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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. __________
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CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 51-0384117
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
STEFAN - GEORGE - RING 19-23
81929 MUNICH, GERMANY
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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49-89-993-150
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting common equity held by non-
affiliates of the registrant on March 15, 1999, based upon the closing price of
the Common Stock on The Nasdaq OTC Bulletin Board for such date, was
approximately $409,269,340. The number of outstanding shares of the registrant's
Common Stock as of March 15, 1999, was approximately 19,034,798 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of (a) the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof, and (b) the
Form S-1 declared effective on December 2, 1998, located under Securities and
Exchange Commission File No. 333-63755 are incorporated by reference in Part IV
hereof.
The Index of Exhibits filed with this Report begins on page E-1.
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TABLE OF CONTENTS
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PART I................................................................................................................... 1
ITEM 1. BUSINESS....................................................................................................... 1
ITEM 2. PROPERTIES..................................................................................................... 15
ITEM 3. LEGAL PROCEEDINGS.............................................................................................. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS............................................................ 16
PART II.................................................................................................................. 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................... 17
ITEM 6. SELECTED FINANCIAL DATA........................................................................................ 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................................... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................... 21
ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ELECTED FINANCIAL DATA.. 21
PART III................................................................................................................. 22
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................................. 22
ITEM 11. EXECUTIVE COMPENSATION......................................................................................... 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................. 23
PART IV.................................................................................................................. 23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................................... 23
SIGNATURES.............................................................................................................. 26
INDEX TO FINANCIAL STATEMENTS........................................................................................... F-1
INDEX TO EXHIBITS....................................................................................................... E-1
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PART I
ITEM 1. BUSINESS
Forward-Looking Statements
Statements contained in this Form 10-K that are not historical fact are
"forward-looking statements". These statements can often be identified by the
use of forward-looking terminology such as "estimate," "project," "believe,"
"expect," "may," "will," "should," "intends," or "anticipate" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. We wish to caution the reader
that these forward-looking statements, such as statements relating to the
timing, costs and scope of construction of new facilities, the acquisition of,
or investments in, existing businesses, the revenue and profitability levels of
such businesses, and other matters contained in this Form 10-K regarding matters
that are not historical facts, are only predictions. No assurance can be given
that plans for the future will be consummated or that the future results
indicated, whether expressed or implied, will be achieved. While sometimes
presented with numerical specificity, these plans and projections and other
forward-looking statements are based upon a variety of assumptions, which we
consider reasonable, but which nevertheless may not be realized. Because of the
number and range of the assumptions underlying our projections and forward-
looking statements, many of which are subject to significant uncertainties and
contingencies that are beyond our reasonable control, some of the assumptions
inevitably will not materialize, and unanticipated events and circumstances may
occur subsequent to the date of this Form 10-K. Therefore, our actual
experience and results achieved during the period covered by any particular
projections or forward-looking statements may differ substantially from those
projected. Consequently, the inclusion of projections and other forward-looking
statements should not be regarded as a representation by us or any other person
that these plans will be consummated or that estimates and projections will be
realized, and actual results may vary materially. There can be no assurance
that any of these expectations will be realized or that any of the forward-
looking statements contained herein will prove to be accurate.
The Company
Through our subsidiaries, we are a leading provider of Internet
communications services and solutions, primarily to medium-sized corporations in
Germany, Austria and Northern Italy. We have also contracted to acquire a
majority interest in a company through which we will expand to Switzerland. Our
Internet protocol ("IP") solutions are based on a core product offering which
includes Internet connectivity, virtual private networks ("VPNs"), web-hosting,
co-location, security solutions, electronic commerce, Intranet/Extranet and
workflow solutions. We offer consulting, complete design and installation,
training, technical support, and operation and monitoring of IP-based systems.
We market our products and services primarily to medium-sized corporations
throughout Europe, because we believe that they represent an underserved and
sizeable market with a lack of internal technical resources, rapidly expanding
communications needs and a high propensity to utilize third-party outsourcing.
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We operate a geographically distributed IP network, currently based upon
leased lines. Our network is spread over six countries and consists primarily of
Cisco routers and Ascend nodes connected to a redundant high-performance
backbone infrastructure. The network helps corporate customers reduce
telecommunications costs by offering Internet connectivity through dedicated
leased lines at more than 100 Points of Presence ("POPs"). We also offer a
system of dial-up nodes with ISDN or analog modem ports to smaller enterprises,
employees and affiliates of corporate customers. These nodes permit local dial-
up access by the entire population of Germany and a majority of the populations
of Austria and Northern Italy. When we complete our Swiss acquisition, we will
also offer local dial-up access to the entire population of Switzerland. We are
currently in the process of reorganizing our dial-up network in Germany and plan
to establish virtual POPs, which use the public switched telephone network to
aggregate traffic, and we expect that these virtual POPs will generate operating
efficiencies because of the fewer locations to service.
The Company's operations began with the formation of Cybernet Internet
Dienstleistungen AG ("Cybernet AG"), a privately held German stock company.
Cybernet AG was organized in December, 1995, and commenced significant
operations in 1996. On September 17, 1997, Cybernet AG was acquired by Cybernet
Internet Services International, Inc., a Utah corporation, organized on
September 27, 1983 ("Cybernet Utah"). At the time that it acquired Cybernet AG,
Cybernet Utah had no material business activities, assets or liabilities.
Effective November 18, 1998, Cybernet Utah was merged into the Company, and the
Company is the surviving entity of the merger. Unless the context otherwise
requires, the term "Company" or "Cybernet" refers to Cybernet Internet Services
International, Inc., its consolidated subsidiaries and its Utah and German
predecessors.
Industry Background
The Internet is a global network of multiple private and public networks
that use standardized communication protocols to communicate with each other.
The Internet was started in 1969 by the U.S. Department of Defense's Advanced
Research Projects Agency (ARPANET) to enable scientists at universities to share
information and to develop a network secure enough to withstand a nuclear
attack. Use of the Internet has grown rapidly since its initial
commercialization in the early 1990's. International Data Corporation ("IDC"),
a market research organization, has estimated that the number of Internet users
worldwide will grow from approximately 68.7 million in 1997 to approximately
319.8 million by the end of 2002, a compounded annual rate of 36.0%. Consumers
and companies in the U.S. have spearheaded adoption of the Internet. While
other regions of the world have been slower to accept the Internet, its use is
becoming a standard communications tool worldwide.
The Internet is experiencing rapid growth rates in Europe. According to
IDC, the number of Internet users reached 16.8 million in 1997 and is expected
to reach 82.0 million in 2002. Datamonitor, a market research organization,
estimates that the number of externally hosted commercial web sites in Europe
will increase from 221,700 in 1997 to 981,900 in 2000, while the number of VPNs
will expand from 100 in 1997 to 27,900 in 2000. We believe that the growing
numbers of externally hosted web sites and VPNs reliably predict a corresponding
growth in Internet traffic. We expect this projected growth to be fueled by a
number of factors, including the large and growing installed base of advanced
personal computers, faster and
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cheaper access to the Internet, improvements in network architectures,
increasing numbers of network-enabled applications, and the emergence of
compelling content and commerce-enabling technologies. The following table
provides information about current and projected Internet usage in Europe and
the United States.
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EUROPE UNITED STATES
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1997 2002/e/ 1997 2002/e/
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Internet users (mm) 16.8 82.0 38.7 135.9
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Population (mm) 386.0 388.4 267.9 279.5
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Internet users as a percent
of population 4.4% 21.1% 14.4% 48.6%
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PC's with internet access 19.7% 57.1% 36.3% 84.3%
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Sources: IDC Corporation; population figures provided by the US Bureau of the
Census.
Corporate Internet Users. The Internet has become an important commerce
medium and represents a significant opportunity for businesses to interact in
new and different ways with a large number of customers, employees, suppliers
and partners. As use of the Internet grows, businesses are increasing the
breadth and depth of their Internet product and service offerings. Pioneering
Internet-based businesses have developed Internet products and services in areas
such as finance, insurance, media, tourism, retail and advertising. Other
businesses have begun to use the Internet for an expanding variety of
applications, ranging from corporate publicity and advertising, to sales,
distribution, customer service, employee training and communication with
business partners. Increasingly, Internet operations are becoming mission-
critical for many of these enterprises. To ensure the reliability of their
Internet operations, enterprises are requiring that these operations have 24
hours a day, 7 days a week performance, scalability and expert management.
Connectivity Services and Value-Added Services. Corporations utilize two
types of Internet services: connectivity and value-added services. Connectivity
services provide access to the Internet, while value-added services consist of
products such as web hosting, VPNs, security solutions and systems integration
that improve the internal and external operations of a company.
According to Datamonitor, the European corporate Internet connectivity
market consisted of 1.2 million accounts which generated total revenues of $919
million in 1997. Datamonitor estimates that corporate connectivity revenues
will grow to $2.6 billion in 2000, a compounded annual rate of 41.8%, while the
number of accounts will increase to 3.0 million in 2000, a compounded annual
growth rate of 35.3%.
In 1997, European Internet value-added services generated $287 million,
according to Datamonitor. Additionally, they estimate that revenues from value-
added services will increase to $1.7 billion in 2000, a compounded annual growth
rate of 80.7%. In 1997, revenues from hosting services and VPNs were $76
million, 26.5% of total European revenues from value-added services. In 2000,
they are expected to be $722 million, 43.2% of such revenues, a compounded
annual growth rate of 111.8%.
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Internet Usage in Europe. Internet usage varies significantly between
European regions. Northern European countries generally have a higher level of
market penetration and service usage than countries in Southern Europe, which
currently presents a growth opportunity. The following table summarizes certain
information about revenues from Internet connectivity and Internet hosting and
VPNs in European countries.
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Connectivity Hosting and VPN
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1997 2000E Compounded 1997 2000E Compounded
(USD mm) (USD mm) Change (%) p.a. (USD mm) (USD mm) Change (%) p.a.
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Finland 17 42 35.2% 1 20 171.4%
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France 94 383 59.7% 3 92 213.0%
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Germany 447 1,084 34.4% 16 184 125.7%
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Italy 30 169 77.9% 5 50 115.4%
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Netherlands 28 85 44.8% 6 42 91.3%
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Spain 35 136 57.2% 2 31 49.3%
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Sweden 31 67 29.3% 4 34 104.1%
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United 154 381 35.2% 16 146 109.0%
Kingdom
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Other (*) 83 272 48.5% 23 123 74.9%
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Total 919 2,619 41.8% 76 722 111.8%
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(*) Other includes Austria, Belgium, Ireland, Norway, Portugal and Switzerland.
Source: Datamonitor.
We consider Germany to be the most important connectivity market in Europe
in terms of revenues, with a highly developed consumer and on-line business
customer base. As the chart above shows, in 1997, the German connectivity
market had revenues of $447 million, 48.6% of total European connectivity
revenues. It is estimated that in 2000, Germany will generate connectivity
revenues of $1.1 billion, 41.4% of total European connectivity revenues.
Italy currently has a relatively low Internet penetration level. The
Internet connectivity market in Italy is very fragmented, with a large number of
small providers. We expect that
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connectivity revenues in Italy will grow at one of the fastest rates in Europe,
particularly Northern Italy, because much of Italian business is concentrated in
that area.
Business Strategy
Our objective is to become a leading provider of communications services
and network-based business solutions to medium-sized corporate customers
throughout Europe, offering a full-service portfolio of advanced communications
products including Internet, data and switched voice services. The principal
elements of our business strategy are as follows:
Initiate Long-Term Relationships With Customers at an Early Stage.
We address the Internet communications needs of our customers at early
stages. In pursuing this strategy, we are able to engage in strategic
discussions with senior management about their communications requirements,
influence the design of their services and solutions and establish the
basis for long-term relationships at different levels of our customers'
organizations. We are then in a position to provide our customers with
additional services as their requirements increase or change over time. We
believe that our approach of providing a full range of high quality value-
added services ensures higher customer retention rates. This enables us to
offer additional solutions to our customers without having to compete
primarily on price.
Expand Services Offering. We intend to leverage our strong
relationships with existing corporate customers by providing additional
network services, including switched voice, managed bandwidth and VPNs, as
the customers' communication needs increase. Because we establish multiple
contacts at different levels of our customers' organizations, we believe
that we are better able to determine when a customer's communications
solution should be changed or upgraded. In addition, it is our goal to
broaden our product offering as technology evolves with new services,
solutions, and innovations which have proven reliable and effective.
Expand Sales Channels. We are currently pursuing growth opportunities
through various sales channels. These include trained direct sales
representatives with strong technical backgrounds, an extensive reseller
program and marketing alliances with technology leaders like Hewlett-
Packard Company, Microsoft Corporation, Network Associates, Inc. and Sun
Microsystems, Inc. We are expanding our direct sales force and regional
offices to increase our local coverage. We currently have 8 sales offices
(five in Germany, one in Austria, and two in Italy). When we complete our
Swiss acquisition, we will also have two in Switzerland. We plan to
increase the total number. We intend to expand our reseller and referral
arrangements to increase sales of our basic connectivity services, and
enhance our marketing alliances to obtain more customer introductions.
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Target Medium-Sized Corporate Customers. We focus on medium-sized
corporate customers with revenues between Euros 25 million and 500 million.
According to Statistisches Bundesamt, a German government agency, such
companies generate 45% of Germany's total corporate revenues. We believe
that this customer segment is underserved and has substantial and
increasing communications needs. Medium-sized corporations typically lack
the technical resources to build and maintain extensive communications
systems and, as a consequence, they outsource many services and solutions
to third parties. We focus in particular on network intensive industries,
such as Information Technology, tourism, service, retail, finance,
government, media, advertising and manufacturing.
Build Network Capabilities. We intend to develop our own fiber-optic
network to enhance the quality of our service to customers, a factor
crucial to long-term success in our industry. By constructing and owning
our own network, we expect to increase the reliability and quality of our
services, respond more quickly to the growth needs of our target customers,
and reduce our operating costs. These plans depend upon our ability to
raise substantial additional financing. It is likely that this would
require us to sell debt and/or equity securities in private or public
offerings. We cannot be certain that we will be able to effect such
offerings.
Accelerate Growth in Europe Through Targeted Acquisitions. To date,
we have successfully integrated three acquisitions, we have recently
acquired one additional company which we are in the process of integrating
and we have agreed to acquire one more company. We will seek to acquire
additional Internet-related companies to build our presence in other
European countries, while continuing to grow internally. In each
acquisition, we look for strategically and culturally compatible companies
to add to our strong management, increase our technical expertise, and
increase our customer base in our current coverage area and bordering
countries.
Maintain Cybernet's Flexible International Organization. Our
corporate organization is decentralized, flexible and entrepreneurial. Our
management team includes German, Italian, Austrian, British and
American nationals with substantial international experience in the
Internet, IT services and telecommunications industries. Our corporate
culture encourages teamwork, accessibility, employee empowerment and
initiative. Our decentralized management structure and use of advanced IP
based communications technologies enable us to communicate effectively and
react quickly to market opportunities. We believe that our corporate
organization and culture give us a competitive advantage in addressing
local needs of our clients, integrating acquisitions, and recruiting,
motivating and retaining skilled employees.
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Acquisitions
Since we began operations in 1996, we have acquired four companies, through
which we have expanded our technical capabilities, attracted additional talent,
entered new markets and increased our customer base. In September, 1997, we
acquired 100% of Artwise GmbH ("Artwise"), a German company which provided us
with expertise in Intranet messaging and workflow solutions and established our
presence in the Ulm region of Germany. In December, 1997, we acquired 66% of
Eclipse s.r.l. ("Eclipse"), an ISP based in Trento, Italy, through which we
established our presence in Northern Italy. In August, 1998, we acquired 100%
of Open:Net Internet Solutions GmbH ("Open:Net"), an ISP through which we
increased our penetration of the southwest German market serviced by Artwise.
In December, 1998, we acquired 100% of Vianet Telekommunikations AG ("Vianet"),
a leading Austrian ISP through which we established our presence in Austria and
significantly increased our customer base. Most recently, in February 19, 1999,
we agreed to acquire 51% with an option to purchase the remaining 49% of Sunweb
Internet Services SIS AG ("Sunweb"), through which we will establish a presence
in Switzerland and acquire substantial additional expertise in switched voice
services.
Products and Services
We offer a comprehensive range of communications services, network
solutions and business solutions to corporations in Germany, Austria, and
Northern Italy and will soon be offering those services and solutions in
Switzerland. We currently offer or plan to offer the following principal
services and solutions:
Communications Services
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. Connectivity. We offer a variety of connectivity solutions, including
Internet access, third-party software and hardware implementation and
configuration services, in bundled and unbundled packages. We offer leased line
connectivity at speeds ranging from 64 Kbps to multiples of 2 Mbps. We also
provide both analog and ISDN dial-up Internet access, which is available to the
entire population of Germany, and to a majority of the populations of Austria
and Northern Italy. When we complete our Swiss acquisition, we will also offer
local dial-up access to the entire population of Switzerland. Our selection of
third-party software products includes electronic mail, news and other solutions
that permit customers to navigate and utilize the Internet and give remote
access to mobile personnel operating outside traditional office settings.
. National and International Roaming. We provide access to the Internet
at local phone tariffs as users travel. Outside the countries in which we
operate, roaming is offered in cooperation with more than 350 international ISPs
and telecommunications companies which have joined the Global Reach Internet
Connection(TM).
. Voice Services. We intend to offer switched voice services to corporate
customers. These plans depend upon our acquiring and installing the necessary
switching equipment and negotiating interconnection agreements with carriers.
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Network Solutions
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. Virtual Private Networks. Many companies today have private data
communication networks, which are often referred to as corporate networks.
These networks are used to transfer proprietary data between offices and use
relatively expensive leased lines to connect various locations. Our VPNs
utilize the Internet as a cost effective alternative to corporate networks to
provide secure transmission of data and voice and offer secure remote access.
In addition, our VPN products are often the basis for Intranet and Extranet
services. We offer these products in conjunction with hardware, software, and
firewall solutions. We believe that few of our competitors offer similar
Europe-wide VPN capabilities.
. Security Solutions. Corporate networks and systems need to be protected
against unauthorized access and use. We currently offer a comprehensive set of
third-party supplied security products, including encryption and firewalls. We
add value to this software by providing services such as security consulting,
installation support, on-the-job training of customers' system administrators,
hotline support (24 hours a day, 7 days a week) and security audits. To assure
the security of communication and business transactions between users of
networks, we integrate state-of-the-art software, technologies and standards.
We offer these security solutions as stand alone products or as part of broader
solutions, such as a VPN or Intranet.
Business Solutions
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. Co-Location. We offer co-location solutions to customers who have the
resources to manage their own servers and websites and who prefer not to share a
server with others. Customers receive the benefits of having their servers
housed in one of our data centers, full-time connection to the Internet, direct
access to our high-speed network, uninterrupted power supply, regular back-up
and 24 hours a day, 7 days a week monitoring and technical support.
. Application and Web-Site Hosting. We offer shared server application
and web-site hosting services, which permit corporations to market themselves
and their products on the Internet without having to invest in technology
infrastructure and operations staff. Such customers receive sufficient
bandwidth to meet their needs and the benefits of having their systems housed in
one of our data centers. Applications on our servers, which our customers can
access, include shop and mall systems, payment systems, publishing systems, HTML
based chat services, and video conferencing.
. Electronic Commerce. Electronic commerce is the execution of commercial
transactions on the Internet. We design and implement dedicated electronic
commerce systems or any component part which a customer may require, such as
shopping or mall, credit verification and payment handling verification. These
systems are based on our electronic commerce platform which integrates systems
and technologies of third-party vendors, such as Brokat, Hewlett-Packard
Company, Intershop, Microsoft Corporation, SAP Aktiengesellschaft, Sun
Microsystems, Inc., VeriFone, Inc. and others. For customers reluctant to
undertake an investment in a proprietary electronic commerce solution, we
maintain our own electronic commerce system, which we provide on a lease basis.
Through working arrangements with content providers and media companies, we also
assist customers utilizing electronic commerce for retail and wholesale sales to
targeted groups on the Internet. This enables a customer to
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establish a distribution channel for products or a channel for purchasing, and
to determine whether to invest in a dedicated system.
. Intranet and Workflow Solutions. Internet technologies can be utilized
in a customer's internal information technology system. We offer Intranet and
workflow solutions that enhance the capabilities, efficiencies and functionality
of our customers' systems, speed the development of new applications, reduce the
cost of developing and maintaining applications, and allow the integration of
existing systems and databases. Thus, instead of replacing their systems,
customers can preserve their investment and upgrade their systems with our
enhanced solutions. Our Intranet platform integrates basic dial-up and leased
line connectivity with IP-based VPNs and a communications infrastructure that
includes facsimile, voice mail, e-mail and enhanced security solutions.
Sales and Marketing
We believe that our sales and marketing program enables us to effectively
market our comprehensive range of products and services to corporate customers.
We tailor our marketing approach as follows:
. to our principal target market of middle-sized corporations, we offer
customized solutions at competitive prices by designing systems that integrate
modular elements of proven functionality, effectiveness and reliability;
. to some larger customers with more specialized needs, we offer more
sophisticated technical services and individualized solutions;
. to customers with basic service needs, we provide services which require
minimal customization and installation, such as Internet connectivity.
Direct Sales. Currently, our direct sales force consists of 27 sales
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representatives located in 8 offices in Munich, Stuttgart, Hamburg, Frankfurt,
Ulm, Vienna (Austria), Trento and Bolzano in Italy. When we complete our Swiss
acquisition, we will have two additional sales representatives in Zurich and
Lausanne, Switzerland. We are in the process of expanding that direct sales
force and opening additional sales offices. We are also increasing our local
presence and enhancing client coverage by shifting more of our direct sales
representatives from our headquarters to our regional offices, where they will
be closer to customers. Our direct sales force is organized as follows:
. Ten representatives in our regional offices, responsible for marketing
our modular solutions to middle-sized corporations located in their regions;
. Thirteen project sales representatives, based in our Munich
headquarters, responsible for marketing sophisticated technical projects to
larger corporations and providing support to our regional offices;
. Four telesales representatives, responsible for selling basic services
such as connectivity and providing leads to our regional and project sales
representatives.
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Our sales force has a strong technical background and a detailed
understanding of the differing needs of the customers in the regions it serves.
It is knowledgeable about our main targeted industry segments, particularly
Information Technology, tourism, service, retail, finance, government and media
and advertising and manufacturing.
Channel Sales. Our channel sales groups develop relationships with
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resellers of our products and services and maintains marketing alliances.
In Germany, our three-person channel sales group works with a network of more
than 100 resellers in Germany, primarily software suppliers, systems integrators
and ISPs, through whom we offer basic services, such as Internet connectivity,
that can be delivered with a minimum of customization and installation. Direct
sales people in Austria and Italy also develop reseller relationships. We also
utilize our reseller relationships to gain direct access to customers for the
sale of additional products and services. Our marketing alliances with a select
group of companies provide a strong mutual referral program, which we believe
will enable us to cost effectively acquire new customers, benefit from
association with well-known partners and increase our brand awareness. We
currently have marketing alliances with Hewlett-Packard Company, Microsoft
Corporation, Network Associates, Inc., Sun Microsystems, Inc. and others.
We intend to conduct our operations and marketing under the "Cybernet"
brand name, although subsidiaries' brand names are used for transition periods
after acquisitions. We have undertaken public relations efforts to raise the
awareness and visibility of the "Cybernet" name in our target markets. We
present ourselves as "The Communication People," providing connectivity, value-
added solutions and superior customer service.
Technology and Network Operations
IP Network. We operate a geographically distributed IP based network
linking five countries (Germany, Austria, Italy, Hungary and Luxembourg) and
consisting primarily of Cisco routers and Ascend nodes connected to a redundant
high performance backbone infrastructure. Our backbone network is currently
based on leased lines and includes fourteen nodes in Germany, seven nodes in
Austria, six nodes in Italy and single nodes in Luxembourg and Budapest. When we
complete our Swiss acquisition, our network will cover Switzerland, where we
will have an additional node. We interconnect our nodes at speeds ranging from 2
Mbps to 45 Mbps. We lease our lines from major telecommunications carriers and
backbone operators, such as Deutsche Telekom AG, Hermes Europe Rail Tel B.V. and
Telecom Italia, Spa.
Our IP network is designed to offer reliability, scalability and speed,
while at the same time representing an efficient cost base. We achieve
reliability and fault tolerance by utilizing a redundant, multiple ring design
and backbone nodes with redundant routing equipment, thereby minimizing the risk
of single points of failure. We derive scalability from a hierarchical multi-
layer architecture that permits growth of network locations without major
infrastructure changes. We offer our customers transmission speeds at bandwidths
ranging from 2Mbps to 45Mbps.
We offer access through dedicated leased lines which can connect at more
than 100 POPs, that we own or lease. Transmission speeds on leased lines range
from 64Kbps to multiples of 2 Mbps. We also offer dial-up Internet access
through Ascend and Cisco nodes equipped with ISDN or analog modem ports that
provide local dial-up access to all of the population of
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<PAGE>
Germany and a majority of the population of Austria and Northern Italy. When we
complete our Swiss acquisition, we will also offer local dial-up access to the
entire population of Switzerland. We are currently in the process of
reorganizing our dial-up network in Germany and intend to establish virtual
POPs, using the public switched telephone network to aggregate traffic, with the
objective of improving operating efficiencies.
Peering and Transit Relationships. Peering is an agreement between ISPs,
which provides for free exchange of Internet traffic between parties to the
agreement. We have entered into peering agreements with local Internet service
providers in each of the countries in which we operate. We have peering
agreements with more than 25 ISPs in Germany and with the principal ISPs in
Austria, and Italy. Our main peering points are in Frankfurt, Munich, Trento and
Vienna. We also peer directly through leased lines connected to our peering
partners. We plan to enter into additional peering agreements in order to
establish a direct presence in most European peering centers and to reduce
transit costs.
We have entered into global transit agreements pursuant to which we have
purchased the right to route traffic across the networks maintained by Ebone,
Inc., Swisscom AG and AT&T Corporation/Unisource Worldwide, Inc. This provides
our customers with the ability to communicate with the European countries in
which we are not present, and with the rest of the world.
Data Centers. We currently operate Data Centers in Munich, Frankfurt,
Vienna and Trento. Our main Data Center in Munich has a capacity of 300 square
meters.
Network Management. We have set up a Network Operations Center (NOC) in
Munich that monitors the performance of our network 24 hours a day, 7 days a
week. Our NOC can identify network problems on a real-time basis and take the
necessary corrective measures.
Customers
We currently provide services and solutions to approximately
11,000 customers, an increase from approximately 4,300 as of December 31, 1997,
approximately 3,000 as of June 30, 1997, and approximately 1,460 as of December
31, 1996. While our target market is the medium-sized businesses, we also
provide services and solutions to prominent larger businesses.
Customer Service
We provide high quality customer service and support in order to enhance
the strength of our brand name, increase customer retention rates and generate
new customer referrals. Our customer services are organized into technical
support and call center groups.
Our technical support group consists of technicians in our Munich NOC and
our team of field engineers. The NOC-based technicians respond to customer
requests on a 24 hours a day, 7 days a week basis, diagnosing customers'
problems and providing immediate assistance. We believe that our centralized
technical support operations improve the quality and consistency of our support,
achieve scalability in our resources and benefit from economies of scale. Our
team of field engineers is available to visit our customers' premises, as
necessary.
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<PAGE>
Our call center provides complete information and specifications about each
of our products and advises our customers on service and solutions related
questions.
We are in the process of installing an integrated billing system for
Internet and switched voice services and expect that it will be fully
operational in mid-1999. We have licensed the Kenan Systems billing platform
and have adapted it to our requirements. Kenan Systems Corporation, a
subsidiary of Lucent Technologies, Inc., is a leading provider of billing
solutions to the telecommunications industry. This system will allow us to
provide a single bill to our customers for all the different services they are
purchasing from us, thereby simplifying their internal operations and reducing
our costs. Our billing system will be managed in our central offices in Munich.
Competition
The business of providing Internet connectivity, services and solutions is
highly competitive and there are no substantial barriers to entry. We believe
that competition will intensify in the future and our ability to successfully
compete depends on a number of factors including, market presence; the capacity,
reliability and security of our network; the pricing structure of our services;
our ability to adapt our products and services to new technological developments
and principal market and economic trends. Our competitors consist of ISPs,
telecommunications carriers, and system integrators/computer manufacturers.
Because few of our competitors in any of these groups provide all of the
products, services and solutions that we provide, we believe that we are well
positioned to compete in our market.
ISPs. We strive to differentiate ourselves from other ISPs by offering a full
range of services and solutions which business customers are likely to require
in connection with their use of the Internet. Most of our ISP competitors offer
fewer services and focus on connectivity. However, some competitor ISPs have
greater resources and larger communications and network infrastructures than we
do. In Germany, these competitors include: European Computer Industry Research
Centre GmbH, Nacamar Ltd., PSINet, Inc., UUNet Technologies, Inc. and Xlink. In
Austria, they include Eunet Multimedia Network Services AG and Netway Austria
AG; and in Italy, they include I-Net.
Telecommunications carriers. Many telecommunications carriers are large
organizations and do not typically provide Internet services as their main
product. We compete with these organizations by focusing on the Internet and
offering flexible decision making and execution, responsive customer service,
recognized technical expertise, and high quality products. Our main carrier
competitors in Germany are: Mannesmann Arcor AG, Deutsche Telekom AG; O.tel.o
GmbH; and Viag Interkom GmbH & Co.KG. In Austria, our principal carrier
competitors are Cybertron Marchfeld, Telekom Austria and United Telecom Austria
AG; and in Italy, they are Infostrada, Telecom Italia, S.p.A., and Wind.
When we begin to offer switched voice services, we will compete directly
with carriers, including large carriers such as Mannesman Arcor AG, Deutsche
Telekom AG and Viag Interkom GmbH & Co.KG in that
PAGE 12
<PAGE>
market segment. Most of these competitors are significantly larger and have
substantially greater market presence, financial, technical, operational,
marketing and other resources and experience than us. In addition, carriers have
greater resources to engage in various forms of price competition, such as
bundling Internet services with other telecommunications services, thereby
offering lower prices for either the telecommunications or Internet services.
Increased price competition could force us to reduce our prices, resulting in
lower profit margins. In addition, increased competition for new customers could
result in increased sales and marketing expenses and related customer
acquisition costs and could materially adversely affect our profitability.
Major System Integrators and Computer Manufacturers. Major systems integrators
and computer manufacturers, such as Andersen Consulting, L.L.P. and
International Business Machine Corporation, provide information technology
solutions to their clients and have expanded their offerings to include
Internet-related products and solutions. Many of these companies have
established customer relationships and recognized technical expertise, and some
have significantly greater resources than we have. However, most do not offer
connectivity services and solutions. We compete with these companies by
offering a more complete Internet-related service and product line than they
offer. In addition, some system integrators and computer manufacturers utilize
our connectivity services and solutions to complement their own line of products
and services.
Research and Development
Our future success will depend, in part, on our ability to offer
services that incorporate leading technology, address the increasingly
sophisticated and varied needs of current and prospective customers and respond
to technological advances and emerging industry standards and practices on a
timely and cost effective basis. The market for our services is characterized
by rapidly changing and unproven technology, evolving industry standards,
changes in customer needs, emerging competition and frequent introductions of
new services. We cannot assure that future advances in technology will be
beneficial to, or compatible with, our business or that we will be able to
incorporate such advances on a cost effective and timely basis into our
business. Moreover, technological advances may have the effect of encouraging
certain of our current or future customers to rely on in-house personnel and
equipment to furnish the services we currently provide. In addition, keeping
pace with technological advances may require substantial expenditures and lead
time. The Company incurred $187,130, $279,698, and $2,940,865 in research and
development expenses during the years ended December 31, 1996, 1997, and 1998,
respectively.
Intellectual Property Rights
We have applied to the European Union for a trademark for the name
"Cybernet". In addition, we rely on a combination of copyright, service mark and
trade secret laws and contractual restrictions to establish and protect certain
proprietary rights in our products and services. We have no patented technology
that would preclude or inhibit competitors from entering our market. We have
entered into confidentiality and invention assignment agreements with our
employees, and non-disclosure agreements with our suppliers, distributors and
appropriate customers in order to limit access to and disclosure of our
proprietary information.
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<PAGE>
We cannot assure you that these contractual arrangements or the other steps we
have taken to protect our intellectual property will prove sufficient to prevent
misappropriation of our technology or to deter independent third-party
development of similar technologies. The laws of the countries where we operate
may not protect our products, services or intellectual property rights to the
same extent as do the laws of the United States. To date, we have not been
notified that our products infringe the proprietary rights of third parties, but
we cannot assure you that third parties will not claim infringement by us with
respect to current or future products. We expect that participants in our
markets will be increasingly subject to infringement claims as the number of
products and competitors in our industry segment grows. Any such claim, whether
meritorious or not, could be time consuming, result in costly litigation, cause
product installation delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on terms
acceptable to us, or at all. As a result, any such claim could have a material
adverse effect upon our business, results of operations and financial condition.
Regulatory Environment in the Internet-related Markets of the Company
Our Internet operations are not currently subject to direct regulation by
governmental agencies in the countries in which we operate (other than
regulations applicable to businesses generally). In 1997, Germany enacted the
Information and Communication Services Act which releases Internet access
providers from liability for third-party content, in certain circumstances, and
establishes a legal framework for Internet commerce with respect to the
identification of service providers, data privacy and price indications on the
Internet. A number of other legislative and regulatory proposals are under
consideration with respect to Internet user privacy, infringement, pricing,
quality of products and services and intellectual property ownership. There is
also a
PAGE 14
<PAGE>
controversial international discussion regarding the application of value added
taxes in the Internet environment. The adoption of new laws could have a
material adverse effect on our business, result of operations and financial
condition.
Regulation and Regulatory Authorities in the Telecommunications Market
Effective January 1, 1998, all of the countries in which we operate have
abolished the monopoly rights of incumbent carriers to provide fixed-line voice
telephone services to the public. As a result, competitive telecommunications
markets are now developing for long distance and international telephone
services. Competition for local telephone service has been much slower to
develop.
