Heads of Agreement
Thursday 17th August 2000
Parties:
▇▇▇▇▇▇▇ Technology Limited "▇▇▇▇▇▇▇"
and
The Shareholders "The Vendors" of Generic Technology Limited "Generic"
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▇▇▇▇▇▇▇ wish to acquire all the issued and outstanding shares of Generic and the
Vendors wish to sell these shares, subject to, agreement on commercial terms,
any necessary approvals required being obtained, due diligence review being
completed, and consideration being passed.
Generic Technology Limited is the ultimate holding company of the Datec Group of
companies with technology companies based in Queensland Australia and across the
Pacific Islands.
This document records the understanding that exists between the parties. Generic
is to be sold as an ongoing concern.
Valuation & Consideration
The consideration to be paid by ▇▇▇▇▇▇▇ is the value established by applying a
multiple to the earnings less an allowance for tax (to be determined by tax
jurisdiction) result , of 14.5 times based on the audited annual financial
accounts of Generic as at December 31st 1999, or some other date that is agreed
between the parties.
The audited accounts are to be reconciled to US GAAP. All amounts are in
Australian Dollars, unless otherwise specified. The Vendors are to provide
audited annual accounts for Generic to Dec 97, Dec 98 and Dec 99.
A due diligence/audit review of Generic is to be conducted by Deloittes , to be
engaged by ▇▇▇▇▇▇▇, to establish and confirm the audited earnings after tax
result to which the multiple will apply. The cost of the due diligence will be
met by ▇▇▇▇▇▇▇.
Settlement
Settlement will be by way of:
1 - Cash component to a maximum value of 30% of the consideration (▇▇▇▇▇▇▇
reserves the right to settle the third, fourth and fifth tranches in free
trading ▇▇▇▇▇▇▇ Shares) subject to ongoing profit performance criteria being
achieved and
2 - Issuance of ▇▇▇▇▇▇▇ shares for the remainder of the consideration, this
being equivalent to 70% of the Consideration, at the date of acquisition, this
being 1 September, 2000, or some other date agreed between the parties.
▇▇▇▇▇▇▇ will guarantee the face value of the ▇▇▇▇▇▇▇ Shares delivered under it's
reserved right (See 1 above) to settle the third, fourth and fifth tranches in
free trading ▇▇▇▇▇▇▇ Shares, so that the Vendors are not exposed to any ▇▇▇▇▇▇▇
Share Price fluctuation downwards relating to this particular aspect of
settlement. This guarantee will be for a period of 12 months from date of issue
of ▇▇▇▇▇▇▇ Stock as settlement of the third, fourth and fifth tranches.
The Vendors have the right, at any time, by issuing a notice to ▇▇▇▇▇▇▇, to
demand that ▇▇▇▇▇▇▇ compulsorily acquire (swap for cash), at face value, any
amount of unsold free trading ▇▇▇▇▇▇▇ Shares held by the Vendors, that relate to
the Cash Component of a specific tranche settlement, within 12 months of issue
of those ▇▇▇▇▇▇▇ ▇▇▇▇▇▇. The Vendors' right is extinguished 12 months after
issue of the said shares.
▇▇▇▇▇▇▇ have 30 days from receipt of the Notice from the Vendors, of the
requirement to effect payment of the Share for Cash Swap.
Partial Settlement in Cash & Earnout criteria
Any cash to be advanced as partial settlement will be released once audited
financial records for the period are completed and signed off by the ▇▇▇▇▇▇▇
Board, subject to the following criteria:
Period/Payment period Amount Earnout criteria
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First Cash Tranche 7.5 % of Consideration, No Criteria
Acquisition date (excluding the Datec Fiji portion
of the consideration - this is
deferred for payment with the
third tranche)
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Second Cash Tranche Maximum 7.5% of Consideration Once BTG raises
Yet to be determined (excluding the Datec Fiji new Equity on
but within 12 months of portion of the consideration - NASDAQ
acquisition date this is deferred for payment with
the fourth tranche) plus
interest at 7.5% P.A. from
Acquisition date (on cash
component balance outstanding)
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Third Cash Tranche Maximum 7.5% of Consideration The Third Cash
12 months ending plus interest at 7.5% P.A. from Tranche Earnout
31/12/2000 Acquisition date (on the cash Criteria is
component balance outstanding) applied using the
Due for payment: plus deferred first tranche formula of:
30/6/2001 payment of Datec Fiji Component.
