit.
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4.2 |
The main purpose of the trust will be to administer
the trust assets for the benefit of the unit holders.
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5. | CONTROL AND ADMINISTRATION OF THE TRUST ASSETS | |
5.1 |
The trustees shall take into their possession or
the possession of their agents, any instruments of title in respect of
the trust assets and other documents relating to the trust and its business
and shall retain them in their care and custody or in that of their agent.
Should the trustees deem it appropriate, they shall procure that a bank
account is opened at a registered commercial bank and that all deposits
and other monies received by the trust shall be paid into that account.
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5.2 |
Payment, delivery, cession and transfer of any trust
assets to the trustees shall not vest ownership thereof in the trustees,
but shall be effected for the purpose of
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enabling the administration of the trust assets on the terms and conditions and for the purposes set forth in this deed. | ||
5.3 |
The trustees shall at all times hold the trust assets
in accordance with the regulations published by the South African Reserve
Bank from time to time.
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6. | APPOINTMENT OF TRUSTEES | |
6.1 |
The initial trustee, by its signature to this deed,
accepts office as trustees of the trust and undertakes to discharge their
duties in terms of this deed.
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6.2 |
The trust shall at all times have at least one trustee
in office and a maximum of three trustees.
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6.3 |
The unit holders may replace any departing trustee
or appoint new trustees from time to time, subject to the maximum number
of trustees in 6.2 not being exceeded; provided that the new trustee has
been approved in writing by the Exchange Control Department of the South
African Reserve Bank.
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6.4 |
A trustee who is a natural person is entitled to
appoint another natural person to act as his alternate during his absence
or inability to act as a trustee, which alternate, whilst so acting, shall
exercise the powers and discharge the duties of the said trustee. A trustee
which is a corporation is entitled to nominate a natural person and one
alternate to such person to act on its behalf subject to the terms hereof
(for whose actions the trustee shall be liable in law) and from time to
time to remove each such person and/or to substitute another nominee in
his place, and the corporate trustee indemnifies the trust against any
claim arising from such appointment, removal or substitution.
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6.5 |
Any trustee appointed in terms hereof shall, upon
his or her written acceptance of appointment, be vested with and bound
by all the powers and duties of a trustee.
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6.6 |
If for any reason there are no trustees in office,
a trustee shall be appointed to act as such under this deed by the founder
in consultation with the unit holders.
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6.7 |
A trustee who is absent from the Republic of South
Africa may delegate his authority for a specific period, by written power
of attorney duly executed.
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7. |
DISQUALIFICATION OF TRUSTEES The office of trustee shall ipso facto be vacated by a trustee: |
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7.1
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if, being a natural person, he shall
cease for any reason to be qualified for appointment as a director of
a company;
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7.2
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if, being a company or corporation,
it is placed, whether provisionally or finally, in liquidation or under
judicial management;
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7.3
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if he becomes disentitled in law to
hold the office of trustee;
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7.4
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thirty days after the date upon which
he gives written notice to the remaining trustee/s or the unit holders
of his intention to resign, provided that if at such date there would,
by reason of his resignation, be no trustees in office, such resignation
shall take effect only upon the appointment of one or more trustees;
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7.5
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if the unit holders by written notice
to the trustees remove him from office; provided that if upon the date
of that notice there would, by reason of that removal, be no trustees
in office, such removal shall take effect only upon the appointment of
one or more trustees.
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8. |
SECURITY DISPENSED WITH No trustee, whether appointed under this deed or as a successor pursuant to the provisions of 6, shall be required by the Master of the High Court or any other authority to furnish any security of any nature whatever, nor shall any security be required for the due performance of any duty under the Act or under any other statutory provision. The provisions of this paragraph shall also apply to a trustee who is not resident in the Republic of South Africa. |
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9. |
DECISIONS OF THE TRUSTEES
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9.1
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Whenever reference is made in this document
to the discretion of the trustees, such discretion shall be sole, absolute
and unfettered.
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9.2
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At any meeting of the trustees, each
trustee will have one vote, exercisable as he shall, in his discretion,
determine.
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9.3 |
If at any time there are
two or more trustees in office, all decisions of the trustees regarding
or arising from this deed shall be decided by majority vote of the trustees,
save where this deed expressly contemplates that the unanimous consent
of the trustees is required.
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10. |
PROCEEDINGS OF TRUSTEES
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10.1 |
A quorum for meetings of
the trustees shall be one trustee, if there is one trustee in office,
or two trustees, if there is more than one trustee in office.
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10.2 |
If a quorum is not present
within half an hour of the duly appointed time for the holding of any
meeting of the trustees, that meeting will stand adjourned to the same
time and place one week later and written notice of such adjournment will
be given to each absent trustee by the trustee/s present at the meeting
from which such adjournment takes place and at such adjourned meeting,
those present shall constitute a quorum.
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10.3 |
The trustees shall regulate
their meetings and the manner in which they are convened in such manner
as they deem fit, provided that any trustee shall be entitled at any time
to summon a meeting of the trustees, on reasonable notice to each other
trustee.
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10.4 |
The trustees shall keep
(and certify as correct) minutes of their meetings. A resolution in writing
signed by all the trustees shall be as valid and effectual as if it had
been passed at a meeting of the trustees duly called and constituted.
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10.5 |
All contracts, deeds and
other documents which require to be signed on behalf of the trust shall
be signed in such manner as the trustees shall from time to time determine.
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11. |
POWERS OF TRUSTEES
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11.1 |
The trustees shall have
the power generally to acquire the trust assets and to manage the trust
assets for the benefit of the unit holders.
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11.2 |
In particular, the Trustees
shall have the following powers:
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11.2.1 | To open and operate current and savings accounts with financial institutions approved by the trustees; |
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11.2.2 |
To appoint such agents and employees as the trustees
may deem fit;
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11.2.3 |
To delegate part or all of their powers to a committee
or committees, constituted on such terms and for such periods as the trustees
in their sole discretion may determine;
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11.2.4 |
To institute or defend legal proceedings in the name
of the trust or to proceed to arbitration in respect of any matter or
thing in respect of which the trustees so determine and to sign all deeds,
powers of attorney and any other documents that may be necessary in the
circumstances;
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11.2.5 |
Generally to sign all documents and perform all acts
that may be necessary in the exercise of their powers under this deed;
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11.2.6 |
To borrow such sum or sums as may be agreed by the
trustees and secure such borrowings by the mortgage, pledge or encumbrance
of the whole or part of the trust assets;
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11.2.7 |
To sell or transfer the trust assets, but only in
the circumstances contemplated in 17 and 20.2.
|
||
12. | MEETINGS OF UNIT HOLDERS | ||
12.1 |
The unit holders shall hold
meetings at such times and on such periods of notice (but not less than
21 days) as the trustees may from time to time determine.
|
||
12.2 |
The trustees shall convene
a meeting of the unit holders upon the request of unit holders holding
not less than 10 percent of all units in issue.
|
||
12.3 |
A quorum for a meeting of
unit holders shall be such number of unit holders who in aggregate hold
10 percent of the total number of units in issue from time to time.
|
||
12.4 |
If within 30 minutes of
the time appointed for a meeting of unit holders a quorum is not present,
the meeting shall stand adjourned to the same day in the next week, at
the same time and place, or if that day be a Saturday, Sunday or public
holiday, to the next succeeding day which is not a Saturday, Sunday or
public holiday or such other day, time and place as the trustees, on reasonable
notice to
|
11
the unit holders, may determine.
At the adjourned meeting, the unit holders present in person or by proxy
shall constitute a quorum.
|
|||
12.5 |
The chairman of the board
of trustees shall preside as chairman at every meeting of the unit holders.
If there is no such chairman, or if at the meeting he is not present within
15 minutes after the time appointed for the holding of the meeting, or
is unwilling to act as chairman, the unit holders present shall choose
one of their number as chairman.
|
||
12.6 |
At any meeting of the unit
holders, each unit holder shall have one vote on a show of hands and one
vote for each unit held on a poll.
|
||
12.7 |
At any meeting of unit holders
a resolution put to the vote shall be decided by a show of hands unless
a poll is demanded (on or before the declaration of the result of a show
of hands) by the chairman of the meeting or a unit holder or unit holders
holding not less than 10 percent of all the units in issue.
|
||
12.8 |
On a show of hands at a
meeting of unit holders a declaration by the chairman as to the result
of the voting on any particular resolution and an entry to that effect
in the minutes shall be conclusive proof of that result, without proof
of the number or proportions of votes recorded in favour of, against and
as abstaining from such resolution.
|
||
12.9 |
If a poll is demanded at
a meeting of the unit holders:
|
||
12.9.1 |
On the election of a chairman or on
an adjournment, the poll shall be taken immediately and in such manner
as the meeting determines, and on any other question shall be taken at
such time and in such manner as the chairman of the meeting directs;
|
||
12.9.2 |
The result of the poll shall be deemed
to be the resolution of the meeting at which the poll was demanded;
|
||
12.9.3 |
The demand shall not preclude the meeting
from considering any question other than that on which the poll has been
demanded unless the meeting decides otherwise;
|
||
12.9.4 |
The demand for a poll may be withdrawn
at any time.
|
12
12.10 |
No objection shall be taken to the admission or rejection
of any vote except at the meeting of unit holders at which the vote in
dispute is cast, or if adjourned, the resumption thereof. The chairman
of that meeting shall determine any issue raised by such objection and
his determination shall be final and binding.
|
|
12.11 |
A resolution in writing signed by all the unit holders
shall be as valid and effective as if it had been passed at a meeting
of unit holders properly called and held. Any such resolution may consist
of several documents, each of which may be signed by one or more unit
holders and shall be deemed to have been passed on the date on which it
was signed by the last unit holder who signed it, unless a statement to
the contrary is made in that resolution.
|
|
12.12 |
Decisions of the unit holders shall require the approval
of the majority of unit holders present or represented by proxy at the
meeting.
|
|
12.13 |
In the case of an equality of votes, the chairman
shall not have a casting vote.
|
|
13. | VOTING OF SHARES | |
13.1 |
The units held by a unit holder shall confer upon
him the right to exercise one vote in respect of each share held on his
behalf by the trust.
|
|
13.2 |
When the company convenes a general meeting of its
shareholders, it shall give notice to the trust in its capacity as the
holder of the shares.
|
|
13.3 |
The trustees shall inform the unit holders of the
meeting and the reasons therefor and distribute to them copies of the
circulars and/or notices and forms of proxy at their addresses recorded
in the register of unit holders.
|
|
13.4 |
Those unit holders who wish to vote the shares attributable
to their units shall complete the proxy forms and forward them to the
trustees.
|
|
13.5 |
The trustees will in turn lodge proxies with the
company in respect of the meeting, directing their proxy (who may be the
unit holder, if he so desires) to vote the shares in accordance with the
wishes expressed by the unit holders.
|
|
13.6 |
This procedure will be followed in respect of every
meeting of shareholders of the company from time to time.
|
13
14
15.2 |
Unit certificates shall
be in such form as the trustees may from time to time determine, but shall
contain at least:
|
||
15.2.1 |
The serial number of the certificate;
|
||
15.2.2 |
The number of units represented thereby;
|
||
15.2.3 |
The full name and address of the unit holder;
|
||
15.2.4 |
The date upon which the name of the unit holder was
entered into the register as the holder of the units represented by the
unit certificate.
|
||
15.3 |
Each unit certificate shall
be signed for the trustees.
|
||
15.4 |
If any unit certificate
is worn out or defaced, the trustees, on production of the unit certificate,
may cancel it and issue a new unit certificate in place thereof. If any
unit certificate is lost, stolen or destroyed, then on proof to the satisfaction
of the trustees of such loss, theft or destruction, and on such indemnity
(if any) as the trustees may deem adequate, and on such terms as the trustees
may decode, a new unit certificate in lieu thereof may be issued to the
unit holder entitled thereto. An entry as to the issue of the new unit
certificate and the indemnity (if any) shall be made in the register;
provided that the person availing himself of the provisions of this clause
shall pay to the trustees all expenses incidental to the investigation
by the trustees, if any, into the loss, theft or destruction of the unit
certificate in question.
|
||
16. | REGISTER | ||
16.1 |
The trustees shall keep
a register of unit holders at the registered office of the trust.
|
||
16.2 |
There shall be entered into
the register the name and address of each unit holder, the number of units
held by each unit holder, the serial number of the unit certificates held
by the unit holder and the date on which the name of the unit holder was
entered in respect of the units registered in his name.
|
||
16.3 |
The register shall be prima
facie evidence of the title of a unit holder to a unit.
|
||
16.4 |
The trustees shall not be
bound to see to the execution of any trust, whether express, implied or
constructive, in respect of any unit.
|
15
16.5 |
If a unit holder wishes
to register a change of name or address, he shall give notice thereof
in writing to the trustees who, on being satisfied thereof, and on compliance
with all such formalities as the trustees may require, shall alter the
register accordingly.
|
||
16.6 |
The register shall be open
for inspection by any unit holder at all reasonable times during business
hours.
|
||
17. | DISPOSAL OF UNITS | ||
17.1 |
Notwithstanding anything
to the contrary in this deed, a unit holder may not realise his units,
nor may the trustees dispose of any of the trust assets other than in
the manner contemplated in this 17.
|
||
17.2 |
Upon the occurrence of a
trigger event:
|
||
17.2.1 |
The trustees shall give written notice
to the Aplitec Holdings Participation Trust, requesting the distribution
of the special convertible preference shares in the distribution ratio
(or in the case of a trigger event contemplated in 1.3.2.26.1, special
convertible preference shares in the distribution ratio for each unit
in respect of which the unit holder has given notice);
|
||
17.2.2 |
Upon receipt of the notice, the Aplitec
Holdings Participation Trust will distribute to the trustees the special
convertible preference shares as outlined in 17.2.1;
|
||
17.2.3 |
The trustees shall take delivery from
the Aplitec Holdings Participation Trust of the special convertible preference
shares;
|
||
17.2.4 |
Against delivery of the appropriate
number of special convertible preference shares, the trustees shall notify
NUEP of the decision to convert the special convertible preference shares
into common shares in NUEP and shall deliver to NUEP a proportionate number
of shares and loan accounts and a proportionate number of special convertible
preference shares;
|
||
17.2.5 |
If the trigger event is a trigger event
contemplated in 1.3.2.26.1, within the time period stipulated by the selling
unit holder, which shall not exceed 12
|
16
months (in order to comply with applicable Exchange
Control approvals), the trustees shall sell the common shares at the price
stipulated by the unit holder, or if the price stipulated by the selling
unit holder cannot be attained within such 12-month period, at the market
price. If the trigger event is one of the trigger events contemplated
in 1.3.2.26.2 or 1.3.2.26.3, the trustees shall sell the common shares
in NUEP as soon as possible but not later than 12 months after the trigger
event concerned. Notwithstanding the aforegoing, the trustees shall not
be obliged to dispose of the common shares of a unit holder who is a non-resident
of the RSA, but shall distribute the common shares to the unit holder
concerned. If the trigger event is a trigger event contemplated in 1.3.2.26.4,
the trustees shall distribute the common shares to the unit holders in
the unit holders participation ratios and wind up the trust in terms
of 20;
|
|||
17.2.6 |
Upon receipt of the proceeds in South Africa, against
surrender of the unit certificates, the trustees shall distribute the
proceeds, net of all costs, to the unit holder or holders concerned;
|
||
17.2.7 |
Thereafter, the trustees shall cancel the units and
make appropriate entries in the register in respect of the units realised
and issue new unit certificates, if required.
|
||
17.3 |
Once a unit holder ceases
to hold any units, he shall no longer be a unit holder for purposes of
this deed.
|
||
18. |
TRUST INCOME
|
||
18.1 |
All trust income received
or accrued by the trustees on behalf of the unit holders shall accrue
to and vest immediately in the unit holders in the unit holders
participation ratio.
|
||
18.2 |
The trustees shall distribute
all the trust income received by the trust on behalf of the unit holders
in accordance with the unit holders participation ratio as soon
as possible after it is received by the trust.
|
17
19. |
TRUST ASSETS
|
||
19.1 |
The trust assets shall be
owned by the unit holders in the unit holders participation ratio.
However, the unit holders shall not have possession of the trust assets.
Control thereof shall vest in the trustees, who shall not own the trust
assets, but shall hold them in trust for the benefit of the unit holders.
|
||
19.2 |
The trust assets shall not
be distributed to the unit holders, save in the event of a disposal as
a result of the occurrence of a trigger event.
|
||
20. |
TERMINATION OF TRUST
|
||
20.1 |
The trust shall continue
until:
|
||
20.1.1 |
All of the unit holders and the trustees
agree to terminate the trust; or
|
||
20.1.2 |
No unit holders remain, whereupon the
trust shall be wound up.
|
||
20.2 |
If the unit holders and
the trustees agree to terminate the trust, the trustees shall dispose
of the shares and loan accounts comprising the trust assets as set out
in 17.2.
|
||
20.3 |
After having collected all
debts due to the trust and after having discharged all liabilities of
the trust to its creditors, including any amounts owing to the unit holders,
and after having made provision for the cost of dissolving the trust,
the trustees shall, compile and settle, in conjunction with the trusts
auditors, an audit certificate reflecting the remaining assets which shall
thereupon be distributed to the unit holders in the unit holders
participation ratio.
|
||
20.4 |
As soon as practicable after
completion of the distribution contemplated in 20.3, the trust shall be
wound up.
|
||
21. |
LOSSES
|
||
21.1 |
No trustee shall be answerable
for or liable to make good any loss occasioned to or sustained by the
trust from any cause whatever, save as arises from operation of law. No
trustee shall be liable for any act of dishonesty committed by another
trustee unless he was a party thereto.
|
18
19
23.5 |
The trustees shall not be
bound to file any liquidation, distribution or administration accounts
with any officer, official, or person except insofar as they may be obliged
to do so under the provisions of any law.
|
||
24. |
REMUNERATION AND EXPENSES
|
||
24.1 |
The trustees shall receive
fair and reasonable remuneration for their services in terms of this deed
as determined by the board of directors of the founder from time to time,
which shall be paid by the founder.
|
||
24.2 |
The founder shall bear all
the expenses, fees and costs payable by the trust from time to time, excluding
brokerage fees and costs and marketable securities tax pursuant to the
disposal of common shares as contemplated in 17, which fees, costs and
taxes shall be for the account of the unit holder concerned.
|
||
25. |
AMENDMENT
|
||
25.1 |
The provisions of this
deed may be amended at any time, provided that such amendment shall have
been agreed to in writing by:
|
||
25.1.1 |
the trustees then in office, whose
agreement shall be unanimous;
|
||
25.1.2 |
all of the unit holders; and
|
||
25.1.3 |
the Exchange Control Department of the
South African Reserve Bank.
|
||
25.2 |
Every amendment is to be
lodged with the Master of the High Court.
|
||
26. |
CONTRACTS WITH TRUST A trustee may enter into or have any interest in any contract with the trust or any company or entity in which the trust is interested without: |
||
26.1 |
being disqualified from
acting as trustee;
|
||
26.2 |
the contract being rendered
invalid or voidable in any way by virtue of the fact;
|
||
26.3 |
being liable to account
to the trust for any profit realised on such contract,
|
20
if the interest of the trustee concerned shall, prior
to the conclusion of the contract, have been disclosed in writing by him
to the other trustees, and the unit holders have consented to the trustee
entering into or having that interest in that contract.
|
Signed at Johannesburg on October 31, 2003
/s/ Chad Smart
For:
NEWSHELF 713 (PROPRIETARY) LIMITED
Name:
who warrants that he is duly authorised hereto
Signed at Johannesburg on October 31, 2003
/s/ Chad SmartSCHEDULE 1
TERMS OF THE LOAN ACCOUNT TO BE CREDITED BY THE COMPANY TO THE TRUST
The loan account credited by the company to the trust as fully paid up shall:
1. |
rank pari passu in all respects with
the A class loan accounts advanced by NUEP to the company;
|
2. |
be repayable as and when directed by
the board of directors of the company in its sole and absolute discretion;
provided that no capital under the loan account shall be repayable until
at least 30 days have elapsed from the date upon which the loan account
is credited to the trust; and provided further that the loan accounts
may only be repaid when the Exchange Control Department of the South African
Reserve Bank has approved the repayment of the A class loan accounts advanced
by NUEP to the company;
|
3. |
bear interest at the rate of interest
determined by the board of directors of the company annually in advance
in its sole and absolute discretion; provided that the interest rate shall
not exceed the prime rate from time to time. The interest so decided upon
shall be paid as and when determined by the board;
|
4. |
be repaid in full if the company is
wound up or placed under judicial management, whether provisionally or
finally;
|
5. |
be repaid pro rata with the A class
loan accounts by NUEP to the company;
|
6. |
be subordinated in favour of all creditors
of the company (other than NUEP as holder of the A class loan accounts)
if so decided upon by the board of directors of the company;
|
7. |
not be assigned, ceded, transferred
or encumbered by the trust in any way except to NUEPon the occurrence
of a trigger event;
|
8. | be denominated in South African Rands. |
SCHEDULE 2
RIGHTS OF THE SHARES ISSUED BY THE COMPANY
The rights, privileges and conditions of the shares shall be the following:
1. |
The shares shall be held by the trust
on behalf of the reinvesting shareholders.
|
2. |
The shares will constitute 58,14 percent
of the entire issued share capital of the company and will rank
pari
passu
with ordinary shares in respect of participation in dividends
and return of capital prior to the winding-up of the company for any reason.
The shares shall not participate in dividends or a return of capital on
a winding-up of the company.
|
3. |
The holder of the shares ("preference
shareholder") shall not be entitled to be present or to vote, either in
person or by proxy, at any meeting of the company, by virtue of, or in
respect of the shares, save as provided in Section 194 of the Companies
Act, or unless a resolution of the company is proposed which directly
affects the rights attached to the shares or the interests of the preference
shareholder, including a resolution for the declaration of a dividend
on any class of shares in the issued share capital of the company, for
payment of interest and capital on loan accounts, for the disposal of
any intellectual property of the company, for the winding-up of the company
or for the reduction of its share capital or share premium account, or
for the repayment or distribution of the share premium or non-distributable
reserves of the company or the issue of capitalisation shares. The rights
and privileges attaching to the shares shall not be regarded as being
directly or adversely affected by the creation and issue by the company
of any further shares of any class, unless those new shares rank as regards
participation in assets or profits of the company or voting rights in
all or some respects in priority to or
pari passu
with the shares.
|
4. |
At every meeting at which the preference
shareholder is entitle to be present and to vote the provisions of the
articles of association of the company relating to general meetings of
ordinary members shall apply
mutatis mutandis
, except that a quorum
at any such general meeting shall be any person or persons holding or
representing by
|
proxy at least one-fifth
of the shares; provided that if at any adjournment of such meeting a quorum
is not so present, the provisions of the articles of association of the
company relating to adjourned general meetings shall apply
mutatis
mutandis
. At every general meeting of the company at which the preference
shareholder as well as other classes of shares are present and entitled
to vote, upon a poll the preference shareholder shall be entitled to that
proportion of the total votes in the company which the aggregate number
of the shares held by it bears to the aggregate number of all shares entitled
to be voted at such meeting; provided that no resolution for the declaration
of a dividend or for the disposal of any intellectual property of the
company shall be passed unless 50,1 percent of the votes exercisable in
respect of the shares are voted in favour of the resolution.
|
||
5. |
Unless a resolution is passed
by 75 percent of the votes exercisable in respect of the shares in the
same manner
mutatis mutandis
as a special resolution:
|
|
5.1 |
the terms of the shares may not be modified,
altered, varied, added to or abrogated;
|
|
5.2 |
the share capital or stated capital
may not be reduced;
|
|
5.3 |
the share premium or non-distributable
reserves of the company may not be repaid or distributed;
|
|
5.4 |
no shares in the capital of the company
ranking, as regards rights to dividend or redemption or, on a winding-up,
as regards return of capital, in priority to or
pari passu
with
the shares, shall be created or issued.
|
|
6. |
The preference shareholder
may not in any manner sell, transfer or dispose of the shares unless upon
the occurrence of a trigger event, and then only by transferring them
to NUEP at the same time as it cedes a pro rata portion of its loan accounts
against the company to NUEP.
|
|
7. |
On the occurrence of a trigger
event, the preference shareholder will notify the Aplitec Holdings Participation
Trust thereof in writing whereupon the Aplitec Holdings Participation
Trust shall distribute to the preference shareholder special convertible
preference shares in the distribution ratio for each share in respect
of which notice has been given to the Aplitec Holdings Participation Trust.