All of the countries in which we operate have enacted legislation and
regulations and have established regulatory authorities for the
telecommunications industry. The purpose of this regulation is to ensure (i) a
wide range of high-quality, telecommunications services to private individuals
and businesses; (ii) reliable services to the entire population at affordable
prices; (iii) absence of interference with personal and intellectual property
rights in telecommunications traffic; and (iv) effective competition in the
provision of telecommunications services.
The regulatory authorities have various powers, including the authority to
grant and revoke licenses, assign and supervise frequencies, impose universal
services obligations, control network access and interconnection, and approve or
review the tariffs and tariff-related general business terms and conditions of
market-dominant providers. In each of the countries in which we operate,
providing telecommunications services and related facilities requires a license.
Different classes of licenses are required for different services offered and
facilities operated. We have obtained a "class 4 license" (voice telephone
services based upon self-operated telecommunications networks) for Germany.
Geographically this license covers the entire Federal Republic of Germany and is
valid indefinitely. We have not yet obtained similar licenses for Italy,
Switzerland or Austria or a license for the construction and operation of a
network, all of which we will require to expand our business as we currently
plan.
Employees
At December 31, 1998, we had a total of approximately 175 employees
organized as follows: 70 in sales and marketing; 74 in research and development
and engineering, and 31 in administration. We have 133 employees in Germany,
22 in Austria and 20 in Italy. There are no collective bargaining agreements in
effect. We believe that relations with our employees are good.
ITEM 2. PROPERTIES
We lease the real estate where our business offices and certain nodes
containing servers, routers and other equipment are located. Our largest
leasehold property is our main office in Munich with approximately 20,450 square
feet (1,900 square meters). Other leasehold
PAGE 15
<PAGE>
properties for our regional offices are located in Neu-Ulm, Frankfurt,
Stuttgart, Berlin and Hamburg, Germany, Vienna, Austria, Trento, and Bolzano,
Italy. In addition, we lease approximately 2,500 square meters for our planned
Hamburg Data Center, and 250 square meters for our new Trento Data Center.
We believe that none of these leases is critical to operations and that
relocation of any of the leased premises would be feasible on acceptable terms,
if necessary.
We lease dedicated telephone lines from telecommunications carriers and
resellers. Assets relating to our operations, including servers and routers, are
leased or owned.
ITEM 3. LEGAL PROCEEDINGS
On December 1, 1997, Technischer Uberwachungsdrenst Osterreich (TUV) filed
an action against Vianet alleging a technical malfunction of certain Cisco
routers installed and programmed by Vianet. The alleged malfunction is said to
have resulted in substantially increased telephone charges to TUV. Trial counsel
to Vianet has estimated the maximum amount which could be claimed by TUV as
approximately $132,000.
In December 1998 we applied for and received a class 4 telecommunications
license from Germany's Regulierungsbehoerde fur Telekommunikation und Post and
paid a fee of 3,000,000 DM. The European Community regulations set the maximum
fee that can be charged as the actual cost incurred by a government agency to
administer its regulations. We filed an action in a German court to recover a
portion of the fee paid for our license because we believe the fee charged
exceeded the amount chargeable under European Community regulations in effect in
1998. It is not possible to predict the outcome of our action.
The Company is not involved in any other legal proceedings which the
Company believes would, if adversely determined, have a material adverse effect
upon its business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At a special meeting held on November 16, 1998, shareholder action was
taken by the sole existing shareholder of the Company to approve the merger with
Cybernet Internet Services International, Inc., a Utah corporation, and the
adoption of our 1998 Stock Incentive Plan and 1998 Outside Director Stock Option
Plan.
At a November 16, 1998 annual meeting of shareholders of Cybernet Internet
Services International, Inc., a Utah corporation, the shareholders authorized
the following transactions:
. Merger of Cybernet Internet Services International, Inc., a Utah
corporation with Cybernet Internet Services International, Inc., a
Delaware corporation; and
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<PAGE>
. Acquisition of all of the outstanding stock of Vianet for a
consideration of 7.5 million Deutsche Marks and 300,000 shares of common
stock of the Company.
Each transaction was approved with 11,222,668 (or 51% of the outstanding
shares) votes in favor, 31 votes against, no abstentions and 10,805,472 Broker
Nonvotes.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our Common Stock is traded on The Nasdaq OTC Bulletin Board (the "Bulletin
Board") under the symbol "ZNET" and on the Neuer Markt of the Frankfurt Stock
Exchange under the securities identification number (WKN) 906623. The following
table sets forth for the periods indicated the high and low bid prices for the
Common Stock as reported each quarterly period in 1997 and 1998 on the Bulletin
Board and the Neuer Markt and the Berlin and Munich Stock Exchanges. The prices
are inter dealer prices, do not include retail mark up, mark down or commission
and may not necessarily represent actual transactions.
The closing price of the Common Stock on the Bulletin Board on December 30,
1998 was $36.87 per share. As of March 15, 1999 the Company had 127 registered
shareholders of record.
<TABLE>
<CAPTION>
1997
----
High Low
---- ---
<S> <C> <C>
First Quarter................................................. $ 3.125 $0.0625
Second Quarter................................................ $13.625 $0.0625
Third Quarter/1/.............................................. $11.25 $9.312
Fourth Quarter................................................ $16.25 $7.75
</TABLE>
- ------------------
/1/ On September 17, 1997, Cybernet Utah, the Company's predecessor, acquired
Cybernet AG. Prior to that date. Cybernet Utah had no material business
activities, assets or liabilities. Accordingly, stock prices for the period
prior to September 17, 1997 do not relate to the business in which the Company
is presently engaged.
PAGE 17
<PAGE>
<TABLE>
<CAPTION>
1998
----
High Low
---- ---
<S> <C> <C>
First Quarter................................................. $34.50 $11.5
Second Quarter................................................ $28.75 $20.0
Third Quarter................................................. $29.875 $18.0
Fourth Quarter................................................ $37.25 $14.0
</TABLE>
<TABLE>
<CAPTION>
Neuer Markt/1/ Berlin/1/ Munich/1/
----------- ------ ------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1998
Fourth Quarter
(from December 9, 1998).... $38.67 $29.13 $38.16 $13.27 $37.99 $13.02
Third Quarter............ 31.71 16.86 31.43 16.74
Second Quarter........... 29.14 21.94 28.86 21.26
First Quarter............ 25.71 12.63 25.14 12.57
</TABLE>
/1/ For purposes of this table, prices in DeutscheMarks have been converted to
dollars at the rate of 1.75 DM for each dollar, and prices in Euros have been
converted at the rate of 1.17 Euros for each dollar.
COMMON STOCK DIVIDEND POLICY
We have never declared or paid cash dividends on our Common Stock. We
currently intend to retain all of our earnings, if any, for use in our business
and do not anticipate paying any cash dividends on our common stock in the
foreseeable future.
USE OF PROCEEDS
On December 2, 1998 the SEC declared effective the Company's
registration statement on Form S-1. Pursuant to that registration statement the
Company sold 1.8 million shares of common stock at a price of $27 per share (an
aggregate price of $48.6 million) in an offering for which the principal
underwriter was Berliner Effektenbank A.G., Berlin. The underwriting discount
amounted to $2.916 million. Holger Timm, a principal shareholder of the Company,
and a former director of the Company, is the controlling shareholder of a
financial institution which owns 40% of Berliner Effektenbank A.G. Berlin.
Expenses paid to others in connection with the offering were approximately
$1,308,000. Net proceeds of the Offering to the Company were approximately
$44.41 million. Between closing of the Offering on December 9, 1998 and
December 31, 1998 approximately $1.76 million was used to pay for a license
required to become a Class 4 telecommunications carrier in Germany. The
remainder was invested in low risk, high liquidity short term investments.
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<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1998, we sold shares of Common Stock as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Securities Sold Purchasers Consideration Exemption
- ---------------------------------
Date Number of Shares
Class of Stock
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
August 58,825 Thomas Egner All the Shares of Section 4(2)
1998 Common Stock Uwe Hagenmeier Open:Net (in connection
Markus Kress with the Open: Net
Oliver Schaeffer acquisition)
- -------------------------------------------------------------------------------------------------------------
May 1998 700,000 Private Placement Investors $12,600,000 Regulation S
Common Stock
- -------------------------------------------------------------------------------------------------------------
December 28, 300,000 All the shares of Vianet Section 4(2)
1998 Common Stock Tristan Libischer (in connection with
Alexander Wiesmueller Vianet acquisition)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, between May 31, 1998 and December 31, 1998, most of the
1,400,000 shares of Series C Preferred Stock were converted to the same number
of shares of Common Stock by the holders thereof, except for 3,590 shares that
remained outstanding on December 31, 1998 but were converted in the first
quarter of 1999.
On February 19, 1999, we entered into an agreement to purchase 51% of the
issued and outstanding stock of Sunweb Internet Services AG, a corporation
organized under the laws of Switzerland for a consideration of 1,477,000 CHF and
25,000 shares of Common Stock, payable to Messrs. Juerg Heim and Marco Samek.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated Statement of Operations data and Balance Sheet data
as of and for the years ended December 31, 1996, 1997, and 1998 set forth below
has been derived from the financial statements of the Company, which have been
audited by Schitag Ernst & Young AG, independent auditors. Business acquisitions
made by the Company during the periods for which selected financial data is
presented below materially affect the comparison of such data from period to
period. The selected consolidated financial data should be read in conjunction
with the Company's consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this document.
PAGE 19
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------
1996 1997 1998
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue
Internet Projects........ $ 217 $ 1,598 $ 5,139
Network Services......... 91 716 3,495
------ ------- --------
Total revenue................ 308 2,314 8,634
Cost of Revenues
Internet Projects........ 237 1,495 4,699
Network Services......... 119 866 4,067
Depreciation and
Amortization......... 7 171 1,674
------ ------- --------
Total cost of revenues....... 363 2,532 10,440
Gross profit (loss)...... (55) (218) (1,806)
General and administrative
expenses............. 263 482 1,576
Marketing expenses....... 165 1,188 3,844
Research and development. 179 280 2,941
Depreciation and
amortization......... 22 116 880
------ ------- --------
629 2,066 9,241
Interest expense, net.... 2 39 43
------ ------- --------
Loss before taxes and
minority interest.... (686) (2,323) (11,090)
Income tax benefit....... 402 1,339 6,173
Minority interest........ ----- ----- 145
Net loss................. $ (284) $ (984) $ (4,772)
====== ======= ========
Basic and diluted loss
per share............ $ (.12) $ (.12) $ (.30)
Balance Sheet Data:
Working capital.......... $ 339 $ 891 $ 37,751
Total assets............. 2,211 12,617 79,445
Long-term debt(1)........ ----- 42 1,383
Total stockholders'
equity............... 1,790 8,908 67,359
</TABLE>
- ----------------------------------
(1) Including lease obligations
PAGE 20
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is based on our consolidated financial statements
included elsewhere in this annual report. Such financial statements have been
prepared in accordance with US GAAP. This section contains forward-looking
statements that involve inherent risks and uncertainties. Actual results may
differ materially from those contained in such forward-looking statements. See
"Forward Looking Statements" in Item 1, Part I.
Through our subsidiaries, we are a leading provider of Internet
communications services and solutions, primarily to medium-sized corporations in
Germany, Austria, Northern Italy and Switzerland. Our Internet protocol
solutions are based on a core product offering which includes Internet
connectivity, virtual private networks, web-hosting, co-location, security
solutions, electronic commerce, Intranet/Extranet and workflow solutions. We
offer consulting, complete design and installation, training, technical support,
and operation and monitoring of IP-based systems. Between the commencement of
our operations in 1995 and December 1997, we concentrated our operations
entirely in Germany. During that period we built up our technical capabilities
by investing in personnel and research and development and by acquiring Artwise
in September, 1997. During the same period we established our
German network. Beginning in December 1997 we began to expand our operations
outside Germany through the acquisition of Eclipse in Northern Italy and Vianet
in Austria. We further strengthened our presence in Germany through the
acquisition of Open:Net. Based principally on leased lines, our network now
consists primarily of Cisco routers and Ascend nodes connected to a redundant
high performance backbone infrastructure that offers Internet connectivity
through dedicated leased lines at more than 100 POPs. It also offers a system of
dial-up nodes with ISDN or analog modem ports which permits local dial up access
to the entire population of Germany and a majority of the population of Austria
and Northern Italy. When we complete our acquisition of 51% of Sunweb it will
also offer local dial-up access to the entire population of Switzerland.
We market our products and services primarily to medium-sized corporations
throughout Europe with revenues between Euros 25 million and 500 million. We
believe that this customer segment is underserved and has substantial and
increasing communications needs. Medium-sized corporations typically lack the
technical resources to build and maintain extensive communications systems and,
as a consequence, they outsource many services and solutions to third parties.
In particular, we focus on network intensive industries, such as Information
Technology, tourism, service, retail, finance, government, media, advertising
and manufacturing. After accounting for acquisition of Vianet, we currently
provide services and solutions to approximately 11,000 customers, an increase
from approximately 4,300 as of December 31, 1997, and approximately 1,460 as of
December 31, 1996. No single customer accounted for more than 3% of our revenues
in 1998. While our target market is the medium-sized businesses, we also provide
services and solutions to prominent larger businesses.
We have experienced high rates of revenue growth since commencing
significant operations in 1996. Revenues increased from $307,673 in 1996 to
$2,314,021 in 1997 and $8,633,528 in 1998. Our revenue growth has been
generated through internal growth and by acquisitions. We anticipate that these
rates of revenue growth will continue in the near future as we continue internal
growth, and seek additional acquisition candidates.
21
<PAGE>
We classify our revenues into two categories, revenues from Internet
Projects and revenues from Network Services. Internet Project revenues result
from consulting, installation fees, training of customer employees and hardware
and software sales. Among other things this category includes the installation
of VPNs, websites, e-commerce solutions and customer servers in our Data
Centers. Internet project revenues depend on the number, size and complexity of
projects initiated by new and existing customers. Internet Projects typically
are completed within three months. Internet Project related revenues are
recognized upon completion and customer acceptance of the related project.
Although we typically initiate relationships with customers through Internet
Projects we also perform such projects for existing customers who require
additional services or upgrades.
In most cases, after completion of an Internet Project we derive a
recurring stream of revenues from the ongoing management and monitoring of the
services and solutions we have set up. We classify these recurring revenues as
Network Services revenues which include recurring connectivity, maintenance and
usage charges. Approximately 80% of Network Services revenues are from
connectivity charges and the remainder is derived from fees for maintenance of
VPNs, co-location and hosting services. Revenues from Network Services are
recognized when provided to customers.
22
<PAGE>
Year Ended December 31, 1998 As Compared To The Year Ended December 31, 1997
Results of Operations
Revenues
Total revenues increased by 273.1% from $2,314,021 in 1997 to $8,633,528 in
1998. Internet Project revenues increased by 221.6% from $1,597,869 in 1997 to
$5,139,110 in 1998 and represented 69.1% and 59.5% of our total revenues in 1997
and 1998, respectively. Network Services revenues increased by 387.9% from
$716,152 in 1997 to $3,494,418 in 1998. In 1998, Network Services represented
40.5% of total revenues as compared to 30.9% in 1997. The primary reason for
this shift is that our recurring revenues grow as we expand our customer base.
We expect this trend to continue.
Revenues from existing operations, accounted for 34.1% of Internet Project
revenues in 1998 compared with 57.1% in 1997. Revenues from existing operations
accounted for 23.7% of the growth in Internet Projects from year to year. This
growth is attributable to new customers and additional sales to existing
customers.
Revenues from acquired companies represented 65.9% of Internet Project revenues
in 1998 compared with 42.9% in 1997, and accounted for 76.3% of the growth in
Internet Projects revenues from year to year. In 1998 these revenues include a
full year of operations of Artwise and Eclipse and three months of operations of
Open:Net.
Network Services revenues increased by 387.9% from $716,152 in 1997 to
$3,494,418 in 1998 and represented 30.9% and 40.5% of total revenues in 1997 and
1998, respectively. Revenues from existing operations represented 78.3% of
Network Services revenues in 1998 compared with 100.0% in 1997. These revenues
accounted for 72.7% of the growth in Network Services revenues from year to
year.
Revenues from acquired companies represented 21.7% of Network Services revenues
in 1998. Acquired companies did not contribute any Network Services revenues in
1997. Revenues from acquired companies accounted for 27.3% of the growth in
Network Services revenues from year to year. In 1998 these revenues include a
full year of operations of Artwise and Eclipse and three month of operations of
Open:Net.
We derived $7,692,555 or 89.1% of total revenues in 1998 from our operations in
Germany and $940,973 or 10.9% of total revenues from our operations in Italy.
On December 28, 1998, we acquired Vianet, our Austrian subsidiary, which had
revenues of approximately $3.1 million in 1998. Future operating results will
include Vianet revenues in Austria and revenues from Sunweb, a Swiss company 51%
of which we have agreed to acquire.
23
<PAGE>
Our total number of customers increased by 74.4% to approximately 7,400 at
December 31, 1998 from 4,300 at December 31, 1997. No single customer accounted
for more than 3% of our revenues in 1998.
Costs of Revenues
Total costs of revenues increased 312.4% from $2,531,787 in 1997 to $10,440,008
in 1998. Costs of revenues as a percentage of revenues increased from 109.4% in
1997 to 120.9% in 1998. Cost of revenues mainly consists of (i)
telecommunications expenses, (ii) personnel costs, (iii) cost of hardware and
software sold, (iv) amortization of product development costs, and (v) service
and consulting expenses. Telecommunications expenses mainly represent the cost
of transporting Internet traffic from our customer's location through a local
telecommunications carrier to one of our access nodes and the cost of leasing
lines to interconnect our backbone nodes.
The cost of our Internet Projects revenues increased by 214.2% from $1,495,234
in 1997 to $4,698,557 in 1998. This increase primarily resulted from increased
purchases of hardware and software, that was installed at customer sites, and
the costs of additional personnel. Cost of Internet Projects as a percentage of
revenues decreased from 93.5% in 1997 to 91.4% in 1998. This decrease is
primarily attributable to a reduction in training and seminar expenditures,
partially offset by an increase in purchases of hardware and software.
The cost of our Network Services revenues increased by 370.0% from $865,357 in
1997 to $4,067,513 in 1998. This increase primarily consisted of additional
leased line expenses. Cost of Network Services as a percentage of related
revenues decreased from 120.8% in 1997 to 116.4% in 1998. This decrease is
primarily attributable to a decline in personnel costs as a percentage of
revenues and a reduction in purchased Internet Services due to the development
of our own network. These decreases were partially offset by additional leased
line expenses.
Depreciation and amortization, included in Costs of Revenues, increased from
$171,196 in 1997 to $1,673,938 in 1998 as a result of new investments in product
development from year to year. We have capitalized certain costs associated
with designing the network, including related software. We have also
capitalized investments made in building network capacity, including related
personnel and consulting costs. These costs appear in our balance sheet under
product development cost and are amortized over a period not exceeding four
years.
General and Administrative Expenses
General and administrative expenses increased 227.1% from $481,700 in 1997 to
$1,575,758 in 1998. General and administrative expenses consist principally of
salaries and other personnel costs for our administrative staff, office rent and
depreciation of office equipment. The increase in our general and administrative
expenses reflects the costs of building a corporate infrastructure to support
our anticipated growth and the addition of general and administrative expenses
of companies acquired in 1997 and 1998. As a percentage of revenues,
24
<PAGE>
general and administrative expenses decreased from 20.8% in 1997 to 18.3% in
1998.
Marketing Expenses
Marketing expenses increased by 223.4% from $1,188,634 in 1997 to $3,844,232 in
1998. Marketing expenses consist principally of salaries of our sales force and
advertising and communication expenditures. Higher marketing expenses reflect
an increase in salary expense resulting from our larger sales force and an
increase in advertising and communication expenses reflecting our drive to
improve public awareness of our brand. As a percentage of revenues, our
marketing expenses decreased from 51.4% in 1997 to 44.5% in 1998.
Research and Development
Research and development expenses increased 951.4% from $279,698 in 1997 to
$2,940,865 in 1998. Research and development expenses consist principally of
personnel costs of employees working on product development, consulting costs
and certain overhead items. The development of our modular products and the
related pricing research which we conducted in 1998 is reflected in the higher
personnel costs included in research and development. The personnel utilized
for this purpose include our own marketing force and the portion of their time
which was devoted to product development is included in research and
development. We also incurred consulting expenses in 1998 while researching the
viability of certain telecommunications services that we plan to offer in the
future. As a percentage of revenues, research and development increased from
12.1% in 1997 to 34.1% in 1998.
Depreciation and Amortization
Depreciation and amortization expense, increased from $115,899 in 1997 to
$879,978 in 1998. This increase reflects increased depreciation of capital
expenditures for property and equipment purchased to build the corporate
infrastructure necessary to support our anticipated growth, and increased
amortization of goodwill related to our 1997 and 1998 acquisitions.
Goodwill represents the excess of the purchase price of companies we purchased
over the fair value of the tangible assets of those companies. Goodwill is
amortized over 10 years.
Interest Income and Expense
Interest expense increased 398.7% from $39,550 in 1997 to $197,243 in 1998 as a
result of new capital lease obligations which we undertook in 1998 to finance
acquisitions of computer equipment. Interest income in 1998 was earned on
excess cash balances resulting from the proceeds of our 1998 equity offerings.
25
<PAGE>
Income Taxes
We recorded income tax benefits of $1,339,407 in 1997 and $6,172,645 in 1998,
arising principally from incurred operating losses. Under the current German
tax code, these net operating losses may be carried forward indefinitely and
used to offset our future taxable earnings.
Year Ended December 31, 1997 As Compared To The Year Ended December 31, 1996
Results of Operations
Revenues
Total revenues increased by 652.1% from $307,673 in 1996 to $2,314,021 in 1997,
principally because 1997 was a full year of operation while 1996 involved
substantial start up and initial marketing activities.
Revenues from Internet Projects represented 70.6% and 69.1% of total revenues in
1996 and 1997, respectively, and increased by 635.3% from $217,296 in 1996 to
$1,597,869 in 1997. Revenues from Network Services represented 29.4% and 30.9%
of total revenues in 1996 and 1997, respectively, and increased by 692.4% from
$90,377 in 1996 to $716,152 in 1997.
Revenues from existing operations represented 57.1% of Internet Project revenues
in 1997 compared with 100.0% in 1996. These revenues accounted for 50.4% of the
growth in Internet Projects revenues from year to year. Revenues from acquired
companies represented 42.9% of Internet Project revenues in 1997. These revenues
accounted for 49.6% of the growth in Internet Projects revenues from year to
year. These revenues include the results of operations of Artwise for four
months in 1997.
Our total number of customers increased by 194.5% in 1997 to 4,300 customers
from 1,460 in 1996. No single customer accounted for more than 7% of our
revenues in 1997.
Costs of Revenues
Total costs of revenues increased 597.2% from $363,120 in 1996 to $2,531,787 in
1997. Costs of revenues as a percentage of revenues decreased from 118.0% in
1996 to 109.4% in 1997.
The cost of our Internet Projects revenues increased 530.8% from $237.037 in
1996 to $1,495,234 in 1997. This increase primarily resulted from increased
personnel costs, training and seminars, and purchases of software that was
installed at customer sites. Cost of Internet
26
<PAGE>
Projects as a percentage of related revenues decreased from 109.1% in 1996 to
93.6% in 1997. This decrease is primarily attributable to a reduction of free
lance staff costs.
The cost of our Network Services revenues increased by 625.4% from $119,297 in
1996 to $865,357 in 1997. This increase primarily consisted of increased
personnel costs and the cost of additional leased lines. Cost of Network
Services as a percentage of related revenues decreased from 132.0% in 1996 to
120.8% in 1997. This decrease is primarily due to a decline in purchased
Internet services and leased line expenses as a percentage of revenues and was
partially offset by additional personnel costs.
General and Administrative Expenses
General and administrative expenses increased 83.0% from $263,175 to $481,700 in
1997. Increases in our general and administrative expenses reflect the costs of
building a corporate infrastructure, which will support our future growth. It
also reflects the impact of the addition of general and administrative expenses
of companies acquired in 1997. As a percentage of revenues, general and
administrative expenses decreased from 85.5% in 1996 to 20.8% in 1997.
Marketing Expenses
Marketing expenses increased by 621.8% from $164,669 in 1996 to $1,188,634 in
1997. Increases in our marketing expenses are attributable primarily to
increased salaries reflecting our efforts to build a larger sales force and
larger advertising and communication expenses in our drive to improve public
awareness of our brand name. As a percentage of revenues, our marketing
expenses decreased from 53.5% in 1996 to 51.4% in 1997 due to a reduction of
free lance staff costs and merchandising costs. These reductions were partially
offset by higher personnel costs and advertising and communication expenses.
Research and Development
Research and development expenses increased 56.3% from $178,994 in 1996 to
$279,698 in 1997 primarily as a result of increased personnel costs. As a
percentage of revenues, our research and development decreased from 58.2% in
1996 to 12.1% in 1997 due to the growth of our revenues.
Depreciation and Amortization
Depreciation and amortization, increased from $21,263 in 1996 to $115,899 in
1997, reflecting increased capital expenditures in property, plant and
equipment. The increase in goodwill amortization from 1996 to 1997 is due to
goodwill additions generated by the 1997 acquisitions.
27
<PAGE>
Interest Income and Expense
Interest expense increased from $2,079 in 1996 to $39,550 in 1997, principally
due to the higher level of overdrafts and short term borrowings in 1997 compared
to 1996. These overdrafts were used to fund the Company's working capital
requirements.
Income Taxes
We recorded income tax benefits of $401,849 in 1996 and $1,339,407 in 1997,
arising principally from operating losses incurred. Under the current German
tax code, these net operating losses may be carried forward indefinitely and
used to offset our future taxable earnings.
Quarterly results of operations
Our quarterly results are subject to seasonality. We typically experience an
increased level of project sales in the last fiscal quarter. We also typically
experience a slowdown in the first fiscal quarter as our customers refrain from
making IT investment decisions until the completion of Cebit, a major European
trade show.
Liquidity and Capital Resources
Since our inception, we have financed our operations and growth primarily from
the proceeds of private and public sales of equity securities. Total net
proceeds of equity offerings in the three years ended December 31, 1998 amounted
to approximately $67,661,000. Additionally, in 1998, our subsidiaries financed
the acquisition of certain equipment with capital lease obligations.
Our working capital, defined as the excess of our current assets over our
current liabilities, was $37,750,651 at December 31, 1998 compared to $891,027
at December 31, 1997 and $339,353 at December 31, 1996. Cash and cash
equivalents amounted to $42,875,877 at December 31, 1998 compared with
$2,238,909 at December 31, 1997 and $27,889 at December 31, 1996. The increase
in cash and cash equivalents primarily resulted from the proceeds of our first
public equity offering in December 1998 and our private placements in May 1998
and June 1997.
Operating activities used cash of $550,703, $1,518,962 and $10,335,128 in each
of the three years ended December 31, 1996, 1997 and 1998, respectively. The
large increase in cash used in 1998 results from the significant loss before
taxes for the year ended December 31, 1998 as we increased expenditures for
marketing and research and development.
Investing activities used cash of $1,351,894, $4,703,943 and $9,928,634 in each
of the three years ended December 31, 1996, 1997 and 1998, respectively. The
large increase in 1998 results from the business acquisitions in 1998 and the
increase in expenditures for property and equipment. Expenditures for property
and equipment, consisted principally of purchases of
28
<PAGE>
computer hardware and other expenditures related to our Internet backbone and
equipment necessary to support our anticipated growth.
Financing activities provided cash of $2,084,784, $8,644,256 and $60,010,168 in
each of the three years ended December 31, 1996, 1997 and 1998, respectively.
The large increase in 1998 results principally from our December 1998 public
equity offering which generated $44,977,376 in net proceeds and the May 1998
private equity offering which generated $12,600,000 in proceeds. In June 1997,
we completed a private placement which generated $8,070,427 in net proceeds.
At December 31, 1998 we had available combined cumulative tax loss carryforwards
of approximately $20,230,048 most of which relate to our German operations.
Under current German tax law, these tax loss carryforwards have no expiration
date. We have not provided any valuation allowance against the deferred tax
asset related to these loss carryforwards. However, if we were unable to
generate sufficient taxable income in the future or if the current tax law were
changed, a valuation allowance would be required to be established through a
charge to income. In March 1999, the German government passed new tax
legislation which reduced the corporate income tax rate from 45% to 40%. The
impact of recalculating the deferred tax assets and liabilities using the new
rate is required to be recorded in the first quarter of 1999 and is estimated to
be approximately $522,000.
We believe that our cash and cash equivalents will provide adequate liquidity to
fund our normal operating activities over the next twelve months and in the
intermediate term. However, our strategic plan is to continue to seek additional
acquisitions and to enhance our capabilities in both IP and other communications
services through significant capital expenditures. These strategic initiatives
will be initially financed from the portion of the proceeds of the December 1998
public equity offering which exceeds our normal operating requirements and may
require additional private or public offerings of debt or equity securities.
29
<PAGE>
Year 2000
The commonly referred to Year 2000 problem results from the fact that many
existing computer programs and systems use only two digits to identify the year
in the date field. These programs were designed and developed without
considering the impact of a change in the century designation. If not
corrected, computer applications that use a two-digit format could fail or
create erroneous results in any computer calculation or other process involving
the Year 2000 or a later date. We have identified two main areas of Year 2000
risk for our IT systems:
. our internal computer systems or embedded chips could be disrupted or
fail, causing an interruption or decrease in productivity in our
operations; and
. computer systems or embedded chips of third parties including (without
limitation) financial institutions, suppliers, vendors, landlords,
customers, suppliers of communications services and others could be
disrupted or fail, causing an interruption or decrease in our ability to
continue our operations.
We have evaluated our state of readiness for the Year 2000 issue. With regard
to our internal IT systems, we have concluded that substantially all of those
systems are Year 2000 compliant. Our personnel tested and analyzed our systems
in the course of regular quality control and research development. We did not
require significant additional expenses to do this evaluation. We have also
instituted procedures to assure that IT systems installed in 1999 will be Year
2000 compliant. With regard to third parties, we make sure newly acquired IT
systems will be Year 2000 compliant. In addition, we have been assured by all
major suppliers, vendors and customers that the following existing IT and other
systems, upon which we rely for products and services and for internal
operations, are Year 2000 compliant:
. the Cisco routers we use in connection with leased telephone line
communications;
. the Ascend routers we use in connection with telephone dial-up
communications;
. Sun Workstations, our main Internet servers;
. the Microsoft software we use in our internal office operations;
. our network facilities supplied by Info AG;
. our global transit facilities supplied by AT&T Unisource;
. our leased telephone lines supplied by Deutsche Telekom AG;
. the electric power to our main offices and several of its nodes, supplied
by Stadtwerke Munich.
Based on those assurances, we believe that the IT systems utilized in our
principal network, backbone and internal operations will meet Year 2000
requirements. We do not anticipate significant interruptions of billings or
service to customers or disruptions of internal operations attributable to the
Year 2000 problem. We have plans to complete the integration of operations of
newly acquired subsidiaries into our current IT system during 1999. Compliance
with Year 2000 issues on a company-wide basis will not require acceleration of
planned expenditures for the purpose of remediation. We are now determining
whether suppliers of secondary significance to our business, such as local
suppliers of telephone service and electric power, are Year 2000 compliant. Some
of these subsidiary systems are non-essential, as they duplicate systems that we
have determined will operate in the Year 2000 environment. We anticipate
completing our inquiries regarding secondary systems during the first quarter of
1999. Based on our experience to date, we do not anticipate that we will be
required to incur significant additional operating expenses or to invest heavily
to obtain Year 2000 compliance for these systems. To date, the only costs in
connection with our Year 2000 evaluation have been limited to internal staff
30
<PAGE>
costs, which have been expensed as incurred. The financial information contained
in this prospectus includes such costs, which are not material. To respond to
our customers' inquiries we are in the process of developing a report to inform
our customers about the effect of Year 2000 problem on our products and
services. We anticipate utilizing an outside consultant to prepare such report
at a cost estimated to be 50,000 DM. Because we believe that our systems are
Year 2000 compliant, we have not developed a theoretical worst case analysis or
a contingency plan to deal with such a contingency.
With respect to non-IT systems, our operations do not depend in a significant
manner on such embedded technology. All of our desk-type computers and
telephones are Year 2000 compliant. Our offices' climate control, elevators [and
monitor alarms] have embedded systems. Our operations do not depend on elevators
for access to the principal offices. We are in the process of evaluating whether
the embedded systems at our other facilities are Year 2000 compliant.
Accordingly, we have not developed formal contingency plans in this regard.
Conversion to the Euro
On January 1, 1999, 11 of the 15 EU member countries (the "participating
countries") adopted the Euro as their common legal currency, at which time their
respective individual currencies became irrevocably fixed at a rate of exchange
to the Euro, and the Euro became a currency in its own right. Presently, the
following 11 currencies are subject to the Euro conversion: The Austrian
Shilling, the Belgian Franc, the Dutch Guilder, the Finnish Markka, the French
Franc, the Deutsche Mark, the Irish Punt, the Italian Lira, the Luxembourg
Franc, the Portuguese Escudo and the Spanish Peseta.
From January 1, 1999 until January 1, 2002 (the "transition period"), the Euro
will exist in electronic form only and the participating countries' individual
currencies will persist in tangible form as legal tender in fixed denominations
of the Euro. During the transition period, we must manage transactions with our
customers and our third party vendors in both the Euro and the participating
countries' respective individual currencies. This may cause significant
logistical problems. We may incur increased operational costs and may have to
modify or upgrade our information systems in order to:
. convert individual currencies to Euro;
. convert individual currencies of participating countries into each other;
. execute conversion calculations utilizing six-digit exchange rates and
other prescribed requirements;
. accommodate the new Euro currency symbol; and
. permit pricing, advertising, billing, accounting, internal financial
calculations, sales and other transactions or practices to be effected
simultaneously in Euro and the participating countries' respective
individual currencies.