Increase in NPAT
result of Generic
of 20% over the
1999 result, in
the 12-month
period ending
31/12/2000,
otherwise the
third tranche is
held over pending
the results
achieved in the
subsequent
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2 year period.
If the performance
achieved within
the third tranche
period is higher
than the 1999 NPAT
result but lower
than the 20%
increase over the
1999 NPAT result
then the following
payment formula
will apply:
(Achieved NPAT
less Target NPAT)
divided by (Target
NPAT less Base
NPAT)
Achieved NPAT =
actual NPAT for
the 12 months
ending 31/12/2000
Target NPAT = 120%
of 1999 NPAT
Result
Base NPAT = 1999
NPAT Result
Any shortfall
measured against
the Third Tranche
Earnout Criteria
will be carried
over to a
subsequent period,
with the
possibility of
being earned out
in that future
period.
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Forth Cash Tranche Maximum 7.5% of Consideration The Fourth Cash
12 months ending plus interest at 7.5% P.A. from Tranche Earnout
31/12/2001 Acquisition date (on the cash Criteria is
component balance outstanding) applied using the
Due for payment: plus deferred second tranche formula of:
30/6/2002 payment of Datec Fiji Component.
Increase in
NPAT result of
Generic of 44%
over the 1999
result, in the
12-month period
ending 31/12/2001,
otherwise the
fourth tranche
(and perhaps
third tranche - if
it has not already
been earned out)is
held over pending
the results
achieved in the
next year.
If the performance
achieved within
the fourth tranche
period is higher
than the 1999 NPAT
plus
20% result,
but lower than the
44% increase over
the 1999 NPAT
result then the
following payment
formula will
apply:
(Achieved NPAT
less Target NPAT)
divided by (Target
NPAT less Base
NPAT)
Achieved NPAT =
actual NPAT for
the 12 months
ending 31/12/2001
Target NPAT = 144%
of 1999
NPAT Result
Base NPAT = 120%
of 1999 NPAT
Result
Any shortfall
measured against
the Fourth Earnout
Criteria (and
perhaps the Third
Tranche Earnout
Criteria if the
Third Tranche
hasn't already
been earned) will
be carried over to
the last Earnout
period, with the
possibility of
being earned out
in that future
period.
Note: The Fourth
Tranche can be
earned out in the
first 12 month
period as part
of the Third
Tranche if a 44%
increase in NPAT
(using the 1999
NPAT result as a
base) is achieved
within the first
12 months ending
2000.
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Fifth Cash Tranche Balance of consideration The Fifth Cash
12 months ending plus interest at 7.5% P.A. from Tranche:
31/12/2002 Acquisition date (on cash component
balance outstanding) This is a catch up
Due for payment: period.
30/6/2002
Any shortfall in
performance in the
third and fourth
tranche periods,
will be paid out
in the fifth
tranche period,
so long as a total
NPAT result -
obtained from the
period 1 January
2000 ending 31
December
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2002, delivers a
NPAT result
equivalent or
greater than 264%
of the 1999
result.
In the event that
the cumulative
result for the
period, 1 January
2000 ending 31
December 2002,
does not deliver a
NPAT result
equivalent or
greater than 264%
of the 1999 NPAT
result by
31/12/2002, then
the actual result
achieved within
the third and
fourth tranche
periods will
apply, i.e. if
there is a
shortfall it will
be forfeited.
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▇▇▇▇▇▇▇ have the right to demand the Vendors compulsorily acquire the Datec Fiji
Business, at the value of the consideration paid, if the Datec Fiji Business
does not meet the Acquisition Performance Criteria. ▇▇▇▇▇▇▇ must exercise this
right before 31/12/2002.