For the sake of clarity, it is recorded that a reinvesting shareholder
may instruct the preference shareholder to dispose of the shares indirectly
held by him in whole or in part.
|
8. |
The consideration payable to the preference shareholder
by NUEP for the shares transferred and loan account ceded shall be the
conversion of the special convertible preference shares referred to in
clause 7 to common shares in NUEP on a one-for-one basis.
|
SCHEDULE 3
RIGHTS OF SPECIAL CONVERTIBLE PREFERENCE SHARES IN NUEP
The rights and restrictions attaching to the special convertible preference shares in NUEP are as follows:
1. |
The special convertible
preference shares shall be held by the Aplitec Holdings Participation
Trust on behalf of the trust, for the benefit of reinvesting shareholders.
|
|
2. |
The special convertible
preference shares shall constitute 58,14 percent of the entire issued
share capital of NUEP prior to any conversion of the special convertible
preference shares into common shares.
|
|
3. | Dividends | |
3.1. |
For so long as there are any special
convertible preference shares in issue, the directors of NUEP (the
Directors) shall, immediately prior to the resolution and declaration
of any dividend, determine the amount (if any) of that dividend which
is to be paid from amounts received from the company either by way of
dividend or capital distributions or loan repayments of capital or interest
(for the sake of clarity, this excludes the receipt of any liquidation
distribution or dividend after an Act of Insolvency in relation to the
company as the special convertible preference shares shall not longer
be capable of conversion) ("SA Dividend Amount") and the amount (if any)
of that dividend which is to be paid from the other retained distributable
reserves of NUEP ("Non-SA Dividend Amount").
|
|
3.2. |
For so long as there are any special
convertible preference shares in issue, the Directors may declare and
pay a dividend which comprises solely a Non-SA Dividend Amount (that is,
without declaring and paying a SA Dividend Amount) and the Directors may
declare and pay a dividend which comprises solely a SA Dividend Amount
(that is, without declaring and paying a Non-SA Dividend Amount).
|
|
3.3. |
Any determination by the Directors of
a SA Dividend Amount and/or a Non-SA Dividend Amount shall be made by
the Directors in good faith and shall be final and
|
binding on both the holders of common
shares and the holders of special convertible preference shares (collectively
Members).
|
||
3.4. |
For so long as there are any special
convertible preference shares in issue, any Non-SA Dividend Amount shall
be paid to the Members pro rata to their respective shareholdings in the
Company, and the common shares and the special convertible preference
shares shall rank pari passu in respect of dividends declared and/or paid
from Non-SA Dividend Amounts.
|
|
3.5. |
For so long as there are any special
convertible preference shares in issue, any SA Dividend Amount shall be
paid only to the holders of common shares and the holders of special convertible
preference shares shall have no entitlement to participate in any dividend
declared and/or paid from a SA Dividend Amount.
|
|
3.6. |
For so long as there are any special
convertible preference shares in issue and subject to NUEP having sufficient
distributable reserves, NUEP shall, on receipt of amounts from the company
received either by way of dividend or capital distributions or loan repayments
of capital or interest, declare and pay a SA Dividend in an amount equal
to the amounts so received from the company, after deducting therefrom
the taxes payable by NUEP on the amount so received.
|
|
4. | Voting | |
4.1. |
Holders of common shares and special
convertible preference shares have the right to receive notice of, attend,
speak and vote at general meetings of NUEP.
|
|
4.2. |
All voting at general meetings of NUEP
shall be taken by a poll and not a show of hands.
|
|
4.3 |
A holder of common shares present in
person, or the person representing a holder of common shares by proxy,
shall at a general meeting of NUEP have one vote for each share in NUEP
held or represented, whether common shares or special convertible preference
shares.
|
|
5. | Conversion | |
5.1. |
Upon the instruction of the trust, the
Aplitec Holdings Participation Trust shall distribute special convertible
preference shares to the trust in the distribution ratio.
|
5.2.
|
the trust shall convert the special convertible preference
shares it receives in terms of 5.1 above by delivering to NUEP the share
certificates for the special convertible preference shares, share transfers
in favour of NUEP in the form reasonably required by the Directors and
accompanying certificates for a pro rata portion of shares and an assignment
and transfer in favour of NUEP in the form reasonably required by the
Directors of a pro rata portion of the loan accounts. Each special convertible
preference share will be converted into one common share. The date of
delivery of these certificates and transfers shall be a "Conversion Date").
|
|
5.3.
|
The common shares into which the special convertible
preference shares are converted shall be credited as fully paid and shall
rank pari passu in all respects and form one class with the common shares
then in issue.
|
|
5.4.
|
The allotment of new common shares shall be made
within three days of the relevant Conversion Date. A certificate for new
common shares shall be sent as soon as practicable after the relevant
Conversion Date to the trust without charge. Pending delivery of certificates
for new common shares transfers shall be certified against the register.
|
|
5.5.
|
If special convertible preference shares remain capable
of conversion into common shares and either (A) a resolution for voluntary
winding up of NUEP is passed or (B) a winding-up order is made by the
court in relation to NUEP, the Aplitec Holdings Participation Trust shall
immediately distribute all the special convertible preference shares to
the trust, which shall thereupon convert the special convertible preference
shares into common shares in NUEP.
|
|
5.6.
|
In the event of an Act of Insolvency in relation
to the company the Aplitec Holdings Participation Trust shall immediately
distribute all the special convertible preference shares to the trust,
which shall thereupon convert the special convertible preference shares
into common shares in NUEP.
|
|
6. |
Restriction on holding of special convertible preference shares No person other than the Trustee of the Aplitec Holdings Participation Trust or the trust (following a distribution of the special convertible preference shares by the Aplitec Holdings Participation Trust to the trust, before conversion of the special convertible preference shares into common shares by the trust), shall hold special convertible preference shares. |
7. |
Winding up In circumstances when the special convertible preference shares have not been converted into common shares for any reason, on a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares) NUEP's assets available for distribution among the Members shall, save as otherwise provided by paragraph 5 above, be applied pari passu to the holders of common shares and the holders of special convertible preference shares on the basis that the special convertible preference shares will be deemed to have been converted into common shares. |
SCHEDULE 4
RIGHTS OF THE LOAN CONTRIBUTIONS CREDITED BY THE TRUST IN
FAVOUR OF
THE UNIT HOLDERS
The loan accounts shall:
1. |
rank
pari passu
with one another
and shall be repayable to the unit holders pro rata;
|
2. |
be repayable as and when the loan account
of the trust in the company is repaid;
|
3. |
bear interest at the same rate of interest,
if any, as is paid by the company in respect of the loan account credited
by the company in favour of the trust from time to time;
|
4. |
be repaid in full if the company is
wound up or placed under judicial management whether provisionally or
finally;
|
5. |
not be ceded, transferred or encumbered
in any way.
|
Exhibit 2.7
DATED January 30, 2004
WALKERS SPV
(the "Original Trustee")
SAPEF III INTERNATIONAL G.P. LIMITED
(the "Original Enforcer")
NET1 UEPS TECHNOLOGIES, INC.
(the "Company")
BRAIT CAPITAL PARTNERS TRUSTEES (PROPRIETARY) LIMITED]
(as trustee of the New Aplitec Participation Trust)
THE APLITEC HOLDINGS
PARTICIPATION TRUST
|
THIS DEED is made on January 30, 2004
BETWEEN :
(1) |
Walkers SPV
of Walkers SPV, Grand
Cayman, Cayman Islands (the "
Original Trustee
");
|
(2) |
SAPEF III INTERNATIONAL G.P. LIMITED
of c/o Q&H Corporate Services Limited, Third Floor, Harbour Centre,
PO Box 1348, George Town, Grand Cayman, Cayman Islands (the "
Original
Enforcer
");
|
(3) |
NET1 UEPS TECHNOLOGIES, INC.
,
IRS Employer Number 65-0903895, a company incorporated in Florida in the
United States of America having its principal place of business at Suite
325-744 West Hastings Street, Vancouver, British Columbia, Canada (the
"
Company
"); and
|
(4) |
[
BRAIT CAPITAL PARTNERS TRUSTEES
(PROPRIETARY) LIMITED
] as trustee of the New Aplitec Participation
Trust, a South African bewind trust established pursuant to a deed of
trust (the "
SA Trust
").
|
WHEREAS: | |
(A) |
The property specified in Schedule 2
has been transferred to the Original Trustee to be held upon the trusts
contained in this Trust.
|
(B) |
Further property, money or investments
may be paid or transferred to the Trustees (as defined below) to be held
upon the trusts contained in this Trust.
|
(C) |
It is intended that the provisions of
Part VIII of the Trusts Law (2001 Revision) (which were previously contained
in The Special Trusts (Alternative Regime) Law, 1997) shall apply to the
trusts established by this Trust.
|
NOW THIS DEED WITNESSES as follows: | |
1. |
DEFINITIONS
|
1.1 |
In this Trust, except where the context otherwise requires: " B Class Loan Account " means a B Class Loan Account against New Aplitec with a nominal value of ZAR 1.001004 per B Class Preference Share, which is linked by its terms to the B Class Preference Shares; " B Class Preference Share " means a B Class Preference share in the authorised share capital of New Aplitec having a nominal value of ZAR 0.001, which is linked by its terms to the B Class Loan Accounts; " Beneficiaries " means such persons and/or class or classes of persons as are nominated as Beneficiaries in accordance with the applicable provisions of this Trust (for the avoidance of doubt, any person who holds the office of Enforcer, currently or at any time in the future, may not be a Beneficiary) and the expression " Beneficiary " shall be construed accordingly; " Business Plan " means the business plan specified in Schedule 3 and as the same may be amended, varied or added to from time to time in accordance with Clause 8; " closing date " means the date upon which the Sale Agreement becomes unconditional; " charity " means any organisation or institution whether a body corporate or unincorporated or otherwise which is established anywhere in the world and which is (a) established exclusively for purposes recognised as charitable by the proper law of this Trust or (b) established for |
1 |
purposes recognised as charitable in the place where it is situated, registered, incorporated or established; " disability " means, in relation to any person, a disability rendering that person incapable of managing his own affairs which the Trustees, in their sole discretion, determine exists at any time; " distribution ratio " means the ratio in which the Special Convertible Preference Shares shall be distributed on the occurrence of a trigger event, which at the closing date, shall be 0,814285714 Special Convertible Preference Shares for every one B Class Preference Share. If after the closing date the Company consolidates or sub-divides the Common Shares, the Special Convertible Preference Shares shall be consolidated or sub-divided in the same proportions, and the distribution ratio shall be adjusted accordingly; " Enforcer " means the Original Enforcer and any successor Enforcer appointed in accordance with the applicable provisions of Clause 11; " instrument " includes any document executed in the manner required by the law of the Cayman Islands or by the law of the place where the same was executed; " New Aplitec " means Newshelf 713 (Proprietary) Limited, Registration Number 2002/031446/07, to be renamed "Net1 Applied Technologies South Africa (Proprietary) Limited" or a similar name, a private company duly incorporated according to the company laws of South Africa; " New Aplitec Trustees " means [Brait Capital Partners Trustees (Proprietary) Limited] or the trustees for the time being of the SA Trust; " Objects " means the objects of this Trust as described in Clause 4; " Original Trustee " bears the meaning given above; " Purposes " means the purposes for which this Trust is established as described in Clause 5; " Sale Agreement " means the sale agreement dated 31 October 2003 between Net1 Applied Technology Holdings Limited, Net1 Investment Holdings (Proprietary) Limited, Net1 Support Services (Proprietary) Limited and New Aplitec; " Special Convertible Preference Shares " means the shares of Special Convertible Preference Stock with a par value of US$0.001 each in the capital of the Company and " Common Shares " means the shares of common stock in the capital of the Company into which the Special Convertible Preference Shares convert; " trigger event " means a trigger event as such term is defined, construed and interpreted by and in accordance with the Sale Agreement and, for the avoidance of doubt, a trigger event will automatically occur hereunder if same has occurred under the Sale Agreement and will only occur hereunder if capable of occurring under the Sale Agreement; " Trust " means this settlement; " Trustees " means the Original Trustee or the trustees for the time being of this Trust and " Trustee " shall have a corresponding meaning; " Trust Fund " means (a) the property specified in Schedule 2 and any additions to it and the income derived from it and (b) all property from time to time representing the above; and " Trust Property " means any property comprised in the Trust Fund. |
|
1.2 | In this Trust, except where the context otherwise requires: |
2 |
(a)
|
the singular shall include the plural
and the masculine gender shall include the feminine and neuter genders
and vice versa;
|
|
(b)
|
words importing persons shall include
firms and corporations and charities;
|
|
(c)
|
references to writing shall include
handwriting, type print, telex, facsimile transmission, lithography, photography
and other modes of representing or reproducing words in a lasting and
visible form and "written" shall be construed accordingly;
|
|
(d)
|
the headings and sub-headings of this
Trust are included for reference only and do not affect the interpretation
of this Trust; and
|
|
(e)
|
references to any statutory provision
shall include any statutory modifications or re-enactments thereof.
|
|
1.3 |
This Trust shall be known
as The Aplitec Holdings Participation Trust or by such other name as the
Trustees may from time to time determine.
|
|
2. |
SPECIAL TRUST
|
|
2.1 |
Part VIII of the Trusts
Law (2001 Revision) (the provisions of which were previously contained
in The Special Trusts (Alternative Regime) Law, 1997) shall apply to the
trusts and powers created by and under this Trust.
|
|
3. |
TRUSTS OF ADDED PROPERTY
|
|
3.1 |
The Trustees shall hold
the Trust Fund on the trusts and with and subject to the trusts, powers
and provisions contained in this Trust and the Trustees may at any time
or times accept or disclaim such additional money, investments or other
property (including property of an onerous nature) as may be paid or transferred
to them or otherwise placed under their control in any manner by any person
to be held upon such trusts.
|
|
4. |
OBJECTS
|
|
4.1 |
The Objects are:
|
|
(a)
|
to apply all or any part of the Trust
Fund for the Purposes in accordance with the provisions of Clause 5;
|
|
(b)
|
to apply all or any part of the Trust
Fund for the benefit of all or any of the Beneficiaries in accordance
with the provisions of Clause 6; and
|
|
(c)
|
subject thereto (as originally framed
or as reformed) to apply the Trust Fund for charitable purposes.
|
|
5. |
PURPOSES
|
|
5.1 |
The Purposes are to carry
out the Business Plan or any part or parts of the Business Plan.
|
|
5.2 |
The Enforcer shall have
power to resolve any uncertainty as to the Purposes or to the mode of
execution of the trusts created by or under this Trust subject to obtaining
the prior or simultaneous written consent of the Trustees in relation
to the exercise by the Enforcer of the power conferred on him under this
Clause 5.
|
|
5.3 |
The Trustees shall endeavour
to carry out the Business Plan and shall act accordingly in dealing with
all or any part of the Trust Fund and the Company.
|
3 |
5.4 |
In so far as the Business
Plan is unspecific as to the Trustees' action and does not require the
Trustees to act as directed by another, or to delegate to another, the
Trustees shall have discretion to act as they think fit having regard
only to the letter and spirit of the Business Plan. Before the exercise
of this discretion the Trustee shall, if time permits, consult with the
Enforcer.
|
|
5.5 |
If, in the Trustees' opinion,
compliance with the letter of the Business Plan would be contrary to the
spirit of the Business Plan whether because of changed or unforeseen circumstances
or otherwise, the Trustees shall adhere to the spirit rather than the
letter of the Business Plan and act accordingly, but the Trustees shall
notify both the Enforcer and the board of directors of the Company in
writing and, if time permits, shall do so before acting.
|
|
6. |
BENEFICIAL PROVISIONS
|
|
6.1 |
Notwithstanding the provisions of Clause 5, and subject always to the powers of addition and exclusion of Beneficiaries contained in this Trust, the Trustees shall have the following powers in respect of all or any part of the Trust Fund: Trusts of Income and Capital |
|
(a)
|
The Trustees may pay or apply the whole
or any part of the income and/or capital of the Trust Fund to or for the
maintenance, advancement or benefit of all or any of the Purposes or a
Beneficiary as the Trustees think fit but subject always to the provisions
of Clause 7.1.
|
|
(b)
|
At the end of each calendar year, the
Trustees shall accumulate any undistributed income of the Trust Fund which
income shall be added to the Trust Fund.
|
|
Power of Appointment
|
||
(c)
|
The Trustees may appoint that they shall
hold all or any part of the Trust Fund for the benefit of the Purposes
or a Beneficiary (if one has been nominated) on such terms as the Trustees
think fit.
|
|
(d)
|
An appointment may create any provisions
and, in particular, may create discretionary trusts or dispositive or
administrative powers, all exercisable by the Trustees or by any other
person. Any property subject to any separate trusts or powers may remain
consolidated with the Trust Fund without physical division.
|
|
(e)
|
No appointment shall affect income and/or
capital of the Trust Fund paid or payable to any person before the date
of that appointment.
|
|
(f)
|
An appointment shall be made by instrument
in writing and may be revocable or irrevocable.
|
|
Powers of Maintenance
and Advancement
|
||
(g)
|
The statutory powers of maintenance
and advancement are hereby excluded.
|
|
7. |
BENEFICIARIES AND PURPOSES
|
|
7.1 |
The allocation of the Trust
Fund between the Beneficiaries and the Purposes (and any of them) shall
be at the discretion of the Enforcer.
|
|
7.2 |
Any income of the Trust
Fund which is not paid to a Beneficiary or used in furtherance of the
Purposes shall be accumulated and added to the Trust Fund.
|
4 |
8. |
REFORM OF TRUSTS
|
|
8.1 |
If the Trustees consider
that the Objects, the Purposes, the Business Plan and/or the mode of execution
of this Trust have become, either in whole or in part:
|
|
(a)
|
impossible or impracticable; or
|
|
(b)
|
unlawful or contrary to public policy;
or
|
|
(c)
|
inadequate by reason of changed circumstances
to achieve the general intent of these trusts; or
|
|
(d)
|
uncertain,
|
|
then they are hereby empowered
by deed or deeds, but subject to obtaining the prior or simultaneous written
consent of the Enforcer, to reform this Trust, the Objects, the Purposes,
the Business Plan and/or the mode of execution of this Trust in such way
as the Trustees think appropriate to resolve or overcome the difficulty.
|
||
9. |
POWER OF ADDITION OF
BENEFICIARIES
|
|
9.1 |
The Enforcer may by instrument
in writing revocably or irrevocably declare that any person or persons,
or member or members of a class of persons, named or specified (whether
or not in existence or ascertained (currently or at any time in the future))
in such declaration shall from then on, or for such subsequent period
specified, be included within the class of Beneficiaries.
|
|
9.2 |
Any such addition shall
be made by instrument in writing:
|
|
(a)
|
delivered to the Trustees;
|
|
(b)
|
naming or describing the person or persons,
or member or members of a class of persons, to be added;
|
|
(c)
|
specifying the day or date or the happening
of the event (not being earlier than the date of execution of the instrument)
upon which the addition shall take effect; and
|
|
(d)
|
specifying the day or date or the happening
of the event (not being earlier than the date of execution of the instrument)
upon which the person or persons, or member of members of a class of persons
shall be entitled to benefit from the trusts set out in Clause 6 and the
extent to which (if any) the provisions of Clause 6 shall require amendment
in accordance with the provisions of Clause 17.
|
|
10. |
POWER OF EXCLUSION OF
BENEFICIARIES
|
|
10.1 | The Enforcer may by instrument in writing revocably or irrevocably declare that any person or persons, or member or members of a class of persons, named or specified (whether or not in existence or ascertained (currently or at any time in the future)) in such declaration who are, or who would or might but for this clause be or become, a Beneficiary or Beneficiaries: | |
(a)
|
shall be wholly or partially excluded
from future benefit hereunder; or
|
|
(b)
|
shall cease to be a Beneficiary or Beneficiaries;
|
|
and any such declaration may be irrevocable
or revocable and shall have effect from the date specified in the said
declaration, provided that this power shall not be capable of being exercised
so as to derogate from any interest to which any Beneficiary has previously
become indefeasibly entitled, whether in possession or in reversion or
otherwise.
|
5 |
10.2 |
Any person, not being a
minor, to whom or for whose benefit all or any capital or income of the
Trust Fund may be liable to be appointed, transferred or applied, whether
directly or indirectly and in any manner whatsoever, by or in consequence
of an exercise of any trust, power or discretion vested in the Trustees,
or in any other person, may by declaration in writing received by the
Trustees:
|
||
(a)
|
disclaim his interest as
an object of such trust, power or discretion either wholly or with respect
to any specified part or share of such capital or income; or
|
||
(b)
|
cease to be a Beneficiary,
and such declaration shall have effect from the date that the same is received by the Trustees provided that: |
||
(i)
|
disclaimer of the whole of an interest
shall only be possible if no benefit has been taken thereunder and shall
be irrevocable; and
|
||
(ii)
|
disclaimer of part of an interest may
be revocable or irrevocable.
|
||
11. |
THE ENFORCER
|
||
11.1 |
The Original Enforcer shall
be the first Enforcer.
|
||
11.2 |
The Enforcer has a fiduciary
duty to act responsibly with a view to the proper execution of this Trust,
but subject to the provisions set out in this Clause 11.
|
||
11.3 |
The Enforcer has no duty
to supervise or investigate the administration of this Trust save that
the Enforcer shall investigate any allegation of wrongdoing or unfitness
on the part of the Trustees.
|
||
11.4 |
The Enforcer may assume,
in conducting any review or investigation, pursuant to Clause 11.3, that
information supplied by the Trustees or any other person is true and fair.
|
||
11.5 |
The Trustees agree that
they will vote in accordance with any written directions received by the
Enforcer from the New Aplitec Trustees in respect of the Special Convertible
Preference Shares.
|
||
11.6 |
Without prejudice to any
other provision of this Trust (including, for the avoidance of doubt,
the provisions of paragraph 7 of Schedule 1) it is expressly declared
that the Trustees shall, in the absence of fraud, dishonesty or recklessness:
|
||
(a)
|
be under no liability, obligation
or responsibility whatsoever and shall not be deemed to be in breach of
trust and/or shall not be guilty of neglect, default, dishonesty and/or
fraud with respect to any loss, damage, claim, action, cost and/or expense
of any kind arising out of or in connection with any acts or omissions
on the part of the Trustees pursuant to the provisions of Clause 11.5;
and
|
||
(b)
|
be absolutely protected
from liability in acting or relying upon written directions delivered
by the Enforcer to the Trustees in respect of any loss to the Trust Fund
|
||
and the Trustees shall be
indemnified by the Company against all and any loss, damage, claim, action,
cost and/or expense resulting to them from acting upon and/or relying
upon such written directions.
|
|||
11.7 |
For all the purposes of
Clause 11.5, the Trustees shall be entitled to rely upon the written directions
delivered by the Enforcer from New Aplitec Trustees to the Trustees without
responsibility for errors in delivery, transmission or receipt and without
satisfying themselves thereunder that such written directions are given
in good faith.
|
6 |
7 |
8 |
15. | EXERCISE OF POWERS |
15.1 | Subject to obtaining the consent of the Enforcer (whether written or otherwise) when required by this Trust, the powers of the Trustees are exercisable at their absolute discretion and at any time or times. |
15.2 | The Trustees and the Enforcer confirm that they shall exercise their powers, consents and discretions conferred on them under this Trust reasonably and in good faith. |
16. | FURTHER PROVISIONS |
16.1 | The provisions set out in Schedule 1 shall have effect in addition, and without prejudice, to the powers conferred on the Trustees by law. |
17. | AMENDMENT OF THIS TRUST |
17.1 | The Trustees, with the prior or simultaneous written consent of the Enforcer, shall have power by deed to vary or add or exclude any powers or provisions of this Trust including, without limitation, any dispositive powers. |
18. | ENFORCEMENT |
18.1 | The Enforcer shall be the only person who has a duty to enforce the trusts created by or under this Trust. No person or corporate body other than the Enforcer shall have a duty to enforce the trusts created by or under this Trust. |
18.2 | Any Enforcer (but not any other person) shall have the right to enforce the duties of any other Enforcer under this Trust. |
18.3 | No person or corporate body other than the Enforcer shall have the right to be informed of the terms of this Trust, to receive information concerning this Trust and its administration from the Trustees or to inspect or take copies of any trust documents relating to this Trust. |
19. | NATURE OF TRUST |
19.1 | This Trust is irrevocable. |
20. | TERMINATION |
20.1 | If at any time there is no property in the Trust Fund, the Trust established by this deed will terminate. |
9 |
SCHEDULE 1
Powers and Duties of Trustees
1. |
ADMINISTRATIVE POWERS Subject to the foregoing provisions of this deed, the Trustees shall have the following powers provided that they shall always be exercised in a manner consistent with the Objects: |
|
(a)
|
The Trustees will ensure that the Initial
Trust Fund shall comprise the Special Convertible Preference Shares;
|
|
(b)
|
the Trustees are under no obligation
to diversify the Trust Fund;
|
|
(c)
|
the Trustees may retain any Trust Property
within the Trust Fund indefinitely;
|
|
(d)
|
the acquisition of any property not
within the meaning of the word "
investment
" strictly construed
shall be deemed to be an authorised investment of Trust Property if it
involves the acquisition by the Trustees of the Special Convertible Preference
Shares;
|
|
(e)
|
the Trustees may effect any transaction
relating to the management, administration or disposition of Trust Property
as if they were the beneficial owners;
|
|
(f)
|
the Trustees may pay expenses out of
income although they would otherwise be paid out of capital;
|
|
(g)
|
the Trustees may take the opinion of
legal counsel where necessary or appropriate anywhere in the world concerning
any matter in any way relating to this Trust or the duties of the Trustees
and may act in accordance with the opinion of such counsel;
|
|
(h)
|
any Trustee may delegate in writing
any of his functions to any person anywhere in the world;
|
|
(i)
|
the Trustees may deposit documents
relating to this Trust (including bearer securities) with any person anywhere
in the world;
|
|
(j)
|
with the prior written consent of the
Enforcer, the Trustees may vest Trust Property in any person anywhere
in the world as nominee, and may place Trust Property in the possession
or control of such person;
|
|
(k)
|
the Trustees may indemnify a trustee
or any other person for any liability relating to Trust Property or this
Trust;
|
|
(l)
|
the Trustees may pay out of the income
or capital of the Trust Fund, or out of monies received by the Trustees
from the Company and/or a third party, any fiscal impositions (including
interest and penalties) becoming payable in any part of the world in respect
of this Trust or any Trust Property notwithstanding that such fiscal impositions
may not be enforceable through the courts of the place where this Trust
is for the time being administered, where any Trustee is resident or domiciled
or where any Trust Property is situated. The Trustees shall have absolute
discretion as to the time and manner of such payment and can exercise
this power in their own interests (provided that they have taken all responsible
measures, acting on appropriate advice to contest such fiscal impositions).
The Trustee has no duty to consider the tax-efficiency of the Business
Plan but it is at liberty to do so and to seek advice in that respect.
The Trustee shall not be liable for any failure to comply with the reporting
requirements of any taxing jurisdiction other than the proper law of the
Trust, whether the failure is deliberate or inadvertent;
|
10 |
(m) |
the Trustees may ascertain the value
of any Trust Property with or without the assistance of qualified agents
and any valuation made or accepted by the Trustees shall be binding;
|
|
(n) |
the Trustees may institute or defend
proceedings in any part of the world at the expense of the Company and
the Trustees shall not be liable for failing to pursue any claim or litigation
where the monies received from the Company are insufficient to pay for
the legal and other incidental costs of pursuing any such claim or litigation;
|
|
(o) |
the Trustees and any other person upon
whom powers are conferred by this instrument may by instrument in writing
release wholly or in part any of their powers so as to bind their successors
notwithstanding that such powers may be fiduciary in nature;
|
|
(p) |
the Trustees may pay out of the Trust
Fund or out of monies received by the Trustee from the Company or a third
party, all costs of the preparation, execution and stamping of this Trust;
|
|
(q) |
where Trust Property is to be paid or
transferred to a charity, the receipt of the treasurer or appropriate
officer of the charity shall be a complete discharge to the Trustees;
|
|
(r) |
the Trustees may rectify any manifest
errors contained in this Trust; and
|
|
(s) |
the Trustees may do anything which is
incidental or conducive to the exercise of their trusts and powers.
|
|
2. |
SELF-DEALING The following provisions relating to self-dealing shall apply in the administration of this Trust: |
|
(a) |
save as provided for or contemplated
by the Aplitec Arrangements and save for transactions relating to any
engagement of Walkers (attorneys-at-law) to provide legal or administrative
services to the Trustee or Enforcer in relation to the Trust, the Trustees
or any of them (including a sole Trustee) may not exercise any power or
discretion hereunder to enter into and carry into effect any transaction
authorised hereunder or by the general law if they or any one or more
of them have a direct conflicting interest in the result of exercising
the power or the discretion or the transaction;
|
|
(b) |
none of the Trustees nor any director,
officer or employee of a Trustee shall be accountable for any reasonable
remuneration or other reasonable benefit gained as a director, officer,
employee, agent or adviser of any company or firm in any way connected
with the Trust Fund notwithstanding that his situation or office may have
been obtained or may be held or retained in right or by means or by reason
of his position as one of the Trustees hereof or of any shares, stock,
property, rights or powers whatsoever belonging to or connected with the
Trust Fund;
|
|
(c) |
with the prior or simultaneous written
consent of the Trustees, the Enforcer may retain legal counsel in connection
with this Trust notwithstanding that such legal counsel may be in any
way connected with the Enforcer on no worse terms than legal counsel's
standard terms and conditions (including charging rates) in force at this
date as if such terms and conditions (including charging rates) were set
out herein provided always that if new terms and conditions (including
charging rates) are subsequently published legal counsel retained by the
Enforcer in connection with this Trust shall, subject to the written approval
of such revised terms and conditions (including charging rates) by the
board of directors of the Company, be entitled to remuneration in accordance
with such new terms and conditions.
|
11 |
3. |
APPOINTMENT, RESIGNATION AND REMOVAL OF TRUSTEES The statutory powers of appointing new and additional Trustees shall apply subject to the following provisions: |
|
(a)
|
the Enforcer may by instrument in writing
delivered to the Trustees remove any Trustee;
|
|
(b)
|
the statutory powers shall be exercisable
by the Enforcer;
|
|
(c)
|
a Trustee may retire by giving sixty
(60) days notice in writing to the Enforcer and the Enforcer shall appoint
a successor Trustee within such time. If the Enforcer has not appointed
a successor Trustee within sixty (60) days of the Trustee giving notice
of retirement as aforesaid, the Trustee shall have power to appoint a
successor Trustee;
|
|
(d)
|
the statutory power of appointing a
new Trustee shall not become exercisable by reason only that a Trustee
remains out of the Cayman Islands for more than twelve (12)months;
|
|
(e)
|
the statutory power of appointing additional
Trustees shall be exercisable notwithstanding that one of the Trustees
for the time being is a trust corporation and the number of Trustees shall
be unlimited;
|
|
(f)
|
an outgoing Trustee shall be entitled
to be paid all proper fees, expenses and disbursements authorised hereunder
to the date of his removal and shall be entitled to be reimbursed against
any liabilities properly payable by the Company;
|
|
(g)
|
Section 105 of the Trusts Law (2001
Revision) shall be observed at all times.
|
|
4. |
RECORDS AND ACCOUNTS The Trustees shall keep accurate records of their trusteeship and may have them audited at the expense of the Trust Fund by a firm of chartered accountants selected by the Trustees. |
|
5. |
REMUNERATION OF TRUSTEES
|
|
5.1 |
An individual Trustee carrying
on a business which consists of or includes the management of trusts or
advising trustees may charge for work done by him or his firm in connection
with this Trust including work which a layman could have done personally
at a rate to be agreed from time to time with the Enforcer. Any such charge
may include fees or commissions in connection with the investment and
re-investment of any part of the Trust Fund and the collection of income
and other sums.
|
|
5.2 |
Any Trustee shall receive
reimbursement from the Company and/or a third party of any expenses incurred
by him purely by reason of his duties relating to this Trust. In particular,
any fees charged by any legal or other professional advisors to the Trustees
shall be charged to the Company PROVIDED ALWAYS that in relation to both
fees and disbursements incurred by any Trustee or by a legal or other
professional advisor to the Trustee, no provision of this Trust shall
preclude the reimbursement of such fees and/or disbursements by the Company
and/or a third party.