Changes in pricing denominations for products once sold and advertised in an
individual currency and now sold and advertised in the Euro could cause material
billing errors and complications. Fluctuations in the business cycles of a
participating country or a failure on any participating country's part to comply
with EC directives could have negative economic effects on other participating
countries, including countries in which we operate. Additionally, the
participating countries' pursuant of a single monetary policy may adversely
affect the particular economies of markets in which we conduct business. Any of
the above could have a material adverse effect on Cybernet.
We have been selecting and purchasing our computer and operational systems in an
attempt to ensure that our ability to transact business will not be impaired by
complications resulting from the introduction of the Euro. While we believe that
our systems have not been adversely impacted by the Euro conversion, we cannot
guarantee that we will be able to avoid the accounting, billing and logistical
difficulties that might result from the introduction of the Euro. In addition,
we cannot be sure that we, our third-party suppliers or our customers will be
able to implement the necessary protocols successfully. If we, our third-party
vendors, customers or any others with whom we must interact or interconnect,
fail to adapt and modify our procedures and systems to accommodate the Euro
conversion, this could materially adversely affect our results of operation.
31
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize market-risk-sensitive instruments, such as
derivative financial instruments. Its primary market risk is in the area of
interest rate and foreign currency exchange rate risks.
The Company is exposed to typical interest rate risks insofar as changes of
future interest rates will lead to changes in interest income and expense.
However, the Company currently does not have any significant fixed rate debt and
maintains its cash balances in deposits at banks and highly liquid short term
investments, such as money market mutual funds. The Company does not use
interest rate sensitive instruments to hedge this interest rate risk exposure,
because it believes the exposure of its operating results to changes in interest
rates is insignificant.
All of the Company's revenues are denominated in currencies other than the
U.S. Dollar. However, the Company has chosen the U.S. Dollar as its reporting
currency. Approximately 89% of the Company's revenues in 1998 were denominated
in Deutsche Mark and as such, the majority of its foreign exchange rate exposure
relates to changes in the exchange rate between the Deutsche Mark and United
States Dollar. The Company estimates that a ten percent adverse change in the
exchange rate between the United States Dollar and the Deutsche Mark would have
increased the Company's reported net loss for 1998 by approximately $530,300.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears beginning on page F-1 of this
report.
PAGE 32
<PAGE>
ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
information to be included under the captions "Election of Directors,"
"Executive Officers" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for the 1999 Annual
Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
information to be included under the captions "Election of Directors Director
Compensation" and "Compensation Committee Interlocks and Insider Participation,"
"Executive Compensation," and "Compensation Committee Report on Executive
Compensation" in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders.
PAGE 33
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
information to be included under the caption "Beneficial Ownership of Common
Stock" in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
information to be included under the caption "Election of Directors
Compensation Committee Interlocks and Insider Participation" in the Company's
Proxy Statement for the 1999 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Documents filed as a part of this report.
1. FINANCIAL STATEMENTS
See Index to Financial Statements on page F-1.
2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule of Cybernet
Internet Services International, Inc. is included in Item 14(d) and
presented as a separate section of this Report: Schedule II Valuation and
Qualifying Accounts: page F-19.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
3. EXHIBITS
Listed below are all of the Exhibits filed as part of this report.
Certain Exhibits are incorporated by reference from documents previously
filed by the Company with the Securities and Exchange Commission pursuant
to Rule 12b-32 under the Securities Exchange Act of 1934, as amended.
PAGE 34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Exhibit Description
Number of Exhibit Location
- ------- ----------- --------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger between Incorporated by reference from Exhibit
the Registrant and Cybernet Internet 2.1 to the Company's Registration
Services International, Inc., a Utah Statement on Form S-1 declared
corporation, dated as of October 9, 1998 effective on December 2, 1998, located
under Securities and Exchange
Commission File No. 333-63755
("December 1998 Registration Statement")
- -------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation Incorporated by reference from Exhibit
3.1 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
3.2 Bylaws Incorporated by reference from Exhibit
3.2 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
4.1 Certificate of Incorporation See Exhibit 3.1 Above
- -------------------------------------------------------------------------------------------------
4.2 Bylaws See Exhibit 3.2 Above
- -------------------------------------------------------------------------------------------------
10.1 Sale and Assignment of Shares in Incorporated by reference from Exhibit
Open:Net Internet Solutions GmbH 10.2 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
10.2 Stock Purchase Agreement (Vianet) Incorporated by reference from Exhibit
10.4 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
10.3 Pooling Agreement (Vianet)
10.3.1 Libischer Filed herewith
10.3.2 Wiesmueller Filed herewith
- -------------------------------------------------------------------------------------------------
10.4 Stock Purchase Agreement (SunWeb) Filed herewith
- -------------------------------------------------------------------------------------------------
10.5 Employment Agreement (Andreas Eder) Filed herewith
- -------------------------------------------------------------------------------------------------
10.6 Employment Agreement (Alessandro Filed herewith
Giacalone)
- -------------------------------------------------------------------------------------------------
10.7 Employment Agreement (Christian Filed herewith
Moosmann)
- -------------------------------------------------------------------------------------------------
10.8 Employment Agreement (Timon Lutze) Filed herewith
- -------------------------------------------------------------------------------------------------
10.9 Employment Agreement (Tristan Libischer) Filed herewith
- -------------------------------------------------------------------------------------------------
10.10 Employment Agreement (Alexander Filed herewith
Wiesmueller)
- -------------------------------------------------------------------------------------------------
10.11 Lease Munich Headquarter Incorporated by reference from Exhibit
10.13 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
</TABLE>
PAGE 35
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Exhibit Description
Number of Exhibit Location
- ------- ----------- --------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
10.12 Lease Data Center in [Hamburg] Filed herewith
- -------------------------------------------------------------------------------------------------
10.13 1998 Stock Incentive Plan Incorporated by reference from Exhibit
10.18 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
10.14 1998 Outside Directors' Stock Option Incorporated by reference from Exhibit
Plan 10.19 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
10.15 Ebone Agreement Incorporated by reference from Exhibit
10.16 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------
21. Subsidiaries of the Company Filed herewith
- -------------------------------------------------------------------------------------------------
27 Financial Data Schedule Filed herewith
- -------------------------------------------------------------------------------------------------
</TABLE>
b. Reports on Form 8-K.
None.
PAGE 36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYBERNET INTERNET SERVICES
INTERNATIONAL, INC.
March 30, 1999
/s/ Andreas Eder
By: _________________________________________
Chairman of the Board of Directors, Chief
Executive Officer and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andreas Eder
_________________________________ Chairman of the Board March 30, 1999
Andreas Eder of Directors, Chief
Executive Officer
/s/ Dr. Alessandro Giacalone
_________________________________ Director and Chief March 30, 1999
Dr. Alessandro Giacalone Operating Officer
/s/ Tristan Libischer
_________________________________ Director March 30, 1999
Tristan Libischer
/s/ Dr. Hubert Besner
_________________________________ Director March 30, 1999
Dr. Hubert Besner
/s/ G.W. Norman Wareham
_________________________________ Director March 30, 1999
G.W. Norman Wareham
</TABLE>
PAGE 37
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert Fratarcangelo
_________________________________ Director March 30, 1999
Robert Fratarcangelo
/s/ Christian Moosmann
_________________________________ Principal Financial March 30, 1999
Christian Moosmann and Accounting Officer
</TABLE>
PAGE 38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
Independent Auditors' Report.................................................................................. F- 2
Consolidated Balance Sheets December 31, 1998, 1997 and 1996.................................................. F- 3
Consolidated Statements of Loss and Comprehensive Loss years ended December 31, 1998, 1997 and 1996........... F- 4
Consolidated Statements of Cash Flows years ended December 31, 1998, 1997 and 1996............................ F- 5
Consolidated Statements of Shareholders' Equity years ended December 31, 1996, 1997 and 1998.................. F- 6
Notes to Consolidated Financial Statements.................................................................... F- 7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Cybernet Internet Services International, Inc.:
We have audited the accompanying consolidated balance sheets of Cybernet
Internet Services International, Inc. and its subsidiaries ("the Company") as of
December 31, 1998, 1997 and 1996, and the related consolidated statements of
loss and comprehensive loss, cash flows and changes in shareholders' equity for
each of the three years then ended. Our audits also included the financial
statements schedule listed in the Index at Item 14(a). These financial
statements and Schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in 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 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1998, 1997 and 1996, and the consolidated results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG
Munich, Germany
March 12, 1999
F-2
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1997 1998
------------ ------------- -------------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents....................................... $ 27,889 $ 2,238,909 $42,875,877
Short-term investments (Note 4)................................. 453,698 817,913 112,503
Accounts receivable -- trade, net of allowance
for doubtful accounts of $15,164, $ 33,417 and
$ 361,393 at December 31, 1996, 1997 and 1998,
respectively................................................... 183,513 1,130,981 3,248,754
Other receivables............................................... 84,675 285,432 1,793,153
Prepaid expenses and other assets............................... 10,607 59,906 423,114
---------- ----------- -----------
Total current assets....................................... 760,382 4,533,141 48,453,401
Property and equipment, net (Note 5)............................ 630,760 2,284,793 7,970,300
Product development costs, net.................................. 426,996 2,818,069 5,742,793
Goodwill, net................................................... -- 1,322,566 6,504,576
Deferred income taxes (Note 12)................................. 392,977 1,652,809 8,166,171
Other assets.................................................... -- 5,679 2,607,488
---------- ----------- -----------
TOTAL ASSETS......................................................... $2,211,115 $12,617,057 $79,444,729
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Overdrafts and short-term borrowings (Note 8)................... $ 71,881 $ 413,625 $ 287,097
Trade accounts payable.......................................... 226,379 1,373,901 3,346,372
Other accrued liabilities....................................... 40,953 480,228 1,072,877
Deferred purchase obligations (Note 3).......................... -- 980,693 4,482,967
Current portion long term debt and capital lease
obligations.................................................... -- -- 924,670
Accrued personnel costs......................................... 81,816 393,667 588,767
---------- ----------- -----------
Total current liabilities.................................. 421,029 3,642,114 10,702,750
Long-term debt (Note 9)......................................... -- 41,691 66,829
Capital lease obligations....................................... -- -- 1,315,737
Minority Interest............................................... -- 24,937 --
SHAREHOLDERS' EQUITY
Common stock $.001 par value, 50,000,000 shares
authorized, 5,160,000, 14,681,891 and 18,762,138
shares issued and outstanding at December 31, 1996,
1997 and 1998, respectively................................... 5,160 14,682 18,762
Preferred stock $.001 par value, 50,000,000 shares
authorized, 6,360,000 7,760,000 and 6,360,000
issued and outstanding at December 31, 1996,
1997 and 1998, respectively.................................... 6,360 7,760 6,360
Subscription receivable......................................... -- (735,000) (19,210)
Additional paid in capital...................................... 2,065,899 11,102,257 72,794,936
Accumulated deficit............................................. (287,196) (1,271,036) (6,435,676)
Other comprehensive income (loss)............................... (137) (210,348) 994,241
---------- ----------- -----------
Total shareholders' equity...................................... 1,790,086 8,908,315 67,359,413
---------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $2,211,115 $12,617,057 $79,444,729
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1996 1997 1998
----------- ------------- -------------
<S> <C> <C> <C>
Revenue
Internet Projects........................................... $ 217,296 $ 1,597,869 $ 5,139,110
Network Services............................................ 90,377 716,152 3,494,418
---------- ----------- ------------
Total revenues................................................... 307,673 2,314,021 8,633,528
Cost of revenues:
Internet Projects........................................... 237,037 1,495,234 4,698,557
Network Services............................................ 119,297 865,357 4,067,513
Depreciation and amortization............................... 6,786 171,196 1,673,938
---------- ----------- ------------
Total cost of revenues........................................... 363,120 2,531,787 10,440,008
---------- ----------- ------------
Gross loss....................................................... (55,447) (217,766) (1,806,480)
General and administrative expenses.............................. 263,175 481,700 1,575,758
Marketing expenses............................................... 164,669 1,188,634 3,844,232
Research and development expenses................................ 178,994 279,698 2,940,865
Depreciation and amortization.................................... 21,263 115,899 879,978
---------- ----------- ------------
628,101 2,065,931 9,240,833
Interest expense................................................. 2,079 39,550 197,243
Interest income.................................................. -- -- 154,296
---------- ----------- ------------
Loss before taxes and minority interest.......................... (685,627) (2,323,247) (11,090,260)
Income tax benefit............................................... 401,849 1,339,407 6,172,645
---------- ----------- ------------
Net loss before minority interest................................ (283,778) (983,840) (4,917,615)
Minority interest................................................ -- -- 144,925
Net loss......................................................... (283,778) (983,840) (4,772,690)
Other comprehensive loss:
Foreign currency translation adjustments.................... (5,089) (210,211) 1,204,589
---------- ----------- ------------
Comprehensive loss............................................... $ (288,867) $(1,194,051) $ (3,568,101)
========== =========== ============
Basic and diluted loss per share................................. $(.12) $(.12) $(.30)
========== =========== ============
Number of shares used to compute earnings per share.............. 2,465,782 8,342,297 16,012,653
---------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1997 1998
------------ ------------ --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................................................... $ (283,778) $ (983,840) $(4,772,690)
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest................................................................. -- -- (144,925)
Deferred tax credit............................................................... (401,849) (1,348,932) (6,172,645)
Depreciation and amortization..................................................... 47,031 200,565 2,553,916
Provision for losses on accounts receivable....................................... 15,456 33,417 120,862
Changes in operating assets and liabilities:
Trade accounts receivable......................................................... (203,112) (475,300) (1,295,646)
Other receivables................................................................. (69,583) (136,141) (1,424,697)
Prepaid expenses and other current assets......................................... (10,847) (32,120) (310,176)
Trade accounts payable............................................................ 231,490 (401,835) 1,027,728
Other accrued expenses and liabilities............................................ 40,826 1,377,685 16,748
Accrued personnel costs........................................................... 83,663 247,539 66,397
----------- ----------- ------------
Total changes in operating assets and liabilities............................ 72,437 579,828 (1,919,646)
----------- ----------- ------------
Net cash used in operating activities........................................ (550,703) (1,518,962) (10,355,128)
Cash Flows from Investing Activities:
Purchase of short-term investments................................................ (727,693) (7,280,037) (104,654)
Proceeds from sale of short term investments...................................... 304,470 6,931,035 810,063
Purchase of property and equipment................................................ (552,104) (1,707,843) (6,033,959)
Product development costs......................................................... (576,567) (2,377,782) (3,865,930)
Acquisition of businesses, net of cash acquired................................... -- (269,316) (734,154)
----------- ----------- ------------
Net cash used in investing activities........................................ (1,551,894) (4,703,943) (9,928,634)
Cash Flows from Financing Activities:
Proceeds from issue of common stock, net.......................................... 2,012,903 8,070,427 57,577,376
Repayment of subscription receivable.............................................. -- -- 715,790
Proceeds from borrowings.......................................................... 71,881 700,000 2,092,163
Repayments of borrowings.......................................................... -- (126,266) (375,161)
----------- ----------- ------------
Net cash provided by financing activities.................................... 2,084,784 8,644,161 60,010,168
----------- ----------- ------------
Net (decrease) increase in cash and cash equivalents.............................. (17,813) 2,421,256 39,746,406
Cash and cash equivalents at beginning of year.................................... 49,143 27,889 2,238,909
Translation adjustments........................................................... (3,441) (210,236) 890,562
----------- ----------- ------------
Cash and cash equivalents at end of year.......................................... $ 27,889 $ 2,238,909 $ 42,875,877
=========== =========== ============
Supplemental disclosure of noncash investing and financing
activities:
Acquisitions (Note 3):
Fair value of assets acquired................................................... -- $ 2,230,146 $ 8,800,013
Less:
Cash acquired................................................................ -- 182,550 129,564
Deferred purchase obligation................................................. -- -- 4,482,965
Cash paid.................................................................... -- 451,866 863,718
Stock issued................................................................. -- 1,051,322 1,677,223
----------- ----------- ------------
Liabilities assumed............................................................. -- $ 544,408 $ 1,646,543
=========== =========== ============
Stock dividend -- -- (391,950)
Other supplemental cash flow disclosures:
Cash paid for interest....................................................... (2,079) (39,550) (197,243)
Cash paid for taxes.......................................................... -- 16,550 11,457
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------------- --------------------------- Subscription
Shares Amounts Shares Amount Receivable
------------ -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance
January 1, 1996..................... 161,250 $ 161 6,360,000 $ 6,360 --
Issuance of shares for cash........... 4,998,750 4,999
Net loss.............................. -- --
Currency translation adjustment....... --
---------- ------- ---------- ------- ------------
Balance December 31, 1996............. 5,160,000 $ 5,160 6,360,000 $ 6,360 --
Issuance of shares in reverse
acquisition......................... 9,521,891 9,522
Issuance of shares for cash........... 1,400,000 1,400 (735,000)
Currency translation adjustment.......
Net loss..............................
---------- ------- ---------- ------- ------------
Balance December 31, 1997............. 14,681,891 $14,682 7,760,000 $ 7,760 $(735,000)
Conversion of preferred stock......... 1,400,000 1,400 (1,400,000) (1,400)
Stock dividend........................ 21,775 22
Issuance of shares for Artwise
acquisition.......................... 72,620 72
Issuance of shares for cash........... 700,000 700
Payment of subscription receivable.... 715,790
Issuance of shares for cash........... 1,800,000 1,800
Issuance of shares for Open:Net
acquisition.......................... 58,825 59
Issuance of shares for Eclipse
acquisition.......................... 27,000 27
Currency translation adjustment.......
Net loss..............................
---------- ------- ---------- ------- ------------
Balance December 31, 1998............. 18,762,111 $18,762 6,360,000 $ 6,360 $ (19,210)
========== ======= ========== ======= ============
</TABLE>
<TABLE>
<CAPTION>
Additional Accumulated Other Total
Paid-In Accumulated Comprehensive Stockholders'
Capital Deficit Income (Loss) Equity
------------------ ------------------- -------------------------- --------------
<S> <C> <C> <C> <C>
Balance
January 1, 1996..................... $ 57,995 $ (3,418) $ 4,952 $ 66,050
Issuance of shares for cash........... 2,007,904 2,012,903
Net loss.............................. (283,778) (283,778)
Currency translation adjustment....... (5,089) (5,089)
----------- ----------- ---------- -----------
Balance December 31, 1996............. $ 2,065,899 $ (287,196) $ (137) $ 1,790,086
Issuance of shares in reverse
acquisition......................... 232,331 241,853
Issuance of shares for cash........... 8,804,027 8,070,427
Currency translation adjustment....... (210,211) (210,211)
Net loss.............................. (983,840) (983,840)
----------- ----------- ---------- -----------
Balance December 31, 1997............. $11,102,257 $(1,271,036) $ (210,348) $ 8,908,315
Conversion of preferred stock......... --
Stock dividend........................ 391,928 (391,950) --
Issuance of shares for Artwise
acquisition.......................... 1,052,919 1,052,991
Issuance of shares for cash........... 12,599,300 12,600,000
Payment of subscription receivable.... 715,790
Issuance of shares for cash........... 44,975,576 44,977,376
Issuance of shares for Open: Net
acquisition.......................... 1,677,223 1,677,282
Issuance of shares for Eclipse
acquisition.......................... 995,733 995,760
Currency translation adjustment....... 1,204,589 1,204,589
Net loss.............................. (4,772,690) (4,772,690)
----------- ----------- ---------- -----------
Balance December 31, 1998............. $72,794,936 $(6,435,676) $ 994,241 $67,359,413
=========== =========== ========== ===========
</TABLE>
F-6
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Cybernet Internet Services International, Inc. ("the Company") (formerly known
as New Century Technologies Corporation) was incorporated under the laws of the
State of Utah on September 27, 1983. The Company changed its state of
incorporation to Delaware in November 1998. Effective September 16, 1997 the
Company acquired Cybernet Internet Dienstleistungen AG ("Cybernet AG"), a German
stock corporation which offers a variety of Internet related telecommunication
and systems integration services to corporate customers. Cybernet AG was founded
in December 1995, and commenced significant operations in 1996. The acquisition
has been accounted for as a reverse acquisition whereby the Company is
considered to be the acquiree even though legally it is the acquiror.
Accordingly, the accompanying financial statements present the historical
financial statements of Cybernet AG from January 1, 1996, through the
acquisition date of September 16, 1997 and the consolidated financial statements
of the Company and Cybernet AG since that date. Since the fair value of the net
assets of the Company were equal to their net book value on September 16, 1997,
the assets and liabilities of the Company remained at their historical cost
following the acquisition.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all majority-
owned subsidiaries of the Company. All significant intercompany investments,
accounts, and transactions have been eliminated.
Foreign Currency
The assets and liabilities for the Company's international subsidiaries are
translated into U.S. dollars using current exchange rates at the balance sheet
dates. Statement of operations items are translated at average exchange rates
prevailing during the period. The resulting translation adjustments are recorded
in the foreign currency translation adjustment account in equity. Foreign
currency transaction gains or losses are included in net earnings (loss).
Revenue Recognition
The Company offers Internet telecommunication and systems integration products
and network access services. Telecommunication and system integration products
consist of the development of customized business solutions, installation of
hardware and software and production support. Ongoing network services consist
of monthly user fees for network access and related services.
Revenues from telecommunication and systems integration products are
recognized upon completion of the related project and customer acceptance.
Revenues from ongoing network access services are recognized when provided to
customers.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful life of the asset, which ranges
from 4 years (computer equipment and software) to 10 years (leasehold
improvements and furniture and fixtures).
Product Development Costs
The Company capitalizes costs incurred related to the development of products
that will be sold to customers. Costs capitalized include direct labor and
related overhead and third party costs related to establishing network systems.
All costs in the development process are classified as research and development
and expensed as incurred until technological feasibility has been established.
Once technological feasibility has been established, which is defined as
completion of a working model, such costs are capitalized until the individual
products are commercially available. Amortization, which began in 1997, is
calculated using the greater of (a) the ratio that current gross revenues for a
product bear to the total of current and anticipated future revenues for that
product or (b) the straight-line method over four years. The carrying value of
product development costs is regularly reviewed by the Company and a loss
recognized
F-7
<PAGE>
when the net realizable value falls below the unamortized cost. No such losses
have been recognized to date. Accumulated amortization amounted to $75,494 and
$1,016,700 at December 31, 1997 and 1998 respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $49,906,
$226,763 and $609,948 in the years ended December 31, 1996, 1997 and 1998.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Short Term Investments
In accordance with Statement of Financial Accounting Standard ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities" available-
for-sale securities are carried at fair value, with unrealized gains and losses
reported as a separate component of stockholder's equity.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in other income. The
Company has classified all debt and equity securities as available-for-sale.
Income Taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period that includes the enactment date.
Deferred tax assets are reduced by a valuation allowance when the Company cannot
make the determination that it is more likely than not that some portion or all
of the related tax asset will be realized.
Fair Value of Financial Instruments
The carrying value of financial instruments such as cash, accounts receivable,
short term investments and accounts payable approximate their fair value based
on the short-term maturities of these instruments. The carrying value of bank
debt approximates fair value based on quoted market prices for the same or
similar issues as well as the current rates offered to the Company. Note 4
contains a detail of short-term investments held by the Company.
Substantially all of the Company's cash is deposited in a local German bank.
Short term investments are comprised of investments in highly liquid mutual
funds. Credit risk in connection with accounts receivable is minimized by the
diverse nature of the Company's customer base.
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 reporting period.
Actual results could differ from those estimates.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over 10 years.
Accumulated amortization totaled $18,693 and $312,436 at December 31, 1997 and
1998, respectively. The Company assesses the recoverability of goodwill by
determining whether the amortization of the related balance over its remaining
life can be recovered through reasonably expected undiscounted future cash
flows. Management evaluates the amortization period to determine whether later
events and circumstances warrant revised estimates of the amortization period.
F-8
<PAGE>
Stock Compensation
The Company accounts for its stock option compensation under Accounting
Principles Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). The Company presents all disclosures
required by Statement of Financial Accounting Standards No. 123 ("Statement
123") in Note 11.
Comprehensive Income
In 1998, the Company adopted Financial Accounting Standards Board Statement
130 "Reporting Comprehensive Standards" ("Statement 130"), which requires the
disclosure of the Company's comprehensive income. Comprehensive income is
defined as all changes in shareholders' equity exclusive of transactions with
owners such as capital investments and dividends. All prior periods have been
restated to conform with the reporting requirements of Statement 130.
Segment Disclosures
In 1998, the Company adopted Financial Accounting Standards Board Statement
131 "Disclosures About Segments of an Enterprise and Related Information"
("Statement 131"), which requires disclosures of certain financial information
of the Company's business operating segments. All prior periods have been
restated to conform with the disclosure requirements of Statement 131.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform to the current year presentation.
3. Business Acquisitions
On September 16, 1997, the Company acquired all of the outstanding shares of
the common stock of Cybernet AG in exchange for the issuance of 5,160,000 shares
of common stock of the Company, 1,200,000 shares of Series A preferred stock of
the Company and 5,160,000 shares of Series B preferred stock of the Company,
such shares representing the outstanding shares of the Company at that date.
Generally accepted accounting principles require that the Company be considered
the acquired company for financial statement purposes (a reverse acquisition)
even though the entity will continue to be called Cybernet Internet Services
International, Inc. Therefore, the acquisition has been recorded as a
recapitalization of Cybernet AG. The effects of the reverse acquisition have
been reflected for all share amounts in the accompanying financial statements.
The Company had no operations at the time of the reverse acquisition.
Effective September 16, 1997, the Company acquired 100% of the outstanding
shares of Artwise GmbH ("Artwise"), for a total consideration of DM 1,710,040
($954,263). DM 475,000 ($265,067) of the purchase price was paid in cash with
the remainder settled in exchange for the issuance of 72,620 shares of the
common stock of the Company in February, 1998. The shares issued in February
1998, which were recorded as additional goodwill, were partially contingent upon
the achievement of certain financial goals by Artwise for the year ended
December 31, 1997. The acquisition has been accounted for using the purchase
method of accounting and accordingly the accompanying financial statements
reflect Artwise's results of operations from September 16, 1997. Goodwill
recorded in connection with the acquisition of Artwise, of DM 1,507,493
($841,188), is being amortized over 10 years.
Effective December 11, 1997, the Company acquired 66% of the outstanding
shares of Eclipse s.r.l. ("Eclipse"), for a total consideration of DM 982,763
($548,386). DM 334,764 ($186,799) of the purchase price was paid in cash with
the remainder to be settled in exchange for the issuance of 27,000 shares of the
common stock of the Company in 1999. The acquisition has been accounted for
using the purchase method of accounting. Eclipse's results of operations for the
period December 11, 1997 through December 31, 1997 are not included in the
accompanying financial statements due to immateriality. Eclipse's results of
operations for the full year 1998 are included in the results of operations of
Cybernet Inc. for the year ended December 31, 1998. Goodwill recorded in
connection with the acquisition of Eclipse, of DM 909,418 ($507,459), is being
amortized over 10 years.
Effective August 15, 1998, the Company acquired 100% of the outstanding shares
of Open:Net Internet Solutions GmbH ("Open:Net") for a total consideration of DM
4,251,093 ($2,540,091). DM 1,445,000 ($863,718) of the purchase price was paid
in cash with the remainder settled in exchange for the issuance of 58,825 shares
of the common stock of the Company. The acquisition has been accounted for using
the purchase method of accounting and as such the accompanying financial
statements reflect
F-9
<PAGE>
Open: Net's results of operations for the period August 15, 1998 through
December 31, 1998. Goodwill recorded in connection with the acquisition of
Open:Net, of DM 3,520,178 ($2,298,341) is being amortized over 10 years.
Effective December 28, 1998, the Company acquired 100% of the outstanding
shares of Vianet Internet Dienstleistungen AG ("Vianet") for a cash payment of
DM 7,500,000 ($4,482,965) and 300,000 shares of the common stock of the Company
which is to be issued to the selling shareholders of Vianet in increments of
60,000 shares over five years contingent upon the continued employment of the
individuals. The acquisition has been accounted for using the purchase method of
accounting. The value of the 300,000 shares will be added to the cost of
acquiring the Company when the shares are issued to the selling shareholders.
Vianet's results of operations subsequent to December 28, 1998 are not included
in the accompanying financial statements due to immateriality. Goodwill recorded
in connection with the acquisition of Vianet, amounting to DM 3,449,307
($2,061,750), is being amortized over 10 years.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1997 and 1998 assume the acquisitions described above
occurred as of January 1, 1997:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1997 1998
--------------- ----------------
<S> <C> <C>
Revenue............................... $ 7,467,666 $12,589,528
Net loss.............................. (2,065,929) (6,068,365)
Basic and diluted loss per share...... $ (.21) $ (.38)
</TABLE>
4. Short-Term Investments
Short-term investments at cost, which represents the cost to purchase the
securities, consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
BHF Bank Accugeld Fund............ $453,698 $ -- $ 112,503
BHF Bank US Dollar Plus Fund...... -- 802,759 --
Commerzbank Geld Market Fund...... -- 15,154 --
-------- -------- --------
$453,698 $817,913 $112,503
======== ======== ========
</TABLE>
At December 31, 1996, 1997 and 1998 the estimated fair value of short-term
investments approximated cost. Proceeds from the sale of available for sale
securities in 1996, 1997 and 1998 were $263,751, $6,931,035, $810,063,
respectively. The Company did not recognize any gains on the sales of short-term
investments in 1996, 1997 or 1998.
5. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1996 1997 1998
----------- ------------ -------------
<S> <C> <C> <C>
Computer equipment and software................... $444,695 $1,942,485 $ 7,274,601
Leasehold improvements............................ 30,452 75,796 425,786
Furniture and fixtures............................ 201,606 478,504 1,979,873
-------- ---------- -----------
676,753 2,496,785 9,680,260
Less accumulated depreciation and amortization.... (45,993) (211,992) (1,709,960)
-------- ---------- -----------
Net property and equipment........................ $630,760 $2,284,793 $ 7,970,300
======== ========== -----------
</TABLE>
F-10
<PAGE>
6. Leases
The Company leases facilities and equipment under long-term operating leases.
Future minimum payments under non-cancellable operating leasing with initial
terms of one year or more are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31
1999........................ $2,105,459
2000........................ 1,749,784
2001........................ 1,575,547
2002........................ 940,702
2003........................ 635,797
Thereafter.................... 2,167,557
----------
$9,174,846
==========
</TABLE>
The Company's rental expense under operating leases in the years ended
December 31, 1996, 1997 and 1998 totaled approximately $56,508, $176,687 and
$1,068,645 respectively.
The Company has financed the acquisition of certain computer equipment through
capital lease agreements with interest rates ranging from 5% to 8%. At December
31, 1998, the gross value of assets under capital leases is $2,580,307 and
related accumulated depreciation was $609,520. The Company had no capital lease
obligations at December 31, 1996 or 1997. Future minimum lease payments in
connection with these leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31
1999................................ $ 892,984
2000................................ 892,984
2001................................ 176,536
2002................................ 171,871
2003................................ 133,646
----------
$2,268,021
==========
Less: Interest Portion................... (165,273)
==========
$2,102,748
==========
</TABLE>
7. Commitments
The Company has entered into long term data and voice communications
agreements with several vendors. The agreements enable the Company and its
customers to access data networks necessary for the use of its products and
services. The minimum payments under these agreements aggregate $1,382,228,
$84,806, $84,806, $84,806, $16,139 and $80,693 in 1999, 2000, 2001, 2002, 2003
and thereafter, respectively.
8. Overdrafts and Short-Term Borrowings
Overdrafts represent temporary overdrafts of bank balances. The overdrafts are
not subject to formal agreements with the banks and generally are not subject to
interest.
As of December 31, 1998, the Company had formal short-term unsecured overdraft
facilities under which the Company and its subsidiaries could borrow up to DM
463,340 ($276,952). In addition, to these forward overdraft facilities, certain
of the Company's banks provided overdraft protection exceeding the limits
specified in the agreements. The facilities are denominated in Deutsche Mark as
to DM 200,000, in Italian Lire as to DM 121,200 and in Austrian Schilling as to
DM 142,140. The interest rate fluctuates based on current lending rates and was
8.25% and 9.75 % at December 31, 1997 and 1998, respectively. As of December 31,
1998, DM 480,313 ($287,097) of the overdraft facility was used and DM 121,093
($72,381) was available.
F-11
<PAGE>
9. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1997 1998
--------------------- ----------------------
<S> <C> <C>
Note payable, 5.15 % interest, due in monthly installments
of principal and interest through 2001.................... $ 41,691 $ --
Note payable, 3.75% interest, due in quarterly
installments of principal and interest through January -- 41,626
2005......................................................
Note payable, 6.2% interest, due in monthly installments
of principal and interest through June 1999............... -- 5,039
Note payable, 6.6% interest, due in monthly installments
of principal and interest through December 2002........... -- 39,409
-------------------- ----------------------
41,691 86,074
Less current portion -- (19,245)
--------------------- ----------------------
Long-term portion $ 41,691 $ 66,829
===================== ======================
</TABLE>
10. Stockholders' Equity
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock. Holders
of Common Stock are entitled to one vote per share on all matters submitted to a
vote of stockholders. The Common Stock is not redeemable and has no conversion
or preemptive rights.
Preferred Stock
The Company is authorized to issue 50,000,000 shares of Preferred Stock with
relative rights, preferences and limitations determined at the time of issuance.
As of December 31, 1998, the Company has issued and outstanding Series A and B
Preferred Stock. Substantially all of the Company's previously issued Series C
Preferred Stock was converted to Common Stock in 1998.
Series A Preferred Stock
The holders of the Series A Preferred Stock are entitled to receive dividends
at a rate equal to $0.01 per share per annum before any dividends are paid or
set apart for payment upon any other series of Preferred Stock of the Company,
other than Series B or Series C Preferred Stock, or on the Common Stock of the
Company. Commencing with the fiscal year beginning on January 1, 1998, the
dividend on the Series A Preferred Stock will be paid for each fiscal year
within five months of the end of each fiscal year, subject to the availability
of surplus or net profits therefor. The dividends on the Series A Preferred
Stock are not cumulative. The holders of the Series A Preferred Stock are not
entitled to vote.
