What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-05-10 compared with 2022-02-09 · 66 added, 65 removed, 20 unchanged (87% of the section changed)

1 unchanged sentence

Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Failure to complete, or delays in completing, the Connect Group acquisition, could materially and adversely affect our results of operations and stock price.

The completion of the Connect Group acquisition is subject to a number of conditions precedent, including receipt of regulatory approvals, certain third-party consents and the completion of financing arrangements.

Some of these conditions are outside our control.

To complete the acquisition, we must make certain filings with and obtain certain consents and approvals from various governmental and regulatory authorities.

The regulatory approval processes may take a lengthy period of time to complete, and there can be no assurance as to the outcome of the approval processes, including the undertakings and conditions that may be required for approval, or whether the regulatory approvals will be obtained at all.

We signed loan agreements for a ZAR 2.35 billion ($154.4 million) debt package with RMB on January 24, 2022.

The fulfilment of the various conditions precedent to these agreements may take some time to complete, and there can be no assurance as to the outcome.

Furthermore, we have agreed that if certain conditions related to our debt financing are not satisfied by their respective due dates for fulfilment for any reason, we have agreed to pay to the Connect Group sellers an amount of ZAR 50,000,000.

As we are financing a significant portion of the acquisition price using the debt package we are in the process of providing certain of our assets as security against the debt package.

The final financing agreements also contain covenants that require us to maintain certain specified financial ratios and place restrictions on our ability to make certain distributions from the target group, prepay other debt, encumber their assets, incur additional indebtedness, make capital expenditures above specified levels, engage in certain business combinations and engage in other corporate activities.

These security arrangements and covenants may reduce our operating flexibility or our ability to engage in other transactions that may be beneficial to us.

If we are unable to comply with these covenants, we could be in default under the financing agreements and the indebtedness negotiated thereunder could be accelerated.

Furthermore, we may not be able to service scheduled debt or interest repayments, or both, as a result of our inability to generate sufficient future cash flows, which may place us in contravention of the terms of the financing agreements and which may result in an event of default.

If any of these events were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as a result, our business and financial condition would suffer.

The loan agreements also include a credit enhancement mechanism of ZAR 350 million ($23.0 million), which has been provided by investment funds managed by Net1’s largest shareholder, Value Capital Partners (Pty) Ltd (“VCP”), on commercially agreed terms, which include a contingent subscription for new shares.

There can be no assurance that VCP will perform under the commercially agreed terms and failure by it to fulfil its obligation under the credit enhancement mechanism may put our funding or future repayments at risk.

In addition, the completion of the acquisition is conditional on, among other things, no action or circumstance occurring that would result in a material adverse effect on the Connect Group’s business operations or financial results.

We cannot provide any assurance regarding if or when all conditions precedent to the acquisition will be satisfied or waived.

If, for any reason, the acquisition is not completed, its completion is materially delayed and/or the share purchase agreement is terminated, the market price of our common stock may be materially and adversely affected.

In addition, if the acquisition is not completed for any reason, there are risks that the announcement of the acquisition and the dedication of management’s attention and other of our resources to the completion thereof could have a negative impact on our relationships with our stakeholders and could have a material adverse effect on our current and future operations, financial condition and prospects.

We may not realize some or all of the anticipated benefits from the Connect Group acquisition.

Even if we complete the Connect Group acquisition, we may experience unforeseen events, changes or circumstances that may adversely affect us.

For example, we may incur unexpected costs, charges or expenses resulting from the transaction, including charges to future earnings if the Connect Group’s business does not perform as expected.

Our expectations regarding the Connect Group’s business and prospects may not be realized, including as a result of changes in the financial condition of the markets that the Connect Group serves.

In addition, there are risks associated with the Connect Group’s product and service offerings or results of operations, including the risk of reduced cash settlements through Connect Group’s vault infrastructure or higher cash losses, lower than expected growth in Connect Group’s value-added services, lower than expected levels of loan advances or higher credit losses and slower than expected growth in card transactions.