Partial Settlement in Shares
The strike price for the shares to be issued as partial settlement will be the
BKI share price at the close of business, on the Toronto Stock Exchange, on the
day the Sale and Purchase agreement is signed. The strike price for the BKI
stock shall be the greater of $10 CND (Ten Dollars Canadian) or Market Price
The Exchange rate to apply to this transaction will be the average of the
buy/sell rates published at the close of business by Westpactrust on the day the
Sale and Purchase agreement is signed.
Any dividends declared whilst the shares are in escrow, will be held in trust,
until the end of the 12 month hold period.
Restriction on Share trading
Shares issued as partial settlement will be escrowed for 6 months from date of
issue, thereafter the Vendors - pooling their interests in BKI Shares, may not
sell more than an amount equivalent to 1% of the total BKI shares on issue in
the market at the time
of sale - in any given 3 month (quarterly) period. A separate Escrow agreement
will be entered into by the parties in relation to this specific aspect of the
settlement.
Employment and Governance
Any personal assets currently in the asset register of Generic, will be sold,
prior to settlement, and not form part of the assets transferred to the ▇▇▇▇▇▇▇.
Any Shareholder loans or advances will be repaid prior to acquisition.
▇▇▇▇▇▇▇ Ah ▇▇▇, ▇▇▇▇▇▇▇ ▇▇ ▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇ are required to sign 3 year
employment contract with the company including a 5 year non compete clause.
Employment contracts are to be settled on mutually agreeable terms between the
Parties.
Warranty and other matters
Each party will pay their own legal costs in preparation of the Sale and
Purchase agreement.
Each party warrants to the best of their knowledge the information being relied
upon is fair and accurate.
The shareholders of Generic warrant there has been and will be no reduction in
asset value of the company from now until acquisition date.
The shareholders of Generic will jointly and severally provide suitable security
to ▇▇▇▇▇▇▇ for the 24 month period post acquisition, to the effect that the net
asset value of Generic will not fall below that at the date of acquisition,
therefore if the net asset value does become depleted during this period than
the shareholders will make good the amount of shortfall. This security could be
in the form of an Escrow agreement over a portion of the BKI stock being issued
as partial Settlement.
The parties agree to proceed to formal sale and purchase agreements, once the
valuation of the net assets has been completed.
The cost of the audit/due diligence review will be at the expense of ▇▇▇▇▇▇▇
unless the shareholders of Generic decide not to complete, in which case the
cost of the audit/due diligence review will be borne by the Generic
shareholders.
▇▇▇▇▇▇▇ will be indemnified by the shareholders of Generic from any liability of
Generic, whether contingent or not relating to or arising out of any act,
omission, obligation, or circumstance undertaken by or imposed on Generic prior
to the
settlement date which has not been disclosed to the purchaser prior to the date
of the signing of this agreement.
The Vendors will procure and maintain for the period at the Vendor's cost from
acquisition through to final settlement, or some other period as determined by
▇▇▇▇▇▇▇'▇ nominated Insurers, Representations and Warranties Liability
Insurance.
▇▇▇▇▇▇▇ will be consulted on all matters of material interest, which affect the
company, prior to acquisition. this includes expenditure on all items of capital
expenditure and general expenses above $20, 000.
Both parties will keep this information confidential. a press announcement will
occur in Canada and the US, once the heads of agreement is signed, stipulating
that ▇▇▇▇▇▇▇ has entered into a heads of agreements with Generic, however there
will not be general disclosure until the formal contract is signed.
this heads of agreement is subject to the approval of :
o the Toronto Stock Exchange
o US SEC
o board approval by ▇▇▇▇▇▇▇
o any other regulatory authority in New Zealand, Canada or the US.
by 18 August, 2000, or an agreed date.
The parties agree with the terms and conditions, by their respective signatures
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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For and on behalf of ▇▇▇▇▇▇▇ Technology Group Limited
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ [ILLEGIBLE]
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For and on behalf of Generic Technology Limited Shareholders
/s/ [ILLEGIBLE]
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For and on behalf of Generic Technology Limited Shareholders
/s/ [ILLEGIBLE]
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For and on behalf of Generic Technology Limited Shareholders