The shares of Series A Preferred Stock may be redeemed by the Company at any
time after January 1, 2000, at a redemption price of one share of the Common
Stock of the Company for each share of Series A Preferred Stock plus any unpaid
dividends earned thereon; provided that all and not less than all of the shares
of Series A Preferred Stock are so redeemed and provided further that if the
Company has not redeemed the Series A Preferred Stock by December 31, 2001, a
holder of Series A Preferred Shares may at any time commencing January 1, 2002,
require the Company to purchase all of the shares of the Series A Preferred
Stock held by him for a purchase price of $3.00 per share plus any dividends
earned but unpaid on such shares.
A holder of Series A Preferred Stock may convert each share held by him into
one share of the Common Stock of the Company; provided, however, that (1) no
conversion may occur prior to January 1, 1999; (2) no more than 25% of the
Series A Preferred Shares held by the holder may be converted prior to January
1, 2000; (3) no more than an additional 25% of the Series A Preferred Shares
held by the holder may be converted prior to January 1, 2001; (4) the remainder
of the Series A Preferred Shares held by the holder
F-12
<PAGE>
may be converted commencing January 1, 2001; and (5) any conversion may not be
for less than all of the Series A Preferred Shares held by the converting
shareholder eligible for conversion at the time of the notice.
Upon the liquidation, dissolution or winding up, whether voluntary or
involuntary, of the Company, the holders of the Series A Preferred Stock will be
entitled to be paid the sum of $3.00 per share plus an amount equal to any
unpaid accrued dividends before any amount is paid to the holder of any other
series of Preferred Stock, other than the Series B Preferred Stock or the Series
C Preferred Stock, or to the Common Stock of the Company. After payment of these
amounts to the holders of the Series A Preferred Stock, the remaining assets of
the Company will be distributed to the holders of the Common Stock.
Series B Preferred Stock
The holders of the Series B Preferred Stock are entitled to receive dividends
at a rate equal to $0.01 per share per annum before any dividends are paid or
set apart for payment upon any other series of Preferred Stock of the Company
other than the Series C Preferred Stock or on the Common Stock of the Company.
Commencing with the fiscal year beginning on January 1, 1998, the dividend on
the Series B Preferred Stock will be paid for each fiscal year within five
months of the end of each fiscal year, subject to the availability of surplus or
net profits therefor. The dividends on the Series B Preferred Stock will not be
cumulative. The holders of the Series B Preferred Stock are entitled to one vote
per share.
The shares of Series B Preferred Stock may be redeemed by the Company at any
time after January 1, 2000, at a redemption price of one share of the Common
Stock of the Company for each share of Series B Preferred Stock plus any unpaid
dividends earned thereon through the date of redemption; provided that all and
not less than all of the shares of Series B Preferred Stock are so redeemed.
A holder of Series B Preferred Stock may convert each share held by him into
one share of the Common Stock of the Company provided, however, that (1) no
conversion may occur prior to January 1, 1999; (2) no more than 25% of the
Series B Preferred Shares held by the holder may be converted prior to January
1, 2000; (3) no more than an additional 25% of the Series B Preferred Shares
held by the holder may be converted prior to January 1, 2001; (4) the remainder
of the Series B Preferred Shares held by the holder may be converted commencing
January 1, 2001; and (5) any conversion may not be for less than all of the
Series B Preferred Shares held by the converting shareholder eligible for
conversion at the time of the notice.
Upon the liquidation, dissolution or winding up, whether voluntary or
involuntary, of the Company, the holders of the Series B Preferred Stock will be
entitled to be paid the sum of $3.00 per share plus an amount equal to any
unpaid accrued dividends before any amount is paid to the holder of any other
series of Preferred Stock other than the Series C Preferred Stock or to the
Common Stock of the Company. After payment of these amounts to the holders of
the Series B Preferred Stock, the remaining assets of the Company will be
distributed to the holders of the Common Stock.
Series C Preferred Stock
The holders of the Series C Preferred Stock are entitled to receive dividends
at a rate equal to $0.56 per annum, and no more, before any dividends are paid
or set apart for payment upon any other series of Preferred Stock or on the
Common Stock of the Company. Dividends will begin to accrue on January 1, 1998.
Commencing with the fiscal year beginning on January 1, 1998, the dividend on
the Series C Preferred Stock will be paid for each fiscal year within five
months of the end of each fiscal year, subject to the availability of surplus or
net profits therefor. The dividends of the Series C Preferred Stock are
cumulative.
The holders of the Series C Preferred Stock are not entitled to receive notice
of or to vote on any matter that is the subject of a vote of the stockholders of
the Company, except as otherwise required by the laws of the State of Delaware.
The shares of Series C Preferred Stock may be redeemed by the Company at any
time at a redemption price of 100% of the $7.00 purchase price paid to the
Company for such shares plus any unpaid accrued dividends thereon so long as
prior to the date of redemption the Company has offered to exchange each share
of Series C Preferred Stock for (a) one share of the Company's Common Stock,
plus (b) one warrant ("Warrant") to purchase the number of shares of Common
Stock equal in the aggregate to one-half the number of shares of Common Stock
received in the exchange, which Warrant will be exercisable at any time through
the first anniversary of the date of issuance of the Warrant at a purchase price
equal to $8.00 per share and a registration statement is in effect registering
the issuance of the Common Stock and Warrants.
F-13
<PAGE>
A holder of Series C Preferred Stock may convert each share held by him into
one share of the Common Stock of the Company anytime after July 31, 1998;
provided, however, that any conversion be of all the Series C Preferred Shares
held by the shareholder.
In July 1998, holders of 1,400,000 shares of Series C Preferred Stock
(representing the entire amount outstanding) converted their shares into
1,400,000 shares of the Company's Common Stock. Prior to the conversion holders
of Series C Preferred Stock received a stock dividend in Common Stock of the
Company in lieu of a cash dividend. The stock dividend was valued at the closing
price of the Common Stock on the date the dividend was declared.
11. Stock Option Plan
The Company has adopted a stock option plan ("Stock Option Plan") which
provides for the grant of options to key employees and members of the Board of
Directors to purchase shares of the Company's common stock. The Company has
elected to follow APB 25 and related interpretations in accounting for its Stock
Option Plan. Under APB 25, as long as the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company has reserved 2,000,000 shares of common stock for issuances under
the Stock Option Plan. During the year ended December 31, 1998, the Company
granted 285,000 stock options with an exercise price of $31.96 per share and
400,000 stock options with an exercise price of $32.04. All options granted have
10 year terms and vest over three years. All options were still outstanding at
December 31, 1998. No options were issued during the years ended December 31,
1996 and 1997. None of the options outstanding at December 31, 1998 were
exercisable.
Pro forma information regarding net income and earnings per share is required
by Statement 123 as if the Company had accounted for its employee stock options
under the fair value method of that statement. The fair value for these options
was estimated at the date of grant using the Black-Scholes option pricing model
using a risk-free interest rate of 4.5%, an expected common stock price
volatility factor of 0.8, a weighted-average expected life of the options of 5
years, and a expected dividend yield of 0%.
The fair value of the options granted in 1998 using the Black-Scholes model
was $13,320,000. Had the Company determined compensation cost for this plan in
accordance with Statement 123, the value of the options granted would have been
amortized over the option vesting period. The Company's pro forma loss and pro
forma basic and diluted earnings per share for 1998 would have been $4,995,690
and $(.31), respectively.
12. Provision for Income Taxes
The Company's principal operations are currently located in Germany. Pretax
(loss) for the years ended December 31, 1996, 1997 and 1998 was generated in the
following jurisdictions:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1996 1997 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
Germany................. $(685,627) $(2,303,448) $(10,655,410)
Other................... -- (19,799) (434,850)
--------- ----------- ------------
$(685,627) $(2,323,247) $(11,090,260)
========= =========== ============
</TABLE>
The components of the provision for income taxes, substantially all of which
relates to Germany, are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
<S> <C> <C> <C>
Current.......................... $ -- $ 9,525 $ --
Deferred......................... (401,849) (1,348,932) (6,172,645)
--------- ----------- -----------
Income tax benefit............... $(401,849) $(1,339,407) $(6,172,645)
========= =========== -----------
</TABLE>
F-14
<PAGE>
The Company has net deferred tax assets as of December 31, 1996, 1997 and 1998
as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1997 1998
--------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets
$692,694 $3,454,606 $11,695,379
Net operating losses................. -------- ---------- -----------
692,694 3,454,606 11,695,379
======== ========== ===========
Deferred tax liabilities
Product development costs............ 251,038 1,625,857 3,315,814
Depreciation and amortization........ 44,195 175,454 212,148
Other................................ 4,484 486 1,246
-------- ---------- -----------
299,717 1,801,797 3,529,208
======== ========== ===========
Net deferred tax assets................... $392,977 $1,652,809 $ 8,166,171
======== ========== ===========
</TABLE>
As of December 31, 1998, the Company and its subsidiaries had available
combined cumulative tax loss carryforwards of approximately $20,230,048 million
substantially all of which relates to Germany. Under German tax laws, these loss
carryforwards have an indefinite life. The tax loss carryforwards have been
generated during the establishment of the Company's operations. Management
believes that the Company will generate sufficient future taxable income to
realize the entire deferred tax asset and that the realization of the $8,166,171
net deferred tax asset is more likely than not. However, if the Company is
unable to generate sufficient taxable income in the future through operating
results a valuation allowance will be required to be established through a
charge to income.
A reconciliation of income taxes determined using the United States statutory
federal income tax rate of 35% to actual income taxes provided is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1997 1998
----------- ------------- --------------
<S> <C> <C> <C>
Income tax benefit at statutory rate....... $(239,969) $ (813,136) $ (3,881,591)
Higher foreign tax rates................... (157,694) (529,793) (2,528,579)
Other...................................... (4,186) 3,522 237,525
--------- ----------- ------------
Income tax benefit......................... $(401,849) $(1,339,407) $( 6,172,645)
========= =========== ============
</TABLE>
13. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1996 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
Numerator:
Net loss-numerator for basic and diluted loss per share.............. $ (283,778) $ (983,840) $(4,772,690)
========== ========== ===========
Denominator:
Denominator for basic and diluted loss per
========== 8,342,297 16,012,653
share -- weighted average shares outstanding....................... 2,465,782 ========== ===========
==========
Basic and diluted loss per share.......................................... $ (.12) $ (.12) $ (.30)
========== ========== ===========
</TABLE>
The denominator for diluted earnings per share excludes the convertible
preferred stock and stock options because the inclusion of these items would
have an anti-dilutive effect. The Company's preferred stock is described in
Note 10 and the Company's stock options are described in Note 11.
14. Related Party Transaction
On May 30, 1997, a principal shareholder of Cybernet AG advanced Cybernet AG
an interest free loan of DM 1.5 million ($837,895) due July 31, 1997. On
October 7, 1997, Cybernet AG repaid the loan.
The Company paid DM 17,250 ($11,345), DM 169,804 ($97,470) and DM 173,013
($98,303) to a law firm for legal services where one of the members of the board
of directors is a partner in the years ended December 31, 1996, 1997 and 1998,
respectively.
In November 1998, one of the members of the Board of Directors of Cybernet
Inc. and a principal Shareholder advanced an interest free loan to Cybernet Inc.
of DM 2.5 million ($1,494,322). The Company repaid the loan in December 1998.
In December 1998, the Company paid $2,916,000 in underwriting fees in
connection with the public sale of equity, to an investment bank in which one of
the Company's principal shareholders and a former member of the Company's Board
of Directors is a significant shareholder.
F-15
<PAGE>
15. Segment information
The Company evaluates performance and allocates resources based on the
operating profit of its subsidiaries. The accounting policies of the reportable
segments are the same as those described in the Summary of Significant
Accounting Policies in Note 2.
The Company operates in one line of business, which is providing
international Internet backbone and access services and network business
solutions for corporate customers. The Company's reportable segments are
divided by country since each country's operations are managed and evaluated
separately. The Company does not have any intercompany sales between its
subsidiaries.
Information concerning the Company's geographic locations is summarized as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1997 1998
----------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Germany........................ $ 307,673 $ 2,314,021 $ 7,692,555
US............................. -- -- --
Other.......................... -- -- 940,973
--------- ----------- ------------
Total.......................... $ 307,673 $ 2,314,021 $ 8,633,528
========= =========== ============
Cost of revenues:
Germany........................ $ 363,120 $ 2,531,787 $ 9,609,699
US............................. -- -- --
Other.......................... -- -- 830,309
--------- ----------- ------------
Total.......................... $ 363,120 $ 2,531,787 $ 10,440,008
========= =========== ============
General and Administrative Expenses:
Germany........................ $ 263,175 $ 481,700 $ 1,341,077
US............................. -- -- 186,345
Other.......................... -- -- 48,336
--------- ----------- ------------
Total.......................... $ 263,175 $ 481,700 $ 1,575,758
========= =========== ============
Marketing Expenses:
Germany........................ $ 164,669 $ 1,188,634 $ 3,708,831
US............................. -- -- --
Other.......................... -- -- 135,401
--------- ----------- ------------
Total.......................... $ 164,669 $ 1,188,634 $ 3,844,232
========= =========== ============
Research and Development:
Germany........................ $ 178,994 $ 279,698 $ 2,642,140
US............................. -- -- --
Other.......................... -- -- 298,725
--------- ----------- ------------
Total.......................... $ 178,994 $ 279,698 $ 2,940,865
========= =========== ============
Depreciation and Amortization:
Germany........................ $ 21,263 $ 115,899 $ 721,677
US............................. -- -- 108,976
Other.......................... -- -- 49,325
--------- ----------- ------------
Total.......................... $ 21,263 $ 115,899 $ 879,978
========= =========== ============
Interest Expense:
Germany........................ $ 2,079 $ 39,550 $ 180,496
US............................. -- -- 3,006
Other.......................... -- -- 13,741
--------- ----------- ------------
Total.......................... $ 2,079 $ 39,550 $ 197,243
========= =========== ============
Interest Income:
Germany........................ $ -- $ -- $ 30,581
US............................. -- -- 123,715
Other.......................... -- -- --
--------- ----------- ------------
Total.......................... $ -- $ -- $ 154,296
========= =========== ============
Loss before Taxes:
Germany........................ $(685,627) $(2,323,247) $(10,480,794)
US............................. -- -- (174,612)
Other.......................... -- -- (434,854)
------------
Total.......................... $(685,627) $(2,323,247) $(11,090,260)
========= =========== ============
Income tax benefit:
Germany........................ $ 401,849 $ 1,339,407 $ 6,172,645
US............................. -- -- --
Other.......................... -- -- --
Total.......................... $ 401,849 $ 1,339,407 $ 6,172,645
========= =========== ============
Total Assets:
Germany........................ $2,211,115 $12,343,057 $28,686,897
US............................. -- -- 47,688,998
Austria........................ -- -- 1,556,895
Other.......................... -- 274,000 1,511,939
---------- ----------- -----------
Total.......................... $2,211,115 $12,617,057 $79,444,729
========== =========== ===========
</TABLE>
F-16
<PAGE>
The Company's property, plant and equipment by geographic location and capital
expenditures by geographic area are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
Long lived assets: 1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Germany.................... $630,760 $2,208,781 $6,334,809
US......................... -- -- --
Austria.................... -- -- 699,511
Other...................... -- 76,012 935,980
-------- ---------- ----------
Total...................... $630,760 $2,284,793 $7,970,300
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------
Capital Expenditures: 1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Germany................... $552,104 $1,707,843 $5,097,077
US........................ -- -- --
Other..................... -- -- 936,882
-------- ---------- ----------
Total..................... $552,104 $1,707,843 $6,033,959
======== ========== ==========
</TABLE>
16. Recent Pronouncements
In March 1998, the AICPA issued SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This standard requires that
computer software costs meeting the criteria for internal-use software be
expensed as incurred in the preliminary project stage and capitalized
thereafter. Amounts capitalized are required to be amortized on a straight line
basis over the estimated useful life of the software. The standard is effective
for fiscal years beginning after December 15, 1998. Earlier application is
permitted. The Company does not expect the impact of this new statement on the
Company's consolidated balance sheet or results of operations to be material.
In April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-Up-
Activities". This standard requires costs of start-up-activities and
organization costs to be expensed as incurred. The standard is effective for
fiscal years beginning after December 15, 1998. Earlier application is
encouraged. The Company does not expect the impact of this new statement on the
Company's consolidated balance sheet or results of operations to be material.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133.
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
This statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999 and cannot be applied retroactively. The
Company does not expect the impact of this new statement on the Company's
consolidated balance sheets or results of operations to be material.
F-17
<PAGE>
17. Subsequent Events
In February 1999, the Company entered into a stock purchase agreement
providing for the purchase of 51% of the outstanding stock of Sunweb Internet
Services SIS AG ("Sunweb"), an Internet service provider located in
Switzerland, for total consideration CHF 1,477,000 ($1,024,182) and 25,000
shares of common stock of the Company. The Stock Purchase Agreement also
contains provisions for put and call options for the sellers and buyers,
respectively, for the remaining 49% of the outstanding stock of Sunweb. The
purchase price per the agreement for the remaining 49% of the shares is based on
a multiple of Sunweb's net profit or loss before taxes. The put and call options
both expire on December 31, 2001.
In March 1999, the German government passed new tax legislation which reduced
the corporate income tax rate from 45% to 40%. In accordance with accounting
principles generally accepted in the United States of America, the Company's
deferred tax assets and liabilities related to Germany are calculated using 45%,
the rate in effect at December 31, 1998. The impact of remeasuring the deferred
tax assets and liabilities using the new rate is required to be recorded in the
period the rate is enacted. The impact on net income of the corporate tax rate
reduction is estimated to be approximately $522,000 and will be recorded in the
first quarter of 1999.
F-18
<PAGE>
<TABLE>
<CAPTION>
Schedule II
Balance at beginning Charged to costs Write-Offs net of Balance at end of
of period and expenses Recoveries period
------------------- ---------------- ----------------- -----------------
For the year ended December 31, 1996
<S> <C> <C> <C> <C>
Allowance for doubtful accounts 0.00 15,164.00 0.00 15,164.00
other assets
For the year ended December 31, 1997
Allowance for doubtful accounts 15,164.00 18,253.00 0.00 33,417.00
other assets
For the year ended December 31, 1998
Allowance for doubtful accounts 33,417.00 327,976.00 0.00 361,393.00
other assets
</TABLE>
F-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Description
Number of Exhibit Location
- ------------- ---------------------------------------- ----------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger between Incorporated by reference from Exhibit
the Registrant and Cybernet Internet 2.1 to the Company's Registration
Services International, Inc., a Utah Statement on Form S-1 declared
corporation, dated as of October 9, 1998 effective on December 2, 1998, located
under Securities and Exchange
Commission File No. 333-63755
("December 1998 Registration Statement")
- -------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation Incorporated by reference from Exhibit
3.1 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
3.2 Bylaws Incorporated by reference from Exhibit
3.2 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
4.1 Certificate of Incorporation See Exhibit 3.1 Above
- -------------------------------------------------------------------------------------------------------
4.2 Bylaws See Exhibit 3.2 Above
- -------------------------------------------------------------------------------------------------------
10.1 Sale and Assignment of Shares in Incorporated by reference from Exhibit
Open:Net Internet Solutions GmbH 10.2 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
10.2 Stock Purchase Agreement (Vianet) Incorporated by reference from Exhibit
10.4 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
10.3 Pooling Agreement (Vianet)
10.3.1 Libischer Filed herewith
10.3.2 Wiesmueller Filed herewith
- -------------------------------------------------------------------------------------------------------
10.4 Stock Purchase Agreement (SunWeb) Filed herewith
- -------------------------------------------------------------------------------------------------------
10.5 Employment Agreement (Andreas Eder) Filed herewith
- -------------------------------------------------------------------------------------------------------
10.6 Employment Agreement (Alessandro Filed herewith
Giacalone)
- -------------------------------------------------------------------------------------------------------
10.7 Employment Agreement (Christian Moosmann) Filed herewith
- -------------------------------------------------------------------------------------------------------
10.8 Employment Agreement (Timon Lutze) Filed herewith
- -------------------------------------------------------------------------------------------------------
10.9 Employment Agreement (Tristan Libischer) Filed herewith
- -------------------------------------------------------------------------------------------------------
10.10 Employment Agreement (Alexander Filed herewith
Wiesmueller)
- -------------------------------------------------------------------------------------------------------
10.11 Lease Munich Headquarter Incorporated by reference from Exhibit
10.13 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Description
Number of Exhibit Location
- ------------- ---------------------------------------- -----------------------------------------------
<S> <C> <C>
10.12 Lease Data Center in [Hamburg] Filed herewith
- -------------------------------------------------------------------------------------------------------
10.13 1998 Stock Incentive Plan Incorporated by reference from Exhibit
10.18 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
10.14 1998 Outside Directors' Stock Option Incorporated by reference from Exhibit
Plan 10.19 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
10.15 Ebone Agreement Incorporated by reference from Exhibit
10.16 to the December 1998 Registration
Statement
- -------------------------------------------------------------------------------------------------------
21. Subsidiaries of the Company Filed herewith
- -------------------------------------------------------------------------------------------------------
27 Financial Data Schedule Filed herewith
- -------------------------------------------------------------------------------------------------------
E-2
</TABLE>
<PAGE>
Exhibit 10.3.1
POOLING TRUST AGREEMENT
THIS POOLING TRUST AGREEMENT (this "Agreement") is made on December 28, 1998
between Tristan Libischer ("Beneficiary") and Dr. Thomas Herndl ("Pooling
Trustee").
BACKGROUND
The Beneficiary and Alexander Wiesmuller (collectively, the "Vianet
Stockholders") are the holders of all the issued and outstanding capital stock
of Vianet EDV Dienstleistungs AG, an Austrian corporation ("Vianet"), consisting
of 1,000,000 shares of voting common stock, par value 1 ATS (the "Vianet
Stock").
The Vianet Stockholders and Cybernet Internet Services International, Inc.,
("Cybernet") entered into a Stock Purchase Agreement as of June 17, 1998 (the
"Stock Purchase Agreement") providing for that the Vianet Stockholders will sell
to Cybernet and Cybernet will purchase from the Vianet Stockholders all of the
Vianet Stockholders' right, title and interest in the Vianet Stock.
At the Closing of the Stock Purchase Agreement (the "Closing") the Pooling
Trustee will receive 150,000 shares of the common voting stock, par value $0.001
of Cybernet (the "Trust Stock"), to be issued to the Beneficiary as part of the
consideration for the Vianet Stock.
Furthermore, the Stock Purchase Agreement provides that the Beneficiary will
have executed a pooling trust agreement with the Pooling Trustee providing that
the Cybernet shares making up a part of the Purchase Price shall be held by the
Pooling Trustee and not sold until released by the Pooling Trustee, that twenty
percent (20%) of such Cybernet shares shall be released on the first anniversary
of the Closing Date, that twenty percent (20%) of such Cybernet shares shall be
released on the second anniversary of the Closing date, that twenty percent
(20%) of such Cybernet shares shall be released on the third anniversary of the
Closing date, that twenty percent (20%) of such Cybernet shares shall be
released on
<PAGE>
-2-
the fourth anniversary of the Closing date and that twenty percent (20%) of such
Cybernet shares shall be released on the fifth anniversary of the Closing date.
Furthermore, the Stock Purchase Agreement provides that the Trust Stock received
by the Pooling Trustee on behalf of the Beneficiary and to the extent as not
released by the Pooling Trustee (as provided in Section 2 below) will be
retransferred from the Pooling Trustee to Cybernet if (i) the Employment
Agreement (as enclosed in Exhibit 1) with the Beneficiary is terminated by
Vianet or Cybernet for cause according to Section 75 para 4 of the Austrian
Stock Corporation Act ("Aktiengesetz") or Section 27 of the Austrian Employment
Act ("Angestelltengesetz") or (ii) the Beneficiary resigns.
AGREEMENT
In consideration of the above and the mutual agreements hereinafter set forth,
the parties agree as follows:
1. Fiduciary Relationship. The Pooling Trustee will receive on the Closing
----------------------
date and hold thereafter in trust for the Beneficiary the Trust Stock and all
funds and dividends it receives in connection therewith, and will account for
and remit all such funds and dividends to the Beneficiary, as applicable. The
Fiduciary Relationship is entered into with respect to the obligations of the
Beneficiary towards Cybernet in accordance with the Stock Purchase Agreement.
2. Release and Transfer of Trust Stock to the Beneficiary. Subject to the
------------------------------------------------------
retransfer of the Trust Stock to Cybernet as provided in section 3 hereinafter,
the Trust Stock to be held by the Pooling Trustee shall be released and
transferred to the Beneficiary at the earliest as follows:
- Twenty percent (20%) of the Trust Stock on the first
anniversary of the Closing date,
- an additional twenty percent (20%) of the Trust Stock on the
second anniversary of the Closing date,
<PAGE>
-3-
- an additional twenty percent (20%) of the Trust Stock on the
third anniversary of the Closing date,
- an additional twenty percent (20%) of the Trust Stock on the
fourth anniversary of the Closing date, and
- the remainder of the Trust Stock on the fifth anniversary of
the Closing date.
3. Retransfer of Trust Stock to Cybernet. Promptly following receipt of a
-------------------------------------
notice from Cybernet that (i) the Employment Agreement (as enclosed in Exhibit
1) with the Beneficiary has been terminated by Vianet or Cybernet for cause
according to Section 75 para 4 of the Austrian Stock Corporation Act
("Aktiengesetz") or Section 27 of the Austrian Employment Act
("Angestelltengesetz") or (ii) the Beneficiary has resigned (accompanied by
evidence of the termination or resignation reasonably satisfactory to the
Pooling Trustee) the Trust Stock held by the Pooling Trustee and to the extent
as not released by the Pooling Trustee (as provided in Section 2 above) will be
retransferred from the Pooling Trustee to Cybernet
4. Duties of the Pooling Trustee. The Pooling Trustee shall forward any and
-----------------------------
all information received from Cybernet regarding the Trust Stock to the
Beneficiaries. Except as mutually agreed upon by the parties the Pooling Trustee
is not obliged to make efforts to any investigations, research or any other kind
of obtaining information with respect to the Trust Stock or Cybernet. The
Pooling Trustee shall ask for instructions of the Beneficiary before acting as
shareholder, including but without limitation to meeting of shareholders.
5. Liability of the Pooling Trustee. Any Liability of the Pooling Trustee
--------------------------------
under this Agreement will be limited in all respects solely to gross negligence
or willful misconduct on its part. The Pooling Trustee will not be liable for
any actions taken or omitted upon the advice of counsel or upon a reasonable
interpretation of any instructions or documents provided to it by Cybernet or
the Beneficiary that it reasonably believes to be genuine or duly authorized.
The Pooling Trustee may decline to act if it is in doubt as to its duties under
this Agreement and will not be liable for such failure to act
<PAGE>
-4-
6. Indemnification of the Pooling Trustee. The Beneficiary agrees to
--------------------------------------
indemnify the Pooling Trustee in respect of, and hold the Pooling Trustee
harmless from and against, any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including but without limitation to interest,
court costs, fees of attorneys, accountants and other experts or other expenses
of litigation or other proceedings) suffered, incurred or sustained by the
Pooling Trustee, resulting from, arising out of or relating to the Trust Stock.
7. Reimbursement of Expenses. The Pooling Trustee will be entitled to be
-------------------------
reimbursed for expenses incurred in performing the obligations hereunder.
8. Term and Termination. The term of this Agreement shall commence on the
--------------------
date of this Agreement and will continue for an indefinite period of time. The
Beneficiary and Cybernet or the Pooling Trustee may terminate this Agreement
with or without cause on thirty (30) days notice to the other. Upon termination
of this Agreement for any reason, the Pooling Trustee will promptly transfer the
Trust Stock to any Pooling Trustee as jointly named by the Beneficiaries and
Cybernet.
9. Confidentiality. During the Term of this Agreement the parties will
---------------
maintain in confidence, and will not use to the detriment of another party any
written, oral, or other information obtained in confidence from another party in
connection with this Agreement, unless (a) such information is already known to
such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
transactions contemplated hereby, or (c) the furnishing or use of such
information is required by legal proceedings.
10. Notice. All notices, requests, demands and other communications required
------
or permitted hereunder must be in writing and deemed given and effective when
personally delivered or sent by facsimile with confirmation of receipt or when
deposited in the mail with postage prepaid to the party to which the same is
directed at the following addresses (or at such other addresses as will be given
in writing by the parties to one another):
<PAGE>
-5-
If to the Beneficiary: Mr. Tristan Libischer
Mariannengasse 14, 1090 Wien, Austria
Tel. 43-1-404020
Fax 43-1-4040240
If to the Pooling Trustee: Dr. Thomas Herndl
Tulpengasse 2, 1080 Wien, Austria
Tel. 43-1-4027844
Fax 43-1-402784455
If to Cybernet: Cybernet Internet Services International; Inc.
Attn.: Mr. Andreas Eder
Stefan-George-Ring 19, 81929 Munich, Germany
Tel: 49-89-993150
Fax: 49-89-99315199
With a copy to: Besner Kreifels Weber
Attn.: Dr. Hubert Besner
Widenmayerstr. 41, 80538 Munich, Germany
Tel: 49-89-2199920
Fax: 49-89-21999233
11. Actions by the Beneficiary and Cybernet. Any action or remedy of the
----------------------------------------
Beneficiary and Cybernet under this Agreement, including without limitation,
modifications, amendments, supplements or termination, must be exercised jointly
by the Beneficiary and Cybernet.
<PAGE>
-6-
12. Miscellaneous.
-------------
(a) Assignment. The Pooling Trustee may not assign any rights or
----------
delegate any duties it has assumed hereunder without the prior written consent
of the other party. This Agreement is personal to the Pooling Trustee.
(b) Governing Law and Choice of Forum. This Agreement will be governed
---------------------------------
by and construed in accordance with the internal laws of Austria. The parties
agree that any appropriate court located in Munich will have exclusive
jurisdiction of any case or controversy arising under or in connection with this
Agreement and will be a proper forum in which to adjudicate such case or
controversy. The parties expressly consent to personal jurisdiction and venue in
such courts.
(c) Entire Agreement/Amendment. This Agreement embodies the entire
--------------------------
agreement of the parties hereto relating to the subject matter hereof and
supersedes all oral agreements, and to the extent inconsistent with the terms
hereof, all other written agreements. This Agreement may not be modified,
amended, supplemented or terminated except by a written instrument executed by
the Pooling Trustee, the Beneficiary and Cybernet.
(d) Severability. Each of the covenants and agreements herein above
------------
contained will be deemed separate, severable and independent covenants, and in
the event that any covenant will be declared invalid by any court of competent
jurisdiction, such invalidity will not in any manner affect or impair the
validity or enforceability of any other part or provision of such covenant or of
any other covenant contained herein.
(e) Captions and Section Headings. Captions and section headings used
-----------------------------
herein are for convenience only and are not a part of this Agreement and will
not be used in construing it.
(f) Fax Execution. This Agreement may be executed by delivery of
-------------
executed signature pages by fax and such fax execution will be effective for all
purposes.
<PAGE>
-7-
EXECUTED AS OF DECEMBER 28, 1998.
/s/ Tristan Libischer
---------------------
[Tristan Libischer]
/s/ Dr. Thomas Herndl
---------------------
[Dr. Thomas Herndl]
<PAGE>
Exhibit 10.3.2
POOLING TRUST AGREEMENT
THIS POOLING TRUST AGREEMENT (this "Agreement") is made on December 28, 1998
between Alexander Wiesmuller ("Beneficiary") and Dr. Thomas Herndl ("Pooling
Trustee").
BACKGROUND
The Beneficiary and Tristan Libischer (collectively, the "Vianet Stockholders")
are the holders of all the issued and outstanding capital stock of Vianet EDV
Dienstleistungs AG, an Austrian corporation ("Vianet"), consisting of 1,000,000
shares of voting common stock, par value 1 ATS (the "Vianet Stock").
The Vianet Stockholders and Cybernet Internet Services International, Inc.,
("Cybernet") entered into a Stock Purchase Agreement as of June 17, 1998 (the
"Stock Purchase Agreement") providing for that the Vianet Stockholders will sell
to Cybernet and Cybernet will purchase from the Vianet Stockholders all of the
Vianet Stockholders' right, title and interest in the Vianet Stock.
At the Closing of the Stock Purchase Agreement (the "Closing") the Pooling
Trustee will receive 150,000 shares of the common voting stock, par value $0.001
of Cybernet (the "Trust Stock"), to be issued to the Beneficiary as part of the
consideration for the Vianet Stock.
Furthermore, the Stock Purchase Agreement provides that the Beneficiary will
have executed a pooling trust agreement with the Pooling Trustee providing that
the Cybernet shares making up a part of the Purchase Price shall be held by the
Pooling Trustee and not sold until released by the Pooling Trustee, that twenty
percent (20%) of such Cybernet shares shall be released on the first anniversary
of the Closing Date, that twenty percent (20%) of such Cybernet shares shall be
released on the second anniversary of the Closing date, that twenty percent
(20%) of such Cybernet shares shall be released on the third anniversary of the
Closing date, that twenty percent (20%) of such Cybernet shares shall be
released on
<PAGE>
-2-
the fourth anniversary of the Closing date and that twenty percent (20%) of such
Cybernet shares shall be released on the fifth anniversary of the Closing date.
Furthermore, the Stock Purchase Agreement provides that the Trust Stock received
by the Pooling Trustee on behalf of the Beneficiary and to the extent as not
released by the Pooling Trustee (as provided in Section 2 below) will be
retransferred from the Pooling Trustee to Cybernet if (i) the Employment
Agreement (as enclosed in Exhibit 1) with the Beneficiary is terminated by
Vianet or Cybernet for cause according to Section 75 para 4 of the Austrian
Stock Corporation Act ("Aktiengesetz") or Section 27 of the Austrian Employment
Act ("Angestelltengesetz") or (ii) the Beneficiary resigns.