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5.3 |
Any Trustee which is a company
shall be entitled to act and be remunerated as a Trustee on its published
terms and conditions in force at this date as if such terms and conditions
were set out in this Trust PROVIDED ALWAYS that, if new terms and conditions
(including charging rates) are subsequently published, the Trustee shall,
be entitled to remuneration in accordance with such new terms and conditions.
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5.4 |
Any Trustee, or any affiliate
of the Trustee, which is a company may act as banker and perform any service
on behalf of the Trust hereof on the same terms as would be made with
a customer without accounting for any resultant profit. The Trustees may
establish accounts
|
12 |
and contracts for services
with any affiliate of the Trustees and any principle or rule of law restricting
those dealings because of conflict of interest is waived and the Enforcer
and all Beneficiaries shall be bound by this waiver.
|
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5.5 |
The Trustees may make arrangements
to remunerate themselves for work done for a company connected with the
Trust Fund.
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6. |
EXERCISE OF TRUSTEES'
POWERS
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6.1 |
The functions of the Trustees
shall be exercisable by a majority of them but no Trustee shall be rendered
liable for any act or thing done or omitted without his consent by reason
of the provisions of this paragraph or for any act in which he joins for
conformity only.
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6.2 |
A Trustee, having regard
to its own interests and those of its directors, officers, employees and/or
affiliates, may in its discretion act, or cause the Company to act, contrary
to the Business Plan for any of the following purposes
|
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(a)
|
to comply with the applicable laws of
any jurisdiction;
|
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(b)
|
to avoid personal liability on the part
of the Trustee, its directors, officers, employees and/or affiliates;
or
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(c)
|
to provide for and discharge obligations
of the Trust or the Company to the Trustee, its directors, officers, employees
and/or affiliates (including their rights of indemnity under this Trust).
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7. |
LIABILITY OF TRUSTEES
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7.1 |
No Trustee shall be liable
for any loss to the Trust Fund arising out of the depreciation of any
investment made in good faith or by reason of any act or omission made
in good faith, unless that loss was caused by its own fraud, dishonesty
or recklessness or the fraud, dishonesty or recklessness of any of its
directors, officers and/or employees.
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7.2 |
Each Trustee shall be indemnified
by the Company in respect of any loss, cost or expense (including legal
expenses) suffered by him in connection with its acting in good faith
as Trustee, except where such loss is incurred as a result of its own
fraud, dishonesty or recklessness or the fraud, dishonesty or recklessness
of any of its directors, officers and/or employees.
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7.3 |
The Trustees (and every
present or former director, officer, employee and/or affiliate of the
Trustees) shall not be liable for and shall be indemnified by the Company
against the consequences (including legal and other expenses) of any act
or omission of itself or any agent, delegate or adviser, whether affiliated
or unaffiliated, or any answer to any enquiries or generally any breach
of any duty or trust unless it shall constitute fraud on the part of the
Trustees.
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7.4 |
These protections shall
extend not only to the affairs of the Trust but also to the affairs of
any company or other entity in which the Trust may be interested and shall
be enjoyed by any present or former director, officer, employee and/or
affiliate of the Trustee acting as a director, officer or agent of the
company or other entity, and shall protect them for accepting in good
faith any instructions, recommendations or advice from any authorised
person given by word of mouth, letter, cable, telephone, telex, telefacsimile
or any other means and the burden of proving that no such instructions,
recommendations or advice have been given shall lie with the person making
that allegation.
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7.5 |
A Trustee shall not be liable
for and shall be indemnified by the Company against the consequences (including
legal and other expenses) of any act or omission when acting in accordance
with the advice of qualified professional advisers, or pursuant to the
directions of the Enforcer with respect to this Trust unless when he does
so:
|
13 |
(a) |
he knows or has reasonable cause to
suspect that the advice was given in ignorance of material facts; or
|
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(b) |
proceedings are pending to obtain the
decision of the court on the matter.
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7.6 | A Trustee shall not be liable for the fraud, negligence or other default of a person to whom his powers are delegated (even if the delegation of this power was not strictly necessary or expedient) provided that he took reasonable care in his selection and supervision of the delegate. The terms of appointment of a delegate may be such as the Trustee considers to be reasonable or customary, and may include provisions for remuneration, indemnity, exculpation, self-dealing and self-delegation. | |
8. |
RECORDS The Trustees shall, in accordance with Section 105(1) of the Trusts Law (2001 Revision), keep at their offices a documentary record of the following: |
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(a) |
the terms of the Trust;
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(b) |
the identity of the Trustees and the
Enforcer;
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(c) |
the identity of the provider(s) of the
Trust Property;
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(d) |
the property comprised in the Trust
Fund at the end of each accounting year; and
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(e) |
all distributions or applications of
the Trust Property.
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9. |
DISCLOSURES Without prejudice to any obligations of confidentiality imposed by law and subject to the order of any court of competent jurisdiction, the Trustees shall not be bound to disclose to any person nor permit any person to inspect: |
|
(a) |
any document setting forth or recording
the deliberations of the Trustees or the respective nominees, agents or
delegates of any of them as to the manner in which they should exercise
their powers and discretions or the reasons for any particular exercise
of the same; or
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(b) |
any other document relating to the exercise
or the proposed exercise of any such power or discretion not being an
instrument in writing which actually exercises or merely records the exercise
of any such power or discretion and not being legal advice obtained by
the Trustees at the cost of the Trust Fund.
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10. | U.S. MATTERS | |
(a) |
Save for the right of the Trustees to
be directed by the Enforcer and New Aplitec Trustees pursuant to Clause
11.5 hereof and the holding by the Trustee of the Trust Property, the
Trustees shall not, unless invited (on an unsolicited basis) by the Board
of Directors of the Company in writing: (i) acquire, offer or propose
to acquire, or agree or seek to acquire, directly or indirectly, by purchase
or otherwise, any securities or direct or indirect rights or options to
acquire any securities of the Company or any subsidiary thereof, or of
any successor to or person in control of the Company, or any assets of
the Company or any subsidiary or division thereof or of any such successor
or controlling person; (ii) enter into or agree, offer, propose or seek
to enter into, or otherwise be involved in or part of, directly or indirectly,
any acquisition transaction or other business combination relating to
all or part of the Company or its subsidiaries or any acquisition transaction
for all or part of the assets of the Company or any subsidiary of the
Company or any of their respective businesses; (iii) make, or in any way
participate in, directly or indirectly, any "solicitation" of "proxies"
(as such terms are used in the rules of the U.S. Securities
|
14 |
and Exchange Commission) to vote, or
seek to advise or influence any person or entity with respect to the voting
of, any voting securities of the Company; (iv) form, join or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of the
U.S. Securities Exchange Act of 1934) with respect to any voting securities
of the Company or any of its subsidiaries; (v) seek or propose, alone
or in concert with others, to influence or control the Companys
management or policies; (vi) directly or indirectly enter into any discussions,
negotiations, arrangements or understandings with any other person with
respect to any of the foregoing activities or propose any of such activities
to any other person; (vii) advise, assist, encourage, act as a financing
source for or otherwise invest in any other person in connection with
any of the foregoing activities; or (viii) disclose any intention, plan
or arrangement inconsistent with any of the foregoing. The Trustees shall
not: (i) amend or waive any provision of this paragraph or otherwise take
any action inconsistent with any provision of this paragraph; or (ii)
take any initiative with respect to the Company or any of its subsidiaries
which could require the Company to make a public announcement regarding
(1) such initiative, (2) any of the activities referred to in the second
preceding sentence, (3) the possibility of any acquisition transaction
or (4) the possibility of the Trustees or any other person acquiring control
of the Company, whether by means of a business combination or otherwise.
The Trustees shall not take any action in relation to the Company that
would constitute "control" of the Company or cause it to become an "affiliate"
of the Company as such terms are defined under the U.S. Securities Act
of 1933, as amended.
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(b) |
Notwithstanding the foregoing paragraph
(a) the Trustees will vote the Special Convertible Preference Shares of
the Company held by it at any time on any matter presented to the shareholders
of the Company in the exact proportion of yes, no and abstentions or non
votes as directed by New Aplitec Trustees, as instructed by the unitholders
of the SA Trust, of such shares on a share for share basis, including
by taking no action and exercising no vote in the absence of instructions
from the New Aplitec Trustees of such shares.
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(c) |
The Trustees will send to New Aplitec
Trustees, or such other person as it directs, the notice of each meeting
at which the Company's shareholders are entitled to vote, together with
related meeting materials New Aplitec Trustees will produce a statement
as to the manner in which New Aplitec Trustees may instruct the Trustees
to exercise the votes attaching to the Special Convertible Preference
Shares, at the same time as such materials are sent to holders of the
Company's common stock. The Trustees will also send to New Aplitec Trustees
copies of all information statements, interim and annual financial statements,
reports and other materials sent by the Company to its shareholders at
the same times as such materials are sent to the Companys shareholders.
To the extent such materials are provided to the Trustees by the Company,
the Trustees shall also send to New Aplitec Trustees all materials sent
by third parties to the Company shareholders, including dissident proxy
circulars and tender and exchange offer circulars, as soon as possible
after such materials are first sent to the Company shareholders.
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15 |
SCHEDULE 2
Initial Trust Fund
192 967 138 Special Convertible Preference Shares
16 |
SCHEDULE 3
The Business Plan
The Business Plan is as follows:
1. | Receive the Special Convertible Preference Shares pursuant to, and as contemplated by, the Aplitec Arrangements. |
2. |
On receipt of any dividend amount from the Company,
the Trustees shall distribute such amount to any Beneficiaries appointed
for the purpose of receiving such amounts.
|
3. |
Hold the Special Convertible Preference Shares until
such time as the Trustees receive notification from the New Aplitec Trustees
that the SA Trust wishes to sell its New Aplitec B Class Preference Shares
and assign and transfer its New Aplitec B Class Loan Accounts, at which
time the Trustees will distribute the Special Convertible Preference Shares
to the Beneficiaries then existing in the distribution ratio.
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4. |
The Enforcer will appoint Beneficiaries from time
to time in accordance with the provisions of this Trust for the purpose
of the Trustees making distributions of dividends received by the Trust
and any distribution of the Special Convertible Preference Shares by virtue
of the occurrence of a trigger event.
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5. |
The Trustees shall not be required to make any determination
in relation to or take any action in respect of or be responsible for
any transaction entered into by such board of directors of the Company
and the Trustees shall not be bound to enquire into nor be in any manner
responsible or liable for the actions of the board of directors of the
Company. The Trustees will not and are under no obligation to take any
action with respect to the Special Convertible Preference Shares in the
Company unless instructed to do so by the Enforcer.
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6. |
For the purposes of this Business Plan, capitalised
terms not otherwise defined in this Deed shall, unless the context otherwise
requires, have the meaning given to them in the Sale Agreement and "
Aplitec
Arrangements
" means the arrangements put to shareholders in Net1 Applied
Technology Holdings Limited (a company incorporated in South Africa) as
outlined in the Sale Agreement.
|
17 |
EXECUTED AND DELIVERED AS A DEED by the parties on the date written on the first page of this document
Exhibit 2.8
UMBRELLA AGREEMENT
between
SAPEF III INTERNATIONAL G.P. LIMITED
THE TRUSTEES OF THE SOUTH AFRICAN PRIVATE EQUITY TRUST III
(Represented by Brait Capital Partners Trustees (Proprietary) Limited in its capacity as trustee)
NET1 UEPS TECHNOLOGIES, INC.
THE TRUSTEES OF THE NEW APLITEC PARTICIPATION TRUST
And
NEWSHELF 713 (PROPRIETARY) LIMITED
CONTENTS
i
1
1.2.3.5 |
Aplitec Shareholder means a holder of
Aplitec shares;
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1.2.3.6 |
Aplitec Shares means ordinary shares
of 0,1 cent each in the issued share capital of Aplitec;
|
|||
1.2.3.7 |
B Class Loan Account means a loan account
owing by New Aplitec to SA Trust, having the rights set forth in Schedule
2;
|
|||
1.2.3.8 |
B Class Preference Shares means B class
preference shares in the share capital of New Aplitec, having the rights
set forth in Schedule 3;
|
|||
1.2.3.9 |
Brait Consortium means funds under the
management of Brait S.A., Southern Cross Capital Limited and FF&P
Asset Management Limited;
|
|||
1.2.3.10 |
Cash Option means the cash option referred
to in 2.3.1;
|
|||
1.2.3.11 |
Common Shares means common shares in
Holdings, having the rights of ordinary shares;
|
|||
1.2.3.12 |
Condition means the suspensive condition
set out in 3;
|
|||
1.2.3.13 |
Distribution Ratio means the ratio in
which the Special Convertible Preference Shares shall be distributed on
the occurrence of a Trigger Event, which at the Closing Date, shall be
0,814285714 Special Convertible Preference Shares for every one B Class
Preference Share. If after the Closing Date Holdings consolidates or sub-divides
the Common Shares, the Special Convertible Preference Shares shall be
consolidated or sub-divided in the same proportions, and the Distribution
Ratio shall be adjusted accordingly;
|
|||
1.2.3.14 |
Effective Date means the first business
day after fulfilment of the Condition;
|
|||
1.2.3.15 |
Enforcer means SAPE International GP
Limited, a company incorporated in the Cayman Islands, which is the enforcer
of Holdings Trust;
|
|||
1.2.3.16 |
Holdings means Net1 UEPS Technologies,
Inc., IRS Employer
|
2
Number 65-0903895, a company incorporated in Florida
in the United States of America;
|
||||
1.2.3.17 |
Holdings Trust means the Aplitec Holdings
Participation Trust, a trust to be established in the Cayman Islands;
|
|||
1.2.3.18 |
New Aplitec means Newshelf 713 (Proprietary)
Limited, Registration Number 2002/031446/07, to be renamed Net1
Applied Technologies South Africa (Proprietary) Limited or a similar
name, a private company duly incorporated according to the company laws
of the RSA;
|
|||
1.2.3.19 |
prime rate means the variable rate of
interest calculated and charged from time to time by Nedbank Limited to
its most favoured corporate customers in respect of overdraft facilities,
compounded monthly in arrears, as certified by any manager or director
of such bank, whose appointment need not be proved and whose certificate
shall be final and binding on the parties;
|
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1.2.3.20 |
Reinvestment Option means the reinvestment
option referred to in 2.3.2;
|
|||
1.2.3.21 |
Reinvesting Shareholder means an Aplitec
Shareholder who exercises the Reinvestment Option or Aplitec or SAPET
III, as the case may be;
|
|||
1.2.3.22 |
RSA means the Republic of South Africa;
|
|||
1.2.3.23 |
SA Trust means the New Aplitec Participation
Trust, a bewind trust established in the RSA;
|
|||
1.2.3.24 |
SAPET III means the South African Private
Equity Trust III, Masters Reference Number IT 9960/1998, represented
herein by its corporate trustee, Brait Capital Partners Trustees (Proprietary)
Limited, Registration Number 1998/010776/07, a private company incorporated
in the RSA;
|
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1.2.3.25 |
Signature Date means the date upon which
this agreement has been signed by all the parties;
|
3
1.2.3.26 |
Special Convertible
Preference Shares means Special Convertible Preference Shares in
the issued share capital of Holdings, having the rights set forth in Schedule
4;
|
||||
1.2.3.27 |
Trigger Event
means:
|
||||
1.2.3.27.1 |
a Unit Holder notifies the trustees of SA Trust in
writing that he wishes SA Trust to dispose of the B Class Preference Shares
and B Class Loan Accounts attributable to some or all of his Units; or
|
||||
1.2.3.27.2 |
New Aplitec is wound-up or placed under judicial
management, whether provisionally or finally; or
|
||||
1.2.3.27.3 |
Holdings is wound up or placed under judicial management,
whether provisionally or finally; or
|
||||
1.2.3.27.4 |
South African Exchange Controls are relaxed or abolished,
permitting Unit Holders to hold the Common Shares directly;
|
||||
1.2.3.28 |
Units means
units issued by SA Trust, comprising a capital contribution of 183,996
cents and a loan account of 101,004 cents;
|
||||
1.2.3.29 |
Unit Holders
means holders of Units in SA Trust;
|
||||
1.3 |
should any provision in
a definition be a substantive provision conferring rights or imposing
obligations on any party, then effect shall be given to that provision
as if it were a substantive provision in the body of this agreement;
|
||||
1.4 |
any reference to an enactment,
regulation, rule or by-law is to that enactment, regulation, rule or by-law
as at the signature date, and as amended or replaced from time to time;
|
||||
1.5 |
when any number of days
is prescribed, such number shall exclude the first and include the last
day, unless the last day falls on a Saturday, Sunday or public holiday
in the RSA, in which case the last day shall be the next succeeding day
which is not a Saturday, Sunday or public holiday;
|
||||
1.6 |
any schedule or annexure
to this agreement shall form part of this agreement;
|
4
1.7 |
the use of the word including
followed by a specific example/s shall not be construed as limiting the
meaning of the general wording preceding it and the
eiusdem generis
rule shall not be applied in the interpretation of such general wording
or such specific example/s;
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1.8 |
the expiration or termination of this
agreement shall not affect those provisions of this agreement which expressly
provide that they will operate after any such expiration or termination
or which of necessity must continue to have effect after such expiration
or termination, notwithstanding the fact that the clauses themselves do
not expressly provide this;
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1.9 |
in its interpretation, the
contra
proferentem
rule of construction shall not apply (this agreement being
the product of negotiations between the parties) nor shall this agreement
be construed in favour of or against any party by reason of the extent
to which any party or its professional advisors participated in the preparation
of this agreement; and
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1.10 |
recordals shall be binding on the parties
and are not merely for information purposes.
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|
2. | INTRODUCTION | |
2.1 |
In terms of the Acquisition Agreement,
New Aplitec will acquire all the assets and liabilities of Aplitec, excluding
R 300 million in cash plus an additional 25 cents per Aplitec share for
those Aplitec shareholders who elect the Cash Option and certain dormant
subsidiaries.
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2.2 |
Pursuant to the Acquisition Agreement,
it is intended that Aplitec will be voluntarily wound up and that the
Aplitec Shareholders will receive the consideration payable by New Aplitec
for Aplitecs assets and liabilities in the form of the advance distribution
of a liquidation dividend.
|
|
2.3 |
The Aplitec Shareholders will be entitled
to receive the advance distribution, of 475 cents per Aplitec Share plus
an additional 25 cents per Aplitec share for those Aplitec shareholders
who elect the Cash Option, in whole or in part at their election as follows:
|
5
2.3.1 |
The Cash Option 500 cents in cash in respect of each Aplitec Share; and/or |
||
2.3.2 |
The Reinvestment Option In respect of each Aplitec Share, an amount of 190 cents in cash and the balance in the form of a reinvestment in New Aplitec via SA Trust, comprising one B Class Preference Share to the value of 183,996 cents and one B Class Loan Account of 101,004 cents by way of nil paid renounceable letters of allocation issued by New Aplitec, which will be deemed to have been renounced by the Aplitec Shareholders in favour of SA Trust. In addition, SA Trust, for the benefit of the relevant Aplitec shareholders, will be granted the right by Holdings Trust to receive Special Convertible Preference Shares in the Distribution Ratio in due course on the occurrence of a Trigger Event. The Reinvestment Option has been fixed at an exchange rate of R7,00 to US$1, which is the exchange rate used to determine the number of Special Convertible Preference Shares to be issued to Holdings Trust. |
||
2.4 |
Those Aplitec Shareholders
who choose to receive the consideration payable to them in whole or in
part by way of the Reinvestment Option shall subscribe for and shall be
issued with one Unit credited as fully paid up for each Aplitec Share
in respect of which they exercise the Reinvestment Option.
|
||
2.5 |
In turn, SA Trust shall
be issued with one B Class Preference Share to the value of 183,996 cents
and be credited with a B Class Loan Account in the sum of 101,004 cents,
both credited as fully paid, for each Aplitec Share in respect of which
the Reinvestment Option is exercised. The B Class Preference Shares and
the B Class Loan Accounts are linked and may not be disposed of separately
and may not be disposed of other than by way of cession to Holdings on
the occurrence of a Trigger Event.
|
||
2.6 |
It is intended that the
interest of the Unit Holders in the Units shall mirror in all respects
the interest of SA Trust in the B Class Preference Shares and the B Class
Loan Accounts on a one for one basis.
|
||
2.7 | SAPET III (together with South African Private Equity Fund III L.P.) will underwrite |
6
the reinvestment option. Thus, if the reinvestment
option is not fully subscribed, SAPET III (and South African Private Equity
Fund III L.P.) shall take up those Units not taken up by the Aplitec shareholders
and shall become a Unit Holder.
|
||
2.8 |
If the Aplitec shareholders fail to pass the necessary
resolutions for the voluntary winding-up of Aplitec or if Aplitec is not
placed in voluntary liquidation for any other reason, Aplitec through
SA Trust shall subscribe for the B Class Preference Shares and extend
the B Class Loan Account and shall become a Unit Holder.
|
|
2.9 |
This agreement shall regulate relations between Holdings,
the Enforcer in its capacity as enforcer of Holdings Trust, New Aplitec
and SA Trust.
|
|
3. | SUSPENSIVE CONDITION | |
3.1 |
This entire agreement is subject to the fulfilment
of the suspensive condition that the Acquisition Agreement becomes unconditional
by not later than 31 May 2004.
|
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3.2 |
The condition has been inserted for the benefit of
all the parties.
|
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3.3 |
By written agreement, the parties may extend the
date for fulfilment of the Condition. Each party shall use its best endeavours
to procure the fulfilment of the Condition as soon as reasonably possible
after the Signature Date.
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3.4 |
If the Condition is not fulfilled, this agreement
shall never become of any force or effect and no party shall have any
claim against any other party for anything done hereunder or arising herefrom,
save as a result of a breach of the provisions of 3.3, and the parties
shall be restored to the
status quo ante
.
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4. | UNDERTAKINGS BY HOLDINGS | |
4.1 |
Holdings undertakes in favour of New Aplitec that
save with the prior written consent of New Aplitec, it shall not conduct
any business in the RSA, Botswana, Namibia and Swaziland except through
New Aplitec or a subsidiary of New Aplitec.
|
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4.2 |
Holdings undertakes in favour of New Aplitec that
save with the prior written consent of New Aplitec, Holdings shall not
issue any new Common Shares between the Signature Date and the Closing
Date, save as contemplated in the Acquisition
|
7
Agreement and the Stock Purchase Agreement to be concluded between the Brait Consortium and Holdings. | ||
5. | DISPOSAL OF SHARES BY SAPET TO HOLDINGS | |
5.1 |
It is recorded that at the Signature Date, SAPET
holds the entire issued share capital of New Aplitec, comprising 100 ordinary
shares (which will in due course be sub-divided by one thousand and designated
as A class ordinary shares). SAPET shall continue to hold
the said shares until the Acquisition Agreement is implemented.
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5.2 |
As soon as practicable after the Effective Date,
SAPET shall transfer to Holdings all the shares held by it in New Aplitec
in consideration for payment of the par value thereof and undertakes promptly
to do all things and sign all documents necessary to implement such transfer.
|
|
6. | VOTING AT GENERAL MEETINGS OF NEW APLITEC | |
6.1 |
The Units held by a Unit Holder shall confer upon
him the right to exercise one vote in respect of each B class Preference
Share held on his behalf by SA Trust.
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6.2 |
When New Aplitec convenes a general meeting of its
shareholders, it shall give notice to SA Trust in its capacity as the
holder of the B Class Preference Shares.
|
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6.3 |
SA Trust shall forthwith inform the Unit Holders
of the meeting and the reasons therefor and distribute to them copies
of the circular and/or notices and forms of proxy at their addresses recorded
in the register of Unit Holders maintained by the trustees of SA Trust.