Further, there are numerous challenges, risks and costs involved with integrating the operations of Connect Group with ours.

For example, integrating the Connect Group into our company will require significant attention from our senior management which may divert their attention from our day-to-day business.

The difficulties of integration may be increased by cultural differences between our two organizations and the necessity of retaining and integrating personnel, including Connect Group’s key employees.

Furthermore, our management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting as of June 30, 2022, will likely exclude the operations of the Connect Group.

We may not be able to successfully integrate Connect’s operations with our business.

On April 14, 2022, we announced the closing of our ZAR 3.8 billion ($262.0 million) investment to acquire a 100% interest in Connect.

The acquisition of Connect is strategically important for us because we believe that (i) the combination of complementary product offerings will assist to drive stronger unit economics, (ii) the transaction facilitates expansion of the addressable market in the informal MSMEs sector, (iii) Connect has an attractive financial profile with strong and profitable growth, (iv) we have merged highly skilled teams with complementary expertise, and (v) will be able to better serve the underserved.

Integrating Connect into our company will require significant attention from our senior management which may divert their attention from our day-to-day business.

The services of these individuals will be important to the continued growth and success of Connect’s business and to our ability to integrate Connect with us.

If we were to lose the services of these key employees or fail to sufficiently integrate them, our ability to operate Connect successfully would likely be materially and adversely impacted.

As such, if we are unable to successfully integrate Connect’s operations into our business we could be required to record material impairments, and as a result, our financial condition, results of operations, cash flows and stock price could suffer.

We may not achieve the expected benefits from our recent acquisition of Connect.

Our expectations regarding Connect’s business and prospects may not be realized, including as a result of changes in the financial condition of the markets that Connect serves.

In addition, there are risks associated with Connect’s product and service offerings or results of operations, including the risk of reduced cash settlements through Connect’s vault infrastructure or higher cash losses, lower than expected growth in Connect’s value-added services, lower than expected levels of loan advances or higher credit losses and slower than expected growth in card transactions.

Furthermore, attempting to combine and integrate service offerings may be disruptive to us or unsuccessful, and our customers may not use our combined services to the extent that we hope they will.

Any such failure could adversely impact our own business as well as Connect’s, which could then reduce the value of our investment and adversely impact our other business and operational relationships.

Our inability to achieve the expected synergies from the Connect transaction may have a material adverse effect on our business, results of operations or financial condition.

For example, our revenues and operating income may be adversely affected and we could be required to impair all, or a part of, our investment.

If some or all of the aforementioned or other risks materialize, our ability to realize the anticipated benefits of the Connect Group could be materially impaired, and as a result, our financial condition, results of operations, cash flows and stock price could suffer.

We have a significant amount of indebtedness that requires us to comply with restrictive and financial covenants.

If we are unable to comply with these covenants, we could default on this debt, which would have a material adverse effect on our business and financial condition.

We financed our recent investment in Connect through South African bank borrowings of ZAR 1.1 billion ($71.7 million, translated at closing date exchange rate (as defined in the Sale Agreement) of $1:ZAR 14.65165).

The borrowings are secured by a pledge of certain of our bank accounts, and the cession of Net1’s shareholding in certain of its subsidiaries.

These borrowings contain customary covenants that require Net1 SA to maintain a specified total asset cover ratio, maintain group cash balances (as defined in the Loan Documents) above ZAR 300.0 million, and restrict the ability of Net1, Net1 SA, and certain of its subsidiaries to make certain distributions with respect to their capital stock, prepay other debt, encumber their assets, incur additional indebtedness, make investment above specified levels, engage in certain business combinations and engage in other corporate activities.

The group cash balances may go below ZAR 300 million to the extent credit support is provided by the VCP Investment Fund and/ or VCP Investment Portfolios (“VCP Investors”), and such support exceeds ZAR 350 million, but such reduction below ZAR 300 million is limited to ZAR 80 million.

The loan agreements also include a credit enhancement mechanism of ZAR 350 million ($23.9 million, translated at closing date exchange rate), which has been provided by investment funds managed by Net1’s largest shareholder, Value Capital Partners (Pty) Ltd (“VCP”), on commercially agreed terms, which include a contingent subscription for new shares.