AGREEMENT
In consideration of the above and the mutual agreements hereinafter set forth,
the parties agree as follows:
1. Fiduciary Relationship. The Pooling Trustee will receive on the Closing
----------------------
date and hold thereafter in trust for the Beneficiary the Trust Stock and all
funds and dividends it receives in connection therewith, and will account for
and remit all such funds and dividends to the Beneficiary, as applicable. The
Fiduciary Relationship is entered into with respect to the obligations of the
Beneficiary towards Cybernet in accordance with the Stock Purchase Agreement.
2. Release and Transfer of Trust Stock to the Beneficiary. Subject to the
------------------------------------------------------
retransfer of the Trust Stock to Cybernet as provided in section 3 hereinafter,
the Trust Stock to be held by the Pooling Trustee shall be released and
transferred to the Beneficiary at the earliest as follows:
- Twenty percent (20%) of the Trust Stock on the first
anniversary of the Closing date,
- an additional twenty percent (20%) of the Trust Stock on the
second anniversary of the Closing date,
<PAGE>
-3-
- an additional twenty percent (20%) of the Trust Stock on the
third anniversary of the Closing date,
- an additional twenty percent (20%) of the Trust Stock on the
fourth anniversary of the Closing date, and
- the remainder of the Trust Stock on the fifth anniversary of
the Closing date.
3. Retransfer of Trust Stock to Cybernet. Promptly following receipt of a
-------------------------------------
notice from Cybernet that (i) the Employment Agreement (as enclosed in Exhibit
1) with the Beneficiary has been terminated by Vianet or Cybernet for cause
according to Section 75 para 4 of the Austrian Stock Corporation Act
("Aktiengesetz") or Section 27 of the Austrian Employment Act
("Angestelltengesetz") or (ii) the Beneficiary has resigned (accompanied by
evidence of the termination or resignation reasonably satisfactory to the
Pooling Trustee) the Trust Stock held by the Pooling Trustee and to the extent
as not released by the Pooling Trustee (as provided in Section 2 above) will be
retransferred from the Pooling Trustee to Cybernet
4. Duties of the Pooling Trustee. The Pooling Trustee shall forward any and
-----------------------------
all information received from Cybernet regarding the Trust Stock to the
Beneficiaries. Except as mutually agreed upon by the parties the Pooling Trustee
is not obliged to make efforts to any investigations, research or any other kind
of obtaining information with respect to the Trust Stock or Cybernet. The
Pooling Trustee shall ask for instructions of the Beneficiary before acting as
shareholder, including but without limitation to meeting of shareholders.
5. Liability of the Pooling Trustee. Any Liability of the Pooling Trustee
--------------------------------
under this Agreement will be limited in all respects solely to gross negligence
or willful misconduct on its part. The Pooling Trustee will not be liable for
any actions taken or omitted upon the advice of counsel or upon a reasonable
interpretation of any instructions or documents provided to it by Cybernet or
the Beneficiary that it reasonably believes to be genuine or duly authorized.
The Pooling Trustee may decline to act if it is in doubt as to its duties under
this Agreement and will not be liable for such failure to act
<PAGE>
-4-
6. Indemnification of the Pooling Trustee. The Beneficiary agrees to
--------------------------------------
indemnify the Pooling Trustee in respect of, and hold the Pooling Trustee
harmless from and against, any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including but without limitation to interest,
court costs, fees of attorneys, accountants and other experts or other expenses
of litigation or other proceedings) suffered, incurred or sustained by the
Pooling Trustee, resulting from, arising out of or relating to the Trust Stock.
7. Reimbursement of Expenses. The Pooling Trustee will be entitled to be
-------------------------
reimbursed for expenses incurred in performing the obligations hereunder.
8. Term and Termination. The term of this Agreement shall commence on the
--------------------
date of this Agreement and will continue for an indefinite period of time. The
Beneficiary and Cybernet or the Pooling Trustee may terminate this Agreement
with or without cause on thirty (30) days notice to the other. Upon termination
of this Agreement for any reason, the Pooling Trustee will promptly transfer the
Trust Stock to any Pooling Trustee as jointly named by the Beneficiaries and
Cybernet.
9. Confidentiality. During the Term of this Agreement the parties will
---------------
maintain in confidence, and will not use to the detriment of another party any
written, oral, or other information obtained in confidence from another party in
connection with this Agreement, unless (a) such information is already known to
such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
transactions contemplated hereby, or (c) the furnishing or use of such
information is required by legal proceedings.
10. Notice. All notices, requests, demands and other communications required
------
or permitted hereunder must be in writing and deemed given and effective when
personally delivered or sent by facsimile with confirmation of receipt or when
deposited in the mail with postage prepaid to the party to which the same is
directed at the following addresses (or at such other addresses as will be given
in writing by the parties to one another):
<PAGE>
-5-
If to the Beneficiary: Mr. Alexander Wiesmuller
Mariannengasse 14, 1090 Wien, Austria
Tel. 43-1-404020
Fax 43-1-4040240
If to the Pooling Trustee: Dr. Thomas Herndl
Tulpengasse 2, 1080 Wien, Austria
Tel. 43-1-4027844
Fax 43-1-402784455
If to Cybernet: Cybernet Internet Services International; Inc.
Attn.: Mr. Andreas Eder
Stefan-George-Ring 19, 81929 Munich, Germany
Tel: 49-89-993150
Fax: 49-89-99315199
With a copy to: Besner Kreifels Weber
Attn.: Dr. Hubert Besner
Widenmayerstr. 41, 80538 Munich, Germany
Tel: 49-89-2199920
Fax: 49-89-21999233
11. Actions by the Beneficiary and Cybernet. Any action or remedy of the
----------------------------------------
Beneficiary and Cybernet under this Agreement, including without limitation,
modifications, amendments, supplements or termination, must be exercised jointly
by the Beneficiary and Cybernet.
<PAGE>
-6-
12. Miscellaneous.
-------------
(a) Assignment. The Pooling Trustee may not assign any rights or
----------
delegate any duties it has assumed hereunder without the prior written consent
of the other party. This Agreement is personal to the Pooling Trustee.
(b) Governing Law and Choice of Forum. This Agreement will be governed
---------------------------------
by and construed in accordance with the internal laws of Austria. The parties
agree that any appropriate court located in Munich will have exclusive
jurisdiction of any case or controversy arising under or in connection with this
Agreement and will be a proper forum in which to adjudicate such case or
controversy. The parties expressly consent to personal jurisdiction and venue in
such courts.
(c) Entire Agreement/Amendment. This Agreement embodies the entire
--------------------------
agreement of the parties hereto relating to the subject matter hereof and
supersedes all oral agreements, and to the extent inconsistent with the terms
hereof, all other written agreements. This Agreement may not be modified,
amended, supplemented or terminated except by a written instrument executed by
the Pooling Trustee, the Beneficiary and Cybernet.
(d) Severability. Each of the covenants and agreements herein above
------------
contained will be deemed separate, severable and independent covenants, and in
the event that any covenant will be declared invalid by any court of competent
jurisdiction, such invalidity will not in any manner affect or impair the
validity or enforceability of any other part or provision of such covenant or of
any other covenant contained herein.
(e) Captions and Section Headings. Captions and section headings used
-----------------------------
herein are for convenience only and are not a part of this Agreement and will
not be used in construing it.
(f) Fax Execution. This Agreement may be executed by delivery of
-------------
executed signature pages by fax and such fax execution will be effective for all
purposes.
<PAGE>
-7-
EXECUTED AS OF DECEMBER 28, 1998.
/s/ Alexander Wiesmuller
------------------------
[Alexander Wiesmuller]
/s/ Dr. Thomas Herndl
---------------------
[Dr. Thomas Herndl]
<PAGE>
Exhibit 10.4
CERTIFIED TRANSLATION FROM GERMAN
---------------------------------
STOCK PURCHASE AGREEMENT
------------------------
between
Mr Jurg Heim, residing in Tramstrasse 193, 8050 Zurich, Switzerland
Mr Marco Samek, residing in Zelgistr. 30, 8046 Zurich, Switzerland
- in the following referred to as the "Sellers", individually or
collectively -
and
Cybernet Internet Services International, Inc.
a corporation incorporated under the law of Delaware, U.S.A.
Stefan-George-Ring 19-23, 81929 Munich
- in the following referred to as the "Buyer" -
the following
STOCK PURCHASE AGREEMENT
is signed:
PRELIMINARY REMARK
The Sellers hold all stock in the Sunweb Internet Services Internet SIS AG (in
the following referred to as "Sunweb AG") which is based in Zurich and has a
registered and liberalized stock capital totalling CHF 500,000.00 (Swiss francs,
five hundred thousand), which prior to the closing - will be increased to CHF
1,100,000.00 (Swiss Francs, one million one hundred thousand), divided into
1,100 registered shares of stock at CHF 1,000.00 (in the following referred to
as "Sunweb stock").
<PAGE>
2
The Sellers intend to sell the Sunweb stock to the Buyer and the Buyer intends
to acquire the Sunweb stock from the Sellers according to the terms and
conditions of this Stock Purchase Agreement (in the following referred to as
"Agreement"), with 560 shares of the Sunweb stock to be sold immediately and 540
shares of Sunweb stock to be sold for a specified period of time as put and call
options by way of unilateral statements by the Sellers or the Buyer.
SECTION 1
SALE AND PURCHASE OF 560 SHARES OF SUNWEB STOCK
1.1 Sale and purchase. The Sellers hereby sell to the Buyer and the Buyer
------------------
hereby buys from the Sellers a total of 560 shares of Sunweb stock, i.e.:
Mr Jurg Heim 280 shares of Sunweb stock
Mr Marco Samek 280 shares of Sunweg stock
1.2 Remuneration. At the closing (as stated in 2.1 below) the Sellers shall
-------------
receive a remuneration for the sale and transfer of the 560 shares of
Sunweb stock of CHF 1,477,000 (Swiss francs, a million four hundred forty-
six thousand) and 25,000 shares of common stock with a par value of US$
0.001 of the Buyer's (in the following referred to as "Cybernet stock").
The 25,000 shares of Cybernet stock will be issued to the pooling trustee
(as stated in section 2.2. b) below), i.e. 12,500 shares of Cybernet stock
in favour of Jurg Heim and 12,500 shares of Cybernet stock in favour of
Marco Samek.
1.3 Transfer of Stock, Payment. At the closing 560 shares of Sunweb stock will
---------------------------
be transferred and surrendered from the Sellers to the Buyer. The Buyer
will transfer and surrender i) 25,000 shares of Cybernet stock to the
pooling trustee and ii) the Sellers will be handed a cheque for CHF
1,477,000 (Swiss francs, a million four hundred forty-six thousand).
1.4 Funding of Sunweb AG. At the closing the Buyer shall sign an agreement with
---------------------
Sunweb AG for the funding of further investments, working capital and
liabilities by the Buyer (in the following referred to as "funding"). The
amount of funding is governed by a business plan, which Sunweb AG and the
Buyer shall establish prior to the closing, and is granted as a loan
bearing an interest rate of (8%) per year.
<PAGE>
3
SECTION 2
CLOSING OF 560 SHARES OF SUNWEB STOCK
2.1 Closing. To perform the transactions provided for in this Agreement
--------
concerning the 560 shares of Sunweb stock, on March 31, 1999, or on some
other mutually agreed date, a closing (in the following referred to as
"closing") shall be held in the Buyer's office rooms (in the following
referred to as "closing date").
2.2 Closing Criteria for the Buyer. To perform the transactions contemplated by
--------------------------------
this Agreement, the Sellers shall meet the criteria below at the closing:
a) Transactions. The Sellers shall transfer and surrender 560 shares of
-------------
Sunweb stock to the Buyer. The Sellers have issued all statements
required for the transfer of Sunweb stock to become effective.
b) Pooling Trust Agreement. The Sellers signed a pooling trust agreement
------------------------
(in the following referred to as "pooling trust agreement") with Mr
Michael Ebinger, lawyer and notary, (in the following referred to as
pooling trustee) according to Exhibit 1to the effect that the 25,000
shares of Cybernet stock are held by the pooling trustee for the Sellers
and thus may not be sold until released by the pooling trustee. The
release by the pooling trustee shall be performed in the order of
thirty-three percent (33%) one year after the closing date, in the order
of further thirty-three percent (33%) two years after the closing date
and in the order of the remaining thirty-four percent (34 %) three years
after the closing date.
c) Consents and Approvals. All approvals or consents from third parties
-----------------------
required for the performance of transactions have been obtained.
d) Representations and Warranties. The representations and warranties of
-------------------------------
Sellers contained in this Agreement will be true, correct and complete
as of the closing date.
e) No Action. No suit, action, temporary injunction or other action before
----------
any court or regulatory authority will be pending or threatened which
would obstruct consummation of any of the transactions contemplated by
this Agreement, cause any of the transactions
<PAGE>
4
contemplated by this Agreement to be rescinded following consummation or
adversely affect the assets or the operation of Sunweb AG or of Sunweb
GmbH (as stated under 5.1 below).
f) Due Diligence Review. The Buyer completed the diligence review of Sunweb
---------------------
AG and Sunweb GmbH which had to be completed by March 31, 1999 to his
satisfaction.
g) Business Plan. Sunweb AG and the Buyer will have established the
--------------
business plan ("business plan")by March 31, 1999.
h) Employment Agreements with Jurg Heim and Marco Samek. Sunweb AG executed
-----------------------------------------------------
Employment Agreements with Mr Jurg Heim and Mr Marco Samek which run for
at least three years providing for a basic salary of CHF 150,000 each
and a management bonus of up to CHF 30,000 per year of 30,000 options to
Cybernet stock at the price valid on the day preceding the signing of
this Agreement plus another 15,000 shares of options to Cybernet stock
in early 2000, if Sunweb AG realizes turnover proceeds of more than CHF
4,000,000 (four million) in the fiscal year from January 1 to December
31, 1999 i) realizing the profit defined in the business plan or ii) not
exceeding the loss.
i) Framenet GmbH Agreements. All agreements of Framenet GmbH, the subject
-------------------------
of which are the services of Sunweb AG or Sunweb GmbH, have been
transferred to Sunweb AG or Sunweb GmbH. Where this is not possible, new
equivalent agreements were signed by Sunweb AG.
2.3 Buyer's Criteria for the Sellers. The Sellers require that, at the closing,
---------------------------------
the Buyer meet the following criteria for the performance of the
transactions contemplated by this Agreement:
a) Transactions. The Buyer shall i) transfer and hand over 25,000 shares of
-------------
Cybernet stock to the pooling trustee and i) a cheque for CHF 1,477,000
to the Sellers. The Buyer made all representations required for the
transfer of Cybernet shares.
b) Consents and Approvals. All third party consents or approvals required
-----------------------
to perform the transactions have been received.
<PAGE>
5
c) Warranties. The Buyer's warranties contained in this Agreement are
-----------
correct and complete as of the closing date.
d) No Action. No suit, action, temporary injunction or other action before
----------
any court or regulatory authority will be pending or threatened which
would obstruct consummation of any of the transactions contemplated by
this Agreement, cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or adversely affect the
assets or the business of the Buyer.
e) Due Diligence Review. The Sellers completed the diligence review of
---------------------
Sunweb AG and Sunweb GmbH which had to be completed by March 31, 1999
to their satisfaction.
g) Employment Agreements with Jurg Heim and Marco Samek. Sunweb AG
------------------------------------------------------
executed Employment Agreements with Mr Jurg Heim and Mr Marco Samek
which run for at least three years providing for a basic salary of CHF
150,000 each and a management bonus of up to CHF 30,000 per year of
30,000 options to Cybernet stock at the price valid on the day
preceding the signing of this Agreement plus another 15,000 shares of
options to Cybernet stock in early 2000, if Sunweb AG realizes
turnover proceeds of more than CHF 4,000,000 (four million) in the
fiscal year from January 1 to December 31, 1999 i) realizing the
profit defined in the business plan or ii) not exceeding the loss.
h) Funding. Sunweb AG and the Buyer signed an Agreement governing the
--------
funding.
2.4 Board of Directors of Sunweb AG. Immediately after the closing, Mr Maurus
--------------------------------
Duelli will resign his post as Member of the Board of Directors of Sunweb
AG and will appoint Mr Andreas Eder as a Member of the Board of Directors
of Sunweb AG.
<PAGE>
6
SECTION 3
SALE AND PURCHASE OF 540 SHARES OF SUNWEB STOCK
3.1 Purchase and Sale. In accordance with the put option of sections 3.2 and
------------------
3.3 below the Sellers hereby sell a total of 540 shares of Sunweb stock to
the Buyer, i.e.
Mr Jurg Heim 270 shares of Sunweb stock
Mr Marco Samek 270 shares of Sunweb stock
3.2 Sellers' Put Option. The Sellers may produce the put option in accordance
--------------------
with section 3.1 above by a written statement to the Buyer. The written
statement shall be submitted to the Sellers within one month after receipt
of the financial statement of Sunweb AG (as specified under section 3.5
below) for the years 1999, 2000 or 2001 ending December 31. Prior to the
receipt of the relevant financial statement of Sunbweb AG by the Sellers,
the put option may not be produced.
3.3 The Buyer's Call Option. The Buyer may produce the put option according to
------------------------
section 3.1 above by a written statement to the Buyer. The written
statement shall be submitted to the Sellers within one month after receipt
of the financial statement of Sunweb AG (as stated in section 3.5 below) by
December 31, 2001. Prior to receipt of the financial statement of Sunweb AG
for the year ending December 31, 2001 by the Sellers, the put option cannot
be produced.
3.4 Remuneration. For the option closing (as indicated in section 4.1 below),
-------------
the Sellers, as remuneration for the sale and transfer of 540 shares of
Sunweb stock, receive a number of Cybernet stock to be determined according
to 3.5 below. The Cybernet stock is issued to the pooling trustee, i.e.
fifty percent (50%) of the Cybernet stock in favour of Jurg Heim and fifty
percent (50%) of Cybernet stock in favour of Marco Samek.
3.5 Stock Formula. The remuneration is based on the relevant financial
--------------
statement of Sunweb AG for the fiscal year ending December 31, which
precedes an efficient option statement according to the preceding section
3.2 or 3.3. The relevant financial statement shall be produced and audited
in accordance with the General Accepted Accounting Principles (in the
following referred to as "GAAP"). Subsidiaries of Sunweb AG shall be
included according to the GAAP consolidation principles. The turnover
proceeds specified in
<PAGE>
7
the relevant financial statement shall dependent upon the net profit or net
loss (before income taxes) be multiplied by a factor determined in the
scheme attached to exhibit 2. This basic price will then have to be
multiplied by 49% to account for the whole enterprise, resulting in the
equivalent of the 540 shares of Sunweb stock. This equivalent shall be
divided by the price of the Cybernet stock. The closing price at the
Frankfurt Stock Exchange which immediately follows receipt of a valid
option statement according to sections 3.2 or 3.3 above by the Sellers or
the Buyer shall be the qualifying price. The number of Cybernet stock
established in this way constitutes the remuneration for the 540 shares of
Sunweb stock according to section 3.4 above.
3.6 Transfer of Stock. At the option closing 540 shares of Sunweb stock shall
------------------
be transferred and handed over from the Sellers to the Buyer. The Buyer
shall transfer and hand over the number of shares of Cybernet stock
determined according to section 3.5 above to the pooling trustee.
3.7 Securing the Option Exercise. At the closing date the Sellers, in order to
------------------------------
safeguard their option exercise, shall transfer their 540 shares of Sunweb
stock to Mr Michael Ebinger, lawyer and notary (in the following referred
to as "escrow" agent") with the irrevocable instruction to handle
exclusively the 540 shares of Sunweb stock according to the requirements of
this Agreement.
SECTION 4
CLOSING OF 540 SHARES OF SUNWEB STOCK
4.1 Option Closing. The parties shall hold a closing (in the following referred
---------------
to as "closing" )in the office rooms of the Buyer's to complete the
transactions provided in this Agreement concerning the 540 shares of Sunweb
stock. The option closing shall take place on a day agreed jointly by the
parties (in the following referred to as "option closing date"), in any
case within one month after occurrence of the put option according to
section 3.2. or 3.3 above.
4.2 Buyer's Criteria for the Option Closing. The Sellers shall meet the
----------------------------------------
following Buyer's criteria in order to perform the transactions
contemplated by this Agreement.
<PAGE>
8
a) Transactions. The escrow agent shall transfer and hand over 540 shares
-------------
of Sunweb stock to the Buyer. The escrow agent shall make all the
necessary statements to make the transfer of Sunweb activities
successful.
b) Pooling Trust Agreement. The Sellers signed a pooling trust agreement
------------------------
with the pooling trustee in accordance with exhibit 1, to the effect
that the number of shares of Cybernet stock determined according to
section 3.5 above are held on behalf of the Buyers and thus Cybernet
shares of stock may not be sold until released by the pooling trustee.
The release by the pooling trustee shall be based on a volume of
thirty-three percent (33%) one year after the option closing date, to
be followed by a volume of another thirty-three percent (33%) two
years after the option closing date and the remaining volume of
thirty-four percent (34%) three years after the option closing date.
c) Consents and Approvals. All consents and approvals by third parties
-----------------------
required to complete the transactions have been received.
d) No Action. No suit, action, temporary injunction or other action before
----------
any court or regulatory authority will be pending or threatened which
would obstruct consummation of any of the transactions contemplated by
this Agreement, cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or adversely affect
the assets or the operation of Sunweb AG or its subsidiaries.
4.3 Sellers' Criteria for the Option Closing. To perform the transactions
-----------------------------------------
provided for in this Agreement, the Buyer shall meet the Sellers' criteria
below at the closing:
a) Transactions. The Buyer shall transfer and surrender the number of
-------------
Cybernet shares of stock determined according to section 3.5 to the
pooling trustee. The Buyer has issued all statements required for the
transfer of Cybernet shares of stock to become effective.
b) Consents and Approvals. All third party approvals and consents required
-----------------------
for the performance of transactions have been obtained.
<PAGE>
9
c) No Action. No suit, action, temporary injunction or other action before
----------
any court or regulatory authority will be pending or threatened which
would obstruct consummation of any of the transactions contemplated by
this Agreement, cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or adversely affect
the assets or the operation of Sunweb AG.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers represent and warrant to the seller:
5.1 Corporate Organization and Good Standing. The corporation was duly
-----------------------------------------
incorporated under the laws of Switzerland on October 7, 1998 via public
charter issued by the notary lic. iur. Michael Ebinger (document No.
55/1998) and registered in the Commercial Register of the Canton of Zurich,
corporation number CH-020.3.021.274 -6 on November 13, 1998. Sunweb AG has
been validly existing with by-laws as of October 7, 1998 (document No.
55/1998 of the notary lic. iur. Michael Ebinger); these by-laws are
complete, there are no subsidiary agreements concerning the corporate
organization and standing, except for the stockholders' binding agreement
of October 8, 1998. Profit distributions have not been performed and
decided since the establishment of the corporation. With the exception of
Sunweb GmbH ("Sunweb GmbH") - registered in the Commercial Register of the
Canton of Zurich, corporation number CH-020.4.018.318-8, the shares of
which amount to a par value of CHF 20,000 in total and are held by Sunweb
AG - Sunweb AG has no subsidiaries.
5.2 Capital Structure. The entire authorized capital stock of Sunweb AG is CHF
------------------
500,000.00 and will be increased to CHF 1,100,000.00 prior to the closing
and will then be divided up into 1100 shares of par value common stock of
CHF 1,000 each. Sunweb AG neither issued any other shares of stock nor any
other shares nor rights to Sunweb AG nor is it under a duty to issue stock
or other shares or rights to Sunweb AG. The Sunweb shares of stock are
validly issued, fully paid and are not subject to any obligations calling
for additional payments. The Sunweb shares of stock are not subject to any
strains, subquotas, restrictions on disposal nor any other strings. The
Sellers are entitled to unlimited disposal of Sunweb stock.
<PAGE>
10
5.3 Interim Financial Statements. Attached as Exhibit 3 are the interim
-----------------------------
financial statements of Sunweb AG as of December 31, 1998 and of Sunweb
GmbH of December 31, 1998 (the interim financial statements).These interim
financial statements are true and complete to the personal knowledge of the
Sellers and correctly reflect the financial position and the business
results of Sunweb AG and Sunweb GmbH as of the respective dates and for the
specified period of time to the personal knowledge of the Sellers. The
market value of the individual assets corresponds at least to their balance
sheet value. Sunweb AG and Sunweb GmbH have no other liabilities, nor any
threatened ones than those shown or covered by reserves. Sunweb AG and
Sunweb GmbH are the owners of the assets contained in the interim financial
statements and of the assets acquired since the respective date, except for
those sold after the respective date in the course of correct business
transactions. Sunweb AG and Sunweb GmbH own these assets which are without
limitation and free from the rights of third parties.
5.4 No Material Adverse Effect on Business. In the period leading up to the
---------------------------------------
closing date no material adverse effect of the operations of Sunweb AG and
Sunweb GmbH shall occur. In the period leading up to the closing date
Sunweb AG and Sunweb GmbH will exclusively engage in normal business
affairs.
5.5 Filings, Consents and Approvals. In order to sign this Agreement and to
--------------------------------
perform the transactions provided in this Agreement and to continue to
manage the affairs of Sunweb AG and Sunweb GmbH, no filings, consents or
approvals other than those shown in Exhibit 4 are required.
5.6 Noncontravention. Neither the signing of this Agreement nor the execution
-----------------
of the transaction provided in this Agreement will:
1) Cause a material adverse effect on the operation of Sunweb AG and
Sunweb GmbH, their assets or their agreements with third parties.
2) Violate any provisions of the certificate of incorporation or the
by-laws of Sunweb GmbH; or
2) Violate any law or other provisions or any orders from courts or
regulatory authorities.
<PAGE>
11
5.7 Litigation. Sunweb AG and Sunweb GmbH are not party to any litigation. To
-----------
the Sellers' knowledge there are not any disputes threatened.
5.8 Material Agreements. All material agreements concerning Sunweb AG and
--------------------
Sunweb GmbH are attached in Exhibit 5 as true and complete photocopies.
With the exception of the agreements attached as exhibit 5, Sunweb AG and
Sunweb GmbH are not party to
1) Agreements governing the purchase, sale, leasing or rent of material
assets;
2) Long-term debt relationships of any kind, particularly no rental or
licensing agreements;
3) Agreements with profit- or turnover-related remuneration, royalties
etc. or commercial agents' or similar agreements;
4) Employment or consulting agreements;
5) Loan or credit arrangements and guaranties, sureties or similar
obligations. Sunweb AG and Sunweb GmbH are not liable for any
sureties covering third party obligations;
6) Agreements or obligations concerning the restriction of the
operation of Sunweb AG or Sunweb GmbH;
7) Agreements or commitments outside the ordinary course of business;
8) Agreements concerning a joint venture, the establishment of a
corporation or comparable agreements; or
9) Agreements to act on behalf of Sunweb AG.
The agreements attached as Exhibit 5 are valid and there are no material
violations concerning the agreements attached as Exhibit 5. Agreement
terminations or cancellations by third parties, in particular with respect
to the signing and execution of this Agreement are not to be expected.
<PAGE>
12
5.9 Intellectual Property. Exhibit 6 contains a true and complete list of the
----------------------
intellectual property ("intellectual property") which is owned and used by
Sunweb AG and Sunweb GmbH. Exhibit 6 further contains true and complete
copies of all licensing agreements connected to the intellectual property,
in as far as Sunweb AG or Sunweb GmbH are the licensor or licensee. The use
of intellectual property by Sunweb AG or Sunweb GmbH, in particular after
signing and executing this Agreement, does not violate the rights of any
third parties. With the exception of the agreements shown as Exhibit 6,
Sunweb AG and Sunweb GmbH have no obligations to pay licensing fees.
5.10 Permissions by Regulatory Authorities.Sunweb AG and Sunweb GmbH have
--------------------------------------
received all permissions under public and private law as well as
franchises and/or licences to conduct their operations as is currently
being done. There are no procedures, neither against Sunweb AG nor against
Sunweb GmbH, before administrative authorities or investigative procedures
by authorities pending or to be expected.
5.11 Taxes.Sunweb AG and Sunweb GmbH filed all income tax returns correctly and
------
as scheduled and paid all due taxes or established adequate reserves for
taxes. Apart from those, Sunweb AG and Sunweb GmbH have no arrears in
taxes and carry no tax risk. The payments payable to staff members for
taxes or social services were correctly determined, charged and
transferred.
5.12 Employees. Exhibit 7 contains true and complete copies including the names
----------
and addresses of all employment and consulting agreements signed with
Sunweb AG and Sunweb GmbH. Further employments, other agreements, pension
plans or pension assurances, shop agreements or obligations from
operations do not exist. Employees' vacation entitlements dating from the
period before January 1, 1999 do not exist.
5.13 Insurance Policies. Set forth in Exhibit 8 is a true and complete list of
-------------------
all insurance policies of Sunweb AG and Sunweb GmbH.
5.14 Agreements with Stockholders. Except for the agreements listed in Exhibit
-----------------------------
9 there are no agreements or contracts between Sunweb GmbH and the Sellers
or persons close to them and affiliated enterprises respectively.
<PAGE>
13
SECTION 6
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers:
6.1 Corporation. The Buyer is a corporation duly incorporated under the law of
------------
the State of Delaware, validly existing and in Good Standing. Except for
Cybernet Internet-Dienstleistungen AG, Germany, its subsidiaries and Vianet
Telekommunikation AG, Osterreich, the Buyer has no subsidiaries.
6.2 Capitalization. The entire authorized share capital consists of 50,000,000
---------------
shares of common stock with a par value of USD 0.001 and 50,000,000 shares
of preferred stock. At the moment of signing this Agreement, of the shares
of common stock, 119,062,138 are issued and outstanding, of the shares of
preferred stock, 6,360,000. According to the Buyer's stock option plan, at
the moment of signing this Agreement approximately 700,000 options are
issued.
6.3 Corporate Rights. In terms of his corporate situation the Buyer is entitled
-----------------
and authorized to sign this Agreement and execute the transactions included
in this Agreement. The Board of Directors of the Buyer has consented to the
conclusion of this Agreement and to the transactions to be executed under
this Agreement.
6.4 (Interim) Financial Statements. Exhibit 10 contains the audited financial
-------------------------------
statements of the Buyer for the years ending December 31, 1996 and 1997
(the "financial statements") and a non-audited interim financial statement
for the period ending September 30, 1998 (the "interim financial
statement"). The (interim) financial statements are in accordance with GAAP
and present fairly the financial condition of the Buyer as of the
respective dates indicated. In the period from September 30, 1998 to the
closing date no material adverse effect on the Buyer's operations have
occurred. In the period from September 30, 1998 to the closing date the
Buyer has exclusively engaged in the normal conduct of affairs.
6.5 Noncontravention. The signing of this Agreement and the performance of the
-----------------
transaction provided in this Agreement will:
<PAGE>
14
1) Have no material adverse effect on the Buyer's operations, his
assets or his agreements with third parties;
2) Violate provisions of the articles or certificate of incorporation
or of the by-laws of the Buyer
Or
3) Violate any law or any other provision or regulation of any court
or governmental or regulatory authority;
6.6 Litigation. The Buyer is not party to any dispute. And the Buyer does not
-----------
know of any disputes threatened.
6.7 Filings, Consents and Approvals. Except for any filings required by
--------------------------------
applicable laws and those shown in Exhibit 11, no filings, consents or
approvals are required for the Buyer's signing of this Agreement and his
consummation of the transactions contemplated by this Agreement.
SECTION 7
LEGAL CONSEQUENCES OF WARRANTY VIOLATIONS
7.1 Restitution in Kind or Compensation. Whenever warranties, representations,
-------------------------------------
obligations or agreements are misrepresented or violated, the party which
violated or misrepresented the warranties, assurances, obligations or
agreements contained in this Agreement shall place the other party
including Sunweb AG or Sunweb GmbH, if a misrepresentation or violation was
committed by the Sellers in the position the other party, if necessary
Sunweb AG or Sunweb GmbH, would hold, had the warranty or representation
been right or had it not been violated or had the obligations been
fulfilled. At the other party's discretion this duty of restitution shall
be performed by way of restitution in kind or by compensation.
7.2 Indemnification from Liabilities. Regardless of the provision of the
---------------------------------
preceding section 1. The Sellers shall indemnify Sunweb AG and Sunweb GmbH
in respect of claims from liabilities in connection with misrepresentations
or violations of the preceding warranties or representations.
<PAGE>
15
7.3 Statute of Limitations. The parties may raise any claims arising from the
-----------------------
preceding items 7.1 and 7.2 within one year from the closing date,
furthermore claims from the performance of an external tax audit with
Sunweb AG or Sunweb GmbH within six months from the receipt of the valid
advice based on such an external tax audit. To meet the deadline, it will
suffice, if the other party is informed in writing about the claims. After
receipt of such a communication, a one-year period of limitation shall
start.
7.4 Legal Claims. By the regulation of the preceding sections 7.1 to 7.3 any
-------------
legal claims will neither be restricted nor excluded.
SECTION 8
SELLERS' PROHIBITION OF COMPETITION
8.1 Object and Length of Prohibition of Competition. The Sellers undertake to
------------------------------------------------
refrain for the period of three years from the closing date from engaging
in any competition in the existing area of activity, both in terms of space
and subject matter, of Sunweb AG and Sunweb GmbH, with it or the Buyer,
particularly from directly or indirectly participating in competitive
enterprises, from entering in the services of a competitive enterprise or
promoting such an enterprise directly or indirectly by advice or action. An
area of activity in terms of space, as defined by this prohibition of
competition are the Federal Republic of Germany, Austria and Switzerland,
subject matter, as defined by this prohibition of competition are
telecommunication services and solutions. Compliance with the prohibition
of competition shall be deemed performed after payment of the purchase
price. The capital interest in enterprises quoted on the stock exchange, as
far as participation is less than one percent (1%) will not be affected by
the above prohibition of competition.
8.2 Legal Consequences of Violations. In the event of any violation of the
---------------------------------
above prohibition of competition the Seller who commits the violation shall
pay a contractual penalty of CHF 100,000 to the Buyer. If the violation is
continued by the Seller despite a written warning notice, a contractual
penalty of CHF 20,000.00 shall be paid for each further fraction of a month
of violation. The Buyer's rights to compensation of any further damage and
to refraining from any conduct contrary to the regulation shall not be
affected.