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6.4 |
Those Unit Holders who wish to vote the B Class Preference
Shares attributable to their Units shall complete the proxy forms and
forward them to the trustees of SA Trust.
|
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6.5 |
The trustees of SA Trust will in turn lodge proxies
with New Aplitec in respect of the meeting, directing the chairman of
the meeting to vote the B Class Preference Shares held by SA Trust on
behalf of the Unit Holders in accordance with the wishes expressed by
the Unit Holders.
|
8
6.6 |
This procedure will be followed in respect of every
meeting of shareholders of New Aplitec from time to time.
|
|
7. | VOTING AT GENERAL MEETINGS OF HOLDINGS | |
7.1 |
The Units held by a Unit Holder shall confer upon
him the right to exercise one vote in respect of each Special Convertible
Preference Share held on his behalf by Holdings Trust.
|
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7.2 |
When Holdings convenes a meeting of its shareholders,
it shall give notice to the Enforcer in its capacity as enforcer of Holdings
Trust.
|
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7.3 |
The Enforcer shall forthwith notify SA Trust of the
meeting and provide SA Trust with copies of the circular and/or notices
relating to such meeting equal in number to the number of Unit Holders.
|
|
7.4 |
SA Trust shall in turn distribute the circulars and/or
notices to the addresses of the Unit Holders as recorded in the register
of Unit Holders maintained by the trustees of SA Trust.
|
|
7.5 |
Those Unit Holders who wish to vote the Special Convertible
Preference Shares attributable to their Units shall complete forms of
proxy in respect of the circular, indicating the manner in which they
require the trustees of Holdings Trust to vote the Special Convertible
Preference Shares attributable to their Units, and shall forward the proxies
to the trustees of SA Trust, who will in turn forward them to the Enforcer,
who shall pass them on to the trustees of Holdings Trust.
|
|
7.6 |
The trustees of Holdings Trust shall in turn lodge
proxies with Holdings in respect of the meeting, directing the chairman
of the meeting to vote the Special Convertible Preference Shares held
by Holdings Trust on behalf of the Unit Holders in accordance with the
wishes expressed by the Unit Holders.
|
|
7.7 |
This procedure will be followed in respect of every
meeting of shareholders of Holdings from time to time.
|
9
8. |
DIVIDENDS
|
|
8.1 |
Holdings shall declare and pay to the holders of
Common Shares a dividend in respect of any amounts received from New Aplitec,
including dividends, capital distributions and loan repayments of capital
or interest, forthwith after such amounts have been received by Holdings,
after deduction of taxes payable by Holdings in respect thereof.
|
|
8.2 |
When dividends from a non-South African source are
declared by Holdings in respect of the Special Convertible Preference
Shares, Holdings shall declare and pay the dividend accruing on the Special
Convertible Preference Shares to Holdings Trust and Holdings Trust in
turn will pay such dividends forthwith to SA Trust.
|
|
8.3 |
The trustees of SA Trust will forthwith upon receipt
of the dividends distribute the dividends to the Unit Holders in proportion
to their Units.
|
|
8.4 |
The dividends shall be distributed by the trustees
of SA Trust to the address of each Unit Holder recorded in the register
of Unit Holders or if so authorised by each Unit Holder, shall be made
by way of a direct transfer into the banking account of each Unit Holder.
|
|
8.5 |
The trustees of SA Trust may appoint any one or more
transfer secretaries to assist the trustees of SA Trust in the distribution
of any dividend from time to time.
|
|
8.6 |
In respect of any dividend paid by New Aplitec on
the B Class Preference Shares or any payments of interest or capital in
respect of the B Class Loan Accounts, the trustees of SA Trust shall distribute
the amounts received to the Unit Holders in accordance with 8.3.
|
|
9. |
DISPOSAL
|
|
9.1 |
Upon the occurrence of a Trigger Event, the trustees
of SA Trust shall give written notice to the Holdings Trust, requesting
the distribution of the Special Convertible Preference Shares in the Distribution
Ratio (or in the case of a Trigger Event contemplated in 1.2.3.27.1, Special
Convertible Preference Shares in the Distribution Ratio for each Unit
in respect of which the Unit Holder has given notice).
|
10
9.2 |
Upon receipt of the notice, Holdings Trust will distribute
to the trustees of SA Trust the Special Convertible Preference Shares
outlined in 9.1.
|
|
9.3 |
The trustees of SA Trust shall take delivery from
Holdings Trust of the Special Convertible Preference Shares.
|
|
9.4 |
Against delivery of the appropriate number of Special
Convertible Preference Shares, the trustees of SA Trust shall notify Holdings
of the decision to convert the Special Convertible Preference Shares into
Common Shares and shall deliver to Holdings a proportionate number of
B Class Preference Shares and B Class Loan Accounts and a proportionate
number of Special Convertible Preference Shares. SA Trust shall only be
entitled to convert the Special Convertible Preference Shares in multiples
of 100, unless there are Unit Holders holding odd lots of Special Convertible
Preference Shares in a lesser number, in which event they shall be entitled
to covert such odd lot holdings but only en bloc, not piecemeal. If any
fractions of Common Shares arise as a result of conversion of odd lots
of Special Convertible Preference Shares, Holdings shall buy back the
fractional Common Shares from SA Trust at their fair market value as determined
in accordance with Holdings Articles of Incorporation.
|
|
9.5 |
If the Trigger Event is a Trigger Event contemplated
in 1.2.3.27.1, within the time period stipulated by the selling Unit Holder,
which shall not exceed 12 months, in order to comply with applicable Exchange
Control approvals, the trustees of SA Trust shall sell the Common Shares
at the price stipulated by the unit holder, or if the price stipulated
by the selling unit holder cannot be attained within such 12-month period,
at the market price. If the Trigger Event is a Trigger Event contemplated
in 1.2.3.27.2 or 1.2.3.27.3, the trustees of SA Trust shall sell the Common
Shares as soon as possible but not later than 12 months after the Trigger
Event concerned. Notwithstanding the aforegoing, the trustees of SA Trust
shall not be obliged to dispose of the common shares of a Unit Holder
who is a non-resident of the RSA, but shall distribute the Common Shares
to the Unit Holder concerned. If the Trigger Event is a Trigger Event
contemplated in 1.2.3.27.4, the trustees of SA Trust shall distribute
the Common Shares to the Unit Holders pro rata and wind up SA Trust.
|
11
12
12.1.1 | Enforcer | Walker House | |||
P.O. Box 265 GT | |||||
Mary Street | |||||
George Town | |||||
Grand Cayman | |||||
Cayman Islands | |||||
Fax No. | (345) 949 7886 | ||||
12.1.2 | SAPET | 9 Fricker Road | |||
Illovo Boulevard | |||||
Illovo | |||||
Sandton | |||||
Gauteng, RSA | |||||
Fax No. | 27 11 507 1720 | ||||
Attention Antony Ball | |||||
12.1.3 | Holdings | 4 th Floor, President Place | |||
148 Jan Smuts Avenue | |||||
Rosebank, Johannesburg | |||||
Fax No. | 27 11 880 7080 | ||||
Attention Serge Belamant | |||||
12.1.4 | SA Trust | 9 Fricker Road | |||
Illovo Boulevard | |||||
Illovo | |||||
Sandton | |||||
Gauteng, RSA | |||||
Fax No. | 27 11 507 1720 | ||||
Attention Antony Ball |
13
12.1.5 | New Aplitec | 9 Fricker Road | ||
Illovo Boulevard | ||||
Illovo | ||||
Sandton | ||||
Gauteng, RSA | ||||
Fax No. | 27 11 507 1720 | |||
Attention Antony Ball |
14
15
16. |
COSTS Subject to the Condition being fulfilled, New Aplitec shall bear and pay all fees and costs of and incidental to the negotiation, drafting, preparation and execution of this agreement. |
Signed at Johannesburg on this the 10th day of November, 2003
/s/ Pierre d'Unienville
SAPEF III INTERNATIONAL G.P. LIMITED
who warrants that he is duly authorised hereto
Signed at Johannesburg on this the 10th day of November, 2003
/s/ Chad Smart
SOUTH AFRICAN PRIVATE EQUITY TRUST III
who warrants that he is duly authorised hereto
Signed at Johannesburg on this the 10th day of November, 2003
/s/ Serge Belamant
NET1 UEPS TECHNOLOGIES, INC
who warrants that he is duly authorised hereto
Signed at Johannesburg on this the 10th day of November, 2003
/s/ Chad Smart
NEW APLITEC PARTICIPATION TRUST
who warrants that he is duly authorised hereto
Signed at Johannesburg on this the 10th day of November, 2003
/s/ Chad Smart
NEWSHELF 713 (PROPRIETARY) LIMITED
who warrants that he is duly authorised hereto
SCHEDULE 1
A CLASS LOAN ACCOUNTS
The A Class Loan Account shall:
1. |
be repayable as and when directed by
the board of directors of New Aplitec in its sole and absolute discretion;
provided that no capital under the A Class Loan Account shall be repayable
until at least 30 days have lapsed from the date upon which the A Class
Loan Account is credited to Holdings; and provided further that the A
Class Loan Accounts may only be repaid with the prior written consent
of the Exchange Control department of the South African Reserve Bank;
|
2. |
bear interest at the rate of interest
determined by the board of directors of New Aplitec annually in advance
in its sole and absolute discretion; provided that the interest rate shall
not exceed the prime rate. The interest so determined shall be paid as
and when determined by the board;
|
3. |
be repaid in full if New Aplitec is
wound up or placed under judicial management, whether provisionally or
finally;
|
4. |
be repaid pro rata the B Class Loan
Accounts advanced by SA Trust to New Aplitec;
|
5. |
rank
pari passu
in all respects
with the B Class Loan Accounts advanced by the SA Trust to New Aplitec;
|
6. |
be subordinated in favour of all creditors
of New Aplitec (other than SA Trust as the holder of the B Class Loan
Account) if so decided by the board of directors of New Aplitec;
|
7. |
not be assigned, ceded, transferred
or encumbered by Holdings in any way;
|
8. |
be denominated in South African Rands.
|
SCHEDULE 2
B CLASS LOAN ACCOUNTS
The B Class Loan Account credited by New Aplitec to SA Trust as fully paid up shall:
1. |
rank pari passu in all respects with
the A Class Loan Accounts advanced by Holdings to New Aplitec;
|
2. |
be repayable as and when directed by
the board of directors of New Aplitec in its sole and absolute discretion;
provided that no capital under the B Class Loan Account shall be repayable
until at least 30 days have elapsed from the date upon which the B Class
Loan Account is credited to SA Trust; and provided further that the B
Class Loan Accounts may only be repaid when the Exchange Control Department
of the South African Reserve Bank has approved the repayment of the A
Class Loan Accounts advanced by Holdings to New Aplitec;
|
3. |
bear interest at the rate of interest
determined by the board of directors of New Aplitec annually in advance
in its sole and absolute discretion; provided that the interest rate shall
not exceed the prime rate from time to time. The interest so decided upon
shall be paid as and when determined by the board;
|
4. |
be repaid in full if New Aplitec is
wound up or placed under judicial management, whether provisionally or
finally;
|
5. |
shall be repaid pro rata with the A
Class Loan Accounts by Holdings to New Aplitec;
|
6. |
be subordinated in favour of all creditors
of New Aplitec (other than Holdings as holder of the A Class Loan Accounts)
if so decided upon by the board of directors of New Aplitec;
|
7. |
not be assigned, ceded, transferred
or encumbered by SA Trust in any way except to Holdings on the occurrence
of a trigger event;
|
8. |
be denominated in South African Rands.
|
SCHEDULE 3
B CLASS PREFERENCE SHARES
The rights, privileges and conditions of the B Class Preference Shares shall be the following:
1. | The B Class Preference Shares shall be held by SA Trust on behalf of the Reinvesting Shareholders. |
2. |
The B Class Preference Shares will constitute
58,14 percent of the entire issued share capital of New Aplitec and will
rank
pari passu
with ordinary shares in respect of participation
in dividends and return of capital prior to the winding-up of New Aplitec
for any reason. The B Class Preference Shares shall not participate in
dividends or a return of capital on a winding-up of New Aplitec.
|
3. |
The holder of the B Class Preference
Shares ("preference shareholder") shall not be entitled to be present
or to vote, either in person or by proxy, at any meeting of New Aplitec,
by virtue of, or in respect of the B Class Preference Shares, save as
provided in Section 194 of the Companies Act, or unless a resolution of
New Aplitec is proposed which directly affects the rights attached to
the B Class Preference Shares or the interests of the preference shareholder,
including a resolution for the declaration of a dividend on any class
of B Class Preference Shares in the issued share capital of New Aplitec,
for payment of interest and capital on B Class Loan Accounts, for the
disposal of any intellectual property of New Aplitec, for the winding-up
of New Aplitec or for the reduction of its share capital or share premium
account, or for the repayment or distribution of the share premium or
non-distributable reserves of New Aplitec or the issue of capitalisation
shares. The rights and privileges attaching to the B Class Preference
Shares shall not be regarded as being directly or adversely affected by
the creation and issue by New Aplitec of any further shares of any class,
unless those new shares rank as regards participation in assets or profits
of New Aplitec or voting rights in all or some respects in priority to
or
pari passu
with the B Class Preference Shares.
|
4. |
At every meeting at which the preference
shareholder is entitle to be present and to vote the provisions of the
articles of association of New Aplitec relating to general meetings of
|
ordinary members shall apply
mutatis mutandis
, except that a quorum at any such general meeting
shall be any person or persons holding or representing by proxy at least
one-fifth of the B Class Preference Shares; provided that if at any adjournment
of such meeting a quorum is not so present, the provisions of the articles
of association of New Aplitec relating to adjourned general meetings shall
apply
mutatis mutandis
. At every general meeting of New Aplitec
at which the preference shareholder as well as other classes of shares
are present and entitled to vote, upon a poll the preference shareholder
shall be entitled to that proportion of the total votes in New Aplitec
which the aggregate number of the B Class Preference Shares held by it
bears to the aggregate number of all shares entitled to be voted at such
meeting; provided that no resolution for the declaration of a dividend
or for the disposal of any intellectual property of New Aplitec shall
be passed unless 50,1 percent of the votes exercisable in respect of the
B Class Preference Shares are voted in favour of the resolution.
|
||
5. |
Unless a resolution is passed
by 75 percent of the votes exercisable in respect of the B Class Preference
Shares in the same manner
mutatis mutandis
as a special resolution:
|
|
5.1.
|
the terms of the B Class Preference
Shares may not be modified, altered, varied, added to or abrogated;
|
|
5.2.
|
the share capital or stated capital
may not be reduced;
|
|
5.3.
|
the share premium or non-distributable
reserves of New Aplitec may not be repaid or distributed;
|
|
5.4.
|
no shares in the capital of New Aplitec
ranking, as regards rights to dividend or redemption or, on a winding-up,
as regards return of capital, in priority to or
pari passu
with
the B Class Preference Shares, shall be created or issued.
|
|
6. |
The preference shareholder
may not in any manner sell, transfer or dispose of the B Class Preference
Shares unless upon the occurrence of a trigger event, and then only by
transferring them to Holdings at the same time as it cedes a pro rata
portion of its B Class Loan Accounts against New Aplitec to Holdings.
|
|
7. |
On the occurrence of a trigger
event, the preference shareholder will notify Holdings Trust thereof in
writing whereupon which Holdings Trust shall distribute to the preference
shareholder Special Convertible Preference Shares in the distribution
ratio for each B Class
|
Preference Share in respect of which notice has been
given to Holdings Trust. For the sake of clarity, it is recorded that
a Reinvesting Shareholder may instruct the preference shareholder to dispose
of the B Class Preference Shares indirectly held by him in whole or in
part.
|
|
8. |
The consideration payable to the preference shareholder
by Holdings for the B Class Preference Shares transferred and B Class
Loan Accounts ceded shall be the conversion of the Special Convertible
Preference Shares referred to in clause 7 to Common Shares in Holdings
on a one-for-one basis.
|
SCHEDULE 4
SPECIAL CONVERTIBLE PREFERENCE SHARES
The rights and restrictions attaching to the Special Convertible Preference Shares in Holdings are as follows:
1. |
The Special Convertible
Preference Shares shall be held by Holdings Trust on behalf of SA Trust,
for the benefit of Reinvesting Shareholders.
|
|
2. |
The Special Convertible
Preference Shares shall constitute 58,14 percent of the entire issued
share capital of Holdings, prior to any conversion of the Special Convertible
Preference Shares into Common Shares.
|
|
3. |
Dividends
|
|
3.1.
|
For so long as there are any Special
Convertible Preference Shares in issue, the directors of Holdings (the
Directors) shall, immediately prior to the resolution and declaration
of any dividend, determine the amount (if any) of that dividend which
is to be paid from amounts received from New Aplitec either by way of
dividend or capital distributions or loan repayments of capital or interest
(for the sake of clarity, this excludes the receipt of any liquidation
distribution or dividend after an Act of Insolvency in relation to New
Aplitec as the Special Convertible Preference Shares shall not longer
be capable of conversion) ("SA Dividend Amount") and the amount (if any)
of that dividend which is to be paid from the other retained distributable
reserves of Holdings ("Non-SA Dividend Amount").
|
|
3.2.
|
For so long as there are any Special
Convertible Preference Shares in issue, the Directors may declare and
pay a dividend which comprises solely a Non-SA Dividend Amount (that is,
without declaring and paying a SA Dividend Amount) and the Directors may
declare and pay a dividend which comprises solely a SA Dividend Amount
(that is, without declaring and paying a Non-SA Dividend Amount).
|
|
3.3.
|
Any determination by the Directors of
a SA Dividend Amount and/or a Non-SA Dividend Amount shall be made by
the Directors in good faith and shall be final and binding on
|
both the holders of Common Shares and
the holders of Special Convertible Preference Shares (collectively Members).
|
||
3.4.
|
For so long as there are any Special
Convertible Preference Shares in issue, any Non-SA Dividend Amount shall
be paid to the Members pro rata to their respective shareholdings in Holdings,
and the Common Shares and the Special Convertible Preference Shares shall
rank pari passu in respect of dividends declared and/or paid from Non-SA
Dividend Amounts
|
|
3.5.
|
For so long as there are any Special
Convertible Preference Shares in issue, any SA Dividend Amount shall be
paid only to the holders of Common Shares and the holders of Special Convertible
Preference Shares shall have no entitlement to participate in any dividend
declared and/or paid from a SA Dividend Amount.
|
|
3.6.
|
For so long as there are any Special
Convertible Preference Shares in issue and subject to Holdings having
sufficient distributable reserves, Holdings shall, on receipt of amounts
from New Aplitec received either by way of dividend or capital distributions
or loan repayments of capital or interest, declare and pay a SA Dividend
Amount in an amount equal to the amounts so received from New Aplitec,
after deducting therefrom the taxes payable by Holdings on the amount
so received.
|
|
4. |
Voting
|
|
4.1.
|
Holders of Common Shares and Special
Convertible Preference Shares have the right to receive notice of, attend,
speak and vote at general meetings of Holdings.
|
|
4.2.
|
All voting at general meetings of Holdings
shall be taken by a poll and not a show of hands.
|
|
4.3.
|
A holder of Common Shares or Special
Convertible Preference Shares present in person, or the person representing
a holder of Common Shares or Special Convertible Preference Shares by
proxy, shall at a general meeting of Holdings have one vote for each share
in Holdings held or represented, whether Common Shares or Special Convertible
Preference Shares.
|
|
5. |
Conversion
|
5.1.
|
Upon the instruction of SA Trust, Holdings Trust
shall distribute such number of Special Convertible Preference Shares
as it is instructed to SA Trust in the Distribution Ratio.
|
|
5.2.
|
SA Trust shall convert the Special Convertible Preference
Shares it receives in terms of 5.1 above then in issue by delivering to
Holdings the share certificates for the Special Convertible Preference
Shares, share transfers in favour of Holdings in the form reasonably required
by the Directors and accompanying certificates for a pro rata portion
of the B Class Preference Shares and an assignment and transfer in favour
of Holdings in the form reasonably required by the Directors of a pro
rata portion of the loan accounts. Each Special Convertible Preference
Share will be converted into one Common Share. The date of delivery of
these certificates and transfers shall be a "Conversion Date").
|
|
5.3.
|
The Common Shares into which the Special Convertible
Preference Shares are converted shall be credited as fully paid and shall
rank pari passu in all respects and form one class with the Common Shares
then in issue.
|
|
5.4.
|
The allotment of new Common Shares shall be made
within three days of the relevant Conversion Date. A certificate for new
Common Shares shall be sent as soon as practicable after the relevant
Conversion Date to Holdings Trust without charge. Pending delivery of
certificates for new Common Shares transfers shall be certified against
the register.
|
|
5.5.
|
If Special Convertible Preference Shares remain capable
of conversion into Common Shares and either (A) a resolution for voluntary
winding up of Holdings is passed or (B) a winding-up order is made by
the court in relation to Holdings, Holdings Trust shall immediately distribute
all the Special Convertible Preference Shares to SA Trust, which shall
thereupon convert the Special Convertible Preference Shares into Common
Shares into Holdings.
|
|
5.6.
|
In the event of an Act of Insolvency in relation
to New Aplitec, Holdings Trust shall immediately distribute all the Special
Convertible Preference Shares to SA Trust, who shall thereupon convert
the Special Convertible Preference Shares into Common Shares in Holdings.
|
|
6. |
Restriction on holding
of Special Convertible Preference Shares
|
No person other than the trustee of Holdings Trust
or SA Trust (following a distribution of the Special Convertible Preference
Shares by Holdings Trust to SA Trust, before conversion of the Special
Convertible Preference Shares into Common Shares by SA Trust), shall hold
Special Convertible Preference Shares.
|
|
7. |
Winding up
|
In circumstances when the Special Convertible Preference
Shares have not been converted into Common Shares for any reason, on a
return of capital on winding up or otherwise (other than on conversion,
redemption or purchase of shares) Holdings' assets available for distribution
among the Members shall, save as otherwise provided by paragraph 5 above,
be applied pari passu to the holders of Common Shares and the holders
of Special Convertible Preference Shares on the basis that the Special
Convertible Preference Shares will be deemed to have been converted into
Common Shares.
|
Exhibit 2.9
UNDERWRITING AGREEMENT
between
SOUTH AFRICAN PRIVATE EQUITY TRUST III
(Herein represented by
BRAIT CAPITAL PARTNERS TRUSTEES (PTY) LIMITED)
and
SOUTH AFRICAN PRIVATE EQUITY FUND III L.P.
(Herein represented by
SAPE INTERNATIONAL GP LTD)
and
NEWSHELF 713 (PTY) LIMITED
Table of Contents
Page | |||
1. | PARTIES | 1 | |
2. | INTRODUCTION | 1 | |
3. | UNDERWRITING | 2 | |
4. | CONDITION | 2 | |
5. | BREACH | 2 | |
6. | DOMICILIUM AND NOTICES | 3 | |
7. | GENERAL | 4 | |
8. | COSTS | 6 |
UNDERWRITING AGREEMENT
1. |
PARTIES
|
1.1 |
SOUTH AFRICAN PRIVATE EQUITY TRUST III (herein represented by BRAIT CAPITAL PARTNERS TRUSTEES (PTY) LIMITED) (SAPET) |
1.2 |
SOUTH AFRICAN PRIVATE EQUITY III L.P. (herein represented by SAPE INTERNATIONAL 3P LIMITED) (SAPEF) |
1.3 |
NEWSHELF 713 (PTY) LIMITED (Newco) |
2. |
INTRODUCTION
|
2.1 |
Newco has resolved to make an offer to Net 1 Applied
Technology Holdings Limited (Aplitec) to acquire the whole
of its business undertaking in terms of Section 228 of the Companies Act,
1973, as amended (the Disposal) in terms of an offer submitted
to the Board of Directors of Aplitec dated 28 October 2003 (the
Offer Agreement) and the Disposal Agreement signed on 31 October
2003 (the Disposal Agreement)
|
2.2 |
The purchase price payable under the Disposal will
be discharged at the election of the shareholders of Aplitec as to 100%
in cash or 40% in cash and 60% as a reinvestment option in Newco (the
Reinvestment Option).
|
2.3 |
SAPET and SAPEF have agreed to underwrite the Reinvestment
Option on the terms and conditions set out herein.
|
2.4 |
The parties wish to record their agreement in writing.
|
3. |
UNDERWRITING
|
3.1 |
SAPET and SAPEF hereby agrees to underwrite
the Reinvestment Option offered by Newco to the shareholders of Aplitec
in terms of the Disposal in the maximum sum of R436 972 343,10 (the
Maximum Sum) and undertakes to take up all of the rights of the
Reinvestment Option not taken up by the shareholders of Aplitec in terms
of the Reinvestment Option in the Maximum Sum.
|
3.2 |
In calculating the Maximum Sum, the
irrevocable undertakings to vote in favour of the Disposal and to take
up their respective rights under the Reinvestment Option by Nedbank Limited
and Serge Belamont have been taken into account.
|
3.3 |
SAPET and SAPEF shall, on the day that
the shareholders of Aplitec who elect to take up their pro rata share
of the Reinvestment Option pay to Newco via the same investment vehicle
as the reinvesting shareholders of Aplitec, so much of the amount of the
Reinvestment Option not taken up by the shareholders of Aplitec as a capital
contribution and loans in the same ratio as the reinvesting shareholders
of Aplitec.
|
4. |
CONDITION The whole of this agreement is conditional upon all of the conditions contained in the Disposal Agreement either being waived or being fulfilled on due date for fulfillment thereof as set out in the Disposal Agreement. |
5. |
BREACH Save as otherwise provided in this agreement, should a party the (defaulting party) commit a material breach of any material provision of this agreement and should such breach be: |
5.1 | Incapable of remedy; or |
2
5.2 |
be capable of being remedied and should such party fail to remedy such breach within seven days after receiving written notice from another party the (aggrieved party) requiring the defaulting party to do so, then the aggrieved party shall be entitled, without prejudice to its other rights in law, to cancel this agreement or to claim immediate specific performance of all of the defaulting partys obligations whether or not due for performance, neither event without prejudice to the aggrieved partys right to claim damages. |
6. |
DOMICILIUM AND NOTICES
|
6.1 |
The parties choose
domicilium otandi et executandi
for all purposes of the giving of any notice, the payment of any sum,
the serving of any process and for any other purpose arising from this
agreement as follows:
|
6.1.1 | SAPET | 9 Fricker Road |
Illovo Boulevard | ||
Illovo | ||
fax | (011) 507-1557 | |
6.1.2 | SAPEF | Walker House |
P.O. Box 255 GT | ||
Mary Street | ||
George Town | ||
Grand Cayman | ||
Cayman Islands | ||
fax | (345) 949-7836 | |
6.1.3 | NEWCO | 9 Fricker Road |
Illovo Boulevard | ||
Illovo | ||
fax | (011) 507-1557 |
3
6.2 |
Each party shall be entitled from time to time, by
written notice to the others, to vary its domicilium to any other physical
address within the Republic of South Africa and/or its fax number.
|
6.3 |
Any notice given and any payment made by a party
to another party which is delivered by hand during the normal business
hours of the addressee at the addressees domicilium shall be rebuttably
presumed to have been received by the addressee at the time of delivery.
|
6.4 |
Any notice given by a party to another party by fax
shall be rebuttably presumed to have been received by the addressee on
the date of successful transmission thereof.
|
6.5 |
Notwithstanding anything to the contrary in this
___ a written notice or other communication actually received by a party
shall be adequate notice to it notwithstanding that the notice was not
delivered to its given domicilium.
|
7. |
GENERAL
|
7.1 |
This document constitutes the sole record of this
agreement between the parties in relation to its subject matter.
|
7.2 |
No party shall be bound by any representation, warranty,
promise or the like not recorded in this document.
|
7.3 |
No addition to, variation, novation or agreed cancellation
of this agreement shall be of any force or effect unless in writing and
signed by or on behalf of the parties.
|
7.4 |
No suspension of a right to enforce any term of this
agreement and no
pactum de non
petendo
shall be of any force
or effect unless in writing and duly signed by or on behalf of the parties.
|
4
7.5 |
No indulgence which a party may grant to another
party shall constitute a waiver of any of the rights of the grantor unless
in writing signed by both parties.
|
7.6 |
All costs, charges and expenses of any nature whatever
which may be incurred by a party in enforcing its rights in terms of this
agreement, including without limiting the generality of the aforegoing,
legal costs on the scale of attorney and own client and collection commission,
irrespective of whether any action has been instituted, shall be recoverable
on demand from the party against which such rights are successfully enforced
and shall be payable on demand.
|
7.7 |
The provisions of this agreement shall be binding
upon the successors-in-title and the permitted assigns of the parties.
Accordingly, the rights and obligations of each party pursuant to this
agreement shall devolve upon and bind its successors-in-title and permitted
assigns.
|
7.8 |
All provisions in this agreement are, notwithstanding
the manner in which they have been put together or linked grammatically,
severable from each other. Any provision of this agreement which is or
becomes unenforceable in any jurisdiction, whether due to voidness, invalidity,
illegality, unlawfulness or for any other reason whatsoever, shall, in
such jurisdiction only and only to the extent that it is so unenforceable,
be treated as pro non scripto and the remaining provisions of this agreement
shall be of full force and effect. The parties declare that it is their
intention that this agreement would be executed without such unenforceable
provisions if they were aware of such unenforceability at the time of
its execution.
|
5
8. |
COSTS Each party shall bear and pay its own fees and costs of and incidental to the negotiation, drafting, preparation and execution of this agreement. |
THUS DONE and SIGNED at ILLOVO on this the 5 th day of NOVEMBER 2003.
For and on behalf of | |
SOUTH AFRICAN PRIVATE EQUITY TRUST III | |
(herein represented by BRAIT CAPITAL PARTNERS | |
TRUSTEE (PTY) LIMITED | |
by | |
who warrants his authority hereto |
THUS DONE and SIGNED at ILLOVO on this the 5 th day of NOVEMBER 2003.
For and on behalf of | |
SOUTH AFRICAN PRIVATE EQUITY TRUST III | |
(herein represented by SAPE INTERNATIONAL GP LTD) | |
by | |
who warrants his authority hereto |
THUS DONE and SIGNED at ILLOVO on this the 5 th day of NOVEMBER 2003.
For and on behalf of | |
NEWSHELF 713 (PTY) LIMITED | |
by | |
who warrants his authority hereto |
Exhibit 5.1
SCHNEIDER WEINBERGER LLP
Attorneys-at-Law
Glades-St. Andrews Professional Center
2499 Glades Road, Suite 108
Boca Raton, Florida 33431-7260
Telephone | |
James M. Schneider, P.A. | (561) 362-9595 |
Steven I. Weinberger, P.A | Facsimile |
(561) 362-9612 |
February 2, 2004
Net 1 UEPS Technologies, Inc.
744 West Hastings Street, Suite 325
Vancouver, BC V6C 1A5
CANADA
Re: | Registration Statement on Form S-4 (the Registration Statement) | |
Net 1 UEPS Technologies, Inc. (the Company) |
Dear Sir or Madam:
This opinion is submitted pursuant to the applicable rules of the Securities and Exchange Commission with respect to the registration on the Company’s Registration Statement on Form S-4 of (i) 105,661,428 shares of the Company’s common stock issuable in exchange for a capital contribution by the Brait Consortium, (ii) 192,967,138 shares of the Company’s special convertible preferred stock (the “Special Preferred Stock”) issuable in connection with the Company’s acquisition of Net 1 Applied Technology Holdings Limited (“Aplitec”), (iii) the issuance of 192,967,138 shares of common stock upon conversion of the Special Preferred Stock in connection with the Aplitec acquisition, and (iv) the issuance of up to 17,441,872 shares of common stock pursuant to the Company’s 2004 Stock Incentive Plan (the Special Preferred Stock and the common stock to be issued as referred to above are collectively referred to as the “Registerable Shares”), all as described in the Registration Statement.
In connection therewith, we have examined and relied upon original, certified, conformed, photostat or other copies of (a) the Articles of Incorporation, as amended, and Bylaws of the Company; (b) resolutions of the Board of Directors of the Company authorizing the issuance of the Registerable Shares; (c) resolutions to be approved by the Companys shareholders approving the amendment to the Articles of Incorporation increasing the authorized capitalization of the Company, authorizing the issuance of the Registerable Shares, and other matters, all as descried in the Registration Statement; (d) the Registration Statement and the exhibits thereto; (e) the agreements, instruments and documents pursuant to which the Registerable Shares are to be issued; and (f) such other matters of law as we have deemed necessary for the expression of the opinion herein contained. In all such examinations, we have assumed the genuineness of all signatures on original documents, and the conformity to
Net 1 UEPS Technologies, Inc.
February 2, 2004
Page 2 of 2
originals or certified documents of all copies submitted to us as conformed, photostat or other copies. In passing upon certain corporate records and documents of the Company, we have necessarily assumed the correctness and completeness of the statements made or included therein by the Company, and we express no opinion thereon. As to the various questions of fact material to this opinion, we have relied, to the extent we deemed reasonably appropriate, upon representations of officers or directors of the Company without independently checking or verifying the accuracy of such documents, records and instruments.
Based upon and subject to the foregoing, we are of the opinion that following an increase in the number of shares of common stock and preferred stock that the Company is authorized to issue and designation of the Special Preferred Stock, the Registerable Shares, when issued in accordance with their terms and, upon receipt by the Company of the agreed upon consideration therefor, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the prospectus forming a part of the Registration Statement. In giving such consent, we do not thereby admit that we are included within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations promulgated thereunder.
Sincerely,
SCHNEIDER WEINBERGER LLP
/s/ James M. Schneider
James M. Schneider, Esq.
JMS:sjm
Exhibit 10.1
DISTRIBUTION AGREEMENT
between
NET1 UEPS TECHNOLOGIES INC
(incorporated according to the laws of
Florida, United States of America)
and
NET1 INVESTMENT HOLDINGS (PTY) LIMITED
(incorporated according to the laws of the
Republic of South Africa)
Table of Contents
1. |
PARTIES
|
||
1.1 |
NET1 UEPS TECHNOLOGIES
INC
|
||
1.2 |
NET1 INVESTMENT HOLDINGS
(PTY) LIMITED
|
||
2. |
INTERPRETATION
|
||
2.1 |
The clause headings in this
agreement are for reference purposes only and shall not be used in the
interpretation thereof.
|
||
2.2 |
Unless the context clearly
indicates a contrary intention:
|
||
2.2.1 |
expressions which denote any one gender,
shall include the other genders;
|
||
2.2.2 |
a person shall include a natural person,
company, partnership, close corporation or other legal personae;
|
||
2.2.3 |
the singular shall include the plural
and vice versa.
|
||
2.3 |
When any particular number
of days is provided for the doing of any act or for any other purpose,
the reckoning shall exclude the first day and shall include the last day
which shall be a business day and shall include all Saturdays, Sundays
and public holidays which occur during the period. For the purposes hereof,
a business day shall mean a day which is not a Saturday, Sunday
or public holiday.
|
||
2.4 |
Any schedule or annex to
this agreement shall be deemed to be incorporated herein and shall form
an integral part of this agreement.
|
||
2.5 |
If any provision in a definition
is a substantive provision conferring any right or imposing any obligation
on any party, then notwithstanding that it is only in the interpretation
clause, effect shall be given to it as if it were a substantive provision
in this agreement.
|
||
2.6 |
The
contra proferentem
rule shall not apply and accordingly, none of the provisions hereof shall
be construed against or interpreted to the disadvantage of the Party responsible
for the drafting or preparation of such provision.
|
2.7 |
The eiusdem generis
rule
shall not apply and accordingly, whenever a provision is followed by the
word including and specific examples, such examples shall
not be construed so as to limit the ambit of the provision concerned.
|
||
2.8 |
The following expressions
bear the meanings assigned to them hereunder and cognate expressions bear
corresponding meanings, namely:
|
||
2.8.1 |
accredited UEPS systems integrator:
an entity duly appointed by NUEP as a systems integrator which has the
technical know-how and expertise to implement UEPS based systems;
|
||
2.8.2 |
effective date: 1 JULY 2002;
|
||
2.8.3 |
licensees: persons contracted
to use the patents and/or the UEPS and any related technology;
|
||
2.8.4 |
patents: the United States
Patent number 5,175,416 and European Patent number 0-421808 together with
any additional patents granted to SARL;
|
||
2.8.5 |
SARL: NET1 HOLDINGS SARL,
a company incorporated according to the laws of Luxembourg;
|
||
2.8.6 |
territory: any country in
the world other than the Republic of South Africa, Namibia, Botswana,
Lesotho, Swaziland, Mozambique and Zimbabwe;
|
||
2.8.7 |
UEPS: the Universal Electronic
Payment System designed by Net1 as described in the patents and which
are capable of providing a fully integrated payment and transacting system
using smart card technology.
|
||
3. |
INTRODUCTION
|
||
3.1 |
SARL if the owner of the
patents and has granted to NUEP the sole and exclusive right to market
and sell to licensees the right to the use of the patents in the territory.
|
||
3.2 |
Net1 is the owner of and
has developed UEPS.
|
||
3.3 |
It is recorded that Net1
has agreed to permit NUEP to supply UEPS to licensees of NUEP on terms
and conditions to be agreed by Net1 with NUEP prior to any agreement being
concluded between NUEP and its licensee.
|
||
3.4 |
Net1 has the marketing,
sales, administrative, financial and technical resources necessary to
provide NUEP with the services referred to in 6 below.
|
2
3.5
|
NUEP has agreed to appoint
Net1 as an accredited UEPS systems integrator on the terms and conditions
stated herein.
|
||
4. |
DURATION This agreement shall commence on the effective date and shall continue for successive 12 (twelve) month periods unless either party gives to the other not less than 3 (three) calendar months notice of termination prior to the expiry of any 12 (twelve) month period. |
||
5. |
APPOINTMENT
|
||
5.1 |
NUEP hereby appoints Net1
as an accredited UEPS systems integrator on the terms and conditions herein
contained.
|
||
5.2 |
Net1 hereby accepts the
aforesaid appointment.
|
||
5.3 |
As an accredited UEPS systems
integrator, Net1 shall:
|
||
5.3.1 |
have the right on behalf of NUEP to
market and sell to licensees the right to the use of the patents in the
territory on terms and conditions determined by NUEP and with NUEPs
written approval, it being recorded that ownership in the patents shall
at all times remain with SARL;
|
||
5.3.2 |
be entitled to be the accredited UEPS
systems integrator in the territory in respect of those customers whom
Net1 has licensed on behalf of NUEP.
|
||
6. |
SERVICES TO BE PROVIDED
BY NET1
|
||
6.1 |
Subject to the provisions
of 6.2 below, Net1 shall provide the services referred to in 6.3 below
for the purposes of developing the UEPS system and promoting the sale
of UEPS to its licensees.
|
||
6.2 |
Net1 shall provide such
services et such time/s and in such format as it in its sole and absolute
discretion determines.
|
||
6.3 |
The services to be provided
by Net1 in accordance with the aforegoing are the following:
|
||
6.3.1 |
to provide a pre-sale service for NUEP
including the identification of potential customers and the promotion
of the patents and the UEPS technology by, for example, attending, presenting
and/or demonstrating
|
3
any UEPS technology at relevant international conferences
or through the targeting of potential customers through standard marketing
channels;
|
|||
6.3.2 |
to provide and develop marketing and sale material
for all products which make use of the patents and/or UEPS technology,
it being recorded that the materials will be available electronically
through the NUEP website and in written form;
|
||
6.3.3 |
to provide accounting functions necessary to ensure
that SARLs records are kept up-to-date and are able to be integrated
with those of NUEP on a quarterly basis and to provide NUEP with a facility
to enable it to effect payment through its bank accounts on the basis
that the Chief Executive Officer and 1 (one) director (or other duly appointed
representative) of NUEP will be required to authorise all such payments;
|
||
6.3.4 |
to provide technical support to NUEP and its customers
as and when required through the medium of telephonic conversations, e-mails
or site visits;
|
||
6.3.5 |
to fulfil the needs of licensees on the basis set
out in 5.3 above, it being recorded that Net1 will be solely responsible
for the negotiations with the licensees once it has concluded a contract
on behalf of NUEP.
|
||
7. |
REMUNERATION
|
||
7.1 |
In respect of those customers
of NUEP who are appointed by Net1 on behalf of NUEP in accordance with
the provisions of 5.3 above, NUEP shall pay to Net1 an amount equal to
9,5% (nine
comma
five
per centum
) of the licence fee which
is paid by the customer to NUEP for the duration of such appointment.
|
||
7.2 |
The aforesaid amount shall
be paid by NUEP to Net1 upon receipt by NUEP from time to time of the
licence fee by its customer. Payment shall be made into such banking account
as is nominated by Net1 from time to time. Simultaneously with payment
of the amount earned by Net1, NUEP shall furnish Net1 with all information
and documentation required to enable Net1 to verify the payment received
by it.
|
||
7.3 |
It is recorded that Net1
shall not be entitled to receive the aforesaid consideration from NUEP
unless it will have entered into a contract on behalf of NUEP in accordance
with the provisions of this agreement.
|
||
7.4 |
Should any existing customer
of NUEP require an upgraded licence in respect of the right to the use
of UEPS and should Net1 have sold the original or upgraded licence to
such customer, NUEP shall pay to Net1 an amount equal to 9,5% (nine
comma
five
per centum
) of the consideration received in respect of the
upgraded
|
4
portion of the licence for the duration
thereof and the provisions of 7.2 shall
mutatis mutandis
apply.
|
||
7.5 |
It is recorded that should NUEP enter
into a direct contract with a licensee in the territory granting it the
right to use the UEPS system, then although no remuneration will be payable
by it to Net1, it will nevertheless be obliged to agree with Net1 on the
terms and conditions relating to Net1s permission to enable NUEP
to conclude the agreement with its licensee.
|
|
7.6 |
Notwithstanding the termination of this
agreement for any reason whatsoever, NUEP shall continue to pay to Net1
the amount/s referred to in 7.1 in respect of appointments made by Net1
prior to the termination of this agreement for so long as the customer
of NUEP is obliged to pay the licence fee to NUEP pursuant to the appointment
referred to therein. The provisions of this clause shall also apply,
mutatis
mutandis
, to 7.4 above.
|
|
8. |
PREVIOUS INDEBTEDNESS It is recorded that NUEP is indebted to Net1 in an amount of US$150,000.00 (one hundred and fifty thousand United States Dollars) for services rendered. In full and final settlement of Net1s claim against NUEP, it is recorded that NUEP has paid to Net1 an amount of US$50,000.00 (fifty thousand United States Dollars). |
|
9. |
TERMINATION OF OUTSOURCING AGREEMENT The outsourcing agreement entered into between the parties on 26 FEBRUARY 2001 shall cease to be of any further force or effect on the signature of this agreement and neither party shall have any claim against the other arising out of such agreement save for payments of any amounts owing by NUEP to Net1 in terms of clause 6 of such agreement as read with 8 above. |
|
10. |
BREACH |
|
10.1 |
Without prejudice to any other rights
which it may have as to damages or otherwise, either party shall be entitled
to cancel this agreement forthwith should the other party breach any material
provisions hereof and fail to remedy same within 14 (fourteen) days of
receipt of written notice calling upon it to do so.
|
|
10.2 |
Should either party at any time cease
trading, operating, be placed under judicial management, declared insolvent
or be placed under financial liquidation, then and in such event and without
prejudice to what other claims the aggrieved party may have against the
breaching party as a result of or arising out of such breach, including
any claim for damages, the party shall have the right to cancel this agreement
forthwith.
|
5
10.3 |
Upon termination of this agreement for
any reason whatsoever, at the election of NUEP, Net1 shall on 7 (seven)
days written notice from NUEP return, alternatively destroy (at
the sole election of NUEP) all intellectual property, goods and the like
in the possession of Net1, its employees, agents, contractors, etcetera.
|
|
11. |
RELATIONSHIP OF PARTIES The parties are independent contractors and nothing in this agreement shall be construed as creating a partnership, joint venture or employer/employee relationship between them and no party shall have any authority to incur any liability on behalf of any other party. In addition, no party shall be deemed to be the representative or agent of any other party and all acts done by any party shall be done in its own name as principal. |
|
12. |
ASSIGNABILITY No party shall cede any of its rights nor assign any of its obligations or grant a sub-licence without first having obtained the prior written consent of the other parties. |
|
13. |
SUPPORT
|
|
13.1 |
The parties undertake at all times to
do all such things, perform all such functions and take all such steps
and to procure the doing of all such things, the performance of all such
actions and the taking of all such steps as may be open to them and necessary
for or incidental to the putting into effect or maintenance of the terms,
conditions or import of this agreement.
|
|
13.2 |
Without derogating from the aforegoing,
the parties shall exert their best endeavours to prevent and guard against
any infringement or suspected or threatened infringement of the patents
or any other term or condition of this agreement.
|
|
14. |
GOVERNING LAW
This agreement shall be governed and interpreted by
the substantive laws of the Republic of South Africa.
|
|
15. |
SUBMISSION TO JURISDICTION
|
|
15.1 |
Subject to the provisions of 16 below,
any legal action or proceedings arising out of or in connection with this
agreement may be brought in the High Court of South Africa (Witwatersrand
Local Division) or its successor, if any, and the
|
6
parties irrevocably submit
to the non-exclusive jurisdiction of such court. The parties irrevocably
waive any objections they may now or hereafter have that such action or
proceeding has been brought in an inconvenient forum.
|
||||
15.2 |
In submitting to the jurisdiction
of the High Court of South Africa (Witwatersrand Local Division) or its
successor, the parties hereto agree and acknowledge that any award made
by the arbitrator in terms of the provisions of 16 below may be made an
order of court in the abovementioned court and that no party shall be
entitled to object to any other party having the arbitration award made
an order of such court.
|
|||
16. |
ARBITRATION
|
|||
16.1 |
For the purposes of the
agreement, dispute includes, without prejudice to the generality
of that term, any dispute arising out of or in connection with the agreement
and/or the interpretation and/or the implementation and/or the termination
thereof.
|
|||
16.2 |
Should any dispute arise,
such dispute shall be submitted to arbitration in terms hereof.
|
|||
16.3 |
Subject to the provisions hereof, an arbitration shall be held under the provisions of the arbitration laws for the time being in force in the Republic of South Africa, provided that: |
|||
16.3.1 | the arbitrator shall be, if the question in issue is: | |||
16.3.1.1 | primarily an accounting matter, an independent practising accountant of not less than ten years standing; | |||
16.3.1.2 | primarily a legal matter, a practising senior counsel or attorney of not less than ten years standing; | |||
16.3.1.3 | any other matter, a suitably qualified independent person, | |||
agreed upon by the parties and, failing such agreement within five days after the date on which the arbitration is demanded, shall be appointed by the committee of the Arbitration Foundation of Southern Africa (who may appoint one of their number) who may be instructed by any of the parties to make the nomination at any time after the expiry of that five day period; | ||||
16.3.2 | the arbitration shall be held in Johannesburg or Sandton or Randburg at a venue and in accordance with formalities and/or procedures determined by the arbitrator, and may be held in an informal and summary manner, on the basis that it shall not be necessary to observe or carry out the usual formalities or procedures, pleadings and/or discovery, or the strict rules of evidence; |
7
16.3.3 |
the arbitrator shall be
entitled:
|
|||
16.3.3.1 |
to investigate or cause to be investigated any matter,
fact or thing which he considers necessary or desirable in connection
with the dispute and for that purpose shall have the widest powers of
investigating all the books and records of the party or parties to the
dispute and the right to take copies or make extracts therefrom and the
right to have them produced and/or delivered at any reasonable place required
by him for the aforesaid purpose;
|
|||
16.3.3.2 |
to interview and question under oath representatives
of any of the parties;
|
|||
16.3.3.3 |
to decide the dispute according to what he considers
just and equitable in the circumstances;
|
|||
16.3.3.4 |
to make such award, including an award for costs,
specific performance, an interdict, damages or a penalty or otherwise
as he in his discretion may deem fit and appropriate, provided that should
the arbitrator fail to make an award with regard to costs, the costs of
the arbitrator shall be borne equally between the parties;
|
|||
16.3.4 |
the arbitration shall be
held as quickly as possible after it is demanded with a view to its being
completed within twenty-one days after it has been so demanded;
|
|||
16.3.5 |
Immediately after the arbitrator
has been agreed upon or nominated in terms hereof, any of the parties
shall be entitled to call upon the arbitrator to fix a date and place
as to when and where the arbitration proceedings shall be held and to
settle the procedure and manner in which the arbitration proceedings will
be held.
|
|||
16.4 |
Any award that may be made
by the arbitrator:
|
|||
16.4.1 |
shall be in writing and
shall include the reasons therefor;
|
|||
16.4.2 |
shall be final and binding;
|
|||
16.4.3 |
shall be carried into effect;
and
|
|||
16.4.4 |
may be made an order of
any court to whose jurisdiction the parties to the dispute are subject
as well as the High Court of South Africa, Witwatersrand Local Division
or its successor.
|
|||
16.5 |
This arbitration clause
constitutes an irrevocable consent by the parties to any proceedings in
terms hereof and no party shall be entitled to withdraw therefrom or to
claim in such proceedings that he is not bound by this arbitration clause.
|
8
16.6 |
This arbitration clause shall not preclude
any of the parties from obtaining relief by way of motion proceedings
on an urgent basis from a court of competent jurisdiction pending the
decision of the arbitrator.
|
|
16.7 |
For the purposes hereof, the parties
hereby submit themselves to the Witwatersrand Local Division of the High
Court of South Africa.
|
|
16.8 |
This arbitration clause is severable
from the rest of the agreement and shall remain in effect even if theagreement
is terminated for any reason.
|
|
17. |
CONFIDENTIALITY The parties undertake that they will not at any time during this agreement or after termination hereof, disclose any information which comes to their knowledge as a result hereof not being information which comes from an independent third party, which relates to: |
|
17.1 |
any business or marketing method or
practice or customers of NUEP or Net1;
|
|
17.2 |
any technical information, know-how
or process or method of Net1 or NUEP.
|
|
18. |
ADDRESSES AND NOTICES
|
|
18.1 |
For the purpose of this agreement, including
the giving of notices in terms hereof and the serving of legal process,
the parties choose
domicilium citandi et executandi
(domicilium)
as follows:
|
9
18.1.1 |
NUEP:
|
200 East Las Olas Boulevard
|
||
Suite 1900
|
||||
Fort Lauderdale
|
||||
Florida, 33301
|
||||
United States of America
|
||||
18.1.2 |
Net1:
|
4
th
Floor, West Wing
|
||
President Place
|
||||
Cor. Jan Smuts Avenue and Bolton Drive
|
||||
Rosebank
|
||||
Johannesburg
|
||||
Republic of South Africa
|
||||
18.2 |
Any notice given in connection with this
agreement may be delivered by hand; or be sent by prepaid registered post;
or be sent by telefax if the domicilium includes a telefax number, to
the domicilium chosen by the party concerned. Any notice or process delivered
on any party in connection with any matter or subject arising out of this
agreement or any notice shall be deemed to have been delivered if handed
to any responsible person at the domicilium chosen by any party and it
shall not be necessary to hand such process or notice to any party personally.
|
|||
18.3 |
A notice given as set out above shall
be presumed to have been duly delivered:
|
|||
18.3.1 |
on the date of delivery if delivered
by hand;
|
|||
18.3.2 |
and received on the date of dispatch
if sent by telefax to the chosen telefax number;
|
|||
18.3.3 |
on the 7th day from the date of posting
including the date of posting if posted by pre-paid registered post from
within the Republic of South Africa; and
|
|||
18.3.4 |
on the 14th day from the date of posting
including the date of posting if posted from outside the Republic of South
Africa.
|
|||
19. |
GENERAL
|
|||
19.1 |
This document contains the entire agreement
between the parties in regard to the subject matter hereof and neither
of them shall be bound by any undertakings, representations, warranties,
promises or the like not recorded herein.
|
|||
19.2 |
No alteration, variation or cancellation
by agreement of, addition or amendment to, or deletion from this agreement
shall be of any force or effect unless in writing and signed by or on
behalf of the parties hereto.
|
10
19.3 |
No indulgence, extension of time, relaxation or latitude
which any party (the grantor) may show, grant or allow to any other party
(the grantee) shall constitute a waiver by the grantor of any of his rights
and the grantor shall not thereby be prejudiced or estopped from exercising
any of his rights against the grantee which may have then already arisen
or which may thereafter arise.
|
THUS DONE AND SIGNED BY THE RESPECTIVE PARTIES AS FOLLOWS:
______________________________________
For: NET1 UEPS TECHNOLOGIES INC.
Duly authorised
Date: 27 June 2002
Place: PARIS (FRANCE)
______________________________________
For: NET1 INVESTMENT HOLDINGS (PTY)
LIMITED
Duly authorised
Date: 01 July 2002
Place: JOHANNESBURG
Exhibit 10.2
PATENT AND TECHNOLOGY AGREEMENT
Made and entered into by and between
NET 1 HOLDINGS S.à.r.l
and
NET 1 UEPS TECHNOLOGIES, INC.
Table of Contents
1. |
DEFINITIONS
|
|||
1.1 |
The clause headings of this
Agreement are for reference purposes only and shall not be used in the
interpretation thereof.
|
|||
1.2 |
Unless the context clearly
indicates a contrary intention:
|
|||
1.2.1 |
expressions which denote:
|
|||
1.2.1.1 |
any gender shall include the other genders;
|
|||
1.2.1.2 |
a natural person shall include an artificial
person and vice versa;
|
|||
1.2.1.3 |
the singular shall include the plural;
|
|||
1.2.2 |
the following expressions
shall have the meanings set opposite them and cognate expressions shall
bear corresponding meanings:
|
|||
1.2.2.1 |
Licensee shall mean any
entity to whom NUEP grants a licence on behalf of Net 1 to use the Patent
in any country within the Territory;
|
|||
1.2.2.2 |
Net 1 shall mean Net 1 Holdings
S.à.r.l, a company incorporated in accordance with the laws of
Luxembourg and having its registered office at 6, rue Jean Monnet, L-2180
Luxembourg, herein represented by Brenda Stewart in her capacity as a
Director of the Company, she being duly authorised hereto;
|
|||
1.2.2.3 |
Parties shall mean the parties
to this Agreement;
|
|||
1.2.2.4 |
Patents shall mean United
States Patent No. 5,175,416 and European Patent No. 0-421808 together
with all patents of addition, if any, granted to Net 1;
|
|||
1.2.2.5 |
Signature Date shall mean
the last date of signature of this Agreement by the Parties;
|
|||
1.2.2.6 |
Territory shall mean any
country of the World, except the Republic of South Africa (as constituted
on 31 May 1961), Namibia, Botswana, Lesotho, Swaziland, Mozambique and
Zimbabwe;
|
|||
1.2.2.7 |
NUEP shall mean Net 1 UEPS
Technologies, Inc., a company incorporated under the laws of the State
of Florida and having its registered office at 200 East Las Olas Boulevard,
Suite 1900, Fort Lauderdale, Florida, 33301.
|
1.2.2.8 |
UEPS shall mean the Universal
Electronic Payment System designed by Net 1, as described and detailed
in the complete specification to Net 1s application for the Patents.
UEPS is an application that uses the Patents to provide an integrated,
secure and complete payment system.
|
|||
2. |
PREAMBLE
|
|||
2.1 |
Net 1 is the owner and manager
of the Patents.
|
|||
2.2 |
Net 1 has agreed to appoint
NUEP as its sole and exclusive agent to market and sell to Licensees licences
for the use of the Patents anywhere within the Territory and to conclude.
licence agreements with such Licensees on behalf of Net 1.
|
|||
2.3 |
NUEP shall in terms of
this Agreement have the right to permit a Licensee to purchase and or
use the UEPS in conjunction with the Patents or to develop similar systems
that make use of the Patents.
|
|||
2.4 |
The Parties require the
agreement arrived at between them to be reduced to writing.
|
|||
3. |
DURATION This Agreement shall commence on the Signature Date and shall endure for the life of the Patents, unless terminated earlier as provided for hereunder. |
|||
4. |
GRANT OF RIGHTS
|
|||
4.1 |
Net 1 hereby grants to NUEP
the exclusive right to market, negotiate and sell licences to Licensees
for the use of the Patents within the Territory.
|
|||
4.2 |
Net 1 hereby appoints NUEP
as its agent to grant licences on its behalf to Licensees and authorises
NUEP to execute and register such Licence Agreements on its behalf, provided
that in granting such licences on behalf of Net 1, NUEP shall not do so
in contravention of any obligations whatsoever in respect whereof Net
1 is bound in terms of any existing or pending Licence Agreements with
Licensees or any other entity. In this regard, NUEP acknowledges that
it is fully conversant with the terms and conditions of all existing Licence
Agreements for the use of the Patents which Net 1 has granted to Licensees,
and with the terms and conditions of all Licence Agreements that are pending
and are being finalised as per Appendix A.
|
2
4.3 |
Net 1 hereby grants the right to NUEP to market and sell UEPS in the Territory provided that the said activities do not conflict with existing or pending license agreements. |
|||
4.4 |
Net 1 hereby grants the
right to NUEP to sell the UEPS to a Licensee as part and parcel of a license
agreement or to allow the Licensee to develop a proprietary system that
uses the Patents.
|
|||
4.5 |
Net 1 shall upon the Signature
Date become a conduit for NUEP, thereby allowing NUEP to achieve an optimal
tax benefit in respect of its world-wide operations and NUEP shall be
liable for any expenses incurred by Net 1s fiscal, commercial, operational
and administrative activities in this regard or any other costs incurred
while performing the said services and any other costs that may be approved
by NUEP from time to time.
|
|||
5. |
CONSIDERATION
|
|||
5.1 |
In consideration for the exclusive rights granted to NUEP in terms of Clause 4.1 Supra - |
|||
5.1.1 |
NUEP has agreed to issue
from its Treasury an allotment of 2,364,806 common shares (prior split
or 4,729,612 after split) to Net 1 in accordance with the following stipulations:
|
|||
5.1.1.1 |
the shares will be issued at a deemed
price of US$0.001 per share, being the par value thereof;
|
|||
5.1.1.2 |
the shares will be fully paid up and
non-assessable common shares. The Parties record that the shares referred
to in 5.1.1
Supra
were issued to Net 1 on 27 November 1997
and were been kept in trust pending the finalisation of an exclusivity
agreement.
|
|||
5.2 |
In consideration for the
services to be rendered by NUEP to Net 1 in terms of Clause 4
Supra
- Net 1 shall pay to NUEP an amount equivalent to Net 1s
annual after tax net profit as reflected in its annual financial statements
from time to time. Such amount shall be paid by Net 1 to NUEP annually
in arrear at the expiration of 120 (one hundred and twenty) days of its
financial year-end.
|
|||
5.3 |
NUEP shall at its own discretion
elect to use Net 1 as the recipient of any full or partial payments due
by a Licensee in terms of the license agreement granted to the Licensee
by NUEP as of the Signature Date or granted or committed to a Licensee
by Net 1 at a date prior to the Signature Date of this Agreement.
|
3
6. |
MAINTENANCE OF THE
PATENTS
|
|
6.1 |
NUEP shall during the life of this Agreement pay
all renewal fees and do all such acts and things that may be necessary
to maintain and keep registered the Patents and shall produce to Net 1
the receipt for renewing the Patents.
|
|
6.2 |
NUEP shall not during the life of this Agreement,
save with the prior written consent of Net 1, abandon the Patents or allow
them to lapse.
|
|
6.3 |
NUEP shall be obliged on an on-going basis to make
applications on behalf of Net 1 for new patents or patentable improvements
in order to ensure that the Net 1 technology remains the front runner
in its field.
|
|
7. |
DEVELOPMENT AND MAINTENANCE
OF UEPS
|
|
7.1 |
NUEP shall be obliged on an on-going basis to continue
with the development, maintenance and support of the UEPS and the development
of new software applications that use the Patents
|
|
7.2 |
NUEP shall perform the duties outlined in 7.1
Supra
,
alternatively NUEP may delegate or sub-contract its obligations as outlined
in 7.1
Supra
to a third party with the prior written approval
of Net 1.
|
|
8. |
PATENTS INFRINGEMENT
|
|
8.1 |
Upon the occurrence of any infringement or suspected
or threatened infringement of the Patents, the Parties shall immediately
consult to decide what steps shall be taken to prevent or terminate such
infringement.
|
|
8.2 |
NUEP shall take all steps as may be agreed by the
Parties pursuant to Clause 8.1 above including the institution of legal
proceedings where necessary.
|
|
8.3 |
If NUEP fails to take such steps as may be considered
necessary or appropriate by Net 1, Net 1 shall have the right to take
those steps independently and NUEP shall give Net 1 all reasonable assistance
to facilitate any such proceedings by Net 1. Any costs or expense incurred
by Net 1 in this regard shall be borne by NUEP.
|
|
9. |
ASSIGNABILITY
|
|
9.1 |
Neither party shall cede any of its rights nor assign
any of its obligations without the prior written consent of the other.
|
|
9.2 |
NUEP may not delegate or sub-contract its obligations
under this Agreement without the prior written approval of Net 1.
|
4
10. |
CONFIDENTIAL INFORMATION
|
|
10.1 |
Neither party shall at any time divulge
or disclose to any third party any information concerning the affairs
of the other which may be communicated to it or which otherwise comes
into its possession, unless such information becomes publicly available
through no fault of such party.
|
|
10.2 |
Neither party shall use, exploit, divulge
or disclose to any third party any business systems or methods of the
other party of which it may gain knowledge while working with the other
party or in the course of the performance of its obligations in terms
of this Agreement, except with the prior written consent of the other
party.
|
|
10.3 |
This clause is severable from the rest
of this Agreement and shall remain valid and binding on the Parties notwithstanding
any termination of this Agreement.
|
|
11. |
WARRANTIES Net 1 declares and warrants unto and in favour of NUEP that - |
|
11.1 |
As at the Signature Date, Net 1 was
the sole patentee of the Patents and that the Patents were of full force
and effect.
|
|
12. |
BREACH
|
|
12.1 |
Should NUEP at any time cease trading
or operating, be placed under Judicial Management, be declared insolvent
or be placed under provisional or final liquidation, then and in such
event and without prejudice to whatever other claims Net 1 may have against
NUEP as a result of or arising out of such breach, including any claim
for damages, Net 1 shall have the right to cancel this Agreement and revert
to the licensing agreement that was in place prior to this Agreement.
All income streams current or future that were in place prior to such
breach shall however remain the property of NUEP. In such event, all contractual
agreements entered into with Licensees in terms of clause 5.3
Supra
shall be ceded to NUEP.
|
|
12.2 |
Should either party commit a breach
of any of the provisions of this Agreement, all of which are material
and go to the root of this Agreement, and fail to remedy such breach within
a period of 10 (ten) days of the date of a written notice from the aggrieved
party calling upon the defaulting party to remedy such breach, then the
aggrieved party shall have the right in addition to such other rights
as are available to him/it in law or in terms of this Agreement to sue
for specific performance of the terms of this Agreement, or to cancel
this Agreement subject to the aggrieved Partys right to claim damages
arising from such breach.
|
5
6
7
of the matter in dispute, it shall be deemed to be
of a legal nature and subject to 18.2.2
Supra
.
|
||
18.4 |
The expert shall determine the manner in which the
proceedings are conducted and the procedure to be adopted and he shall
be entitled to require the Parties to the proceedings to make available
to each other and to the expert all information, documentation and records
that are necessary for the determination of the dispute submitted to him.
|
|
18.5 |
Any hearing by the expert shall be held in London
or such other place as the Parties may agree in writing.
|
|
18.6 |
The Parties shall use their best endeavours to procure
that the decision of the expert shall be given within 21 (twenty-one)
days or so soon thereafter as possible after it has been demanded.
|
|
18.7 |
The decision of the expert shall be final and binding
on all parties affected thereby and shall be carried into effect and may
be made an order of any competent Court at the instance of any of the
Parties.
|
|
18.8 |
This clause constitutes an irrevocable consent by
the Parties to any proceedings in terms hereof and neither of the Parties
shall be entitled to withdraw therefrom or claim at any such proceedings
that it is not bound by the provisions of this clause.
|
|
18.9 |
The expert shall determine the liability for his
costs which shall be paid in accordance with his determination.
|
|
18.10 |
Notwithstanding the provisions of 18.8
Supra
either party may choose to launch proceedings by way of Court
action or application, save in regard to any matter already referred by
either Party in terms of this paragraph 18.
|
8
NET 1 U.E.P.S.
TECHNOLOGIES INC.
We have read the preceding representation letter items 1 through 20 and agree without exception and approve the financial statements to be issued subject to audit committee and board approval.
Yours truly,
__________________________________________________
S.C.P. Belamant, President
__________________________________________________
__________________________________________________
Randy Saunders, North American representative
10
Appendix A
Name/Country/
Area |
Exclusive
FTS Licence |
Non
Exclusive FTS Licence |
Exclusive
UEPS Licence |
Non
Exclusive UEPS Licence |
Non
Exclusive UEPS Commercial Agreement |
Non
Exclusive Manufacturing FTS Licence |
Non
Exclusive Outsourcing Support Agreement |
Non
Exclusive FTS Operating Licence |
Comments |
VISA
|
• | Banking | |||||||
BGS | • |
CIS
republics |
|||||||
Gemplus | • |
Smart Card
only |
|||||||
Ghana
|
• | • | • | ||||||
Chile | • |
Not yet
launched |
|||||||
Rwanda
|
• | • | • | ||||||
Burundi
|
• | • | • | ||||||
Latvia | • | • | • |
Process of
finalisation |
|||||
Nedcor S.A.and
Surrounding Territories |
• | • | Banking | ||||||
Nedcor Rest of
World |
• | Option | |||||||
Australia |
Process of
finalisation |
||||||||
Aplitec S.A. and
Surrounding Territories |
• | • |
Includes
Nedcor |
||||||
Aplitec Rest
of World |
• |
Exhibit 10.3
SERVICE LEVEL AGREEMENT
BETWEEN
THE LIMPOPO PROVINCIAL GOVERNMENT
IN ITS
DEPARTMENT OF HEALTH AND WELFARE
AND
CASH PAYMASTER SERVICES
(Northern) (Pty) Ltd
SERVICE LEVEL AGREEMENT
BETWEEN
THE LIMPOPO PROVINCIAL GOVERNMENT IN ITS
DEPARTMENT OF HEALTH AND WELFARE
Represented by DR. HLAMALANI NELLY MANZINI in her capacity as Head of Department of Health and Welfare (Hereinafter referred to as the Department) and duly authorised
and
CASH PAYMASTER SERVICES (Northern) (Pty) Ltd
Represented by Solomon Poroma Mohale in his capacity as director (hereinafter
referred to as the CONTRACTOR) duly authorised thereto by a Directors
resolution, copy attached hereto marked Annexure A, in respect of disbursement
of social pensions and social grants.
2
1.
|
PREAMBLE
|
|
Whereas the Department has
sought an alternative, more efficient and cost effective means to administer
and operate all activities included in the automated cash payments of
pensions and grants.
|
||
1.1
|
The Provincial Tender Board has approved tender no NTP8342 to the CONTRACTOR and has authorised the Department to enter into a service level agreement with the CONTRACTOR prior to the commencement of any activities under this contract, the Effective date; |
|
1.2
|
The CONTRACTOR agrees to render cash
payment services to the beneficiaries of pensions and grants on behalf
of the Department.
|
|
1.3
|
Payments of pensions and grants currently
made by the South African Post Office and Banks are excluded.
|
|
1.4
|
The number of beneficiaries expected
to be serviced is estimated at 514 000 as at the time of preparation of
the tender specification, allocated to 1 900 Pay points. These quantities
shall in no way be construed by the CONTRACTOR as being guaranteed minimums
or maximums by the Department.
|
|
THEREFORE the parties wish
to record in writing their agreement relating the aforementioned and matters
incidental thereto.
|
||
2.
|
INTERPRETATION AND DEFINITIONS
|
|
In this agreement and in
the annexures hereto.
|
||
2.1
|
clause headings are for convenience and
are not to be used in their interpretation;
|
|
2.2
|
unless the context indicates a contrary
intention, but not limited to, an expression which denotes;
|
|
2.2.1
|
any gender includes the other gender; |
3
2.2.2 | a natural person includes a juristic person and vice versa; | |
2.2.3 | the singular includes the plural and vice versa; |
4
5
District officer |
Means a person appointed by the department
as a district pension officer for a particular district and / or as district
allowance officer for a particular district;
|
Effective date |
The date on which the CONTRACTOR shall
commence payment of grants or pensions to the beneficiaries or their designated
procurators being 1 December 2003.
|
Contract date |
The date on which this contract is signed,
being a maximum of 45 days from the date the tender was awarded (28 November
2002) or later 25 may be agreed to by both parties.
|
Procurator |
means a person who is entitled to withdraw
social grant on behalf of a beneficiary. Both the Department and the CONTRACTOR
should dul register this person as provided for in clause 32.
|
Province |
Means the Provincial Government of Limpopo.
|
Identity Number |
Means 13 (thirteen) digit, bar coded
cumber for personal identification issued by the Department of Home Affairs.
|
Legislature |
Means the Legislature of the Limpopo
Provincial Government, its successors or assignees.
|
Parties |
Means the CONTRACTOR and the DEPARTMENT.
|
Pay Days |
Means those days agreed upon between
the Parties on which the withdrawal grants or allowances shall be made
by the beneficiaries at the Pay points;
|
Pay points |
Means the designated places for the
payment of grants and
|
6
allowances by the CONTRACTOR as set
out in ANNEXURE C.
|
|
Pay Times |
Means the times between 08h00 and 15h00
agreed upon between the PARTIES during which beneficiaries and/or procurators
who have been identified by the DEPARTMENT in accordance with the provisions
of this agreement and registered by the CONTRACTOR in accordance with
the provisions of this agreement will be paid.
|
Service Level Reports |
Means service level reports as set out
in a separate document required from both PARTIES which are regarded as
a management tool and framework on which to base, evaluate and assess
the performance criteria in each of the functional areas of the social
grants payment service as specified in the contract as per Clause 33.
|
agreement and
this agreement |
|
means this agreement and the tender
documents;
|
|
contract manager |
means a designated employee of each
party, whose responsibility is to ensure that each party complies with
its contractual obligations in terms of this agreement and who is responsible
to develop the service level reports and act as a communication channel
between parties.
|
confidential information |
means all confidential data whether
of a historical, current or future nature irrespective of whether it is
stored, recorded or
|
7
embodied in a hand written, printed,
visual, electronic, audible or other format or medium, and belonging to,
created by, in the possession or under the control of the parties individually.
For the purpose of this agreement, information shall include,
without limiting its ordinary meaning, data, codes, letters, telefaxes,
telegrams, faxes, agreements, specifications and strategic plans;
|
|
disclose |
means the direct or indirect use, dissemination,
publication, transference or transmission of confidential, in any manner
or form whatsoever, and disclosure has a corresponding meaning;
|
month |
means a period of one month according
to the Gregorian calendar commencing with first day of that month;
|
prime rate |
means the basic annual rate of interest
quoted and levied from time to time by bankers as appointed by the Department
from time to time on the unsecured overdrawn current accounts or its most
favoured corporate customers in the private sector, as certified by a
certificate issued by any director or manager of that bank (whose authority
or appointment or qualification it shall not be necessary to prove) calculated
on the daily balance and capitalised monthly in arrears, such certificate
constituting prima facie proof of such rate in the event of a dispute;
|
8
services |
means the services the CONTRACTOR shall
provide to the Department in terms of the tender documents, and shall
include but not limited to bulk enrolment, ongoing enrolment, issuing
of smart cards, replacement of lost cards, security at Pay points and
payment of grants.
|
SOCPEN payment file |
means the electronic data file provided
by the State Information Technology Agency, which contains the details
of all beneficiaries to be paid during a payment cycle.
|
steering committee |
means a committee referred to in clause
[8.2]
|
tender |
means tender number NPT8342, approved
by the tender board of the Limpopo Provincial Government.
|
tender documents |
Means tender number NPT8342, the specifications
(Annexure D), NPT1 and NPT2, the CONTRACTORs response to the tender
and the tender boards letter of acceptance of the CONTRACTORs
offer. In the event that a conflict occurs between the above mentioned
documents the tender boards letter of the acceptance of the CONTRACTORs
offer shall have precedence over the CONTRACTORs response which
shall have precedence over the tender specifications NPT 8342.
|
9
2.3 |
if any provision in a definition is a substantive
provision conferring rights or imposing obligations on any party, notwithstanding
that it is only in definition clause, effect shall be given to it as if
it were a substantive provision in the body of this agreement;
|
2.4 |
when any number of days is prescribed in this agreement,
they shall be reckoned exclusively of the first and inclusively of the
last day unless the last day falls on a Saturday, Sunday or public holiday,
in which case the last day shall be the next succeeding day which is not
a Saturday, Sunday or public holiday; where figures are referred to in
numerals and in words, if there is any conflict between the two, the words
shall prevail; expressions defined in this agreement shall bear the same
meanings in schedules and Appendices or Annexures to this agreement which
do not themselves contain their own definitions;
|
2.5 |
all schedules, appendices and Annexures to this agreement
shall be deemed to have been expressly incorporated into and form anintegral
part of this agreement and as such each reference herein to this agreement
shall be deemed to include a reference to all such Schedules, Appendices
and Annexures:
|
2.6 |
where any term is defined within the context of any
particular clause in this agreement, the term so defined, unless it is
clear from the clause in question that the term so defined has limited
application to the relevant clause, shall bear the meaning ascribed to
it for all purposes in terms of this agreement, notwithstanding that term
has not been defined in this interpretation and definitions clause;
|
2.7 |
a reference to a party includes that partys
successors in title and permitted assigns;
|
2.8 |
any reference to an enactment is to that enactment,
as amended, as of the date of signature thereof, and as amended or re-enacted
from time to time;
|
10
2.9 |
the expiration or termination of this agreement shall
not affect such of the provisions of this agreement as expressly provided
that they will operate after any such expiration or termination or which
of necessity must continue to have effect after such expiration or termination,
notwithstanding that the clauses themselves do not expressly provide for
this; Provided that if either it be expressly so provided without agreement
as to the termination of such a continuation or if there be no provision
allowing for a continuation, a provision that continues to operate by
virtue of this clause shall cease to do so after a reasonable time;
|
2.10 |
the rule of construction that the contract be interpreted
against the party responsible for the drafting or preparation of the agreement
shall not apply.
|
3. |
APPOINTMENT OF THE CONTRACTOR.
|
3.1 |
In accordance with the award of the tender to the CONTRACTOR, the Department hereby appoints the CONTRACTOR, which hereby accepts the appointment to provide the services in accordance with the terms of this agreement. |
3.2 |
Notwithstanding the date of signature of this agreement,
all rights and obligations arising from this agreement shall be deemed
to have come into operation on the Effective date.
|
3.3 |
Neither the appointment of the CONTRACTOR in Clause
3.1 nor anything in this agreement shall give rise to or be construed
as giving rise to an employer- employee relationship between the parties
nor that of principal and agent, nor shall it give rise to a joint venture
nor an agreement of partnership between the parties, nor shall it give
rise to a labour broking agreement.
|
3.4 |
Notwithstanding anything to the contrary contained
herein, the parties acknowledge that neither of the parties has any authority
whatsoever to represent or to bind the other in any capacity whatsoever.
In particular, but without limiting the generality of the aforegoing,
|
11
neither of the parties shall be entitled to conclude
any contract or sign any document on behalf of the other party or in any
way bind the other partys performance, variation, release or discharge
of any obligation.
|
|
3.5
|
Neither of parties shall acquire any rights, title
or interest of any kind in any brand name or trademark of the other party
or any of the others subsidiaries. All the parties hereby acknowledge
such rights, title or interest to be the sole and exclusive property of
the other or such subsidiary as the case may be (the owning party).
If called upon to do so by the owning party, the party or parties called
upon shall sign a user agreement in respect of any such brand name or
trademark.
|
3.6
|
The CONTRACTOR shall pay a beneficiary in full, the
monies due to him/her, as per the SOCPEN payment file, without making
any deductions whatsoever.
|
4.
|
EXCLUSIVITY
|
4.1
|
The CONTRACTOR shall be entitled to and shall provide
the services to the Department as per this agreement.
|
4.2
|
The Department shall be entitled to demand from the
CONTRACTOR to deliver services as per this agreement.
|
5.
|
THE SERVICES
|
The CONTRACTOR shall, in
return for fees charged, render to the Department the services, from the
Effective date in accordance with the provisions of this agreement.
|
|
6.
|
AMENDING THE SCOPE OF SERVICES
|
6.1
|
Amendments by the parties to this contract to the
scope of the services shall be made subject to the Tender Boards
approval and in accordance with the following procedure;
|
12
13
14
15
16
10.2.1
|
it has full power and authority to enter into, legally
bind itself by and perform its rights and obligations under this agreement;
|
|
10.2.2
|
this agreement has been duly authorised and executed
by the Department;
|
|
10.2.3
|
the execution of this agreement does not violate
any judgement or order of any court, competent authority or arbitrator
of competent jurisdiction applicable in relation to the Department or
the existing assets of the Department;
|
|
10.2.4
|
It has the legal capacity and authority to appoint
the CONTRACTOR as a service provider on the basis set out in this agreement.
|
|
10.3 |
It is expressly agreed between
the parties that each warranty and each representation given by both of
them in this agreement are material to this agreement and have induced
them to conclude this agreement.
|
|
10.4 |
No warranties or representations
which are not set fort in this agreement shall be binding on either party.
|
|
10.5 |
CONTRACTOR guarantee:
|
|
10.5.1
|
The CONTRACTOR guarantees that it can
deliver the services according to the terms and conditions as stipulated
in the tender documents.
|
|
10.5.2
|
The CONTRACTOR shall provide backup
to ensure performance in all respects as per the tender documents.
|
|
10.5.3
|
The CONTRACTOR shall ensure data integrity,
accessibility and systems continuity by making appropriate backups and
depositing, the Biometric Identification and Verification Software and
Procedures with Escrow as per clause 35.1
|
17
18
may be obtained from a court of competent jurisdiction)
shall be submitted to and decided by arbitration, provided that it has
first been negotiated in terms of clause 11 above, and is not subject
to any process or remedy in this agreement that is not compatible with
arbitration.
|
||
12.2 |
The arbitration shall be
held at Polokwane.
|
|
12.2.1
|
with only the legal and other representatives of
the parties to the dispute present thereat; mutatis mutandis in accordance
with the provisions of the Supreme Court Act 59 of 1959, the rules made
in terms of that Act and the practice of the High Court of South Africa
and in terms of the Arbitration Act, No. 42 of 1965, it being the intention
that the arbitration shall be held and completed as soon as possible.
|
|
12.3 |
The arbitrator shall be,
if the matter in dispute is principally-
|
|
12.3.1
|
a legal matter, a practising advocate
or attorney of at least 10 (ten) years standing;
|
|
12.3.2
|
an accounting matter, a practising chartered
accountant of at least 10 (ten) years standing;
|
|
12.3.3
|
any other matter, any independent person,
agreed upon between the parties.
|
|
12.4 |
Should the parties to the
dispute fail to agree whether the dispute is principally a legal, accounting
or other matter, the matter shall be deemed to be a legal matter.
|
|
12.5 |
Should the parties fail
to agree on an arbitrator within 3 (three) working days of a request by
either party, the arbitrator shall be appointed at the request of either
party to the dispute by the President for the time being of the law Society
of the Northern Provinces (or its successor).
|
19
12.6 |
The decision of the arbitrator
shall be final and binding on the parties to the dispute and may be made
an order of the court at the instance of either of the parties to the
dispute.
|
|
12.7 |
The decision of the arbitrator
shall be recorded in writing.
|
|
12.8 |
This clause shall not preclude
either party from obtaining interim relief from the High Court of South
Africa pending the resolution of the deadlock or dispute by the parties.
|
|
12.9 |
The provisions of this clause:
|
|
12.9.1
|
constitute an irrevocable consent by
the parties to any proceedings in terms hereof and no party shall be entitled
to withdraw there from or claim at any such proceedings that it is not
bound by such provisions; and
|
|
12.9.2
|
are severable from the rest of this
agreement and shall remain in effect despite the termination of or invalidity
of any provision of this agreement.
|
|
13. |
BULK ENROLMENT
|
|
13.1 |
Standards
|
|
13.1.1
|
The CONTRACTORs system shall cater
for the registration of all beneficiaries and procurators as defined by
the SOCPEN file receiving payment in cash (excluding beneficiaries receiving
payment at banks and post offices).
|
|
13.1.2
|
The CONTRACTOR shall register beneficiaries
from computerised lists supplied by the DEPARTMENT through the SOCPEN
file. The DEPARTMENT shall have final approval rights on all beneficiaries
so registered.
|
|
13.1.3
|
The CONTRACTOR shall perform enrolment
of biometric and other data for the beneficiaries, including photographs
and fingerprints (four fingers, two from each hand, for each beneficiary)
in accordance with clause 13.2.
|
|
13.1.4
|
The CONTRACTOR shall perform live scanning
of four fingers, two from each hand. Image files must comply with an acceptable
international format.
|
20
21
14.1.1
|
The CONTRACTOR shall provide an AFIS component as
part of the enrolment technology to ensure that any individual, recognised
by means of fingerprints, will have only one identity in the pensions
system.
|
|
14.1.2
|
The CONTRACTORs system shall at all times ensure
that no duplicate registration exists in the Departments pension
system. This shall be achieved by the CONTRACTOR utilising the system
being developed by Home Affairs (HANIS) through which one to many or many
to one many searches can be performed. These searches shall be conducted
at the request of the Department and under the arrangement agreed to between
the Department and Home Affairs. The cost of such searches, if any, shall
be for the account of the Department.
|
|
14.2 |
Procedures
|
|
14.2.1
|
The CONTRACTOR shall, upon written instruction from
the DEPARTMENT, use AFIS biometric identification technology to identify
duplicates as per 14.1.2 above.
|
|
15. |
AUTOMATED PAYMENT SYSTEM
USING BIOMETRICS
|
|
15.1 |
Standards
|
|
15.1.1
|
The CONTRACTOR shall transfer / migrate
beneficiaries to the new system as soon as possible. Not more than 12
months shall elapse before all pensioners are on the CONTRACTOR automated
cash payment system.
|
|
15.1.2
|
Mobile and portable pay stations shall
be provided in accordance with the CONTRACTORs tender response.
|
|
15.1.3
|
Biometric verification shall be the
only method used during payment to verify the beneficiaries.
|
22
15.1.4
|
Pay points shall be specified by the DEPARTMENT and registers on SOCPEN. The DEPARTMENT will allocate pensioners to SOCPEN Pay points. The DEPARTMENT shall notify the CONTRACTOR of any amendments made on SOCPEN to Pay points, one calendar month in advance. |
|
15.1.5
|
Payments shall be effected at the SOCPEN designed
Pay points only.
|
|
15.1.6
|
The Parties shall agree on the payment dates and times six months in advance. Adjustments due to unforeseen reasons can be agreed to by the Parties. |
|
15.1.7
|
The CONTRACTOR shall be able to pay the beneficiary
within his/her district subsequent to the official payment date having
elapsed but prior to the official SOCPEN cut-off date for that month.
|
|
15.1.8
|
The CONTRACTOR shall not override the payment system.
|
|
15.1.9
|
The CONTRACTOR shall only effect retrospective payments
exceeding R2 500.00 (Two Thousands Five Hundred Rands) subject to written
approval of the contract manager of the Department only. (CONTRACTOR to
print exceptions report of all these payments monthly).
|
|
15.2 |
Procedures
|
|
15.2.1
|
The CONTRACTOR shall pay all beneficiaries who can
be biometrically verified.
|
|
15.2.2
|
In addition to 15.2.1 the CONTRACTOR shall, where
false rejection of fingerprints occurs, pay the beneficiary on the presentation
and identification of a valid South African identity document subject
to written approval and positive identification by the DEPARTMENTs
help desk official. A copy of this approval to be retained by the authorising
official.
|
23
24
25
CONTRACTOR. This facility shall be protected by 24
hour armed security and shall have access control and shall have 24 hour
standby power supply.
|
|||
18.1.1.3 |
The CONTRACTOR shall ensure electronic interfaces
between its systems with the National Department of Social Development
social security system (currently SOCPEN).
|
||
18.1.1.4 |
Procedures shall ensure adequate control and shall
conform to the Regulations as of the Public Finance Management Act as
amended and to good management principles.
|
||
18.1.1.5 |
The CONTRACTOR shall reconcile payment information
on a daily basis.
|
||
18.1.1.6 |
The CONTRACTOR shall make reconciled payment information
electronically accessible to the DEPARTMENT as part of this service level
agreement at no additional cost.
|
||
18.1.1.7 |
Reconciled information shall be transferred back to the National Department of Social Development computer system on dates specified in the SOCPEN cut-off schedule. |
||
18.1.1.8 |
The CONTRACTOR shall ensure timeous transfer and
recovery of reconciliation data for its own purpose and so that reports
can be rendered to the DEPARTMENT at most two days after the end of the
payment period.
|
26
27
b)
|
The DEPARTMENT shall be responsible for correcting
errors or inaccuracies which may occur on the electronic records supplied
to the CONTRACTOR.
|
|||
c)
|
The parties agree to implement a system which, shall
cater for emergency stop payments at the pay point where the
DEPARTMENT could not meet the 2 (two) days cut-off to prevent a procurator
from withdrawing the social grant of a deceased beneficiary. This shall
always be an instruction from the Department to the CONTRACTOR in writing
|
|||
d)
|
The CONTRACTOR shall provide the Department a written
confirmation about payments stopped within 24 hours after a payment has
been stopped.
|
|||
e)
|
The DEPARTMENT shall ensure that all information
supplied by it and all identification is unambiguous and in such a form
as can be utilised by the CONTRACTOR and shall comply with the specifications
for such information required by the CONTRACTOR from time to time.
|
|||
f)
|
The DEPARTMENT shall re-supply or furnish to the
CONTRACTOR correct information or an update and corrected electronic record
of any incorrect information or electronic record which the CONTRACTOR
has rejected because such information or electronic record was not materially
accurate or contained errors or inaccuracies.
|
|||
18.1.2.2 |
Transfer of beneficiary
data and/or information (from the CONTRACTOR to the DEPARTMENT and SOCPEN)
and database updates.
|
28
a) |
The CONTRACTOR shall transfer all information received
from the DEPARTMENT and captured electronically during the enrolment of
beneficiaries and procurators to the National Department of Social Developments
central system within the time limits as per the SOCPEN cut-off schedule.
|
|||
b) |
The CONTRACTOR shall issue a certificate to the DEPARTMENT
once a month certifying that the amounts provided for the Payment of grants
by the DEPARTMENT have been transferred in full as per clause 3.6 of this
agreement to the accounts of the beneficiaries.
|
|||
c) |
The CONTRACTOR shall, on completion of the processing
required for the purposes of this agreement, confirm to the DEPARTMENT
in writing by direct computer link or fax or delivery by no later than
10:00 am on the last business day of the month preceding the month during
which payment shall be made to beneficiaries that the accounts of all
beneficiaries as per SOCPEN payment list have been activated and processed
and shall reflect the appropriate credit at the start of business on the
1
st
(first) business of the month in which the credit amount
is due for payment.
|
|||
d) |
The CONTRACTOR shall forward to the DEPARTMENT within
5 (five) business days of the beginning of each month a hard copy exception
report reflecting all grant banking accounts from which no withdrawal
has been made for a period of 3 (three) consecutive months.
|
29
e) |
The CONTRACTOR shall make available to the Auditor
General and the Department every 12 (twelve) months, an audited report
of all grants paid since the last audited report.
|
|||
19. |
TRUST ACCOUNT
|
|||
19.1 |
The Department shall transfer
funds to the Departments Pension Trust Account held
at its approved bankers from time to time. The interest earned on the
un-utilised balance of funds in this account shall accrue to the Department.
Any bank charges and fees incurred on this account shall be for the account
of the Department.
|
|||
19.2 |
The CONTRACTOR may draw
on the Pension Trust Account on daily basis for the amounts
required according to the cash draw down schedules for each pension payment
cycle. The cash draw down schedule should be compiled by the CONTRACTOR
according to the SOCPEN pay file and signed off by the Department and
the CONTRACTOR not later than three working days prior to the commencement
of the pension payment cycle.
|
|||
19.3 |
The CONTRACTOR shall arrange with its cash provider to only debit the Pension Trust Account for withdrawals on the day on which the cash funds for pay outs actually are handed over to the CONTRACTOR. Any unclaimed amounts for each pay day must be re-deposited in the Pension Trust Account within 24 hours after the end of each pay day. Cash in transit between withdrawal to payout pensions and redeposit of unclaimed amounts should not exceed 96 hours (four working days). |
|||
19.4 |
The CONTRACTOR shall submit
to the satisfaction of the province a bank guarantee from an acceptable
financial institution in the amount of 50% of the average daily benefits
paid out calculated six months in arrears. The initial amount shall be
R 10,000,000 (Ten million Rand). The DEPARTMENT shall be entitled to claim
any
|
30
31
32
within 30 days of the Effective
date. A resolution to this effect shall be furnished to the Department
within 30 days of the Effective Date.
|
||
22.2 |
The CONTRACTOR confirms
that Aplitec has entered into an agreement with CPS (NP) whereby Aplitec
shall remain the technology provider to CPS (NP) as per the tender response.
|
|
22.3 |
The CONTRACTOR confirms
that Aplitec has entered into an agreement with the CONTRACTOR as per
the tender response whereby Aplitec and the CONTRACTOR shall establish
a joint senior management team consisting of experienced senior managers
and / or its shareholders to ensure a high standard of service delivery
in the Province with a strong commitment to the transfer of skills.
|
|
22.4 |
In addition to the senior
management team in 22.4 above the CONTRACTOR shall continue with most
of the provincial management and staff who are presently delivering the
services in the Province. The same applies to the fixed infrastructure
(deposits/branches).
|
|
22.5 |
It shall procure the following
assets and services when and if necessary from within the province and
preferably from Previously Disadvantaged Individual owned service provider
according to the tender response:
|
|
•
|
Vehicles
|
|
•
|
Stationery
|
|
•
|
Office Furniture
|
|
•
|
Offices / Premises
|
|
•
|
Recruitment
|
|
•
|
Construction
|
33
•
|
Fuel and Maintenance
|
||
•
|
Security Services (armed
guards)
|
||
•
|
Cash-in-Transit services
|
||
23. |
COMMUNITY INVOLVEMENT/SOCIAL
RESPONSIBILITY
|
||
a) .
|
The CONTRACTOR shall contribute at least
an amount of R2.7 million (two millions and seven hundreds thousands Rands)
over three years to the community development fund
|
||
b)
|
The Community development fund shall
be administered and managed jointly by the CONTRACTOR and the Department.
|
||
c)
|
The CONTRACTOR shall undertake to empower
local pensioner committees in the Province.
|
||
24. |
HUMAN RESOURCES DEVELOPMENT
|
||
a)
|
The CONTRACTOR shall develop and submit
a Human Resource Development strategy to support the objective of this
tender by 31 October 2003.
|
||
b)
|
The CONTRACTOR shall develop and submit
a reorientation and induction training programme for the approval by the
Department by 31 October 2003.
|
||
c)
|
The CONTRACTOR shall provide training
to empower civil servants during subsistence of the contract and the Department
shall have the right to evaluate and assess progress on training.
|
||
d)
|
The CONTRACTOR shall keep record of
training activities and an attendance register of such training activities.
|
34
e)
|
The CONTRACTOR shall as
far as possible recruit local people from the Limpopo Province.
|
|||
f)
|
The CONTRACTOR shall adhere
to all relevant statues such as:
|
|||
i.
|
Employment Equity Act
|
|||
ii. | Basic Conditions of employment Art | |||
iii. | Skills Development Act, etc, | |||
25.
|
CUSTOMER SERVICE
|
|||
a)
|
The CONTRACTOR shall serve
and treat beneficiaries and procurators with dignity, appropriate courtesy
and the humanity they deserve.
|
|||
b)
|
The CONTRACTOR shall avail
its frontline staff to be oriented and trained in Batho Pele and customer
care by the Department. The cost of the training in the form of venues,
stationery, facilities and meals shall be pre-approved by the CONTRACTOR
and shall be for the CONTRACTORs account.
|
|||
c)
|
The Department shall provide
a help desk facility at each pay point. The help desk shall be staffed
by Departmental officials who will attend to beneficiaries problems
which are either Departmental or CONTRACTOR related.
|
|||
d)
|
The Department shall provide
a toll free number as a communication and query line between the CONTRACTOR
and the beneficiaries.
|
|||
26.
|
INSURANCE The CONTRACTOR shall provide acceptable proof of insurance cover, including Public Liability, upon the Effective date of this agreement. Any change in insurance cover shall be notified to the DEPARTMENT within 24 hours of the change. |
35
27. |
TRANSFER OF RISK
|
||
a)
|
The CONTRACTOR shall be liable for any payment made
to a beneficiary by the CONTRACTOR after having received an instruction
not to make such payment from the DEPARTMENT as long as the instruction
is received by the CONTRACTOR before the payment is effected.
|
||
b)
|
The risk in any monies held by the CONTRACTOR in
terms of this agreement shall pass to the CONTRACTOR when such monies
are withdrawn from the Trust Account, by the CONTRACTOR and the risk shall
remain with the CONTRACTOR until such time as the monies have been paid
to the beneficiary or procurator or have been repaid to the Trust account.
|
||
c)
|
All monies not paid out shall be deposited into the
Trust Account within twenty four hours from the stipulated payment date.
|
||
27.1 |
SUPPORT SERVICES AND BACK-UP
|
||
27.1.1
|
The CONTRACTOR agrees to
provide proper and acceptable support services both in respect of equipment
maintenance and back-up in terms of vehicles, personnel, computer equipment,
extra cash, extra security.
|
||
27.1.2
|
The CONTRACTOR shall provide
all reasonable technical and development skills required for the project.
|
||
27.1.3
|
The CONTRACTOR shall develop
the system further and/or implement new procedures, within reasonable
time frames as to cater for all reasonable changes which may be required
in future provided that details are negotiated and agreed to by the parties
in writing.
|
36
27.2
|
DISASTER RECOVERY PLANS
|
||
a)
|
The CONTRACTOR shall provide and implement disaster
recovery plans as far as the pensions payment system is concerned as per
the tender response. This will include incidents such as equipment failure,
fire, storm, explosion. labour disputes, accidents, lack or failure of
transport facilities, cash heist, epidemic, cyclone, floods, droughts,
lack or failure of labour, utilities, or supplies, blockage, sanctions.
|
||
b)
|
The CONTRACTOR shall ensure availability of enough
vehicles to undertake the pension payment task unhindered.
|
||
28. |
INVESTIGATIONS AND QUERIES
|
||
28.1 |
All queries pertaining to
beneficiaries which take place at Pay points shall be immediately dealt
with by the help desk officer in conjunction with the CONTRACTORs
team leader where necessary. Any unresolved issues shall be reduced in
writing by the help desk officer.
|
||
28.2 |
Within the context of the
above paragraph, any complaints affecting the pension committee member
shall be directed to the Departmental help desk officer. Any complaint
affecting the Departmental help desk officer shall be directed to the
Department by the CONTRACTOR.
|
||
28.3 |
All queries of any nature
relating to provision of grants in terms of this agreement, whether such
queries are made by beneficiaries, procurators or various departments
of the Government shall be made in writing to the CONTRACTOR via the DEPARTMENT.
The CONTRACTOR shall be obliged to attend to any such queries and give
feedback to the DEPARTMENT at no extra cost.
|
37
28.4 |
All queries made by and
all information required by the CONTRACTOR in respect of the implementation
of this agreement shall be made to or directed to the Head of the DEPARTMENT.
|
|
28.5 |
Should it be necessary for
the DEPARTMENT to intervene on behalf of a beneficiary and/or procurator
who alleges that he / she has been defrauded in the payment of his social
grant or that his / her grant has been misappropriated in any way, the
CONTRACTOR shall at all times co-operate with the DEPARTMENT and provide
all necessary information required by the DEPARTMENT for its investigation
into the matter.
|
|
29. |
CONSIDERATION AND PAYMENT
OF SERVICE FEES
|
|
29.1 |
The service fees payable
for the services as required in terms of this agreement are as set-out
in Annexure B.2 and B.4. of the CONTRACTORs tender. These fees will
become payable from the Effective date and remain fixed until 30 November
2004. The first escalation will only come into effect on 1 December 2004.
|
|
29.2 |
The CONTRACTOR accepts
that the annual price adjustments, will only be effective from 1 December
2004. The price adjustment will be effective from 1 December being the
contract anniversary date. The following formula will be applied to calculate
the price adjustment.
|
|
•
|
Consumer Price Index (CPI) applicable
to this sector will be according to Statistical release P0141.1 by Statistics
South Africa Table 2.2
|
|
•
|
The base CPI index shall be the Index
for November 2003.
|
38
39
from certifying the service charge as due and payable
must be resolved within the same period.
|
|
29.6
|
All payments by the DEPARTMENT to the CONTRACTOR
in terms of this agreement shall be made without deductions or set off,
any kind and shall be paid free of exchange, bank costs and other changes.
The principle of set-off shall apply exclusively in the case of previous
over-payments of any kind as well as where the CONTRACTOR has failed to
refund any amounts not claimed by beneficiaries.
|
29.7
|
All payments due by the DEPARTMENT to the CONTRACTOR
in terms of this agreement shall be made electronically into the CONTRACTORs
bank account as certified by the CONTRACTORs Executive Director
duly authorised by the Board.
|
30.
|
PENALTIES
|
Interest at prime rate shall
be payable by either party for each day in default respect of service
fees or unclaimed benefits refunded outside the specified time period.
|
|
31.
|
VARIATION OF INSTRUCTIONS BY THE DEPARTMENT
|
31.1
|
The DEPARTMENT may vary any information given to
the CONTRACTOR and may revoke any instruction to pay benefits to any beneficiary
as it deems necessary from time to time.
|
31.2
|
The CONTRACTOR shall only be obliged to implement
any variation or revoke if it has received notice in writing of such variation
or revoke. The CONTRACTOR shall only be obliged to implement any variation
or revoke within two business days from the date upon which such variation
or revoke has been received by the CONTRACTOR and that such variation
or revoke is recorded and must then be confirmed on the magnetic tape
record submitted by the DEPARTMENT to the CONTRACTOR.
|
40
32. |
PROCURATORS
|
32.1 |
The DEPARTMENT must approve the nomination of a procurator
for any beneficiary who is unable to personally collect his/her grant
in terms of this agreement, providing that such nominated procurator is
not an employee of the CONTRACTOR or of the Social Security Chief Directorate
(unless authorised by the Head of Department).
|
32.2 |
Should the DEPARTMENT approve the appointment of
a procurator such procurator shall only be registered if accompanied by
the beneficiary.
|
32.3 |
The CONTRACTOR shall not register and process payment
to any procurator who is not registered with SOCPEN by the Department.
If the beneficiary so wishes to personally collect the grant he/she should
be allowed to do so.
|
32.4 |
Once the procurator is registered in SOCPEN and by
the CONTRACTOR the procurator shall be entitled to withdraw the beneficiarys
grant for and on behalf of the beneficiary. Nothing shall preclude the
beneficiary from also being personally enrolled by the CONTRACTOR and
if both the beneficiary and the procurator are so enrolled the CONTRACTOR
shall be obliged to pay the Grant due from time to time, to the beneficiary
or whichever one of them first presents themselves to withdraw the grant
due to the beneficiary at that time.
|
32.5 |
All obligations of the CONTRACTOR to pay a grant
to a beneficiary shall be discharged when that beneficiarys procurator
withdraws the grant in accordance with the provisions of this agreement.
Neither the beneficiary nor the DEPARTMENT shall have any claim whatsoever
against the CONTRACTOR in respect of a payment made by the CONTRACTOR
to a registered procurator. The CONTRACTOR shall not demand that the beneficiary
personally receives a grant when procurator is duly appointed unless authorised
by the Department.
|
41
32.6
|
The appointment of a temporary
power of attorney in terms of Regulation 17(3) and (4) of the Act shall
entitle the holder of such power of attorney to withdraw the beneficiarys
grant for and on behalf of the beneficiary but subject to the following;
|
|
32.7
|
The CONTRACTOR shall pay
a temporary power of attorney holder on the presentation of an official
form subject to identification by the help desk officials, and
|
|
32.8
|
The official form must be
in triplicate with a copy to CONTRACTOR and a copy for the DEPARTMENTs
help desk. Any fraud that could be associated to these or any other manual
payments shall be for the account of the Department.
|
|
33.
|
MANAGEMENT REPORTS |
|
The CONTRACTOR shall provide the Department with the following reports as a minimum: | ||
33.1
|
Detailed monthly payments
report indicating paid and unpaid beneficiaries per district, sub-district,
and pay point with the following fields: identity number, name, grant
type and amount.
|
|
33.2
|
Large amounts report three
days before commencement of the pay cycle.
|
|
33.3
|
Provincial reconciliation
report specifying total number paid and unpaid per grant type and the
amounts.
|
|
33.4
|
Enrolment /registration
report specifying beneficiaries and procurators registered per month,
district, sub-district, and pay point and reconciled to SOCPEN database.
|
|
33.5
|
Pay point listing report.
The report should have the following information:
|
|
•
|
Pay point number
|
|
•
|
Name of pay point
|
|
•
|
Number of beneficiaries
|
|
•
|
Name of district and sub-district
|
42
43
Department, the CONTRACTOR shall inform
the Department of such changes and update the Escrow depository accordingly
in writing. These changes shall form part of the monthly management reporting.
|
|
35.3
|
All data collected during the contract
period, associated with the required services, shall remain the property
of the Department.
|
35.4
|
The CONTRACTOR shall ensure that the
Department has access and is able to utilise data even after the termination
of the contract.
|
36.
|
AUDITING
|
36.1
|
State Auditors shall have the rights
to inspect books of the CONTRACTOR and provide the Department with same
information.
|
36.2
|
The CONTRACTOR shall comply with the
Companies Act and the South African Generally Accepted Accounting Standards.
|
37.
|
PARTIES NOT AFFECTED BY WAIVER OF
BREACHES ETC.
|
37.1
|
Any waiver whether express, tacit or
implied by either party of any term or condition of this agreement shall
not be binding on the other party unless it is reduced to writing and
signed by both parties.
|
38.
|
VARIATIONS
|
No variations, modification
or waiver of any provision of this agreement, or consent to any departure
therefrom, shall in any event be of any force or effect unless confirmed
in writing and signed by the PARTIES; and then such variation, modification,
waiver of consent shall be effective only in the specific instance and
for the purpose and to the extent for which made or given. No addition
to, variation or consensual cancellation shall be of any force or effect
unless in writing and signed by or on behalf of the parties.
|
44
39. |
GENERAL PROVISIONS
|
39.1 |
All actions in the implementation and performance
of this agreement will conform with good management principles and good
co-operative governance.
|
39.2 |
This agreement constitutes the sole record of this
agreement between the parties. No party shall be bound by any express
or implied term, representations, warranty, promises or the like not recorded
herein.
|
39.3 |
No indulgence which either party may grant the other
party shall constitute a waiver of any rights of the grantor who shall
hereby be precluded from exercising any rights against the grantee which
may have arisen in the past or which may arise in the future.
|
40. |
SECRECY AND INFORMATION
|
Either party shall cause
its directors, employees, agents and servants to hold in confidence all
information received from the other party in respect of all information
except as it
|
|
40.1 |
Was known to the first party or the public generally
prior to the date it was received from the other party; or
|
40.2 |
Becomes known to the public generally subsequent
to the date it was received from the other party through no act or failure
to act on the part of the first party; or
|
40.3 |
Is received by the first party from an independent
third party who did not receive the information directly or indirectly
from the other party; or
|
40.4 |
Is the subject of a request from any statutory authority
or court order; or
|
40.5 |
Is determined to the contrary by the Promotion of
Access to Information Act (Act 2 of 2000).
|
40.6 |
The CONTRACTOR shall avail for vetting by the Department
any of its directors or employees or agents whom the Department may deem
it necessary.
|
45
At the expiry or termination
of this agreement, the CONTRACTOR shall cause all information in whatever
form which is at its disposal and which is related to the provision of
services in terms of this agreement, to be transferred to the Department.
|
||
41. |
COMMUNICATION
|
|
41.1 |
The Department retains ultimate
responsibility for communicating with the public, including the media,
on all matters pertaining to the disbursement of grants in the province.
|
|
41.2 |
The CONTRACTOR shall communicate
with the Department through the following channels:
|
|
41.2.1
|
At district level through the district
officer;
|
|
41.2.2
|
At provincial level through the Contract
manager;
|
|
41.2.3
|
Any communication between the CONTRACTOR
and the public (beneficiaries) shall be done in agreement with the Department;
|
|
41.2.4
|
The CONTRACTOR shall under no circumstances
give or purport or imply to be giving information to the public on behalf
of the Department
|
|
41.2.5
|
The CONTRACTOR shall prepare six-months
payout programmes in consultation with the Department, three months before
the commencement of the six months period, and the Department shall have
the final ratification authority.
|
|
41.2.6
|
The CONTRACTOR shall come up with a
communication strategy to inform beneficiaries about the pay-out programmes
three (3) months in advance 41.2.7 The DEPARTMENT shall be responsible
for publishing and disseminating information concerning the pay days and
pay times for each pay point and shall use its best endeavours to notify
beneficiaries of any changes thereto.
|
46
42. |
VIS MAIOR OR SUPERVENING IMPOSSIBILITY
|
42.1 |
To the extent that, and for so long as either of
the parties (hereinafter referred to as the affected party)
are rendered unable wholly or in part, to carry out any of its obligations
under this Agreement, by reason of any contingency beyond its reasonable
control, then subject to this clause the affected party shall be released
from the relevant obligation and shall incur no liability therefore during
the continuance of the said contingency. Those obligations not affected
by the said contingency shall remain in force. So far as the fault of
either parties is not the cause; thereof, such contingency may be deemed
to include, but shall not be limited to natural fire, fire, storm, explosion,
accidents, earthquake, earth tremor, epidemic, cyclone, volcano, floods,
droughts, Acts of God, blockage, sanctions, civil war, subsequent legislation
making performance illegal.
|
42.2 |
Should such contingency arise, the affected party
shall as soon as reasonably possible notify and meet the other party to
determine the estimated duration and extent of the disturbing circumstances
with sufficient particulars to enable the parties to assess the possibility
of obtaining performance by another means not affected by the event of
the vis maior or supervening impossibility. The parties shall use its
best efforts to remove the disturbance with the least possible delay so
that their obligations can again be fulfilled as soon as reasonably possible
in manner provided for in this agreement.
|
42.3 |
Should the vis maior or supervening impossibility
last more than 30 (thirty) days from the date of receipt of notification
by the other party, that other party shall be entitled to terminate this
agreement by giving not less than 30 (thirty) days written notice to the
affected party. The Department shall be entitled to use the services of
other parties during such period. It is agreed that where the vis maior
or supervening impossibility affects the resources and service needs of
the Department in such away that a reduction in
|
47
service is not the fault
of the CONTRACTOR, the Department agrees to pay the CONTRACTOR monthly
fees/service levy for the reduced services until re-established, on the
basis of the average of the previous three months fees/service levy.
|
||
43. |
CESSION |
|
The CONTRACTOR may with the prior written consent of the Provincial tender board transfer or assign its rights and obligations under this agreement with the prior written consent of the Department. The CONTRACTOR will notify the Department as soon as it is legally aware or as soon as restraints of confidentiality allow, of any proposed change in its shareholding or that of any subsidiary in which is has a controlling interest and to which the contract has been ceded. | ||
44. |
DOMICILIA |
|
The parties choose domicilium citandi et executandi for the purpose of this agreement as follows: The Department at:
Dr Jan Moolman Building,
The CONTRACTOR at:
97 Bicard Street,
Either party shall be entitled to change the domicilium citandi et excutandi chosen by it giving to the other party 30 (thirty) days notice of such change of address. Provided that this new address is not a post office or post restante. Any notice given and any payment made by either party to the other (the addressee) which:· |
||
•
|
is delivered by hand during normal business
hours of the addressee at the addressees domicilium for the time
being shall be presumed, until the contrary is proved by the addressee
to have been received by the addressee at the time of delivery.
|
|
•
|
if posted by prepaid registered post
to the addressee at the addressees domicilium for the time being
shall be presumed, until the contrary is proved by the addressee, to have
been received by the addressee on the seventh day after the date of posting.
|
48
THUS DONE AND SIGNED AT POLOKWANE ON
THIS ___________ DAY OF _____________ 2003
DR H.N. MANZINI | DATE | |
(FOR THE DEPARTMENT OF HEALTH & WELFARE) WITNESS |
||
(FOR THE CONTRACTOR) | DATE | |
WITNESS |
ANNEXURE A
RESOLUTION OF THE BOARD OF DIRECTORS OF CASH PAYMASTER SERVICES (PROPRIETARY) LIMITED held at ROSEBANK on 6 MARCH 2003 Resolved:
1. |
THAT the company enters into a service
level agreement the Department of Health and Welfare of the Limpop Provincial
Government regarding the provision of social welfare payment services
in terms of the agreement tabled and approved.
|
2. |
THAT SP MOHALE in his capacity as a
director of the company, be and he is hereby authorised to sign the agreement.
|
Exhibit 10.4
SERVICE LEVEL AGREEMENT
BETWEEN
THE DEPARTMENT OF SOCIAL WELFARE
AND POPULATION DEVELOPMENT
KWAZULU-NATAL
AND
CASH PAYMASTER SERVICES
KWAZULU-NATAL (PTY) LTD
14 AUGUST 2001
MEMORANDUM OF ACCEPTANCE
BETWEEN
THE PROVINCE OF KWAZULU-NATAL
as represented by Mr L.P.H.M. MTshali, in his capacity as
Premier
of the Province of KwaZulu-Natal (hereinafter referred to as Province)
AND
CASH PAYMASTER SERVICES KWAZULU-NATAL (PTY) LTD
as represented by Mr M. Yako, in his capacity as Executive
Chairperson of
Cash Paymaster Services KwaZulu-Natal (Pty) Ltd (hereinafter referred to as
,.CPS)
The KwaZulu-Natal Department of Social Welfare and Population Development entered into a contract for the payment of grants with Cash Paymaster Services (Pty) Ltd on 6 September 1999. In an effort to set minimum standards, and address concerns of service delivery in terms of this contract, a Service Level Agreement has been signed. Embodied in the Service Level Agreement are the principles of good governance and co-responsibility, to ensure that customers of this Department are treated with dignity and respect. With the acceptance, of the Service Level Agreement, all parties commit themselves to the implementation of both the content and spirit of this agreement.
The Memorandum of Acceptance is signed for and on behalf of the parties so authorised .