We have also obtained total facilities through the Connect acquisition of ZAR 1.3 billion comprising a Facility A term loan of up to ZAR 750 million (“Facility A Loan”), a Facility B term loan of up to ZAR 350 million (“Facility B Loan”), and a general banking facility of ZAR 206.0 million.

The amount available under the general banking facility will reduce to ZAR 125.0 million on March 23, 2023.

These borrowings are secured by a pledge of, among other things, CCMS entire equity interests in equity securities it owns and any claims outstanding.

These borrowings contain customary covenants that require CCMS to maintain specified debt service, interest cover and leverage ratios.

These security arrangements and covenants may reduce our operating flexibility or our ability to engage in other transactions that may be beneficial to us.

If we are unable to comply with the covenants, we could be in default and the indebtedness could be accelerated.

If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as a result, our business and financial condition would suffer.

We will likely not include Connect in our internal control certification and attestation for fiscal 2022.

As noted above, integrating Connect into our company will require significant attention from our senior management which may divert their attention from our day to day business.

Our management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting as of June 30, 2022, will likely exclude the operations of the Connect Group.

If we are unable to successfully integrate Connect’s operations into our internal control over financial reporting, our internal control over financial reporting may not be effective.

Geopolitical conflicts, including the conflict between Russia and Ukraine, may adversely affect our business and results of operations.

The current conflict between Russia and Ukraine is creating substantial uncertainty about the future impact on the global economy.

Countries across the globe are instituting sanctions and other penalties against Russia.

The retaliatory measures that have been taken, and could be taken in the future, by the U.S., NATO, and other countries have created global security concerns that could result in broader European military and political conflicts and otherwise have a substantial impact on regional and global economies, any or all of which could adversely affect our business.

While the broader consequences are uncertain at this time, the continuation and/or escalation of the Russian and Ukraine conflict, along with any expansion of the conflict to surrounding areas, create a number of risks that could adversely impact our business, including:

increased inflation and significant volatility in the macroeconomic environment;

disruptions to our technology infrastructure, including through cyberattacks, ransom attacks or cyber-intrusion;

adverse changes in international trade policies and relations;

disruptions in global supply chains;

constraints, volatility or disruption in the credit and capital markets;

exacerbating the other risks disclosed in our Annual Report on Form 10-K.

All of these risks could materially and adversely affect our business and results of operations.

We are continuing to monitor the situation in the Ukraine and globally and assess its potential impact on our business.

The following exhibits are filed as part of this Form 10-Q:

2 unchanged sentences

Included Herewith

Sale of Shares Agreement, dated October 31, 2021, by and among Net1 Applied Technologies South Africa Proprietary Limited;

Net1 UEPS Technologies, Inc.;

Old Mutual Life Assurance Company (South Africa) Limited;

Lirast (Mauritius) Company Limited;

SIG International Investment (BVI) Limited;

Aldgate International Limited;

Ivan Michael Epstein;

PFCC (BVI) Limited;

PCF Investments (BVI) Limited;

Ovobix (RF) Proprietary Limited;

Luxanio 227 Proprietary Limited;

Vista Capital Investments Proprietary Limited;

Vista Treasury Proprietary Limited;

K2021477132 (South Africa) Proprietary Limited;

and Cash Connect Management Solutions Proprietary Limited.

November 2, 2021

Contract of Employment, dated as of December 9, 2021, between Net1 Applied Technologies South Africa (Pty) Ltd and Naeem Kola

December 10, 2021

Restrictive Covenants Agreement, dated as of December 9, 2021, between Net1 Applied Technologies South Africa (Pty) Ltd and Naeem Kola

December 10, 2021

Employment Agreement, dated as of December 9, 2021, between Net 1 UEPS Technologies, Inc.

and Naeem Kola

December 10, 2021

Restrictive Covenants Agreement, dated as of December 9, 2021, between Net 1 UEPS Technologies, Inc.

and Naeem Kola

December 10, 2021

Addendum to Contract of Employment, dated as of December 9, 2021, between Net1 Applied Technologies South Africa (Pty) Ltd and Alex M.R.