<PAGE>
16
SECTION 9
MISCELLANEOUS
9.1 Several Buyers. Any statements made in connection with this Agreement by
---------------
the Sellers vis-a-vis the Buyer can only be made by producing an effect on
all Sellers. For the commitments arising from this Agreement the Sellers
are liable collectively.
9.2 Effectiveness of Representations. Each party may rely on the
---------------------------------
representations and warranties of the other party. This rule shall apply
regardless of the audits made or omitted by one party.
9.3 Termination. This Agreement may be terminated prior to the closing under
------------
the following conditions exclusively.
1) By mutual agreement of the parties.
2) By the Buyer, if there has been a breach of any material
representation, warranty, commitment or agreement set forth
in this Agreement that is not remedied within ten business
days after notice of such breach is given by the Buyer.
3) By the Sellers, if there has been a breach of any material
representation, warranty, commitment or agreement set forth
in this Agreement that is not remedied within ten business
days after notice of such breach is given by the seller.
4) By the Buyer or the Sellers, if the closing is not concluded
later than June 30, 1999, unless the parties fail to extend
this deadline with mutual agreement. However, the party
responsible for the failure to meet the deadline, is unable
to terminate this Agreement.
5) By the Buyer or Sellers, if any permanent injunction or
other order of a governmental entity of competent authority
preventing the consummation of the transactions contemplated
by this Agreement has become final and nonappealable.
<PAGE>
17
9.4 Effect of Termination. In the event of the termination of this Agreement as
----------------------
provided in section 9.3, this Agreement will be of no further effect. This
does not apply to claims for compensation of one party against the other
party according to section 7 above. Upon termination of this Agreement each
party will, upon request by either party, surrender all documents, work
papers and documents. This does not apply to cases where compensation
claims have to be raised.
9.5 Mutual Assistance. The parties shall provide mutual assistance to the best
------------------
of their abilities, also after the closing date, after the take-over of the
operations of Sunweb AG and Sunweb GmbH. Furthermore, the Sellers and the
Buyer are committed to give all information and participate in all
transactions and legal acts as are required to execute this Agreement. The
Sellers shall refrain from any action that could have an adverse effect on
the right of Sunweb AG or Sunweb GmbH to conduct the corporation "Sunweb",
with or without additions.
9.6 Costs and Fees. Each party shall bear its costs and fees incurred in
---------------
connection with this Agreement, in particular those related to advisers.
9.7 Public Announcements. Any public announcements in connection with this
---------------------
Agreement shall exclusively be given by mutual agreement of the parties.
9.8 Confidentiality. The parties are committed to observe absolute secrecy
----------------
concerning the conclusion and the contents of this Agreement, unless the
furnishing of such information is required by law or the provisions of this
Agreement.
9.10 Written Form. Any amendments to this Agreement must be made in writing.
-------------
9.11 Entire Agreement. This Agreement, the exhibits attached hereto and the
-----------------
other transaction documents contain the entire agreement between the
parties with respect to the subject matter thereof. This Agreement
supersedes all written and oral declarations of intent given by the
parties in connection with any contract negotiations, even if such
declarations deviate from the contents of this Agreement.
9.12 Severability. In the event that any provision of this Agreement would be
-------------
or would become fully or partially invalid or unenforceable, the remaining
provisions in the
<PAGE>
18
Agreement will not be affected. The invalid or unenforceable provision
shall be deemed to be replaced by an agreed provision that comes as close
as possible to the purpose of the invalid and unenforceable provision, in
particular in terms of the desired economic purpose. The same shall apply
to any gap in this Agreement.
9.13 Notices. All notices or communications in connection with this Agreement
--------
shall be made in writing and will be deemed given if sent by post,
courier, personal delivery or fax (to be followed by despatch by post,
courier or personal delivery) to the following addresses.
To the Sellers: Sunweb Internet Services AG
Birchstrasse 230,
CH-8050 Zurich
Phone: 41-1-3064646
Fax: 41-1-3003635
With a copy to: lic. iur. Michael Ebinger
Vorstadt 32, Postbox 4209,
CH-6304 Zug
Phone: 41-41-720702
Fax: 41-41-7290705
To the Buyer: Cybernet Internet Services International, Inc.
Attn. Mr Andreas Eder
Stefan-George-Ring 19-23,
D-81929 Munich
Phone: 49-89-993150
Fax: 49-89-99315199
With a copy to: Besner Kreifels Weber
Attn. Dr. Hubert Besner
Widenmayerstr. 41
D-80538 Munich
Phone: 49-89-2199920
Fax: 49-89-21999233
9.14 Headings. The headings contained in this Agreement are for reference
---------
purposes only and will not affect in any way the meaning or interpretation
of this Agreement.
9.15 Assignment. The Agreement may not be assigned by any party without the
-----------
consent of the other party.
<PAGE>
19
9.16 Governing Law, Jurisdiction. This Agreement shall be governed by Swiss
----------------------------
law, unless the application of other law is mandatory. The place of
jurisdiction for all disputes, if correctly agreed, shall be Zurich.
9.17 Signing and Faxing of Counterparts. This Agreement may also become
-----------------------------------
effective, by signing the Agreement's signature page and exchanging it by
fax(to be followed by despatch by post, courier or personal delivery).
Zurich/Munich, this day of February 19, 1999
SELLERS: BUYER:
Cybernet Internet Services International,
Inc.
/s/ Jurg Heim) /s/ Andreas Eder
- -------------------- --------------------
(Jurg Heim) (Andreas Eder)
President
/s/ Marco Samek
- -------------------- --------------------
(Marco Samek)
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made effective as of the 1st day of March , 1999, by
and between Cybernet Internet Services International, Inc., a Delaware
corporation (the "Corporation"), and Andreas Eder (the "Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Employee desires to be employed by the Corporation as President
and Chief Executive Officer upon the terms and conditions hereinafter set forth,
and the Corporation desires that the Employee be so employed.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties, intending to be legally bound,
agree as follows:
I. Term of Employment. Subject to the terms and conditions of this
------------------
Employment Agreement, the Corporation hereby employs the Employee as President
and Chief Executive Officer, and the Employee hereby agrees to serve the
Corporation in such capacity for the period commencing on the date hereof (the
"Effective Date") and ending on the third anniversary of the Effective Date (the
"Employment Period"), unless sooner terminated as hereinafter provided.
2. Scope of Duties. The Employee shall serve as President and Chief
---------------
Executive Officer of the Corporation, subject to the direction and control of
the Board of Directors of the Corporation (the "Board"). In such capacity, the
Employee shall have the customary powers, responsibilities and authority of
presidents of corporations of the size, type, and nature of the Corporation as
it exists from time to time. The Employee shall undertake such other duties as
the Board from time to time shall reasonably designate, including, without
limitation, serving as a
<PAGE>
consultant to affiliates of the Corporation and serving on the Board.
3. Time to be Devoted to Employment. Except during vacation periods or
--------------------------------
absences due to temporary illness, the Employee shall devote all of his
professional and business time, attention, and energies to his duties and
responsibilities hereunder as is reasonable to insure the Corporation's proper
conduct. In performing such services, the Employee shall use his best efforts to
promote the interests of the Corporation pursuant to and in accordance with
reasonable business policies and procedures, as fixed from time to time by the
Board. The Employee covenants and agrees that he will faithfully adhere to and
fulfill such policies, consistent with this Agreement, as are established from
time to time by the Board. Nothing contained herein shall prevent or be
construed as preventing the Employee from holding or purchasing up to five
percent (5%) of any class of stock or securities of a corporation which is
listed on a national securities exchange or regularly traded in the over-the-
counter market, or making other investments or participating in business
ventures not involving telecommunication services and solutions, provided that
such investments and business ventures do not conflict with his duties or
obligations to the Corporation as provided in this Employment Agreement.
4. Compensation. As total compensation for all services to be rendered by
------------
the Employee during the Employment Period, the Employee shall receive a salary
at the rate of Two Hundred Twenty-Five Thousand Deutsch Mark (DM 225,000) per
annum ("Base Salary"), which Base Salary shall be subject to federal, state, and
other tax withholdings, and which shall be paid monthly in arrears or on such
other basis as other employees of the Corporation generally are paid and which
shall be subject to applicable US-taxes or taxes in the Employee's country of
residence. In addition the Employee shall receive a bonus salary up to Seventy-
Five Thousend Deutsch Marks (DM 75.000) per annum ("Bonus Salary") according to
the bonus scheme (the "Bonus Salary Scheme") as approved from time to time by
the Board of Directors.
5. Fringe Benefits. The Employee shall be entitled to participate in any and
---------------
all fringe benefits and/or plans made available to other executives of the
Corporation (to the extent
2
<PAGE>
the Employee qualifies therefor under the specific terms and conditions of each
such benefit or plan), including, without limitation, dental/medical insurance
and employee benefit plans which are or which may become available generally to
senior management of the Corporation. The Employee shall be entitled to 30
working days vacation during each year of the Employment Period, to be taken at
such time or times as the reasonable needs of the Corporation's business shall
allow.
6. Reimbursement of Expenses. The Corporation shall reimburse the Employee
-------------------------
for all reasonable expenses incurred in connection with the promotion of the
business of the Corporation, including expenses for travel, entertainment, and
similar expenses incurred by the Employee on the Corporation's behalf; provided,
however, no such reimbursement shall be made except upon the presentation by the
Employee of an itemized account or other evidence of those expenses for which
reimbursement then is being sought, all in form reasonably satisfactory to the
Corporation.
7. Termination of Employment. The Employee's employment shall terminate upon
-------------------------
the Employee's resignation or death, and may be terminated by the Board on
account of the Employee's Disability (as defined below) or for Cause (as defined
below).
(a) If the Employee dies during the term of his employment hereunder,
the Corporation shall be obligated to pay to the Employee's estate all earned
but unpaid Base Salary through the date of his death and for an additional
period of twelve months after his death.
(b) If the Employee shall become physically or mentally disabled
("Disability") during the term of this Employment Agreement such that (i) in the
Board's good faith judgement, he is permanently incapable of properly performing
each of the duties customarily performed by him hereunder, or (ii) such
Disability lasts for a period of 60 consecutive days or for 90 days in any six-
month period and the Corporation elects to treat such Disability as being
permanent in nature, then the Corporation shall be obligated to pay to the
3
<PAGE>
Employee all earned but unpaid Base Salary due to the Employee hereunder through
the date of such termination.
(c) If the Employee is terminated for Cause or the Employee resigns,
the Employee shall be entitled to receive only his Base Salary through the date
of termination.
(d) As used herein, "Cause" shall mean:
i) the willful failure by the Employee to substantially perform
his duties hereunder (including, without limitation, the
Employee's refusal to carry out the directives of the Board
provided that such directives do not offend against a law),
for reasons other than death or disability;
ii) a material breach of this Employment Agreement by the
Employee (including, without limitation, the breach of any
provision of Sections 8 and/or 9 hereof);
iii) the willful engaging by the Employee in misconduct
materially injurious to the Corporation;
iv) a breach of the Employee's duty of loyalty to the
Corporation or any act of dishonesty or fraud with respect
to the Corporation; or
v) the commission of a felony, a crime involving moral
turpitude or other act causing material harm to the
Corporation's standing and reputation.
4
<PAGE>
8. Disclosure of Information.
-------------------------
(a) All memoranda, notes, records, and other documents made or compiled
by the Employee or made available to him during the term of his employment
concerning the business of the Corporation or any affiliate of the Corporation
(for purposes of this Section 8, the "Corporation"), shall be the Corporation's
property and shall be delivered to the Corporation on the termination of the
Employee's employment. The Employee shall not use for himself or others, or
divulge to others, any proprietary or confidential information of the
Corporation obtained by him as a result of his employment, unless authorized by
the Corporation. For purposes of this Section 8, the term "proprietary or
confidential information" shall mean all information which is known only to the
Employee or to the Employee and the employees, former employees, consultants, or
others in a confidential relationship with the Corporation, and relates to
specific matters such as trade secrets, customers, potential customers, vendor
lists, pricing and credit techniques, research and development activities,
private processes, business plans, technical information, books and records, and
any other information which the Corporation is obligated to keep confidential
pursuant to the Corporation's contractual obligations to third parties, as they
may exist from time to time, which the Employee may have acquired or obtained by
virtue of work heretofore or hereafter performed for or on behalf of the
Corporation, or which he may acquire or may have acquired knowledge of during
the performance of said work, and which is not in the public domain.
(b) In the event of a breach or a threatened breach by the Employee of
the provisions of this Section 8, the Corporation shall be entitled to an
injunction, without being required to post any bond, restraining the Employee
from disclosing, in whole or in part, the aforementioned proprietary or
confidential information of the Corporation, or from rendering any services to
any person, firm, corporation, association, or other entity to whom such
proprietary or confidential information, in whole or in part, has been disclosed
or is threatened to be disclosed. Nothing contained herein shall be construed as
prohibiting the Corporation from pursuing any other remedies available to the
Corporation for such breach or threatened breach,
5
<PAGE>
including the recovery of damages from the Employee.
9. Restrictive Covenants.
---------------------
(a) In light of the unique and valuable services it is expected the
Employee will render to the Corporation, the Employee's knowledge of the
business of the Corporation and proprietary information relating to the business
of the Corporation and similar knowledge regarding the Corporation it is
expected the Employee will obtain during the course of his employment with the
Corporation, and in consideration of this Agreement and the compensation to be
received by the Employee hereunder, the Employee agrees that for so long as he
is employed by the Corporation and for a period of one year thereafter (the
"Covenant Period"), he will not compete, directly or indirectly, with the
Corporation or any of its subsidiaries now owned or hereafter acquired (for
purposes of this Section 9, the "Corporation") or, directly or indirectly
(except as permitted by Section 3 hereof), own, manage, operate, control, loan
money to, or participate in the ownership, management, operation or control of,
or be connected with as a director, officer, employee, partner, consultant,
agent, independent contractor or otherwise, or acquiesce in the use of his name
in, any other business or organization which competes, directly or indirectly,
with the Corporation, in any geographical area in which the Corporation is then
conducting business or any geographical area in which, to the knowledge of the
Employee, the Corporation plans to conduct business within a six (6) month
period.
(b) During the Covenant Period, the Employee will not, directly or
indirectly, either individually or on behalf of any other person or entity (i)
solicit customers, suppliers, or other business relations of the Corporation for
the purpose of interfering with or encouraging them to terminate their
relationship with the Corporation, or (ii) encourage other employees (full-time
or part-time) of the Corporation to terminate their employment with the
Corporation.
(c) It is acknowledged and agreed that the restrictions contained in
this Section 9, including, without limitation, the time periods and the
geographical areas of the
6
<PAGE>
restrictions, are fair and reasonable and do not place any undue hardship on the
Employee, and are reasonably required for the protection of the goodwill, the
business, and the interests of the Corporation and its officers, directors, and
other employees.
(d) It is the desire and intent of the parties that the provisions of
this Section 9 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Section 9 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Such deletion shall apply only with respect to the operation of
such provisions of this Section 9 in the particular jurisdiction in which such
adjudication is made. In addition, if the scope of any restriction contained in
this Section 9 is too broad to permit enforcement thereof to its fullest extent,
then such restriction shall be enforced to the maximum extent permitted by law,
and the Employee hereby consents and agrees that such scope may be judicially
modified in any proceeding brought to enforce such restriction.
(e) In the event of a breach or threatened breach by the Employee of
the provisions of this Section 9, the Corporation shall be entitled to an
injunction and such other equitable relief as may be necessary or desirable to
enforce the restrictions contained herein. Nothing herein contained shall be
construed as prohibiting the Corporation from pursuing any other remedies
available for such breach or threatened breach or any other breach of this
Employment Agreement.
10. Representations.
---------------
(a) The Employee represents and warrants to the Corporation that (i)
the execution, delivery and performance of this Employment Agreement by the
Employee does not and will not conflict with, breach, violate or cause a default
under any contract, agreement, instrument, order, judgment or decree to which
the Employee is a party or by which he is
7
<PAGE>
bound, (ii) the Employee is not a party to or bound by any employment agreement,
non-compete agreement or confidentiality agreement with any other person or
entity, and (iii) upon the execution and delivery of this Employment Agreement
by the Employee, this Employment Agreement shall be the valid and binding
obligation of the Employee, enforceable against him in accordance with its
terms.
(b) The Corporation represents and warrants to the Employee that (i)
the execution, delivery, and performance of this Employment Agreement by the
Corporation does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which the Corporation is a party or by which he is bound, and (ii) upon the
execution and delivery of this Employment Agreement by the Corporation, this
Employment Agreement shall be the valid and binding obligation of the
Corporation, enforceable against it in accordance with its terms.
11. Miscellaneous.
-------------
(a) Notices. All notices required or permitted to be given under the
-------
provisions of this Employment Agreement shall be in writing and delivered
personally or by certified or registered mail, return receipt requested, postage
prepaid, to the following persons at the following addresses, or to such other
persons at such other addresses as any party may request by notice in writing to
the other party to this Employment Agreement.
If to the Employee:
Mr. Andreas Eder
Max-Emanuel-Str. 25
82319 Starnberg, Germany
8
<PAGE>
If to the Corporation:
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23
81929 Munich, Germany
(b) Successors and Assigns. This Employment Agreement shall be
----------------------
binding upon the successors and assigns of the Corporation, and shall inure to
the benefit of and be enforceable by and against its successors and assigns.
This Employment Agreement is personal in nature and may not be assigned or
transferred by the Employee without the prior written consent of the
Corporation.
(c) Entire Agreement. This instrument contains the entire understanding
----------------
and agreement between the parties relating to the subject matter hereof, and
neither this Employment Agreement nor any provision hereof may be waived,
modified, amended, changed, discharged, or terminated, except by an agreement in
writing signed by the party against whom enforcement of any waiver,
modification, change, amendment, discharge, or termination is sought.
(d) Counterparts. This Employment Agreement may be executed
------------
simultaneously in counterparts, each of which shall be deemed an original, and
all of which counterparts shall together constitute a single agreement.
(e) Illegality. If any one or more of the provisions of this Employment
----------
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Captions. The captions of the sections hereof are for convenience
--------
only
9
<PAGE>
and shall not control or affect the meaning or construction of any of the terms
or provisions of this Employment Agreement.
(g) Governing Law. This Employment Agreement shall be governed by and
-------------
construed in accordance with the laws of the Federal Republic of Germany,
without giving any effect to any doctrine pertaining to the conflict of laws.
The parties hereto irrevocably (i) submit to the jurisdiction of any German
state or federal court in any action or proceeding arising out of or relating to
this Employment Agreement, (ii) agree that all claims with respect to such
action or proceeding shall be heard and determined in such a German state or
federal court, and (iii) waive, to the fullest extent possible, the defense of
an inconvenient forum. The parties hereby consent to and grant any such court
jurisdiction over the persons of such parties and over the subject matter of any
such dispute and agree that delivery or mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
11 hereof or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
IN WITNESS WHEREOF, the parties hereto have set their hands and executed this
Employment Agreement on the day and year first above written.
CYBERNET INTERNET SERVICES INTERNATIONAL INC.
By: /s/ Alessandro Giacalone
-------------------------------
Chief Operating Officer
/s/ Andreas Eder
-------------------------------
Andreas Eder
10
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made effective as of the 1st day of March , 1999, by
and between Cybernet Internet Services International, Inc., a Delaware
corporation (the "Corporation"), and Dr. Alessandro Giacalone (the "Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Employee desires to be employed by the Corporation as Chief
Operational Officer upon the terms and conditions hereinafter set forth, and the
Corporation desires that the Employee be so employed.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties, intending to be legally bound,
agree as follows:
I. Term of Employment. Subject to the terms and conditions of this
------------------
Employment Agreement, the Corporation hereby employs the Employee as Chief
Operational Officer, and the Employee hereby agrees to serve the Corporation in
such capacity for the period commencing on the date hereof (the "Effective
Date") and ending on the third anniversary of the Effective Date (the
"Employment Period"), unless sooner terminated as hereinafter provided.
2. Scope of Duties. The Employee shall serve as Chief Operational Officer of
---------------
the Corporation, subject to the direction and control of the Board of Directors
of the Corporation (the "Board"). In such capacity, the Employee shall have the
customary powers, responsibilities and authority of an officer of corporations
of the size, type, and nature of the Corporation as it exists from time to time.
The Employee shall undertake such other duties as the Board from time to time
shall reasonably designate, including, without limitation, serving as a
consultant to
<PAGE>
affiliates of the Corporation and serving on the Board.
3. Time to be Devoted to Employment. Except during vacation periods or
--------------------------------
absences due to temporary illness, the Employee shall devote all of his
professional and business time, attention, and energies to his duties and
responsibilities hereunder as is reasonable to insure the Corporation's proper
conduct. In performing such services, the Employee shall use his best efforts to
promote the interests of the Corporation pursuant to and in accordance with
reasonable business policies and procedures, as fixed from time to time by the
Board. The Employee covenants and agrees that he will faithfully adhere to and
fulfill such policies, consistent with this Agreement, as are established from
time to time by the Board. Nothing contained herein shall prevent or be
construed as preventing the Employee from holding or purchasing up to five
percent (5%) of any class of stock or securities of a corporation which is
listed on a national securities exchange or regularly traded in the over-the-
counter market, or making other investments or participating in business
ventures not involving telecommunication services and solutions, provided that
such investments and business ventures do not conflict with his duties or
obligations to the Corporation as provided in this Employment Agreement.
4. Compensation. As total compensation for all services to be rendered by
------------
the Employee during the Employment Period, the Employee shall receive a salary
at the rate of Two Hundred Twenty-Five Thousand Deutsch Mark (DM 225,000) per
annum ("Base Salary"), which Base Salary shall be subject to federal, state, and
other tax withholdings, and which shall be paid monthly in arrears or on such
other basis as other employees of the Corporation generally are paid and which
shall be subject to applicable US-taxes or taxes in the Employee's country of
residence. In addition the Employee shall receive a bonus salary up to Seventy-
Five Thousend Deutsch Marks (DM 75.000) per annum ("Bonus Salary") according to
the bonus scheme (the "Bonus Salary Scheme") as approved from time to time by
the Board of Directors.
5. Fringe Benefits. The Employee shall be entitled to participate in any and
---------------
all fringe benefits and/or plans made available to other executives of the
Corporation (to the extent
2
<PAGE>
the Employee qualifies therefor under the specific terms and conditions of each
such benefit or plan), including, without limitation, dental/medical insurance
and employee benefit plans which are or which may become available generally to
senior management of the Corporation. The Employee shall be entitled to 30
working days vacation during each year of the Employment Period, to be taken at
such time or times as the reasonable needs of the Corporation's business shall
allow.
6. Reimbursement of Expenses. The Corporation shall reimburse the Employee
-------------------------
for all reasonable expenses incurred in connection with the promotion of the
business of the Corporation, including expenses for travel, entertainment, and
similar expenses incurred by the Employee on the Corporation's behalf; provided,
however, no such reimbursement shall be made except upon the presentation by the
Employee of an itemized account or other evidence of those expenses for which
reimbursement then is being sought, all in form reasonably satisfactory to the
Corporation.
7. Termination of Employment. The Employee's employment shall terminate upon
-------------------------
the Employee's resignation or death, and may be terminated by the Board on
account of the Employee's Disability (as defined below) or for Cause (as defined
below).
(a) If the Employee dies during the term of his employment hereunder,
the Corporation shall be obligated to pay to the Employee's estate all earned
but unpaid Base Salary through the date of his death and for a period of twelve
months after his death.
(b) If the Employee shall become physically or mentally disabled
("Disability") during the term of this Employment Agreement such that (i) in the
Board's good faith judgement, he is permanently incapable of properly performing
each of the duties customarily performed by him hereunder, or (ii) such
Disability lasts for a period of 60 consecutive days or for 90 days in any six-
month period and the Corporation elects to treat such Disability as being
permanent in nature, then the Corporation shall be obligated to pay to the
3
<PAGE>
Employee all earned but unpaid Base Salary due to the Employee hereunder through
the date of such termination.
(c) If the Employee is terminated for Cause or the Employee resigns,
the Employee shall be entitled to receive only his Base Salary through the date
of termination.
(d) As used herein, "Cause" shall mean:
i) the willful failure by the Employee to substantially
perform his duties hereunder (including, without limitation,
the Employee's refusal to carry out the directives of the
Board provided that such directives do not offend against a
law), for reasons other than death or disability;
ii) a material breach of this Employment Agreement by the
Employee (including, without limitation, the breach of any
provision of Sections 8 and/or 9 hereof);
iii) the willful engaging by the Employee in misconduct
materially injurious to the Corporation;
iv) a breach of the Employee's duty of loyalty to the
Corporation or any act of dishonesty or fraud with respect
to the Corporation; or
v) the commission of a felony, a crime involving moral
turpitude or other act causing material harm to the
Corporation's standing and reputation.
4
<PAGE>
8. Disclosure of Information.
-------------------------
(a) All memoranda, notes, records, and other documents made or compiled
by the Employee or made available to him during the term of his employment
concerning the business of the Corporation or any affiliate of the Corporation
(for purposes of this Section 8, the "Corporation"), shall be the Corporation's
property and shall be delivered to the Corporation on the termination of the
Employee's employment. The Employee shall not use for himself or others, or
divulge to others, any proprietary or confidential information of the
Corporation obtained by him as a result of his employment, unless authorized by
the Corporation. For purposes of this Section 8, the term "proprietary or
confidential information" shall mean all information which is known only to the
Employee or to the Employee and the employees, former employees, consultants, or
others in a confidential relationship with the Corporation, and relates to
specific matters such as trade secrets, customers, potential customers, vendor
lists, pricing and credit techniques, research and development activities,
private processes, business plans, technical information, books and records, and
any other information which the Corporation is obligated to keep confidential
pursuant to the Corporation's contractual obligations to third parties, as they
may exist from time to time, which the Employee may have acquired or obtained by
virtue of work heretofore or hereafter performed for or on behalf of the
Corporation, or which he may acquire or may have acquired knowledge of during
the performance of said work, and which is not in the public domain.
(b) In the event of a breach or a threatened breach by the Employee of
the provisions of this Section 8, the Corporation shall be entitled to an
injunction, without being required to post any bond, restraining the Employee
from disclosing, in whole or in part, the aforementioned proprietary or
confidential information of the Corporation, or from rendering any services to
any person, firm, corporation, association, or other entity to whom such
proprietary or confidential information, in whole or in part, has been disclosed
or is threatened to be disclosed. Nothing contained herein shall be construed as
prohibiting the Corporation from pursuing any other remedies available to the
Corporation for such breach or threatened breach,
5
<PAGE>
including the recovery of damages from the Employee.
9. Restrictive Covenants.
---------------------
(a) In light of the unique and valuable services it is expected the
Employee will render to the Corporation, the Employee's knowledge of the
business of the Corporation and proprietary information relating to the business
of the Corporation and similar knowledge regarding the Corporation it is
expected the Employee will obtain during the course of his employment with the
Corporation, and in consideration of this Agreement and the compensation to be
received by the Employee hereunder, the Employee agrees that for so long as he
is employed by the Corporation and for a period of one year thereafter (the
"Covenant Period"), he will not compete, directly or indirectly, with the
Corporation or any of its subsidiaries now owned or hereafter acquired (for
purposes of this Section 9, the "Corporation") or, directly or indirectly
(except as permitted by Section 3 hereof), own, manage, operate, control, loan
money to, or participate in the ownership, management, operation or control of,
or be connected with as a director, officer, employee, partner, consultant,
agent, independent contractor or otherwise, or acquiesce in the use of his name
in, any other business or organization which competes, directly or indirectly,
with the Corporation, in any geographical area in which the Corporation is then
conducting business or any geographical area in which, to the knowledge of the
Employee, the Corporation plans to conduct business within a six (6) month
period.
(b) During the Covenant Period, the Employee will not, directly or
indirectly, either individually or on behalf of any other person or entity (i)
solicit customers, suppliers, or other business relations of the Corporation for
the purpose of interfering with or encouraging them to terminate their
relationship with the Corporation, or (ii) encourage other employees (full-time
or part-time) of the Corporation to terminate their employment with the
Corporation.
(c) It is acknowledged and agreed that the restrictions contained in
this Section 9, including, without limitation, the time periods and the
geographical areas of the
6
<PAGE>
restrictions, are fair and reasonable and do not place any undue hardship on the
Employee, and are reasonably required for the protection of the goodwill, the
business, and the interests of the Corporation and its officers, directors, and
other employees.
(d) It is the desire and intent of the parties that the provisions of
this Section 9 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Section 9 shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Such deletion shall apply only with respect to the operation of
such provisions of this Section 9 in the particular jurisdiction in which such
adjudication is made. In addition, if the scope of any restriction contained in
this Section 9 is too broad to permit enforcement thereof to its fullest extent,
then such restriction shall be enforced to the maximum extent permitted by law,
and the Employee hereby consents and agrees that such scope may be judicially
modified in any proceeding brought to enforce such restriction.
(e) In the event of a breach or threatened breach by the Employee of
the provisions of this Section 9, the Corporation shall be entitled to an
injunction and such other equitable relief as may be necessary or desirable to
enforce the restrictions contained herein. Nothing herein contained shall be
construed as prohibiting the Corporation from pursuing any other remedies
available for such breach or threatened breach or any other breach of this
Employment Agreement.
10. Representations.
---------------
(a) The Employee represents and warrants to the Corporation that (i)
the execution, delivery and performance of this Employment Agreement by the
Employee does not and will not conflict with, breach, violate or cause a default
under any contract, agreement, instrument, order, judgment or decree to which
the Employee is a party or by which he is
7
<PAGE>
bound, (ii) the Employee is not a party to or bound by any employment agreement,
non-compete agreement or confidentiality agreement with any other person or
entity, and (iii) upon the execution and delivery of this Employment Agreement
by the Employee, this Employment Agreement shall be the valid and binding
obligation of the Employee, enforceable against him in accordance with its
terms.
(b) The Corporation represents and warrants to the Employee that (i)
the execution, delivery, and performance of this Employment Agreement by the
Corporation does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which the Corporation is a party or by which he is bound, and (ii) upon the
execution and delivery of this Employment Agreement by the Corporation, this
Employment Agreement shall be the valid and binding obligation of the
Corporation, enforceable against it in accordance with its terms.
11. Miscellaneous.
-------------
(a) Notices. All notices required or permitted to be given under the
-------
provisions of this Employment Agreement shall be in writing and delivered
personally or by certified or registered mail, return receipt requested, postage
prepaid, to the following persons at the following addresses, or to such other
persons at such other addresses as any party may request by notice in writing to
the other party to this Employment Agreement.
If to the Employee:
Dr. Alessandro Giacalone
Am Lohholz 3
85614 Kirchseeon
8
<PAGE>
If to the Corporation:
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23
81929 Munich, Germany
(b) Successors and Assigns. This Employment Agreement shall be binding
----------------------
upon the successors and assigns of the Corporation, and shall inure to the
benefit of and be enforceable by and against its successors and assigns. This
Employment Agreement is personal in nature and may not be assigned or
transferred by the Employee without the prior written consent of the
Corporation.
(c) Entire Agreement. This instrument contains the entire understanding
----------------
and agreement between the parties relating to the subject matter hereof, and
neither this Employment Agreement nor any provision hereof may be waived,
modified, amended, changed, discharged, or terminated, except by an agreement in
writing signed by the party against whom enforcement of any waiver,
modification, change, amendment, discharge, or termination is sought.
(d) Counterparts. This Employment Agreement may be executed
------------
simultaneously in counterparts, each of which shall be deemed an original, and
all of which counterparts shall together constitute a single agreement.
(e) Illegality. If any one or more of the provisions of this Employment
----------
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Captions. The captions of the sections hereof are for convenience
--------
only
9
<PAGE>
and shall not control or affect the meaning or construction of any of the terms
or provisions of this Employment Agreement.
(g) Governing Law. This Employment Agreement shall be governed by and
-------------
construed in accordance with the laws of the Federal Republic of Germany,
without giving any effect to any doctrine pertaining to the conflict of laws.
The parties hereto irrevocably (i) submit to the jurisdiction of any German
state or federal court in any action or proceeding arising out of or relating to
this Employment Agreement, (ii) agree that all claims with respect to such
action or proceeding shall be heard and determined in such a German state or
federal court, and (iii) waive, to the fullest extent possible, the defense of
an inconvenient forum. The parties hereby consent to and grant any such court
jurisdiction over the persons of such parties and over the subject matter of any
such dispute and agree that delivery or mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
11 hereof or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
IN WITNESS WHEREOF, the parties hereto have set their hands and executed this
Employment Agreement on the day and year first above written.
CYBERNET INTERNET SERVICES INTERNATIONAL INC.
By: /s/ Andreas Eder
------------------------------------
President and Chief Executive Officer
/s/ Alessandro Giacalone
------------------------------------
Alessandro Giacalone
10
<PAGE>
Exhibit 10.7
CERTIFIED TRANSLATION FROM GERMAN
Contract of Employment
between
Cybernet Internet-Dienstleistungen Aktiengesellschaft
(hereinafter referred to as "Cybernet AG")
Stefan-George-Ring 19-23, 81929 Munchen,
represented by the Chairman of the Supervisory Board, Dr. Hubert Besner
and
Mr. Christian Moosmann
SchubertstraBe 12c, 85591 Vaterstetten
on the basis of the decision of the Supervisory Board and in amendment to the
contract of Employment, dated 25 July 1997, the following Contract of Employment
is concluded:
(S) 1
Tasks
1. Mr. Christian Moosmann is appointed to the Board of Directors of CYBERNET AG
for three years following the decision of the
<PAGE>
Supervisory Board of 15. March 1999. The appointment is valid from 15. March
1999. Mr. Christian Moosmann represents CYBERNET AG together with another member
of the Board of Directors or with an executive of the company holding a general
power of attorney.
2. Mr. Christian Moosmann is responsible for the areas Finance and
Administration. He executes the business transactions in accordance with the
laws, the Articles of Association of CYBERNET AG, the Rules of Procedure for the
Board of Directors and the decisions taken by the Annual General Meeting and of
the Supervisory Board. He requires the prior approval of the Supervisory Board
for the business management transactions listed in Annex 1.
