Item 5.02 Departure of Directors or Certain Officers;
Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
On October 27, 2017, each of KSNET, Inc. and Net1 Applied
Technologies Korea (“Net1 Korea”) entered into a three-year service agreement
with Mr. Phil-Hyun Oh, President of KSNET. The service agreements replace the
service agreements between each of KSNET and Net1 Korea and Mr. Oh that expired
on June 30, 2017.
As of October 27, 2017, the USD/KRW exchange rate was $1: KRW
1,128.
KSNET service agreement
Under the KSNET service agreement, Mr. Oh is entitled to
receive: (i) an annual base salary of KRW 448.2 million and (ii) an annual bonus
of up to KRW 564 million, which comprises a quantitative and qualitative
portion.
The quantitative portion of the annual bonus is capped at a
maximum of KRW 364 million and will be based on the achievement of specified
levels of KSNET’s free cash flow and profit before interest and tax (defined as
profit before interest and tax and any bonus under the service agreement)
(“PBIT”) during any calendar year during the term of the service agreement, as
described below.
Mr. Oh is entitled to receive KRW 2 million for every KRW 1
billion of free cash flow (defined as operating cash flow, minus tax and capital
expenditures) during the year. The maximum payable in respect of the free cash
flow metric is KRW 54 million.
If PBIT is at least 90% but less than 100% of the previous
year’s PBIT, then Mr. Oh is entitled to receive (i) KRW 225 million,
minus
(ii)
KRW 11 million for each 1% by which current PBIT is less than
the previous year’s PBIT. If PBIT is equal to or greater than the previous
year’s PBIT, then Mr. Oh is entitled to receive KRW 225 million,
plus
KRW
3.4 million for each 1% increase in PBIT when compared to the previous year (up
to a maximum of KRW 85 million in respect of the excess), for a total maximum of
KRW 310 million.
The qualitative portion of the annual bonus is capped at a
maximum of KRW 200 million and is based on the achievement of certain key
objectives to be determined annually by our chairman. Each item comprising the
qualitative portion is based on performance during our fiscal year ending June
30. Achievement of the qualitative targets will be determined by our
Remuneration Committee each year. The qualitative targets for the 2018 fiscal
year are:
(i) If KSNET maintains or improves its market position in the
Korean Card VAN market: KRW 40 million;
(ii) If KSNET significantly internally improves the relative
contribution of the Banking VAN, PG, WCF, and Purchase business units to more
than 15% of gross profit compared to the core VAN business unit: KRW 40 million;
(iii) Meaningful progress in growing new business initiatives:
KRW 40 million;
(iv) If KSNET is not the subject of any adverse regulatory
findings, fines, or penalties during the relevant period: KRW 40 million;
(v) Cooperation with other Net1 group companies to assist with
business development initiatives: KRW 20 million; and
(vi) Formulation of a succession plan (emergency and long-term)
for the KSNET executive team: KRW 20 million.
Mr. Oh will continue to be eligible for participation in our
Amended and Restated 2015 Stock Incentive Plan during the term of the service
agreement.
In addition, under the terms of the KSNET service agreement,
Mr. Oh is entitled to participate in national health insurance and the national
pension plan provided under the laws of Korea, to receive reimbursement for
annual physical examinations for him and his spouse, and to make use of KSNET
provided car and driver for business and reasonable personal use.
The KSNET service agreement also includes a restraint of trade
clause which provides that upon the termination of Mr. Oh’s services with KSNET,
he is restricted, for a period of 36 months, from soliciting business from
certain customers, working for or holding interests in KSNET’s competitors or
participating in a competitive activity within the territories where KSNET does
business.
Mr. Oh may be terminated with or without “justifiable cause”
(as defined in the service agreement). In the case of termination without
justifiable cause, he will be entitled to receive his base salary and the bonus
(if any) that he would have otherwise received for the remainder of the
then-current fiscal year.
Net1 Korea service agreement
Under the Net1 Korea service agreement, Mr. Oh is entitled to
receive an annual base salary of KRW 12 million. The other terms of the Net1
Korea service agreement are substantially similar to the terms of the KSNET
service agreement.
The foregoing summary of the service agreements is qualified in
its entirety by the terms and conditions of the service agreements, which are
filed as Exhibits 10.79 and 10.80 to this 8-K and are incorporated herein by
reference.