EX-12 13 ex-12_23698.txt HEADS OF AGREEMENT Heads of Agreement Thursday 17th August 2000 Parties: Brocker Technology Limited "Brocker" and The Shareholders "The Vendors" of Generic Technology Limited "Generic" -------------------------------------------------------------------------------- Brocker 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 Brocker 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 Brocker, 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 Brocker. Settlement Settlement will be by way of: 1 - Cash component to a maximum value of 30% of the consideration (Brocker reserves the right to settle the third, fourth and fifth tranches in free trading Brocker Shares) subject to ongoing profit performance criteria being achieved and 2 - Issuance of Brocker 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. Brocker will guarantee the face value of the Brocker Shares delivered under it's reserved right (See 1 above) to settle the third, fourth and fifth tranches in free trading Brocker Shares, so that the Vendors are not exposed to any Brocker 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 Brocker Stock as settlement of the third, fourth and fifth tranches. The Vendors have the right, at any time, by issuing a notice to Brocker, to demand that Brocker compulsorily acquire (swap for cash), at face value, any amount of unsold free trading Brocker Shares held by the Vendors, that relate to the Cash Component of a specific tranche settlement, within 12 months of issue of those Brocker Shares. The Vendors' right is extinguished 12 months after issue of the said shares. Brocker 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 Brocker Board, subject to the following criteria: Period/Payment period Amount Earnout criteria -------------------------------------------------------------------------------- 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) -------------------------------------------------------------------------------- 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) -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Brocker 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. Brocker 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 Brocker. Any Shareholder loans or advances will be repaid prior to acquisition. Michael Ah Koy, Anthony Ah Koy and Krishna Sami 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 Brocker 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 Brocker 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. Brocker 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 Brocker's nominated Insurers, Representations and Warranties Liability Insurance. Brocker 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 Brocker 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 Brocker 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/ Michael Brian Ridgway -------------------------------------------------------------- For and on behalf of Brocker Technology Group Limited Michael Brian Ridgway /s/ [ILLEGIBLE] -------------------------------------------------------------- For and on behalf of Generic Technology Limited Shareholders /s/ [ILLEGIBLE] -------------------------------------------------------------- For and on behalf of Generic Technology Limited Shareholders /s/ [ILLEGIBLE] -------------------------------------------------------------- For and on behalf of Generic Technology Limited Shareholders