3. Mr. Christian Moosmann will dedicate his expertise and his working capacity
exclusively to CYBERNET AG. The acceptance of any other professional activity,
whether paid or honorary, must be approved in advance by the Supervisory Board.
(S) 2
Duration of the Contract
1. This contract is concluded for the duration of three years and begins with
effect from 15 March 1999. An ordinary termination of contract during this
period is excluded.
2. The parties to the contract will negotiate an extension to the contractual
agreement at the latest 12 months before the termination of the contract.
Page2
<PAGE>
(S) 3
Remuneration
1. Mr. Christian Moosmann receives as remuneration for his services an annual
basic salary of DM 180,000 gross. This basic salary is paid in twelve equal
parts minus the statutory deductions at the end of each calendar month, for the
last time for the full month in which this contract expires.
2. Mr. Christian Moosmann receives a bonus of up to DM 70,000 gross if certain
annual targets are reached. The annual targets and the corresponding bonus are
established by the Supervisory Board and the Board of Directors to the 31.12. of
each business year for the following year; for the year 1999 to 30.04 99. The
bonus is respectively paid to 30.04. for the previous business year minus the
statutory deductions.
3. In addition, CYBERNET AG pays half the health insurance contributions made by
Mr. Christian Moosmann.
4. In the event of illness or on other inability to work grounds, the salary
will continue to be paid for six months in accordance with the above Section 1.
Payments made by the statutory or private health insurance schemes will be
offset.
5. In the case of the death of Mr. Christian Moosmann, the salary will be paid
jointly, in accordance with the afore-mentioned
Page 3
<PAGE>
Section 1, for six months to the widow and the children undergoing further
educational training.
6. Mr. Christian Moosmann is reimbursed commensurately the expenses incurred on
behalf of CYBERNET AG in accordance with the regulations valid for the Board of
Directors of CYBERNET AG analogous to the travel expenses guidelines.
7. A top end medium-sized company car will be made available to Mr. Christian
Moosmann also for private use analogous to the company car regulations
attached hereto in Annex 2 of CYBERNET AG.
8. Mr. Christian Moosmann can participate to a total of 20,000 options in the
option program of Cybernet Internet Services International, Inc., in accordance
with Annex 3. The options to 20,000 shares of common stock in Cybernet Internet
Services International, Inc. are accorded from 12. March 1999, the quotation on
the Frankfurt Securities market on that day determines the basic price. The
'vesting period' is staggered over three years in installments, i.e. 6,666
options are exercisable after one year in post, further 6,666 after two years
and the remaining 6,667 after three years. Further details will be set out in an
'options award'.
Page 4
<PAGE>
(S) 4
Vacation
1. Mr. Christian Moosmann has an annual vacation entitlement of 30 working days
to be taken in periods and coordinated with the other members of the Board of
Directors.
2. If Mr. Christian Moosmann cannot take the vacation either in full or in part
for business or other reasons (e.g. illness) before the end of the year, the
entitlement remains valid.
3. If the vacation entitlement cannot be taken due to termination of the
contract of employment, either in full or in part, it similarly has to be
compensated.
(S) 5
Secrecy
Mr. Christian Moosmann is enjoined, also after the termination of the contract
of employment, to maintain complete secrecy concerning all operating and
commercial matters of CYBERNET AG towards unauthorized third parties. Mr.
Christian Moosmann is in particular forbidden to use privately, to allow to be
used or to reveal matters concerning CYBERNET AG, for example business secrets
or other information.
Page 5
<PAGE>
(S) 6
Copyright, Handing Over of Documentation
1. All documents, documentation and other working results, which Mr. Christian
Moosmann generates himself in the exercising of his duties or acquires for
CYBERNET AG are the sole property of CYBERNET AG. CYBERNET AG solely is entitled
to all industrial property rights to them in the widest possible scope. The
regulations in the Employee Inventions Act remain unaffected.
2. Upon termination of the contract of employment, Mr. Christian Moosmann has to
hand over immediately all documentation concerning CYBERNET AG and other working
results including all copies and duplicates and other data media in his
possession. Mr. Christian Moosmann is not entitled under any cause in law to
retain these objects and documentation duly belonging to CYBERNET AG.
(S) 7
Final Provisions
1. Should any provision in this contract be invalid, the validity of the
remaining provisions is not affected by this fact. The parties are obliged to
replace the invalid provision by a valid one which as closely as possible
approximates the economic success sought after in the invalid provision.
Page 6
<PAGE>
2. Amendments or supplements to this contract must be made in writing to be
valid. This applies equally to changes in the afore-mentioned clause concerning
the written form.
Munich, 16. March 1999
Cybernet Internet-Dienstleistungen Aktiengesellschaft
represented by the Chairman of the Supervisory Board, Dr. Hubert Besner
(signed)
Mr. Christian Moosmann (signed)
Annexes 1-3
Page 7
<PAGE>
Annex 1
Board of Directors measures which require the prior approval of the Supervisory
Board
a) The endorsement of the annual budget including the Investment and Financial
Plans as well as the sub-plans on which they are based and including the planned
financial statement and planned profit and loss.
b) Business transactions and measures, which concern the corporate structure or
the principles of the corporate strategy or which lead to an essential change in
corporate development, in particular the inclusion, discontinuation or
substantial restrictions of business branches or product lines
c) Sale and / or transmission of the whole business operation or important
components of the business operation as well as leasing of the whole business
operation or important components thereof
d) Acquisition, sale and collateral encumbrance of real estate or similar
property rights
e) Individual investments, which exceed the sum of DM 1 million
f) Take-up and award of loans and availment of credits which exceed DM 500,000
Page 8
<PAGE>
g) Guarantee and surety undertakings which exceed DM 500,000
h) Entering into bill commitments which exceed DM 500,000
i) Award or increase of pension commitments to employees as well as enactment or
change to a corporate pension scheme
j) Acquisition and sale of companies or parts of such as well as foundation and
dissolution of subsidiary companies and regional offices
k) Conclusion, change or termination of contracts with silent partners
l) Conclusion, change or termination of contracts concerning corporate bodies,
pools and strategic partnerships
m) Give reasons for completion, amendment or termination of lease, rent, leasing
or other permanent debt relationships as well as annual payment obligations for
the company of over DM 500,000
n) Execution of business transactions or measures with shareholders or persons
closely associated with them (directly or indirectly)
Page 9
<PAGE>
o) Execution of business transactions or measures which are the subject of
industrial property rights or other immaterial laws of property to the extent
that the contractual scope exceeds DM 500,000
p) Execution of business transactions or measures of all kinds to the extent
they constitute annual payment obligations for the company to third parties of
over DM 500,000
q) Execution of business transactions or measures which go beyond the usual
business operations of the company or which have been declared to require
approval by a decision of the Supervisory Board
Page 10
<PAGE>
Exhibit 10.8
CERTIFIED TRANSLATION FROM GERMAN
Contract of Employment
between
Cybernet Internet-Dienstleistungen Aktiengesellschaft
(hereinafter referred to as "Cybernet AG")
Stefan-George-Ring 19-23, 81929 Munchen,
represented by the Chairman of the Supervisory Board, Dr. Hubert Besner
and
Mr. Timon Lutze
WiesenstraBe 12, 71732 Tamm
on the basis of the decision of the Supervisory Board and in amendment to the
contract of Employment, dated 18 November 1998, the following Contract of
Employment is concluded:
Section 1
TASKS
1. Mr. Timon Lutze is appointed to the Board of Directors of CYBERNET AG for
three years following the decision of the Supervisory Board of 15. March 1999.
The appointment is valid from 15. March 1999. Mr. Timon Lutze represents
CYBERNET AG
<PAGE>
together with another member of the Board of Directors or with an executive of
the company holding a general power of attorney.
2. Mr. Timon Lutze is responsible for the areas Marketing, Sales and Production.
He executes the business transactions in accordance with the laws, the Articles
of Association of CYBERNET AG, the Rules of Procedure for the Board of Directors
and the decisions taken by the Annual General Meeting and of the Supervisory
Board. He requires the prior approval of the Supervisory Board for the business
management transactions listed in Annex 1.
3. Mr. Timon Lutze will dedicate his expertise and his working capacity
exclusively to CYBERNET AG. The acceptance of any other professional activity,
whether paid or honorary, must be approved in advance by the Supervisory Board.
Section 2
DURATION OF THE CONTRACT
1. This contract is concluded for the duration of three years and begins with
effect from 15 March 1999. An ordinary termination of contract during this
period is excluded.
2. The parties to the contract will negotiate an extension to the contractual
agreement at the latest 12 months before the termination of the contract.
Page 2
<PAGE>
Section 3
REMUNERATION
1. Mr. Timon Lutze receives as remuneration for his services an annual basic
salary of DM 200,000 gross. This basic salary is paid in twelve equal parts
minus the statutory deductions at the end of each calendar month, for the last
time for the full month in which this contract expires.
2. Mr. Timon Lutze receives a bonus of up to DM 70,000 gross if certain annual
targets are reached. The annual targets and the corresponding bonus are
established by the Supervisory Board and the Board of Directors to the 31.12. of
each business year for the following year; for the year 1999 to 30.04 99. The
bonus is respectively paid to 30.04. for the previous business year minus the
statutory deductions.
3. In addition, CYBERNET AG pays half the health insurance contributions made by
Mr. Timon Lutze.
4. In addition, CYBERNET AG will pay the premiums for a direct insurance in the
sum of maximum DM 284 per month.
5. In the event of illness or on other inability to work grounds, the salary
will continue to be paid for six months in accordance with the above Section 1.
Payments made by the statutory or private health insurance schemes will be
offset.
Page 3
<PAGE>
6. In the case of the death of Mr. Timon Lutze , the salary will be paid
jointly, in accordance with the afore-mentioned Section 1, for six months to the
children from the first marriage each to DM 1,000, gross, the remaining payments
to the widow.
7. Mr. Timon Lutze is reimbursed commensurately the expenses incurred on behalf
of CYBERNET AG in accordance with the regulations valid for the Board of
Directors of CYBERNET AG analogous to the travel expenses guidelines. During the
first three months of the employment, the hotel stay in Munich is included. The
move from Tamm to Munich will be organized and carried out by CYBERNET AG, in
addition real estate agency fees are reimbursed to a total of two net monthly
rental payments.
8. A top end medium-sized company car will be made available to Mr. Timon Lutze
- - also for private use - analogous to the company car regulations attached
hereto in Annex 2 of CYBERNET AG.
8. Mr. Timon Lutze can participate to a total of 30,000 options in the option
program of Cybernet Internet Services International, Inc., in accordance with
Annex 3. The options to 30,000 shares of common stock in Cybernet Internet
Services International, Inc. are accorded from 12. March 1999, the quotation on
the Frankfurt Securities market on that day determines the basic price. The
"vesting period" is staggered over three years in installments, i.e. 10,000
options are exercisable after one year in post, further 10,000 after two years
and the remaining 10,000 after three years. Further details will be set out in
an "options award".
Page 4
<PAGE>
Section 4
VACATION
1. Mr. Timon Lutze has an annual vacation entitlement of 30 working days to be
taken in periods and coordinated with the other members of the Board of
Directors.
2. If Mr. Timon Lutze cannot take the vacation either in full or in part for
business or other reasons (e.g. illness) before the end of the year, the
entitlement remains valid.
3. If the vacation entitlement cannot be taken due to termination of the
contract of employment, either in full or in part, it similarly has to be
compensated.
Section 5
SECRECY
Mr. Timon Lutze is enjoined, also after the termination of the contract of
employment, to maintain complete secrecy concerning all operating and commercial
matters of CYBERNET AG towards unauthorized third parties. Mr. Timon Lutze is in
particular forbidden to use privately, to allow to be used or to reveal matters
concerning CYBERNET AG, for example business secrets or other information.
Page 5
<PAGE>
Section 6
COPYRIGHT, HANDING OVER OF DOCUMENTATION
1. All documents, documentation and other working results, which Mr. Timon Lutze
generates himself in the exercising of his duties or acquires for CYBERNET AG
are the sole property of CYBERNET AG. CYBERNET AG solely is entitled to all
industrial property rights to them in the widest possible scope. The regulations
in the Employee Inventions Act remain unaffected.
2. Upon termination of the contract of employment, Mr. Timon Lutze has to hand
over immediately all documentation concerning CYBERNET AG and other working
results including all copies and duplicates and other data media in his
possession. Mr. Timon Lutze is not entitled under any cause in law to retain
these objects and documentation duly belonging to CYBERNET AG.
Section 7
FINAL PROVISIONS
1. Should any provision in this contract be invalid, the validity of the
remaining provisions is not affected by this fact. The parties are obliged to
replace the invalid provision by a valid one which as closely as possible
approximates the economic success sought after in the invalid provision.
2. Amendments or supplements to this contract must be made in writing to be
valid. This applies equally to changes in the afore-mentioned clause concerning
the written form.
Page 6
<PAGE>
Munich, 16. March 1999
Cybernet Internet-Dienstleistungen Aktiengesellschaft
represented by the Chairman of the Supervisory Board, Dr. Hubert Besner
(signed)
/s/ Timon Lutze
- ------------------------
Mr. Timon Lutze
Annexes 1-3
Page 7
<PAGE>
ANNEX 1
Board of Directors measures which require the prior approval of the Supervisory
Board
a) The endorsement of the annual budget including the Investment and Financial
Plans as well as the sub-plans on which they are based and including the planned
financial statement and planned profit and loss.
b) Business and measures, which concern the corporate structure or the
principles of the corporate strategy or which lead to an essential change in
corporate development, in particular the inclusion, discontinuation or important
restrictions of business branches or product lines
c) Sale and / or transmission of the whole business operation or important
components of the business operation as well as leasing of the whole business
operation or important components thereof
d) Acquisition, sale and collateral encumbrance of real estate or similar
property rights
e) Individual investments, which exceed the sum of DM 1 million
f) Take-up and award of loans and availment of credits which exceed DM 500,000
Page 8
<PAGE>
g) Guarantee and surety undertakings which exceed DM 500,000
h) Entering into bill commitments which exceed DM 500,000
i) Award or increase of pension commitments to employees as well as enactment or
change to a corporate pension scheme
j) Acquisition and sale of companies or parts of such as well as foundation and
dissolution of subsidiary companies and regional offices
k) Conclusion, change or termination of contracts with silent partners
l) Conclusion, change or termination of contracts concerning corporate bodies,
pools and strategic partnerships
m) Give reasons for completion, amendment or termination of lease, rent, leasing
or other permanent debt relationships as well as annual payment obligations for
the company of over DM 500,000
n) Execution of business transactions or measures with shareholders or persons
closely associated with them (directly or indirectly)
o) Execution of business transactions or measures which are the subject of
industrial property rights or other immaterial laws of property to the extent
that the contractual scope exceeds DM 500,000
Page 9
<PAGE>
p) Execution of business transactions or measures of all kinds to the extent
they constitute annual payment obligations for the company to third parties of
over DM 500,000
q) Execution of business transactions or measures which go beyond the usual
business operations of the company or which have been declared to require
approval by a decision of the Supervisory Board
Page 10
<PAGE>
Exhibit 10.9
CERTIFIED TRANSLATION FROM GERMAN
EMPLOYMENT CONTRACT
signed between
VIANET telecommunications AG, 1090 Vienna, Mariannengasse 14 (in the following
referred to as the "Company") on the one hand
and
Mr Tristan Libischer, 1040 Wien, Mollwaldplatz 2/13 (in the following referred
to as "Member of the Board of Directors" ["Vorstandsmitglied"]) on the other
hand
in the following way:
1. Appointment and term:
1.1. In its decision of December 28, 1998, the Supervisory Board of the Company
appointed Mr Libischer Member of the Board of Directors of the Company. Mr
Libischer accepted the appointment. The appointment shall be effective from
January 1, 1999.
1.2 This contract shall be signed for the duration of the employment of Mr
Libischer as Member of the Board of Directors of the Company and shall end
as early as five years from his valid appointment, on October 14, 2003.
2. Area of activity, function:
2.1 The Member of the Board of Directors has the title of "director"
["Vorstandsdirektor"] and is entitled to collectively - either together
with another Member of the Board of Directors who is authorized to
represent the Company collectively or with a holder of a "prokura" general
commercial power of attorney - represent the Company and sign for it.
2.2 The activity of the Member of the Board of Directors is based on the
relevant legal regulations, the statutes of the Company, the binding
decisions by the Supervisory Board of
<PAGE>
2
the Company, the internal regulations of the Board of Directors, and the
contract of employment.
2.3 The Member of the Board of Directors has to dedicate his full working
capacity to the Company. In fulfilling this task, the Member of the Board
of Directors shall act with the care of a proper and scrupulous executive.
3. Remuneration:
3.1 As remuneration for his activity, the Member of the Board of Directors
shall be paid an annual gross amount of DEM 180,000, payable in 14 equal
partial amounts at the beginning of each month and in addition on June 1
and December 1 of each year.
3.2 With the remuneration of 3.1, all services by the Member of the Board of
Directors provided beyond the normal working time applicable to employees
of the Company shall be covered.
3.3 Any remuneration increases granted after January 1, 1999 in conjunction
with the collectively agreed salary increases for employees of the Company
affect the remuneration level according to 3.1 through the change rate that
is applicable for the highest remuneration payable under the collective
agreement.
3.4 In addition to the regular remuneration according to 3.1 the Member of the
Board of Directors shall be paid a management bonus of DEM 60,000.00. The
management bonus shall be determined on the basis of a catalogue of
objectives, which the Supervisory Board has to determine yearly in advance,
and which shall be dependent upon the level of achievement of objectives.
The management bonus comes due after the annual general meeting which
decides on the result of the relevant fiscal year. If an annual general
meeting concerning a fiscal year does not take place by June 30 of the
successive fiscal year, the Supervisory Board, no later than by that date,
shall determine the amount of profit to be shared and set the date when it
comes due.
If the Member of the Board of Directors leaves the Company during a fiscal
year, the bonus shall be paid on a pro-rata basis.
<PAGE>
3
3.5 If the Member of the Board of Directors is unable to perform his duty due
to illness or accident, the Company shall continue to pay the full
remuneration to which the Member of the Board of Directors is entitled
according to 3.1 for the duration of a maximum of 6 months and 49% of the
remuneration for another three months.
4. Additional services:
4.1 The Company provides a company vehicle for the Member of the Board of
Directors, which the Member of the Board of Directors may use for private
purposes too.
4.2 The Member of the Board of Directors is entitled to the acquisition of an
additional health insurance by the Company.
4.3 The Member of the Board of Directors shall fully bear the taxes imposed on
the tangible value of the remuneration attributable to the private use of
the car and the health insurance.
4.4 The Member of the Board of Directors is entitled to claim reasonable
expenses connected to his position plus a remuneration of the travel
expenses. The Member of the Board of Directors is entitled to use first
class rail on business journeys by train, the sleeping-car (two-bed) at
night, and business class for air travel. The choice of the proper type of
transport shall be made according to economic criteria. For overnight stays
hotels of the four-star category may be chosen. Furthermore, cash expenses
incurred in connection with service commitments shall be reimbursed against
receipt.
5. Vacation:
5.1 The Member of the Board is entitled to an annual vacation of 36 work days,
with Saturdays being regarded as work days.
5.2 In choosing the start of his vacation the Member of the Board of Directors
should also consider the interests of the Company.
<PAGE>
4
6. Social insurance contributions:
Social insurance contributions shall be fully borne by the Company up to a
maximum of DM 13,000.00 per year.
7. Severance pay:
7.1 It is noted that since September 27, 1994,the Member of the Board of
Directors has been in the service of Vianet EDV Dienstleistungs GesmbH, a
legal predecessor of the Company. The appointment as Member of the Board of
Directors of the Company was not accompanied by severance pay. Upon
termination of the employee's status employment, the Member of the Board of
Directors is entitled to severance pay according to the provisions of the
Employees' Law. The calculation of the entitlement to severance pay is
based on the period of Company service beginning on September 24, 1994 and
on the last receipt of salary according to 3.1 and on the average of the
bonuses paid in the last three years according to 3.4
7.2 An entitlement to a remuneration does not exist, if the Member of the Board
of Directors is dismissed due to a gross breach of duty according to (S) 75
Abs. 4 AktG (Corporation Law)and the employment contract is cancelled
prematurely by applying the content of (S) 27 AngG (Employees' Law)or if
the Member of the Board of Directors resigns his post prematurely without
good cause and without the permission of the Supervisory Board. If the
employment ends due to the death of the Member of the Board of Directors,
the eligible survivors according to (S) 23 Abs 6 AngG shall receive half
the severance pay specified under 7.1.
8. Prohibition of competition
8.1 Without the permission of the Supervisory Board responsible for the
relevant line of business of the Company, the Member of the Board of
Directors may neither operate a trade nor do business for his or someone
else's account. Nor may he participate in another commercial company as a
personally liable shareholder.
8.2 If the Member of the Board of Directors violates this prohibition, the
Company may claim compensation. In such a case the Company may demand that
the business the Member of the Board of Directors did for his own account
shall be deemed done for the Company's account and that the
<PAGE>
5
consideration received for business done for someone else's account shall
be returned or that the claim for remuneration shall be assigned.
8.3 The claims of the Company shall become statute-barred three months from the
moment where the other members of the Board of Directors and of the
Supervisory Board learn about the act that gives rise to the commitment to
pay compensation. Notwithstanding such knowledge, they become statute-
barred within five years after their origination.
9. Business which requires approval:
The Member of the Board of Directors takes note of item 8 of the statutes
of the Company as amended, which provide analogously with (S) 95 Abs 5 AktG
that the following business transactions require the approval of the
Supervisory Board:
a) the acquisition and sale of interest ((S) 228 HGB Commercial Code)as
well as the acquisition, the sale and the closure of enterprises and
operations;
b) the acquisition, the sale and encumbrances on land;
c) the establishment and closure of branches;
d) investments that exceed the acquisition costs of ATS 5,000,000.00
individually and of ATS 20,000,000.00 totally in one business year;
e) the taking of bonds, loans and credits which exceed ATS 5,000,000.00
individually and ATS 20,000,000.00 totally in a business year;
f) the granting of loans and credits unless they are part of the usual
operations; part of usual operations is indeed the granting of loans
and credits that do not exceed ATS 500,000.00 in each case;
g) the opening and closing of lines of business and types of production;
h) the definition of general principles of business policy.
<PAGE>
6
i) the definition of principles regarding the granting of profit and
turnover participations and pension assurances for senior employees
according to (S) 80 Abs. 1 AktG;
j) the granting of a "prokura" general power of attorney
10. Removal from office and termination of employment contract:
10.1 The Supervisory Board may revoke the appointment of a Member of the Board
of Directors for good cause. Good cause shown shall be gross breach of
duty, inability to engage in a proper conduct of affairs and vote of no-
confidence by the annual general meeting, unless the vote of no-confidence
was due to clearly non-objective causes.
10.2 In the case of removal from office the Company shall be entitled to cancel
the employment contract prematurely, if grounds attributable to the Member
of the Board of Directors exist which entitle the Company to a dismissal
according to the content of (S) 27 AngG.
11. Final provisions:
11.1 Unless otherwise provided by Corporation Law, the statutes of the Company,
the internal regulations for the Board of Directors and the employment
contract, the provisions of Corporation Law as amended shall apply.
11.2 For all matters which are dependent upon the length of employment, October
15, 1998 shall be deemed the start of Company service, unless expressly
provided otherwise in the contract.
11.3 Amendments to this contract must be made in writing and require the
approval of the Supervisory Board as far as the Company is concerned. All
fees and levies incurred in connection with the preparation of this
employment contract shall be paid by the Company.
11.4 The invalidity of individual clauses of this contract shall not affect the
validity of the other provisions. Any invalid provision, in the sense of a
contract-amending interpretation, shall be replaced by a provision that
comes as close as possible to the economic purpose of the invalid
provision.
<PAGE>
7
11.5 This contract is subject to Austrian law. For any disputes arising from
this contractual relationship the competent court for commercial cases in
the Innere Stadt district of Vienna shall have exclusive jurisdiction.
Munich, December 28, 1998
Signatures: illegible /s/ Libisher
<PAGE>
Exhibit 10.10
CERTIFIED TRANSLATION FROM GERMAN
EMPLOYMENT CONTRACT
signed between
VIANET telecommunications AG, 1090 Vienna, Mariannengasse 14 (in the following
referred to as the "Company") on the one hand
and
Mr Alexander Wiesmuller, born on November 24, 1968, 2381 Laab im Walde, Georg
Hogn-Gasse 17 (in the following referred to as "Member of the Board of
Directors" ["Vorstandsmitglied"]) on the other hand
in the following way:
1. Appointment and term:
1.1. In its decision of December 28, 1998, the Supervisory Board of the Company
appointed Mr Wiesmuller Member of the Board of Directors of the Company. Mr
Wiesmuller accepted the appointment. The appointment shall be effective
from January 1, 1999.
1.2 This contract shall be signed for the duration of the employment of Mr
Wiesmuller as Member of the Board of Directors of the Company and shall end
as early as five years from his valid appointment, on October 14, 2003.
2. Area of activity, function:
2.1 The Member of the Board of Directors has the title of "director"
["Vorstandsdirektor"] and is entitled to collectively - either together
with another Member of the Board of Directors who is authorized to
represent the Company collectively or with a holder of a "prokura" general
commercial power of attorney - represent the Company and sign for it.
2.2 The activity of the Member of the Board of Directors is based on the
relevant legal regulations, the statutes of the
<PAGE>
2
Company, the binding decisions by the Supervisory Board of the Company, the
internal regulations of the Board of Directors, and the contract of
employment.
2.3 The Member of the Board of Directors has to dedicate his full working
capacity to the Company. In fulfilling this task, the Member of the Board
of Directors shall act with the care of a proper and scrupulous executive.
3. Remuneration:
3.1 As remuneration for his activity, the Member of the Board of Directors
shall be paid an annual gross amount of DEM 180,000, payable in 14 equal
partial amounts at the beginning of each month and in addition on June 1
and December 1 of each year.
3.2 With the remuneration of 3.1, all services by the Member of the Board of
Directors provided beyond the normal working time applicable to employees
of the Company shall be covered.
3.3 Any remuneration increases granted after January 1, 1999 in conjunction
with the collectively agreed salary increases for employees of the Company
affect the remuneration level according to 3.1 through the change rate that
is applicable for the highest remuneration payable under the collective
agreement.
3.4 In addition to the regular remuneration according to 3.1 the Member of the
Board of Directors shall be paid a management bonus of DEM 60,000.00. The
management bonus shall be determined on the basis of a catalogue of
objectives, which the Supervisory Board has to determine yearly in advance,
and which shall be dependent upon the level of achievement of objectives.
The management bonus comes due after the annual general meeting which
decides on the result of the relevant fiscal year. If an annual general
meeting concerning a fiscal year does not take place by June 30 of the
successive fiscal year, the Supervisory Board, no later than by that date,
shall determine the amount of profit to be shared and set the date when it
comes due.
<PAGE>
3
If the Member of the Board of Directors leaves the Company during a fiscal
year, the bonus shall be paid on a pro-rata basis.
3.5 If the Member of the Board of Directors is unable to perform his duty due
to illness or accident, the Company shall continue to pay the full
remuneration to which the Member of the Board of Directors is entitled
according to 3.1 for the duration of a maximum of 6 months and 49% of the
remuneration for another three months.
4. Additional services:
4.1 The Company provides a company vehicle for the Member of the Board of
Directors, which the Member of the Board of Directors may use for private
purposes too.
4.2 The Member of the Board of Directors is entitled to the acquisition of an
additional health insurance by the Company.
4.3 The Member of the Board of Directors shall fully bear the taxes imposed on
the tangible value of the remuneration attributable to the private use of
the car and the health insurance.
4.4 The Member of the Board of Directors is entitled to claim reasonable
expenses connected to his position plus a remuneration of the travel
expenses. The Member of the Board of Directors is entitled to use first
class rail on business journeys by train, the sleeping-car (two-bed) at
night, and business class for air travel. The choice of the proper type of
transport shall be made according to economic criteria. For overnight stays
hotels of the four-star category may be chosen. Furthermore, cash expenses
incurred in connection with service commitments shall be reimbursed against
receipt.
5. Vacation:
5.1 The Member of the Board is entitled to an annual vacation of 36 work days,
with Saturdays being regarded as work days.
5.2 In choosing the start of his vacation the Member of the Board of Directors
should also consider the interests of the Company.
<PAGE>
4
6. Social insurance contributions:
Social insurance contributions shall be fully borne by the Company up to a
maximum of DM 13,000.00 per year.
7. Severance pay:
7.1 It is noted that since September 27, 1994,the Member of the Board of
Directors has been in the service of Vianet EDV Dienstleistungs GesmbH, a
legal predecessor of the Company. The appointment as Member of the Board of
Directors of the Company was not accompanied by severance pay. Upon
termination of the employee's status employment, the Member of the Board of
Directors is entitled to severance pay according to the provisions of the
Employees' Law. The calculation of the entitlement to severance pay is based
on the period of Company service beginning on September 24, 1994 and on the
last receipt of salary according to 3.1 and on the average of the bonuses
paid in the last three years according to 3.4
7.2 An entitlement to a remuneration does not exist, if the Member of the Board
of Directors is dismissed due to a gross breach of duty according to (S) 75
Abs. 4 AktG (Corporation Law)and the employment contract is cancelled
prematurely by applying the content of (S) 27 AngG (Employees' Law)or if the
Member of the Board of Directors resigns his post prematurely without good
cause and without the permission of the Supervisory Board. If the employment
ends due to the death of the Member of the Board of Directors, the eligible
survivors according to (S) 23 Abs 6 AngG shall receive half the severance
pay specified under 7.1.
8. Prohibition of competition
8.1 Without the permission of the Supervisory Board responsible for the relevant
line of business of the Company, the Member of the Board of Directors may
neither operate a trade nor do business for his or someone else's account.
Nor may he participate in another commercial company as a personally liable
shareholder.
8.2 If the Member of the Board of Directors violates this prohibition, the
Company may claim compensation. In such a case the Company may demand that
the business the Member of
<PAGE>
5
the Board of Directors did for his own account shall be deemed done for the
Company's account and that the consideration received for business done for
someone else's account shall be returned or that the claim for remuneration
shall be assigned.
8.3 The claims of the Company shall become statute-barred three months from the
moment where the other members of the Board of Directors and of the
Supervisory Board learn about the act that gives rise to the commitment to
pay compensation. Notwithstanding such knowledge, they become statute-barred
within five years after their origination.
9. Business which requires approval:
The Member of the Board of Directors takes note of item 8 of the statutes
of the Company as amended, which provide analogously with (S) 95 Abs 5 AktG
that the following business transactions require the approval of the
Supervisory Board:
a) the acquisition and sale of interest ((S) 228 HGB Commercial Code)as
well as the acquisition, the sale and the closure of enterprises and
operations;
b) the acquisition, the sale and encumbrances on land;
c) the establishment and closure of branches;
d) investments that exceed the acquisition costs of ATS 5,000,000.00
individually and of ATS 20,000,000.00 totally in one business year;
e) the taking of bonds, loans and credits which exceed ATS 5,000,000.00
individually and ATS 20,000,000.00 totally in a business year;
f) the granting of loans and credits unless they are part of the usual
operations; part of usual operations is indeed the granting of loans
and credits that do not exceed ATS 500,000.00 in each case;
g) the opening and closing of lines of business and types of
production;
h) the definition of general principles of business policy.
<PAGE>
6
i) the definition of principles regarding the granting of profit and
turnover participations and pension assurances for senior employees
according to (S) 80 Abs. 1 AktG;
j) the granting of a "prokura" general power of attorney
10. Removal from office and termination of employment contract:
10.1 The Supervisory Board may revoke the appointment of a Member of the Board
of Directors for good cause. Good cause shown shall be gross breach of
duty, inability to engage in a proper conduct of affairs and vote of no-
confidence by the annual general meeting, unless the vote of no-confidence
was due to clearly non-objective causes.
10.2 In the case of removal from office the Company shall be entitled to cancel
the employment contract prematurely, if grounds attributable to the Member
of the Board of Directors exist which entitle the Company to a dismissal
according to the content of (S) 27 AngG.
11. Final provisions:
11.1 Unless otherwise provided by Corporation Law, the statutes of the Company,
the internal regulations for the Board of Directors and the employment
contract, the provisions of Corporation Law as amended shall apply.
11.2 For all matters which are dependent upon the length of employment, October
15, 1998 shall be deemed the start of Company service, unless expressly
provided otherwise in the contract.
11.3 Amendments to this contract must be made in writing and require the
approval of the Supervisory Board as far as the Company is concerned. All
fees and levies incurred in connection with the preparation of this
employment contract shall be paid by the Company.
11.4 The invalidity of individual clauses of this contract shall not affect the
validity of the other provisions. Any invalid provision, in the sense of a
contract-amending interpretation, shall be replaced by a provision that
comes as close as possible to the economic purpose of the invalid
provision.
<PAGE>
7
11.5 This contract is subject to Austrian law. For any disputes arising from
this contractual relationship the competent court for commercial cases in
the Innere Stadt district of Vienna shall have exclusive jurisdiction.
Munich, December 28, 1998
Signatures: illegible /s/ Wiesmuller
<PAGE>
Exhibit 10.12
TENANCY AGREEMENT
between Deutsche Immobilien Fonds plc
Valentinskamp 20
20354 Hamburg
- Landlord -
and
Cybernet
Internet-Dienstleistungen AG
Stefan-George-Ring 19
81929 Munchen
- Tenant -
- --------------------------------------------------------------------------------
PRELIMINARY STATEMENT
The landlord has constructed buildings (Airport Centre) on the property at
Langenhorner Chaussee/Corner of Flughafenstrasse consisting of office, service,
hall and cellar space, as well as parking, traffic and green areas.
Having stated this in advance, the parties agree to the following:
<PAGE>
INDEX OF CONTENTS
<TABLE>
<CAPTION>
Preliminary Statement
<S> <C>
(S) 1 Rented property
(S) 2 Utilisation of rented property, competing surety
(S) 3 Term of tenancy
(S) 4 Rent and ancillary costs
(S) 5 Safeguarding standard of value
(S) 6 Insurance
(S) 7 Structural arrangement and alterations
(S) 8 Liability, maintenance and repair of rented property
(S) 9 Access to rented premises by landlord
(S) 10 Termination of tenancy agreement
(S) 11 Security of rent
(S) 12 Sub-letting
(S) 13 Exceptional right of notice
(S) 14 Concluding provisions
(S) 15 Jurisdiction
</TABLE>
Appendix: 1 - Composition of rent
2 - Surety (obligatory submission)
3 - Direct debit mandate (specimen)
4 - Description of business
5 - Description of building
6 - Planning documents
2
<PAGE>
(S) 1
Rented Property
1. The landlord lets to the tenant 1 section of the building in the Airport
Centre comprising office, service, hall and outside spaces of the part of
the building N/O, as well as 16 exterior parking places (rented property).
General spaces such as, for example, foyer and lift outer offices are
proportionally let.
The Airport Centre and the rented property are known to the tenant.
2. The site, dimension and layout of the rented property are evident from the
attached planning documents that have been signed by both parties [Plan Nr.
1,2,3 and 4 in Appendix 6], as well as the description of the building
(Appendix 5), which are component parts of this agreement. The rented
building spaces are as agreed and are coloured red in the planning
documents, and the rented parking places and outside spaces are bordered
green.
3. The landlord reserves the right to make any alterations to the entire
Airport Centre plan.
(S) 2
Utilisation of the Rented Premises, Competing Surety
1.a. The tenant may only utilise the rented premises for general office, service
and storage purposes in line with the description of the business (Appendix
4) which is a part of this agreement. The outside areas may not be used for
storage purposes.
3
<PAGE>
Delivery of storage material through the entrance area may only be used for
products whose size and nature remain within the context of an office
enterprise.
Any change in the use to which the rented premises are put must have prior
written agreement from the landlord. The latter may not raise any objection
to the declared change if it has no detrimental economic or other effect on
him. Any concession - if not expressly set forth - will only be granted on
the understanding that there is no official objection from the authorities.
The tenant will meet the costs of any special requirements, activities or
products (i.e. easily inflammable products, water-endangering material,
activities involving service, exhibition, training, or air-conditioning
etc.) as well as their associated installation or official, occupational or
insurance related conditions arising as a result.
The tenant will be responsible for the cost of providing the necessary
authorisation for his business undertaking, and for fulfilling any
associated obligations or conditions.
b. The tenant may not store or process any dangerous materials (i.e.
explosives or poisons), or undertake any dangerous activity
which would in any way increase the insurance risk on the property
or infringe any official regulations, such as the development plan.
No objects may be dumped or stored and no work undertaken by the
tenant outside the rented premises, such as on the ancillary rented
areas, areas and premises shared with other tenants, as well as on the
delivery areas. Vehicles belonging to the tenant, or those belonging
to any of the tenant's visitors or employees may only be parked on
the appointed spaces. Other vehicles may only stop on the premises
for the time required for loading and unloading. Exits have to be
kept free in accordance with the stipulations of the authorities.
The tenant is obliged to point out to his visitors on all large occasions
(training courses, among other occasions) that they must only park their
vehicles on the rented parking spaces or outside the Airport Centre. In
case of non-compliance with these conditions
4
<PAGE>
the landlord, without prejudicing his rights, is entitled to claim
appropriate compensation from the tenant.
2. Any important alteration to the tenancy agreement on the part of the tenant
(i.e. change of legal structure, business licence, relocation of firm's
principal office, etc.) has immediately to be put in writing to the
landlord.
3. The tenant will use the sanitary facilities available on the particular
floor used in common with other tenants, if there are no available rented
facilities on the premises for his sole use.
4. The landlord does not provide any competing surety for the tenant's sphere
of business.
5. The tenant is aware that gas-driven vehicles may not be parked on parking
spaces rented by him.
(S) 3
Rental term
1. The tenancy agreement starts from 01.02.1999 (commencement of tenancy). It
has a term of 10 years. The agreement terminates on 31.01.2009.
A single right of notice is granted to the tenant on the expiry of 5 years
on condition that prior notice by registered letter is received by the
landlord by 31.01.2003 the latest (12 months before the lapse of the 5th
year). The date of postage will be the deciding factor in determining
correct compliance.
On expiry of the agreed rental term the agreement is then extended by 5
years at a time in each case, unless one of the parties has given one
year's notice as agreed in the terms of the contract.
5
<PAGE>
Section 568 of the German Civil Code does not apply.
2. The property will be handed over to the tenant in a condition ready for
use. "Ready for use" is understood by both parties to mean complete
identification with the planning documents and the building description, so
that the occupancy of the premises by the tenant is possible, as well as
his agreed utilisation of the premises according to Section 2 Nr. 1 of this
agreement. Any deficiencies in the condition of the premises or any
residual work that has still to be completed - this also applies to outside
areas - , and which does not significantly affect the tenant's immediate
occupancy or utilisation of the premises, shall not constitute interference
with the "ready for use" condition in the strict meaning of this agreement.
On the day the property is ready for use it will be handed over to the
tenant for his use. The parties to the agreement will make a binding
transfer record of any possible deficiencies in the property and will
determine any residual work that has still to be undertaken. This must be
immediately rectified or carried out by the landlord within an agreed time-
limit. The tenant must also allow any corrective work to be carried out
during office hours.
The landlord will make the property available to the tenant by 01.02.1999
(ready-for-use date) apart from any residual work outside which may be
dependent on the weather.
In the case of any delay in making the property ready for use caused by the
tenant's request for changes to the agreement after having already signed
it, the terms of the tenancy agreement stand and therewith the obligatory
rental payment from the time when payment would have been due without the
requested changes.
The landlord is not responsible for delays in occupancy caused in
particular by strikes, lockouts, war, acts of God, fire or by the office of
employment officially designated "bad weather days".
6
<PAGE>
(S) 4
Rent and Ancillary Costs
1. The monthly lump sum rent for the property (Appendix 1) is 34.194,50 DM (
in words: Thirty-four thousand one hundred and ninety- four 50/100 Deutsche
Mark) as well as the advance payment for ancillary costs and VAT at the
relevant legal amount, which hereafter will be called the gross rental.
The tenant has given an assurance that he is entitled to full input tax
deduction. If this should change, and therewith the preconditions for the
landlord's turnover tax option be cancelled, according to Section 9
Paragraph 2 of the Turnover Tax Law, the landlord is then no longer bound
to discount the turnover tax, with the consequence that the erstwhile gross
rental has in future to be paid in lump sum. If the absence of the
prerequisite option should only become known later, the landlord is
entitled afterwards to correct the invoices, that have already been issued,
in such a way that the erstwhile paid agreed gross rental subsequently
corresponds to the lump monthly rental. The right to compensation is
reserved in the absence of the prerequisite option. The landlord can oblige
the tenant to produce an appropriate confirmation to this effect from his
accountant.
In each case the gross rental has to be paid in advance into an account
designated by the landlord by the 3rd working day of each month, free of
postage and extra charges.
Punctual payment is determined by the date of receipt by the landlord. Late
payments carry agreed charges of 4 % above the Deutsche Bundesbank's
current bank rate, as well as 10.- DM for costs incurred. The right is
reserved to enforce compensation for further damage caused by late payment.
The tenant will provide the landlord with a direct debit authorisation for
the gross rental at least one month prior to the start of the rental
agreement in accordance with the specimen Appendix 3 of this agreement.
2. Rent and VAT are payable from 01.02.1999. Ancillary costs and VAT have to
be paid from the date when the property is ready for use as laid out in
Section 3 Nr. 2 of this contract.
7
<PAGE>
3. The accruing ancillary costs have to be paid separately by the tenant. The
following applies in detail:
a. In so far as the landlord does not provide/cause the disposal of all
the tenants' refuse, the tenant will be responsible for all his own
refuse disposal or will pay the dues for clearance of his refuse
directly to the authorities. The tenant undertakes to use only closed
containers for the disposal of refuse. The tenant will respect the
Dual System in the disposal of refuse. The disposal point for refuse
containers is to be agreed with the landlord in each case prior to the
positioning of a container.
The disposal of domestic waste is undertaken by the landlord at the
moment because of conditions stipulated by the public authorities, and
the costs will be passed on to the individual tenants. All other kinds
of rubbish must be disposed of by the tenant according to the legal
conditions set out by the local authorities, and the required refuse
collection payments to be paid by the tenant directly to the local
authorities. The tenant undertakes to provide only enclosed containers
should he dispose of the refuse himself. The landlord reserves the
right to dispose of the rubbish in a similar way to the above-named
kinds of refuse should the local authority's conditions change.
b. The tenant will pay the charges and costs for his electricity, heating
and other energy supplies, directly to the energy suppliers, as well
as meter charges and installation costs.
c. The cost of running central heating and warm water is shared by the
tenant in proportion to the square metre space he rents in the N/O
building. It is a precondition that all tenants in the N/O building
have agreed to such a method of calculation and have renounced any
form of meter installation for this purpose. The tenant is aware that
a shared distribution of heating charges is imposed, in line with
standard rates, if any tenant should so desire such a system.
The tenant agrees with the landlord to dispense with the installation
of energy supply meters, and consents to have the costs of central
heating and warm water supplies calculated by square metre office
8
<PAGE>
space. At the same time the tenant agrees to allow the heating costs
to be calculated according to standard rates if any fellow tenant
should so desire.
d. The tenant will bear his share of the cost of running and maintaining
the property, in so far as it arises, especially for:
general energy supply, lighting for exterior premises, basement
garages, parking allotment; refuse disposal; use of the canal;
cleaning of streets, footpaths, parking facilities and facades, as
well as the care and cleaning of other fixed outside spaces, including
clearing away snow and ice; cleaning of sanitary facilities, foyer,
stairwell and windows; eliminating any vermin; chimney sweep;
caretaker; local rates; maintenance, servicing and repair of sanitary
facilities and heating (including authorised technical control
inspections), ventilation and electrical installations, windows, doors
and gateways, drainage collection facilities (including rainwater
reservoirs), annexes to parking building, basement parking facilities,
barriers, parking guides, smoke-alarm and security fittings,
transformers, lightning protectors, lifts, emergency-call
installations, fire-alarm systems, sprinklers, and barrier and video
installations, the code-card system, the security lighting, the
roofing, the smoke- and heat-extractor systems, the hydrants and fire
extinguishers, the blinds, the warm water and supply apparatus, the
building security (fire, storm, mains water, extended coverage,
general purpose glass-surfacing) as well as building and property
liability; maintenance, care and layout of green areas, hydro-culture
and the shared building, streets and exterior areas; traffic safety;
locking-up and guards; porters/doormen; administration of property (
the latter in the sum of 4 % of rent, also when the administration is
carried out by the tenant himself). The tenant does not have to
contribute to his share of repairs, in so far as they exceed in
entirety the amount per annum of 10 % of the annual gross rent
((S) 4 Nr. 1).
e. If the charges and costs under c. and d. are directly apportioned to
the tenant, they will be charged accordingly in this way; otherwise
the tenant will be charged proportionally. The measure used in
deciding proportional costs is based on the tenant's share of the
entire rented property or section of the building. The measure used in
deciding the share of the parking building costs or the basement
9
<PAGE>
garage is based on the tenant's share of parking lots in the parking
building or basement garage. The measure used in the distribution of
costs for proportionally rented general areas is based on the tenant's
share of these areas. The landlord can alter the distributive system
after at his considered discretion, if this leads to a more scientific
apportionment of costs.
The landlord is entitled to demand from the tenant a monthly advance
payment for all likely ancillary costs, in so far as they are not
directly payable by the tenant. The calculations are made annually for
the calendar year. If the rental agreement should terminate during a
settlement period, the settlement will not be interim, but only in the
context of the general settlement. In this way the settlement for the
advance against ancillary costs will be made. Any compensation
payments must be made when the following rent is due. The vouchers for
the respective ancillary cost settlements can be inspected by the
tenant in the offices of the landlord during normal office hours
within 5 weeks following dispatch of the ancillary cost settlement.
The landlord reserves the right to regularly review the monthly
ancillary cost advance payments, and, if required, on the basis of a
proven rise in costs, to change the amounts due, as well as to demand
individual advance payments for larger ancillary costs, which have
also to be paid on the next due date of rental payment. The advance
payment of ancillary costs is due from the tenant on the first date of
occupancy and at the moment amounts to 6.817,90 DM ( in words: six
thousand eight hundred and seventeen 90/100 Deutsche Mark) per month
plus VAT at the standard rate.
If, after concluding this tenancy agreement, there are any subsequent
public or other ancillary costs due that relate to the tenant's
business or to the rented property, the landlord is entitled to demand
these sums from the tenant from the date of occupancy.
4. As far as the rent and ancillary demands are concerned, neither settlement
rights, rent reduction rights, or retention rights can be justified by the
tenant, unless such claims are uncontested or legally recognised.
10
<PAGE>
5. The tenant can only exercise a possible right to withhold settlement, or
claim a reduction in rent pending a legally recognised counter claim, if
the landlord has been advised of this in writing at least one month before
payment in question is due.
6. If the tenant is in arrears in the payment of rent, ancillary costs and/or
VAT, any settlement payments are at first calculated on the basis of the
amounts overdue, and then on costs, interests and other incidental dues
that have arisen.
(S) 5
Safeguarding Standard of Value
1. The rent, in line with (S) 4 Nr. 1, rises or falls according to the general
cost of living index after 12 months, and is calculated from the start of
the rental. The measure is the monthly standard of living price index for
all households in Germany as calculated by the Federal Office for
Statistics in Wiesbaden. The parties agree to use the general standard of
living price index as a yardstick from the month of the start of the
tenancy on the basis of 1991 = 100.
2. If the rent should have changed on the basis of the foregoing index clause,
the clause will, after each lapse of 12 months, be reapplied, according to
the provisions of the foregoing paragraph, and the rent readjusted.
3. The parties to this agreement recognise that this index clause has to be
approved by the appropriate state central bank. The approval has to be
obtained by the landlord.
If the state central bank should not approve the index, the parties to the
agreement are obliged to seek an alternative solution that comes closest to
the desired aim.
4. If the standard of living price index 1991 = 100 cannot be determined any
more, then a transition should be made on the basis of the next published
price index and each subsequent one, and otherwise proceed
11
<PAGE>
as above.
(S) 6
Insurance
1. The usual building insurance terms (fire, storm, mains water, extended
coverage, etc.) and building and landowner liability will be concluded by
the landlord, and at the tenant's expense.
2. Subsequent continuous installations, improvements or re-constructions of
the property carried out by the tenant are not covered by the building's
insurance as indicated in the planning documents and building description,
unless a written statement to this effect has been received by the landlord
from the tenant before the above alterations have taken place, with the
request that the insurance be correspondingly adjusted. The tenant is
obliged to provide evidence of the cost of the installations, improvements
and re-constructions. The landlord is entitled to choose an expert, at the
tenant's cost, to evaluate these said alterations. The additional insurance
for the respective installations, improvements or re-constructions of the
property by the building liability insurance is only applicable after the
landlord has been provided with the appropriate written cover note for the
said insurance. The tenant will pay the costs of the resulting additional
insurance.
3. The tenant is obliged to take out normal compulsory insurance for all risks
relating to his business, such as business liability insurance, loss of
profits insurance, insurance against burglary and theft, as well as for
possible non-exclusive office utilisation of the property, and
environmental liability insurance, and to maintain these insurance policies
for the duration of the rental agreement. It is also the duty of the tenant
to insure himself sufficiently against all damage from newly introduced
fixtures, fittings and other matters.
The landlord is entitled to see relevant written evidence by the insurer of
the continued validity of these insurance policies.
12
<PAGE>
4. The tenant should note that, in the context of his business liability
insurance, he can also take out an exemption liability vis-a-vis his
landlord.
(S) 7
Building Structure and Alterations
1. The rented property is constructed according to the attached planning
documents. The landlord reserves the right to undertake structural
alterations to the rented property, if officially or legally obliged to do
so, for the purposes of improvement, or due to commercial time lapse or to
carry out non-depreciating structural alterations and that do not diverge
from the planning documents and building description.
2. Any alteration requests on the part of the tenant with regard to the
development and alteration of the rented property during the construction
period will only be considered by the landlord if these requests do not
significantly or, in particular, structurally alter the rented property,
and do not exceed the estimated expenditure.
In so far as the alteration requests by the tenant lead to an increase in
expenditure or a lengthier construction time, the landlord will accede to
further alteration requests, so long as the character of the rented
property remains essentially unaffected by the alterations, and the tenant
takes on the additional costs, including the further loss of rent
occasioned by the extension to the time limit that was agreed between the
parties.
The tenant is responsible for any additional planning and engineering costs
that arise as a result of alteration requests.
13
<PAGE>
3. The tenant is entitled to install and equip the interior of the rented
property to his liking and at his expense. Significant structural
alterations, however, require the prior written consent of the landlord.
The necessary local authority approval has to be obtained directly by the
tenant where possible. The tenant must, in every case, pay for the planning
and approval costs.
4. The tenant is entitled to undertake any structural alterations within the
rented property during the term of his tenancy which he considers necessary
for the running of his business and for which he must pay, so long as these
alterations do not affect the structure of the building, or impinge on the
cabling or piping of the rented property, or essentially alter the
character of the building. Before such alterations are undertaken relevant
plans must be shown, and the written consent of the landlord obtained. The
landlord will agree to such alterations if the rented property thereby
suffers no detrimental economic or other consequences.
The tenant will bear all costs which arise from his initiated building
alterations, as well as the further maintenance and repair costs, including
the prior approval costs and the revision plan costs, which the landlord
must receive immediately after completion of the relevant alterations. The
tenant will absolve the landlord of any possible liability relating to the
structural alterations undertaken. This includes compensation by the tenant
to the landlord for the loss of any warranty claims against the builders.
Structural alterations may require an officially submitted change in the
utilisation to which building is put. The tenant must bear the costs
connected with the utilisation change, no matter whether they have arisen
from the structural alterations or from compliance with local authority
rules.
5. Any changes to the outer appearance of the rented property - especially to
the outer facades, window structure, fixed outside spaces and green areas -
require the prior written consent of the landlord, who will use his
discretion. This also applies to installations of fitted alarm and/or fire
equipment.
14
<PAGE>
6. The landlord will mark out, with his own designated registration signs, the
parking lots rented by the tenant, and for which the tenant has to pay.
7. The landlord has set up an individual company signpost in front of every
property entrance. The tenant is entitled to affix his sign or company logo
on the provided space in consultation with the landlord. The cost of the
inscription will be charged to the tenant.
The tenant is not allowed any outside advertising.
(S) 8
Liability, Maintenance of Rented Property
1. The tenant is obliged to treat the rented property with consideration and
care and keep it in workable order. Damage to the rented property, or any
necessary work that has to be undertaken in keeping with the management of
property, has to be reported to the landlord immediately either in writing
or by fax.
2. The tenant has a duty to safeguard traffic on the site of the rented
property and is responsible for all culpable injuries. He absolves the
landlord from any third party claims arising from a breach of these traffic
obligations.
The tenant is liable to the landlord for all damage caused at the start and
during the rental occupancy occasioned by visitors and guests, persons
contracted by the tenant (i.e. craftsmen, delivery men etc.) as well as by
any sub-tenants and their ancillary staff. In particular the tenant is
liable for any damage arising from careless procedure with water and gas-
piping, as well as electrical light and energy-cabling, doors, windows or
gateways that are left open, insufficient precaution against damage by
frost, or caused by inattention to duty of one of the tenants in the face
of his contractual, official or legal obligations
15
<PAGE>
(lighting, obligation to strew sand or salt, etc.). The tenant will have to
prove that he is not guilty of any culpable neglect.
The tenant will inform the landlord immediately of the loss of any keys to
the property locking mechanism, and for which he, the tenant, must bear the
cost for any damage arising therefrom.
In the case of damage not covered by the building insurance or the
liability of the property owner, the landlord will only be liable for
damage caused by intent or gross negligence.
The landlord is not liable for damage arising from the tenant's utilisation
of the rented property, or arising from defects in the rented property,
unless it was caused by the landlord by intent or gross neglect. The tenant
will absolve the landlord from all third party responsibility which a third
party claims against the landlord for deficiencies in the rented property,
unless these were caused by the landlord with intent or by gross neglect.
3. The tenant is obliged to carry out cosmetic repairs ( e.g. interior
painting, carpeting, floor and floor-covering, inner and outer doors) on a
3-year rotational basis, so as to preserve the rented property in an
appropriately groomed condition. Furthermore, the tenant is obliged to bear
the care and cost of seeing that doors, windows, blinds, electric and
sanitary appliances, locks, fire extinguishers, water taps, wash basins,
drainage sinks, and similar installations, including the supply and
disposal systems are kept in constant good working order, and also to bear
the care and cost of immediately replacing broken glass panes, mirrors or
other glass objects and lighting installations in the rented property. The
tenant is further obliged to keep the outside traffic and parking areas in
constant workable condition. The tenant is likewise liable for all damage
to rented parking lots and their surroundings, e.g. soiling of the ground
and wall through leaking oil, soot and exhaust pollution. The tenant is
obliged to undertake necessary maintenance measures with the help of
skilled personnel.
For other small repairs the tenant has to bear the individual cost up to
500 DM plus statutory VAT at the most, however, up to an amount in
accordance with (S) 4 Nr.3 d. The parties agree that this amount, in each
case, applies to the 1 January of a calendar year, and is increased the
16
<PAGE>
following year in line with the percentage rise in the total cost of living
index as set out in the above (S) 5 Nr.1 and 2.
4. The tenant is responsible for the cleanliness of the rented property. The
care of the green areas as well as the cleaning and maintenance of the
fixed outer areas of the Airport Centre are carried out by the landlord or
his appointee. The tenant must see that these areas are freely accessible
while this work is being carried out.
5. In the event of a deficiency in the rented property or a disturbance in the
running of the building or a fault in the technical equipment, the tenant
can only claim compensation or reduction of rent if the landlord can be
shown to have caused the deficiency by intent or through gross negligence.
This applies to all claims made by the tenant arising from Section 538
Paragraph 1 of the German Civil Code. It has to be emphasised again that
the tenant has an obligation, in accordance with (S) 6 of this contract, to
take out insurance against damage to his own property that he has
introduced into the rented property.
6. The tenant is aware that the Airport Centre, as described in the
preliminary statement, is also used by other tenants. If necessary, and
after consultation with the tenants, house regulations will be drawn up,
which will also comprise part of this contract, and which will define the
rights and duties of individual tenants.
7. The landlord may, without the agreement of the tenant, undertake structural
measures which develop, preserve or improve the property or the rented
area, or which are necessary to prevent imminent danger to the property, or
the necessary elimination of damage.
Improvements and structural alterations to the rented property, which may
not be necessary but only useful, can be undertaken with the consent of the
tenant, provided these undertakings do not significantly affect him.
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<PAGE>
8. The installation of heavy equipment (machinery etc.) obliges the tenant to
inquire from the landlord whether the floor can sustain such a weight. The
tenant must regularly and carefully ensure that the permissible weight-load
for each floor, as indicated in the description of the building, is not
exceeded. If these warnings are ignored the tenant is liable for all
consequent damage, and is obliged to absolve the landlord from any possible
claims by third parties arising therefrom.
9. Reduction of rent and compensation claims against the landlord by the
tenant for damages, harmful effects or disturbances to the building's
accesses, which are beyond his control, or for works undertaken in
accordance with the above paragraph Nr.7, or for building construction by
third parties outside the precincts, are out of the question.
(S) 9
Access to Rented Premises by the Landlord
1. The landlord or his appointee can, after prior agreement with the tenant,
enter the rented property during office hours to ascertain the necessity of
possible improvements, as well as to undertake repair and maintenance work.
The tenant is entitled to supply an escort for such inspections or repair
work. The tenant, herewith, already declares his agreement to the
undertaking of any such necessary work to the supply mains on behalf of
other fellow tenants of the rented property. This agreement is already,
herewith, given by the tenant for the eventuality that fellow tenants may
also have to undertake necessary work on their supply mains.
In case of danger caused by delay, the landlord may enter the rented
premises at any time of the day or night, or obtain entry to them. Access
to the roof exit, supply installations and inside yards etc. has to be
guaranteed at all times.
2. If the landlord wishes to sell the property he can, after consulting with
the tenant beforehand, have access to the rented property at the customary
times. The tenant has to give his express permission for entry on Sundays
or on holidays.
18
<PAGE>
3. If the rental agreement has been terminated, or if it has not been extended
at the latest by 12 months prior to the expiry date, the previous
paragraph, regarding entry to the premises by the landlord with a new
interested customer, correspondingly applies.
(S) 10
Termination of Rental Contract
1. On expiry of the rental contract the rented property has to be repossessed
in a properly renovated and maintained condition, and all keys surrendered.
The obligation is not dependent on whether a rotational renovation was due
at the time or not.
If the tenant has not carried out the obligatory renovation work by the end
of the rental agreement, the landlord can have the work done at the
tenant's expense without the necessity of a period of grace. In this case
the tenant is liable for any damage incurred by the landlord arising from
delayed work (especially loss of rent).
As a deviation from the above ruling, the landlord can demand compensation
in cash for the duly claimed renovation, should the renovation work have to
be nullified through fresh reconstruction soon after termination of the
rental agreement.
2. Equipment (e.g. shelving, communications, alarm systems etc.), including
advertising effects which the tenant has installed in the rented property,
can or must be removed at the request of the landlord.
If the tenant takes the equipment with him, he must bear the cost of
restoring the premises to their earlier condition, should the landlord
requires him to do so.
3. In case the tenant has undertaken structural alterations, the landlord can
19
<PAGE>
at his discretion, on the termination of the rental agreement, demand free
restoration of the property's earlier condition, or the reimbursement of
the costs incurred in undertaking this work. Compensation for the
expenditure incurred in any structural alteration undertaken by the tenant
is absolutely ruled out, no matter whether the landlord requests
restoration or not. If structural alterations are not removed, they become
the property of the landlord without any indemnity or adjusted settlement
being paid to the tenant.
4. The objects installed by the landlord will remain in the rented property on
termination of the rental agreement.
5. The return of the rented property before termination of the rental
agreement requires the express written consent of the landlord.
(S) 11
Security of Rent
1. The tenant is obliged, at the latest 2 weeks before occupying the rented
property, to procure the absolute guarantee of a savings bank or a big bank
resident in Germany, corresponding to Appendix 2 of this rental agreement, in
sum of 3 month's rent, plus the advance against ancillary charges and VAT at
the standard rate, which will cover the entire payment obligations of the
tenant in this tenancy agreement. If improvements for the tenant have to be
undertaken by the landlord, the guarantee has to be handed in before the
improvements are undertaken. The landlord will inform the tenant of the date
when the work will start.
The guarantor is obliged to transmit payment on the landlord's first request.
The guarantor relinquishes the enforcement of the landlord as well as the
guarantor, in accordance with the law for waiving the defence of failure to
pursue remedies, especially in the pleas of voidability, of being subject to
offsetting and of failure to pursue remedies ((S) (S) 768, 770,771 of the
German Civil Code) as well as the option of a deposit. The landlord is
entitled but not obliged, to satisfy his claim through the guarantee.
20
<PAGE>
2. If the guarantee is not procured within the given time limit, the rented
property cannot be occupied. The tenant will have to cover for the for the
resulting delays; he will not be absolved from his obligation to pay rent
as set out in (S) 4 Nr.1.
If the tenant delays procuring the guarantee, the landlord can require the
tenant to replace the guarantee with an interest-free cash deposit for the
same amount.
3. If the landlord should make use of the guarantee, the tenant is obliged, at
the landlord's first request, to complete the guarantee again.
4. In case there should be an alteration in the amount of the rent, or in the
advance monthly ancillary payment, or in the standard rate of VAT, the
alteration has to be securely met within one month of its coming into
force.
5. The obligatory guarantee ends with the return of the surety bond by the
landlord to the guarantor. This return will take place when, on termination
of the rental agreement, all the tenant's payment obligations, as specified
in the tenancy agreement, have been met.
6. The above surety conditions have to be correspondingly met when a cash
deposit is made ((S) 11 Nr.2 Sentence 3).
(S) 12
Sub-Letting
1. The tenant can sub-let part or whole of the rented property, provided the
landlord gives prior written consent, and the sub-tenant uses the rented
property particularly in keeping with (S) 2 Nr.1 of this tenancy agreement,
and passes on all the obligations contained in this tenancy agreement to
the sub-tenant. When sub-letting, the tenant is fully liable, including the
payment of rent.
The landlord has to point out that he will not agree to a sub-tenant, or a
third party usage, if the third party does not hold themselves
21
<PAGE>
responsible for using the rented property, subject to a rental agreement
with the tenant, solely for turnover which does not excluding input tax
deduction. The landlord will, however, only withhold his consent to sub-
letting for important considerations.
If permission has been refused, the tenant is not entitled to any right of
termination in accordance with Section 549 Paragraph 1 of the German Civil
Code.
2. The tenant herewith assigns to the landlord the right to have rental
payments made by the sub-tenant directly to the landlord.
(S) 13
Exceptional Right of Notice
The landlord can terminate the rental agreement immediately without
recourse to notice if
a. the tenant is in arrears with the rent, or a substantial part of it,
for two successive months,
or is in arrears with the rent for the amount of one sum over a period
exceeding two deadlines and amounting to two month's rent.
b. the tenant or sub-tenant, in spite of written warning, utilises the
rented property for purposes contrary to those set out in the tenancy
agreement,
or relinquishes it to unauthorised third parties;
c. if the tenant's assets have been subject to bankruptcy or composition
proceedings have been opened, or if an adjudication order has been
dismissed for lack of assets;
d. the tenant in spite of written warnings annoys other tenants
significantly;
22
<PAGE>
e. the necessary official approval for the tenant's business is not
obtained or is withdrawn. Notice can only be given if the tenant has
been warned of this in writing and yet continues to operate contrary
to the contractual agreement.
If the tenant is responsible for the termination of the agreement he is
liable to the landlord for all losses caused by the termination, especially
those of rent, ancillary costs and VAT.
(S) 19 Sentence 3 KO remains unaffected. For the duration of this liability
the tenant absolves the landlord from all third party claims arising from
the notice of termination according to (S) 13. In this case the landlord is
obliged to resume his letting activities and interview suitable new
tenants.
(S) 14
Concluding Provisions
1. In the event of a sale of the rented property, the liability of the
landlord, as set out in Section 571 Paragraph 2 of the German Civil Code,
is out of the question.
2. The present contract comprises, together with the Appendices 1-6, all
agreements. Any alterations or additions to this contract have to be agreed
in writing. This also applies to the setting aside of the written form
itself. Verbal collateral agreements are not affected.
If a present or future item in this contract is, or shall prove to be,
partly or wholly unworkable, null or inoperable, the validity of the rest
of the contract is unaffected thereby. The same applies if after conclusion
of the contract a loophole in it has to be further amended.
The parties to the contract will replace the unworkable or null condition
or loophole, with a legally and commercially effective alternative
condition, which reflects the general purpose of the contract.
3. The contractual parties mutually undertake at all times to make every
endeavour and declaration necessary to satisfy the legal written
requirements, especially relating to the conclusion of supplementary
23
<PAGE>
and amended contracts, and until then not to prematurely terminate the
tenancy agreement under the pretence of invoking the non-compliance of the
legal written form. The contractual parties are agreed that any non-
compliance with the written form that deviates from Section 125 Clause 2 of
the German Civil Code does not affect the validity of the contract.
(S) 15
Jurisdiction
Jurisdiction and place of performance is Hamburg.
Hamburg............................
/s/ Alessandro Giacalone /s/ [illegible]
____________________________ _________________________
Cybernet Deutsche Immobilien Fonds
Internet-Dienstleistungen AG Aktiengesellschaft
-Tenant - - Landlord -
/s/ Christian Moosmann
____________________________
Cybernet
Internet-Dienstleistungen AG
24
<PAGE>
EXHIBIT 21 SUBSIDIARIES
<TABLE>
<CAPTION>
Direct or Indirect Percentage Owned
- - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C> <C>
Cybernet Internet
Dienstleistungen AG
Germany Direct 100%
Vianet EDV Dienstleistungs
GmbH
Austria Direct 100%
Eclipse s.p.a.
Italy Indirect 66%
Cybernet Internet
Beteiligungs GmbH
Germany Indirect 100%
Open:Net Internet Solutions
GmbH
Germany Indirect 100%
Cybernet E-Commerce GmbH
& Co. KG Limited Partnership
Germany Indirect 100%
[SunWeb Internet Services AG]
Switzerland Direct 51%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 42,875,877 2,238,909
<SECURITIES> 112,503 817,913
<RECEIVABLES> 3,610,147 1,164,398
<ALLOWANCES> (361,393) (33,417)
<INVENTORY> 0 0
<CURRENT-ASSETS> 48,453,401 4,533,141
<PP&E> 9,680,260 2,496,785
<DEPRECIATION> (1,709,960) (211,992)
<TOTAL-ASSETS> 79,444,729 12,617,057
<CURRENT-LIABILITIES> 10,702,750 3,642,114
<BONDS> 1,382,566 41,691
0 0
6,360 7,760
<COMMON> 18,762 14,682
<OTHER-SE> 67,334,291 8,885,873
<TOTAL-LIABILITY-AND-EQUITY> 79,444,729 12,617,057
<SALES> 8,633,528 2,314,021
<TOTAL-REVENUES> 8,633,528 2,314,021
<CGS> 10,440,008 2,531,787
<TOTAL-COSTS> 10,440,008 2,531,787
<OTHER-EXPENSES> 9,240,833 2,065,931
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 197,243 39,550
<INCOME-PRETAX> (11,090,260) (2,323,247)
<INCOME-TAX> 6,172,645 1,339,407
<INCOME-CONTINUING> (4,772,690) (983,840)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,772,690) (983,840)
<EPS-PRIMARY> (0.30) (0.12)
<EPS-DILUTED> (0.30) (0.12)
</TABLE>