THUS DONE AND SIGNED AT DURBAN ON THIS 14th DAY OF AUGUST 2011. | |
FOR AND ON BEHALF OF THE PROVINCE OF KWAZULU-NATAL | |
FOR AND ON BEHALF OF CPS KWAZULU-NATAL (PTY) LTD |
AS WITNESSES:
PRINCE G.L. ZULU FOR AND ON | MR N.V.E. NGIDI FOR AND ON | |
BEHALF OF THE DEPARTMENT OF | BEHALF OF THE KWAZULU-NATAL | |
SOCIAL WELFARE AND | WELFARE PORTFOLIO | |
POPULATION DEVELOPMENT | COMMITTEE |
2
SERVICE LEVEL AGREEMENT
1. |
PARTIES The parties to this agreement are: |
|
1.1 |
Department of Social Welfare
and Population DevelopmentProvince of KwaZulu-Natal
|
|
And | ||
1.2 | Cash Paymaster Services (KwaZulu-Natal) Pty Ltd | |
2. |
DEFINITIONS In this agreement, unless the context otherwise indicates, the words and expression set forth below shall bear the meanings as defined. It must be noted that in this document |
|
•
|
reference to any one gender shall include
the other gender
|
|
•
|
a natural person includes an artificial
person and vice versa
|
|
•
|
the singular includes the plural and
vice versa
|
ACT | The Social Assistance Act, No. 59 of 1992, as amended | |
AFIS | Automated fingerprint identification system | |
AGREEMENT | This service level agreement, including all schedules and annexures thereto | |
BFIS | Biometric fingerprint identification system used for the positive verification of fingerprints | |
BUSINESS DAY | Any day other than a Saturday, Sunday or official public holiday | |
COMMUNITY | People who ordinarily reside in the Province of KwaZulu-Natal | |
CONTRACTOR | Cash Paymaster Services (KwaZulu-Natal) Pty Ltd | |
CUSTOMER | Any person to whom social assistance is rendered under the Social Assistance Act, 1992 as amended | |
CUSTOMER CARD |
Individual smart cards which will be
provided and issued by the Contractor to each customer after enrolment,
according to the requirements as mutually agreed upon
|
3
DEPARTMENT |
The Department of Social Welfare and
Population Development in the Administration of the Province of KwaZulu-Natal
|
|
ENROLMENT |
Electronic registration of the identifying
details, and fingerprints of each customer in the Province of KwaZulu-Natal
|
|
HANIS |
Home Affairs National Identification
System
|
|
IDENTITY DOCUMENT |
13 Digit bar-coded RSA identity document
|
|
IMPLEMENTATION
TIMETABLE |
The implementation plan as mutually
agreed upon by the Department and the Contractor, in accordance with the
specifications set in the Tender Document
|
|
MANAGEMENT
COMMITTEE |
The team that will represent the Department
and the Contractor in the management of the services rendered in terms
of this contract
|
|
NPSI |
National Payment Systems Infrastructure
|
|
PAYMENT MONTH |
A calendar month
|
|
PAY POINTS |
Designated venues at which the payment
of grants may be undertaken. These may be:
|
|
Mobile - payment equipment mounted in
vehicles, adapted to the terrain
|
||
Fixed - ATM type services for payment
at mutually agreed upon static venues
|
||
Portable - payment equipment which is
easily transportable, and which can be used in a variety of venues
|
||
The list of pay points is attached to
this Service level agreement as Annexure A
|
||
PROVINCE |
The province of KwaZulu-Natal
|
|
SECURITY SERVICES |
The security services (both cash-in-transit
and guarding) that will be provided by the Contractor in terms of the
agreement contained in the tender documents
|
4
SOCPEN |
National Governments computerised
social assistance grant system
|
|
SOCPEN SCHEDULE |
Schedules detailing cut-off dates for
interaction with Socpen, as agreed upon by National Department of Social
Development and the Provincial Departments responsible for social grant
administration
|
|
SMART CARD BASED
SYSTEM |
The enhanced automated application and
payment system which will be used to enrol and pay beneficiaries, according
to information received from Socpen, with which this system will interface
|
|
TENDER DOCUMENT |
The tender as proposed to the Province
by the Contractor for rendering a comprehensive enrolment, payment and
communication service to beneficiaries in the Province of KwaZulu-Natal
|
3. |
RECORD
|
3.1 |
The Contractor submitted a tender to
the Province, which was accepted by the Province on 29 July 1999. The
contract was signed on 6 September 1999, and is valid for a 3 year period,
with provision for an extension for a further 2 years, if mutually agreed
to.
Subsequently the date on which this contract became effective was changed to 1 January 2000, as confirmed by Tender Board. |
3.2 |
The provisions as set out in the tender
document shall be supplementary to this document in all respects. Any
changes to the procedure as set out in the tender document will be mutually
negotiated and agreed to. No changes to any provision contained in the
tender document or this agreement shall be binding unless reduced to writing.
|
3.3 |
It is to be understood that all services
rendered in terms of this agreement are to conform to the Governments
principles of Batho Pele that is - people first.
|
4. |
DUTIES OF THE CONTRACTOR The Contractor will render the following services: |
4.1 |
enrolment of all customers and their
nominated procurators in the Province of KwaZulu-Natal.
|
4.2 |
payment of all customers and/or their
duly nominated procurators electing to receive their payment in cash.
This includes the transition of all customers currently paid on the voucher
system by the South African Post Office Limited.
|
5
6
7
8
The transition from existing payments methods to
the new system will be undertaken in terms of a roll-out plan, as mutually
agreed upon. This will include the transition of post office customers
within 12 month from implementation date of this contract.
|
|||
4.3.1.2 |
With the phasing in of the new system, payment will
take place at existing pay points for the first 3 months. Thereafter,
any change of pay point will be negotiated between the Contractor and
the Department. The number and location of pay points is detailed on the
schedule attached as Annexure A. There is to be no amendment to this schedule
without authorisation from the Department, which retains final approval
for the changing or creation of any pay point. A variation of 15% of the
initial number of pay points will be allowed in terms of this contract.
Costs attached to any variation over or below this number will have to
be negotiated between the Department and the Contractor.
|
||
4.3.1.3 |
The creation or change of any pay points will only
be considered after full consultation between the affected community,
the Contractor and the Department, which retains the right of final approval.
|
||
4.3.1.4 |
The maximum number of customers registered to any
one pay point should not exceed 1000, while every attempt should be made
to ensure that no customer spends longer than 2 hours waiting for payment
at a pay point. (This clause must be read in conjunction with clause 4.3.2.3.)
|
||
4.3.1.5 |
Limits of false rejection will not exceed 0,35% on the 4 template approach. Limits of false acceptance will not exceed 0,01% on the 4 template approach. |
||
4.3.1.6 |
The Contractor will bear all costs for the upgrading
and maintenance of the system and equipment to support the service standards
as set in the tender specifications.
|
||
4.3.1.7 |
All hard- or software customisation required to support
the service standards as set in the tender document, during the contract,
will be performed at no cost to the Department.
|
||
4.3.1.8 |
Identified Departmental staff will have on-line access
to the system as managed by the Contractor. Installation costs for these
communication links and the necessary software will be borne by the Contractor.
Communication links will be required at the Departmental Head Office in
Ulundi.
|
||
4.3.2 |
Payment Availability : |
||
4.3.2.1 |
Cash payment of grants will take place over the period
of a calendar month, in accordance with the legislation.
|
9
4.3.2.2 |
Payment at fixed pay points must be available during
normal office hours, that is from 08h00 to 16h00 weekdays, excluding Saturdays,
Sundays and public holidays. Payment teams are not to leave fixed pay
points earlier than an agreed upon time.
|
||
4.3.2.3 |
Cash payment of grants at any pay point, whether
portable or mobile, is not to continue after 16h00. Should there be extraordinary
circumstances which cause payment after 16h00, or to take place on days
not designated as payment days, to be desirable or necessary, the Department
(in the form of the management committee representative for that region)
must be informed, in order to give prior approval. When a team is ready
to leave any pay point, consultation between the Pension Committee, the
Departmental representative and the Contractors team leader must
take place, in order to ensure that the customers remain informed, and
every reasonable effort has been made to pay every customer.
|
||
4.3.2.4 |
Where late payment at a pay point occurs, the Contractor
and the Department are to make arrangements to ensure that customers are
able to return home. Arrangements following late payments may include
the provision of transport and refreshments for the customers at the defaulting
partys cost.
|
||
4.3.2.5 |
Manual overrides of the system should be limited.
Where it is confirmed that money has been generated by Socpen for payment
to any customer, arrangements must be made to ensure that the customer
is paid, subject to clause 4.3.2.6.
|
||
4.3.2.6 |
The principle of no card / no payment
will apply. However, if the replacement period of 3 business days for
reported lost cards is not met, payment must be effected by the Contractor,
and the Contractor will bear all the risks with payment outside the system.
|
||
4.3.2.7 |
All pay stations must be accessible to the frail
and disabled.
|
||
4.3.2.8 |
The Contractor must develop contingency plans for all events which could affect the payment of grants. All rescheduling in the event of the non-payment of a pay point must be undertaken in conjunction with the Department. In all cases, should a pay point not be paid, payment must be rescheduled within a maximum of 5 working days. |
||
4.3.2.9 |
A transaction receipt is to be printed for each customer
after each transaction. Details to be included on the receipt are the
date and time of payment; the customers identity number and name;
the grant type; the amount paid; the balance available; the payment station
at which the money was paid and the date of the next payment. The receipt
is also to make provision for the printing of messages, in either English
or isiZulu, which will be supplied by Socpen.
|
10
4.3.2.10
|
The system must make provision for partial withdrawals.
|
||
4.3.2.11
|
The Contractor is to provide plans for the extension of the NPSI network of vendors. These points may be used as additional withdrawal points by the customers. |
||
4.3.3
|
Casual Illness : Provision is to be made by the Contractor for the payment of grants to persons nominated by the customer, in the event of temporary incapacity, as provided for in the legislation, in accordance with the following procedure: |
||
4.3.3.1
|
The customer will duly authorise a nominee to collect
his grant on his behalf. This authorisation to be on the approved form,
or in the form of a letter, on which a thumb print of both the customer
and the nominee, as well as both names and identity numbers are clearly
displayed. The local district welfare office is to approve this request,
by stamping and signing the form.
|
||
4.3.3.2
|
The nominee will present the approved form, together
with the customers grant card, to the Contractors paymaster
at the payment site.
|
||
4.3.3.3
|
A senior staff member on the pay team will have the
authority to pay the grant, which will be written to the customers
grant card. This staff member will retain the letter authorising the payment
to that specific nominee, for record purposes.
|
||
4.3.4
|
Alternative Pay Points : Customers are to receive payment at their nominated pay point on the scheduled pay date, or any subsequent pay point in that district during that payment month. This must also apply to the post offices used as pay points. |
||
4.3.5
|
Security at Pay Points : Security of the pay site and cash-in-transit is the Contractors responsibility. A security team for each pay team should consist of a minimum of 4armed, registered security guards. Of these four, one must be at least a Grade C guard, while the remainder must be at least Grade D guards. Each guard used must have successfully completed formal security training commensurate with the specified training requirements as laid down by the Security Officers Board. In addition, all guards used in this contract must be registered as security officers in terms of the Security Officer Act, 92 of 1987. |
||
4.3.6
|
Payment Denominations : |
||
4.3.6.1
|
The maximum denominations to be used
in the payment of grants is R100.
|
11
12
5.2.4
|
The Department will implement pay point changes,
when requested by the customer, in accordance with approved procedures.
|
|
5.3 |
Communication: The Department will ensure the provision of information and/or material for communication with the customers to the contractor, who will ensure the distribution thereof, during the payment cycle. |
|
5.4 |
Help Desks : The Department will be responsible for the provision of help desks at cash pay points, in accordance with a management plan, giving due consideration to the availability of resources. |
|
6. |
CONTRACTOR REMUNERATION The Department shall be liable for fees payable in respect of services rendered by the Contractor. All fees quoted are inclusive of VAT. The fees will be calculated as follows: |
|
6.1 |
Enrolment by the Contractor
at R15,00 per enrolment.
|
|
6.2 |
The fees for payment will
be at a fixed rate of 3,6% of the amount paid out. The tendered fees include
all costs for setting up the infrastructure of the new system.
|
|
6.3 |
For the duration of the contract, the Contractor will be responsible for the cost of the replacement of all lost and damaged customer cards, to a maximum of 20% of cards lost or damaged. Any further replacement of customer cards will be charged to the Department all the cost of the replacement card. |
|
6.4 |
The cost for the system to be implemented in the Post Offices will be at the rate of R10,26 per payment transaction (that is R9,00 plus VAT). The Department will also be responsible for the payment of the amount of R11,49 (that is R10,08 plus VAT) per payment transaction to the Post Office, as Post Office employees will retain responsibility for the payments. These separate costs for the post office network are to be valid for a period of 12 months following implementation only As the Post Office pay points are migrated to the new payment system, so the separate costing for the post office will reduce. Once this process is complete, all cash payments are to be charged for in a uniform manner, at the agreed rate of 3,6% of the amount paid out. |
|
6.5 |
The Contractor shall supply
the money to make grant payments. No money will be made available to the
Contractor by the Department in advance. This clause will relate to the
Post Office payments only once the new payment method has been implemented
in post offices.
|
13
6.6 |
The Contractor shall, on
confirmation of receipt of the grant by the individual customer or his
nominated procurator, render an account to the Department for payment
thereof. The Department will only reimburse the Contractor for grant money
actually paid to customers. The invoices for these amounts will be submitted
to the Department each Thursday of each week, for payment by the Friday
of that week for the payment days prior to that Thursday.
|
|
6.7 |
The Contractor is to meet
the Socpen cut off schedules, as set annually. All grants paid by month
end 3 will be reconciled to Socpen by the date set for month end 3. The
balance of the grants for that payment month should be reconciled on month
end 3 as unresolved. These will be reconciled at the end of the payment
month.
|
|
6.8 |
The Contractor is not to
carry over payments for uncollected amounts. All grants must be reconciled
to Socpen monthly. Any uncollected payments will be cancelled and carried
over for payment by Socpen, for a period of three months, after which
payment will be systematically suspended.
|
|
6.9 |
The account for the Contractors service fee will be rendered after the service has actually taken place, that is, after the customer has confirmed his existence, and has had his money transferred to his card. The invoice for the service fee will be submitted to the Department monthly, together with the amount due for enrolment. The two amounts will be shown separately on the invoice. |
|
6.10 |
Costs for replacement of
lost cards will be submitted to the Department monthly, on a separate
invoice, to be included with the invoice for service fees.
|
|
6.11 |
The Department shall settle
its account, within seven (7) days from the date that the invoice was
received at the Departmental Head Office in Ulundi. Should the Department
default in the settling of this account, interest at prime rate will be
payable on all overdue amounts. An invoice shall be deemed to have been
received on the same day if delivered by hand before 09h00, on the same
day if delivered by fax, with confirmation of faxing having been effected
before 09h00 (provided the original is then immediately posted) and on
the seventh day after posting, if sent by pre-paid registered mail.
|
|
6.12 |
Price increases will occur
annually on notification by the Contractor and will be calculated as follows:
|
|
6.12.1
|
Annual price increases will be equal
to the average increase in the consumer price index (inflation rate /
CPI) as published by he South African Statistical Services after every
12 consecutive months of the agreement.
|
|
6.12.2
|
Price increases will come into effect
one year after the commencement date of the contract.
|
|
6.12.3
|
Any increases in benefits enjoyed by
the customers during the period prior to the increase date each year shall
be offset against the CPI increase before determining the fee percentage
to be applied to the amount paid out for the new year.
|
14
15
•
|
upgrading of equipment, including hard-
and software, on a regular basis, ensure, that it remains abreast of industry
technology, to comply with the requirements as laid down in the tender
document;
|
|
•
|
replacing equipment that fails, which
does not comply to the requirements laid down in the tender document at
its own expense;
|
|
•
|
providing and executing of all back-up
procedures;
|
|
•
|
replacing all lost or stolen equipment;
and
|
|
•
|
ensuring that an adequate disaster recovery
procedure is in place.
|
|
10.2 |
All equipment supplied
and installed by the Contractor for the purpose of this contract shall
remain the sole property of the Contractor.
|
|
10.3 |
The Contractor shall be
responsible to install and maintain all equipment to introduce this payment
system in selected Post offices.
|
|
11. |
DATA AND FEEDBACK
|
|
11.1 |
All data transfers between
the Contractor and Socpen shall be made electronically, and will comply
with the specifications as set by Socpen.
|
|
11.2 |
The Contractor shall ensure
that the Department has on-line access to the Contractors central
data base.
|
|
11.3 |
All data collected and used
during the contract will remain the confidential property of the Department
and shall be returnable in a format as agreed upon, at no charge.
|
|
12. |
RDP AND PAY POINT DEVELOPMENT The Contractor undertakes to pay an amount of R50 000 per month (R600 000 per annum) into a development fund, as from the implementation of the new payment system for the duration of this contract, which is to be used for pay point development and RDP projects. The identification of projects for development will be a responsibility of the management committee. |
|
13. |
BENEFITS TO THE COMMUNITY The Contractor commits itself to benefit the Province of KwaZulu-Natal by means of the following: |
|
13.1 |
The major benefit to the
community will occur in the area of employment. A minimum of 90% of the
staff for this contract will be recruited from this Province.
|
16
13.2 |
Sub-Contractors for service functions
will be sourced from within the Province, with provision made for the
inclusion of SMMEs in this venture. Details of SMMEs used
are to be submitted to the management committee on a quarterly basis.
|
13.3 |
The promotion of the NPSI network of
vendors must be shown. It is expected that there will be an increase of
30% in the number of participating dealers each year for the life of this
contract. Businesses in rural areas are to be given priority in terms
of this development - it is not intended to support development only in
the towns or urban areas. The Contractor is to report progress on this
aspect to the management committee on a quarterly basis.
|
13.4 |
The Contractor must make provision in
their Service Level Agreement with the S.A. Post Office for a roll-out
plan for the extension of the spaza and retail post office network, with
specific reference to how this will improve services in the rural areas.
Progress reports on this aspect will be submitted to the management committee
on a quarterly basis.
|
14. |
AUDITING
|
14.1 |
Internal reconciliation and auditing
facilities have been built into the system by the Contractor. These facilities
will be accessible to authorised Departmental staff, and staff from the
office of the Auditor-General.
|
14.2 |
An audited annual financial report will
be submitted by the Contractor to the Department no later than 30 September
each year.
|
15. |
DOMICILIA CITANDI ET EXECUTANDI The parties hereto choose their domicilia et execulandi for all purposes of and in connection with this agreement as follows: |
17
16. |
BREACH An event of a breach shall be deemed to have occurred if: |
|
16.1 |
any party breaches any
of its obligations in terms of this agreement and fails to remedy the
breach within 7 (seven) days after the receipt of written notice from
the other party requiring the remedying thereof, if such breach is capable
of being remedied;
|
|
16.2 |
any party ceases or is
unable for any reason whatsoever to conduct its business in an ordinary
or regular manner, and fails to take reasonable steps to remedy such situation
within 60 (sixty) days after having been called upon in writing to do
so by the other party;
|
|
16.3 |
any covenant or warranty
made by any party that goes to the root of this agreement is found to
be untrue or incorrect in any material respect;
|
|
16.4 |
an event of a breach shall
not be deemed to have occurred if the equipment fails temporarily. However,
in this case, arrangements must be made to continue with the required
service with minimum disruption to the customer;
|
|
16.5 |
should a breach of this
agreement, which goes to the root of this agreement, occur, which is not
corrected within the specified time frame, the party which is not in breach
shall be entitled to:
|
|
16.5.1
|
call upon the defaulting party to perform
its obligations in terms of the agreement, or
|
|
16.5.2
|
cancel this agreement
|
|
16.6 |
termination will become
effective after notice has been given in writing to the defaulting party.
|
|
17. |
FORCE MAJEURE
|
|
17.1 |
If the performance of a
material part of this agreement is suspended due to
force majeure
(that
is, any event which is beyond the control of, and could not have been
foreseen by that party, including an act of God, lockout, strikes, government
action, riots, war, or events of a similar nature) that party shall give
written notice of the
force majeure
to the other party.
|
|
17.2 |
This notice shall be given
within 3 (three) working days on which the event of the
force majeure
takes effect.
|
|
17.3 |
The party first affected
by
force majeure
shall do its utmost to reinstate the service due
in terms of this agreement in the shortest possible time.
|
|
17.4 |
Adjustment of the timetable
for the service required shall be mutually agreed upon in the event of
force majeure
.
|
18
19
18.2.2.1 |
Should any dispute arise
between the parties in connection with the interpretation or application
of the provisions of this agreement or its breach or termination, or the
validity of any document furnished by the parties pursuant to the provisions
of this agreement, that dispute will, unless resolved amongst the parties,
be referred to and be determined by arbitration in terms of this clause.
|
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18.2.2.2 |
Any party to this agreement may demand that a dispute be determined in terms of this clause by written notice given to the other party. The party commencing legal action shall decide whether the dispute will be resolved by way of arbitration or litigation and in the event of the former, this clause shall be taken to constitute the submission of the parties to arbitration, and |
|||
18.2.2.3 |
This clause will not preclude
any party from obtaining interim relief on an urgent basis from a court
of competent jurisdiction pending the decision of the arbitrator.
|
|||
18.2.3 |
The arbitration will be
held:
|
|||
18.2.3.1 |
In Pietermaritzburg, Durban
or Ulundi with only the legal and other representatives of the parties
to the dispute present in accordance with the formalities and procedures
settled by the arbitrator, and may be held in an informal and summary
manner, on the basis that it will not be necessary to observe or carry
out the usual formalities or procedures, pleadings and discovery, or the
strict rules of evidence, it being the intention that the arbitration
will be held and completed as soon as possible, and on the basis that
the arbitrator will be entitled to decide the dispute in accordance with
what he considers to be just and equitable in the circumstances.
|
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18.2.3.2 |
The arbitrator must be acceptable
to both parties and, if the matter in a dispute is principally:
|
|||
(a)
|
A legal matter, be a practising attorney
or advocate of at least ten (10) years standing;
|
|||
(b)
|
an accounting matter, be a practising
chartered accountant of at least ten (10) years standing;
|
|||
(c)
|
any other matter, be an independent
person.
|
|||
18.2.4 |
Should the parties to the
dispute fail to agree whether the dispute is principally a legal, accounting
or other matter within seven (7) working days after the arbitration was
demanded, the matter will be deemed to be a legal matter.
|
20
21
(ii)
|
Penalty for non-performance A reduction of 10% per month of the Contractors service charge for each month or part thereof that the Contractor needs following the date in clause 4.1.1 to rectify the non performance in 19.2.1(a)(i). |
||||
(b)
|
Payment days
|
||||
(i)
|
Non performance Failing to pay all customers who present themselves for payment on or after their allocated payment days within their allocated districts, but no later than the last working day of each month. |
||||
(ii)
|
Penalty A reduction of 15% in the Contractors service fee for all payments which took place after the last working day of each month. |
||||
(c)
|
Scheduled payment days
|
||||
(i)
|
Non-performance Failing to visit a scheduled pay point(s) on a predetermined pay day(s) without prior notification to the Department (in writing) and customers. |
||||
(ii)
|
Penalty A penalty equivalent to 20% of the Contractors service fee for customers registered to receive payment at such pay points, but which the Contractor failed to visit on the predetermined days. |
||||
(d)
|
Technical support Penalties for non-availability of technical support will be affected through clauses 19.2.1(a) and 19.2.1(b). |
||||
(e)
|
Insufficient infrastructure Where non-performance in 19.2.1(a) and 19.2.1(b) is a result of the fact that the Contractor deployed insufficient infrastructure, an additional penalty of 10% will be added to that already specified in 19.2.1(a) and 19.2.2(b). |
22
(f)
|
Reconciliation data The Department will be able to withhold the financial consideration payable to the Contractor for a particular month for as long as the Contractor fails to submit the reconciliation data for that month. The Contractor will not charge the Department interest on this amount. |
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19.2.2
|
Non-performance by
the Department
:
|
|||
(a)
|
Transfer of funds The Contractor will recover from the Department any cost incurred (if any) by the Contractor due to the transfer of funds after the period specified in clause 6.5.10, including interest (if any). |
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(b)
|
Transfer of data The Contractor will not be held liable if any of the non-performances by the Contractor listed under 19.2.1 above is caused by SOCPEN. |
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20. |
VARIATION/ MODIFICATION / WAIVER No variation, modification or waiver of any provision or consensual cancellation of this agreement or consent to any departure therefrom, shall in any way be of any force or effect unless confirmed in writing and signed by both parties, and then any such variation, modification or waiver, cancellation or consent shall be effected only in the specific instance and for that purpose and to the extent for which it is made or given. |
23
21. |
WAIVER OF RIGHTS The waiver, whether expressed or implied, by any party of any breach of the terms or conditions of this agreement by any other party, shall not prejudice any remedy of the waiving party in respect of any continuing or other breach of the terms and conditions hereof. No failure, delay, relaxation or indulgence on the part of any party in exercising any power or right conferred on such party in terms of this agreement shall operate as a waiver of such power or right, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof, or the exercise of any other power or right under this agreement. |
SIGNED AT | ON |
AS WITNESSES: | ON BEHALF OF THE DEPARTMENT | ||
1. | |||
Duly authorised thereto | |||
2. |
SIGNED AT | ON |
AS WITNESSES: | ON BEHALF OF THE CONTRACTOR | ||
1. | |||
Duly authorised thereto | |||
2. |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption Experts and to the use of our report dated March 20, 2003 included in Amendment No. 1 to the Registration Statement on Form S-4 of Net 1 UEPS Technologies, Inc.
MANNING ELLIOTT, CHARTERED ACCOUNTANTS
Vancouver, Canada
February 2, 2004
Exhibit 23.2
The Directors
|
FISHER HOFFMAN PKF (JHB) INC.
FHS House 15 Girton Road
Postnet Suite 200
Email info@fhpkfjhb.co.za
Fax (+27 11) 484-1721
|
Dear Sirs
INDEPENDENT AUDITORS CONSENT
We consent to the reference to our firm under the caption Experts in the Registration Statement and the related Proxy Statement/Prospectus of Net 1 Technologies Inc. for the registration of shares of its common stock and special convertible preferred stock.
Yours faithfully
FISHER HOFFMAN PKF (JHB) INC .
Directors:
IG Abbott A Berkowitz
JM Borowitz G Chaitowitz JA Craner A Cilliers SS Gamsu AJ Hannington WJ Impey
PJ Katzenellenbogen FH Kluever RJ Lawson
Practising consultants:
Dr RJE Beale RC Hoffman A van den Berg J Ware
Consultants
:
Dr L Konar DL Rose
Fisher Hoffman PKF is a member firm of PKF International Limited.
The regional
network of independant financial services providers practising under the style
of| Fisher Hoffman PKF are separate incorporated entities and practise
entirely independently of each other in Benoni, Bloemfontein, Cape Town, Durban,
Johannesburg, Newlands, Port Elizabeth, Pretoria, Welkom, Botswana, Namibia
and Swaziland.
Exhibit 99.2
NET 1 UEPS TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A MEETING OF SHAREHOLDERS
, 2004
The undersigned hereby appoints ____________________________ with full power of substitution, for and in the name of the undersigned, to vote all common shares, par value U.S. $.001 per share of Net 1 UEPS Technologies, Inc., a Florida corporation (the Company), that the undersigned would be entitled to vote if personally present at the Meeting of Shareholders, to be held at the offices of Schneider Weinberger LLP, 4499 Glades Road, Suite 108, Boca Raton, Florida 33431, on , 2004 at 9:00 a.m. (local time) and at any adjournment or postponement thereof, upon the matters described in the Notice of Meeting and Proxy Statement dated , 2004, receipt of which is hereby acknowledged, subject to any direction indicated on the reverse side of this card and upon any other business that may properly come before the meeting or any adjournment thereof, hereby revoking any proxy heretofore executed by the undersigned to vote at said meeting.
This proxy is being solicited by the Board of Directors of the Company. THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
Net 1 UEPS Technologies, Inc. | |
Suite 325-744 West Hastings Street | |
Vancouver, British Columbia V6C 1A5 | |
Canada |
2
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 and 4.
I/WE PLAN TO | ||
ATTEND THE MEETING | ¨ | |
Change of Address and/or | ||
Comments Mark Here | ¨ |
Note: Please date and sign this proxy card exactly as your name appears hereon. In the case of joint owners, each joint owner should sign. When signing in a fiduciary or representative capacity, please give your full title. If this proxy card is submitted by a corporation or partnership, it should be executed in the full corporate or partnership name by a duly authorized person.
Dated: ___________, 2004
Signature | |
Signature |
VOTES MUST BE INDICATED
x
IN BLACK OR BLUE INK.
x
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
PLEASE DETACH HERE
YOU MUST DETACH THIS PORTION OF THE PROXY CARD BEFORE RETURNING IT IN THE ENCLOSED ENVELOPE.