December 10, 2021

Amendment to Employment Agreement, dated as of December 9, 2021, between Net 1 UEPS Technologies, Inc.

and Alex M.R.

December 10, 2021

First Amendment to Restrictive Covenant Agreements, dated as of December 9, 2021

December 10, 2021

Fourth Amendment and Restatement Agreement, dated January 24, 2022, between Net1 Applied Technologies South Africa Proprietary Limited (as borrower), with Net 1 UEPS Technologies, Inc.

Holdco), arranged by FirstRand Bank Limited (acting through its Rand Merchant Bank division) (the Arranger), and FirstRand Bank Limited (acting through its Rand Merchant Bank division) (as Original Senior Lender), with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (as facility agent), and Main Street 1692 (RF) Proprietary Limited (as Debt Guarantor)

January 28, 2022

Senior Facility G Agreement, dated January 24, 2022, R750,000,000 Senior Term Facility Agreement for Net1 Applied Technologies South Africa Proprietary Limited (as borrower), provided by FirstRand Bank Limited (acting through its Rand Merchant Bank division) (as lender), with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (as facility agent)

January 28, 2022

Senior Facility H Agreement, dated January 24, 2022, R350,000,000 Senior Term Facility Agreement for Net1 Applied Technologies South Africa Proprietary Limited (as borrower), provided by FirstRand Bank Limited (acting through its Rand Merchant Bank division) (as lender), with FirstRand Bank Limited (acting through its Rand Merchant Bank division) (as facility agent)

January 28, 2022

Letter Agreement to amend the CTA and Senior Facility G Agreement, dated March 22, 2022, between Net1 Applied Technologies South Africa Proprietary Limited and FirstRand Bank Limited (acting through its Rand Merchant Bank division), as facility agent

March 28, 2022

Letter Agreement to amend the CTA and Senior Facility H Agreement, dated March 22, 2022, between Net1 Applied Technologies South Africa Proprietary Limited and FirstRand Bank Limited (acting through its Rand Merchant Bank division), as facility agent

March 28, 2022

Securities Purchase Agreement, dated March 22, 2022, among Net1 UEPS Technologies, Inc., Net1 Applied Technologies South Africa Proprietary Limited and Value Capital Partners Proprietary Limited

March 28, 2022

Facilities Agreement, dated 24 January 2022, between Cash Connect Management Solutions Proprietary Limited (as Borrower), arranged by FirstRand Bank Limited (acting through its Rand Merchant Bank Division) (as Mandated Lead Arranger) and FirstRand Bank Limited (acting through its Rand Merchant Bank Division) (as Facility Agent)

Letter Agreement to amend Cash Connect Management Solutions Proprietary Limited Facilities Agreement, dated March 22, 2022, between Cash Connect Management Solutions Proprietary Limited Facilities and FirstRand Bank Limited (acting through its Rand Merchant Bank Division) (in its capacity as Facilities Agent)

Second Letter Agreement to amend Cash Connect Management Solutions Proprietary Limited Facilities Agreement, dated April 12, 2022, between Cash Connect Management Solutions Proprietary Limited Facilities and FirstRand Bank Limited (acting through its Rand Merchant Bank Division) (in its capacity as Facilities Agent)

Securities Purchase Agreement, dated March 22, 2022, among Net1 UEPS Technologies, Inc., Net1 Applied Technologies South Africa Proprietary Limited and Value Capital Partners Proprietary Limited

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act

8 unchanged sentences

Cover page formatted as Inline XBRL and contained in Exhibit 101

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 9, 2022.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 10, 2022.

NET 1 UEPS TECHNOLOGIES, INC.

1 unchanged sentence

Group Chief Executive Officer

/s/ Alex M.R.

Chief Financial Officer, Treasurer and Secretary

Group Chief Financial Officer, Treasurer and Secretary

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors